Posts Tagged ‘theory’


Apologists for mainstream economics (such as Noah Smith) like to claim that things are OK because good empirical research is crowding out bad theory.

I have no doubt about the fact that the theory of mainstream economics has been bad. But is the empirical research any better?

Not, as I see it, in the academy, in the departments that are dominated by mainstream economics. But there is interesting empirical work going on elsewhere, including of all places in the International Monetary Fund (as I have noted before, e.g., here and here).

The latest, from Mai Dao, Mitali Das, Zsoka Koczan, and Weicheng Lian, documents two important facts: the decline in labor’s share of income—in both developed and developing economies—and the relationship between the fall in the labor share and the rise in inequality.

I demonstrate both facts for the United States in the chart above: the labor share (the red line, measured on the left) has been falling since 1970, while the share of income captured by those in the top 1 percent (the blue line, measured on the right) has been rising.

labor shares

Dao et al. make the same argument, both across countries and within countries over time: declining labor shares are associated with rising inequality.

And they’re clearly concerned about these facts, because inequality can fuel social tension and harm economic growth. It can also lead to a backlash against economic integration and outward-looking policies, which the IMF has a clear stake in defending:

the benefits of trade and financial integration to emerging market and developing economies—where they have fostered convergence, raised incomes, expanded access to goods and services, and lifted millions from poverty—are well documented.

But, of course, there are no facts without theories. What is missing from the IMF facts is a theory of how a falling labor share fuels inequality—and, in turn, has created such a reaction against capitalist globalization.

Let me see if I can help them. When the labor share of national income falls—the result of the forces Dao et al. document, such as outsourcing and new labor-saving technologies—the surplus appropriated from those workers rises. Then, when a share of that growing surplus is distributed to those at the top—for example, to those in the top 1 percent, via high salaries and returns on capital ownership—income inequality rises. Moreover, the ability of those at the top to capture the surplus means they are able to shape economic and political decisions that serve to keep workers’ share of national income on its downward slide.

The problem is mainstream economists are not particularly interested in those facts. Or, for that matter, the theory that can make sense of those facts.


Clearly, mainstream economists don’t like it when their advice is ignored. But that’s what seems to have happened with Brexit, Britain’s decision to exit the European Union.

In the lead up to the 23 June referendum, 12 Nobel Laureates and 175 U.K.-based mainstream economists launched their version of Project Fear to warn voters about the economic dangers—recession, inflation, falling investment, lower growth, and higher taxes—from deciding against Remain. But the people ignored the dramatic pleas for economic stability on the part of the “high priests of capitalism” and voted instead to Leave.*

Jean Pisani-Ferry sees the result as one example of a much broader “angry attitude toward the bearers of knowledge and expertise”—but one that is specifically aimed at mainstream economists. Why? The presumed expertise of mainstream economists was compromised because they “failed to warn them about the risk of a financial crisis in 2008,” they’re biased toward “mobility of labor across borders, trade openness, and globalization more generally,” and because they “tend to disregard or minimize” the effects of openness on particular classes or communities.

While Pisani-Ferry gives greater weight to the third explanation, the fact is they’re related. The thread running through all three factors is the issue of distribution. Mainstream economists tend to treat the inequalities that are both the cause and consequence of capitalism as either irrelevant (because everyone gets what they deserve) or as exogenous (created outside and independent of the economy itself). Thus, they ignored the role of inequality both in creating the conditions leading up to the crash of 2007-08 and as a consequence of the way the recovery was crafted and took place; and they tend to model and support economic globalization—in people, trade, finances, and much else—as if everyone benefits, rather than seeing winners and losers. Because mainstream economists relegate issues like power and class to (and, in many cases, beyond) the margins, they literally don’t see for themselves or show to others the unequal distributions that are either presumed by capitalism or that follow from capitalist ways of organizing economic and social life.

Neil Irwin, too, has expressed his concern about the rejection of expert opinion with respect to Brexit (and, he adds, the success of Donald Trump’s campaign). And draws much the same lesson: mainstream economists (and, more generally, the members of the economic elite whose views they tend to celebrate) focus their attention on efficiency and economic growth—with respect to issues ranging from rent control to international trade—and not on the unequal outcomes of those policies. Thus, he asks, “what if those gaps between the economic elite and the general public are created not by differences in expertise but in priorities?”

In the end, the problem identified by Pisani-Ferry and Irwin is not really one of economic expertise. It is, rather, a question of priorities and perspectives. Mainstream economists hold one set of theories, according to which capitalist markets lead to (or, at least can, with the appropriate policies, end up with) efficient, dynamic outcomes from which everyone benefits. But other economists—both other academic economists and everyday economists—use different economic theories, many of which highlight the unequal conditions and consequences of capitalist activities and institutions. In other words, each of these groups has a different expertise, informed by a different way of organizing their knowledge about the economy, including the effects of economic practices and policies.

What we’re seeing, then—with Brexit, but also after the most recent financial crash and the uneven recovery, the success of the campaigns of both Trump and Bernie Sanders, not to mention the battles over austerity and much else across Europe and the rest of the world right now—is a widespread challenge to the self-professed expertise of mainstream economists. It’s also a challenge to the economic and social system glorified by mainstream economists and by the elites that both govern and gain from that system.

Those academic and economic elites are clearly worried their opinions, backed up by their presumed expertise, no longer hold sway in the way they once did. And for good reason.

All they have to do is remember the fate of their predecessors who suggested the downtrodden and everyone else who had been marginalized or otherwise beaten down by the system just eat cake.


*As Rafael Behr explains, “People had many motives to vote leave, but the most potent elements were resentment of an elite political class, rage at decades of social alienation in large swaths of the country, and a determination to reverse a tide of mass migration. Those forces overwhelmed expert pleas for economic stability.”


The problems surrounding the central institution of capitalism—the corporation—are so widespread and enormous they’ve even provoked concern in sympathetic quarters, such as the Harvard Business School.

This past November, Harvard hosted a conference during which participants attempted to grapple with the tensions between Milton Friedman’s theory of the firm—according to which firms can and should only benefit society by focusing on maximizing shareholder value—and the growing political influence of corporations after Citizens United—when it has become increasingly easy for firms to tweak the rules of the game in their favor.

Now, for the rest of us—citizens, nonmainstream economists, and academics in disciplines outside of business and economics—both the history of corporations and the prevailing neoclassical theory of the firm present so many problems it’s hard to believe Friedman’s ideas are still taken seriously. Long before Citizens United, corporations have exercised a great deal of influence both inside (over their workers) and outside (in politics and in the wider society). That’s why the corporation has been a contested institution—legally, economically, politically—since its inception. Similarly, the neoclassical theory of the firm (initially in its “black box” form, then when the owner-manager agency problem was raised) has swept most of the serious problems under the theoretical rug.*

But for the scholars gathered at Harvard, the key issue (as presented in the brief paper coauthored by Harvard Business School faculty members Paul Healy, Rebecca Henderson, David Moss, and Karthik Ramanna [pdf]) was a relatively narrow one:

if firms have the power to generate profits not only by producing socially beneficial goods and services, but also by tilting public policy and the “rules of the game” to their advantage (whether through aggressive lobbying, effective use of the revolving door between political and corporate appointments, or campaign contributions), then the core assumption that firms can maximize social value by maximizing shareholder value may not hold, and framing managerial responsibility as simply a matter of maximizing shareholder value may well be inappropriate.

Having read the paper, it is extraordinary that there’s no real history—no story about the invention of the corporation as a legal “person,” no Louis Brandeis or the Progressive movement, no Knights of Labor or United Mineworkers, no mention of the role of International Telephone & Telegraph in overthrowing Salvador Allende in Chile, no Massey Energy killing 29 miners in the Upper Big Branch mine. It’s as if the problem of corporate power only emerged after the 2010 Citizens United decision.

Still, from the perspective of neoclassical economics, even that problem looms large. According to the reigning paradigm (which guides much policy and is taught to hundreds of thousands of students every year), under conditions of perfect competition, free markets (including firms that maximize shareholder value) lead to Pareto-efficient outcomes. But if corporations (whether single firms or industries) can shape the institutions of the market (or the rules and ethical customs that help to maintain them), then all bets are off: “Maximizing shareholder value by deliberately distorting critical market institutions or regulations for private advantage seems unlikely to lead to the maximization of social value.”

That’s why the participants in the Harvard conference were caught between the real implications of Citizens United (that corporations can increasingly bend the social rules to their private advantage) and their continued adherence to the neoclassical theory of the firm (according to which maximizing shareholder value also maximizes social value).

I suppose it’s no surprise, then, which won out at the Harvard conference:

“I went into the conference with the understanding that one could question the premise of the Neoclassical paradigm in economics through logical arguments—e.g., the inconsistencies between Friedman’s assumptions and Stigler’s theory. I left with a sense that logical arguments on their own are unlikely to carry the day, because the Neoclassical paradigm is so powerfully ingrained into the discipline, into the fabric of modern economics,” says Ramanna.


*Including the problem neoclassical economists share with many of their heterodox counterparts, namely, what exactly does it mean that corporations maximize profits or shareholder value? First, how do we define profits or shareholder value, i.e., what is the appropriate metric, over what time horizon should it be defined, and how should it be measured? Second, corporations do many different things, such as exploit workers, give lavish pay to top managers, attempt to eliminate rivals, chart particular short-run and long-term growth path, buy favors and influence legislation, hoard cash, accumulate capital, and so on—why reduce all of what they do to a single dimension?


My article, “Contending Economic Theories: Which Side Are You On?” has just been published on Taylor & Francis Online for the journal Rethinking Marxism.

The first 50 interested readers (actually 49, since I downloaded a copy for myself) can download the text of the article here.



These charts illustrate both the good and the bad of Nate Silver’s new version of the FiveThirtyEight journalism project.

On one hand, they offer us important information about the growing portion of American workers who are attempting to support themselves on $10.10-an-hour jobs (more than half today compared to 39 percent in 1990) and the incomes of the families that have minimum-wage workers (a large majority of minimum-wage workers are in low- to moderate-income families, and a significant minority are just plain poor).

On the other hand, Ben Casselman’s analysis presumes that who is working at the current or higher proposed minimum wage is the only relevant information. In other words, he accepts the idea that the minimum wage is merely one among other anti-poverty tools (which include the oft-cited Earned Income Tax Credit) .

What Casselman seems not to consider or understand is that all workers benefit from a higher minimum wage, because it establishes a higher floor for all wages. That makes it more difficult for employers to follow a low-road strategy of extracting profits from poorly paid workers and of replacing—or threatening to replace—workers who currently earn a wage above the minimum wage with lower-wage workers.

That’s where theory and politics come in. You need a theory of the labor market and the role minimum wages play. And you need an analysis of the politics of the minimum-wage debate, including the attempt to reduce the debate to finding the best anti-poverty tool while making sure those at the bottom continue to be forced to have the freedom to sell their ability to work in order to eek out a living.


The last time, I wrote about Stephen Resnick’s approach to teaching. Here, I want to consider his written work.

I’m not going to attempt to cover everything listed on his long curriculum vitae.  What I want to do is pick out and comment on a few pieces that, to my mind, are emblematic of his pioneering contributions to extending and reconceptualizing the Marxian critique of political economy.

Let me start with two quick observations. First, much of what Resnick wrote and published over the years, he did so with his long-time friend and comrade Richard Wolff. What I write then about Resnick’s work, especially from 1979 onward, should be understood as an appreciation of the writings of both Resnick and Wolff.

Second, there is a gap of about four years in his curriculum vitae, from 1975 to 1979, which is absolutely crucial—and admirable. That’s the period during which Resnick stopped publishing, in order to focus on two other projects: the building of the new Department of Economics at the University of Massachusetts in Amherst, and a rethinking of Marxian theory. The first project took up a great deal of time and energy, and Resnick dedicated himself to working with others (not only Wolff but also Sam Bowles, Herb Gintis, Jim Crotty, and Donald Katzner, among others) to create a department where Marxian economics would, after a long hiatus, have a home in the United States.* The second project was born out of a frustration with the received tradition of Marxian economics, and the only way to move beyond it was to sit down with the texts of that tradition, both classic and new, and to initiate a project of rethinking Marxian theory. That involved identifying the distinguishing characteristics of Marxism (what made it different not only from mainstream economics but also from other radical traditions) and then pushing it in new directions (of which more below).

But before I get to that work, I want to go back in time a bit and focus on two articles that, in my view, represent the most interesting dimensions of Resnick’s work before UMass. They are:

“A Model of an Agrarian Economy with Non-Agricultural Activities” (with Stephen Hymer), American Economic Review (September 1969): 493-506

“The State of Development Economics,” American Economic Review, Proceedings (May 1975): 317-22

In the first, Resnick and Stephen Hymer went beyond the usual neoclassical labor-leisure tradeoff model by incorporating, for an agrarian economy, a third possibility: “Z activities.” These were meant to represent a wide variety of nonagricultural nonleisure activities such as processing, manufacturing, construction, transportation, and service activities to satisfy the needs for food, clothing, shelter, entertainment, and ceremony. This allowed them to argue against the neoclassical proposition that the course of capitalist development could simply be reduced to the replacing of leisure by work. Instead, by paying attention to the “complex mosaic of agrarian life,” they could emphasize the effects of the growth of markets and increased exchange between town and country—not only with increased specialization and production (of both food and manufactured goods, at the expense of Z goods) but also the economic and social costs of the disruption of the economic and social structure of rural areas, including the immiseration of important parts of the population. My sense is, even though a certain language is largely absent, and the analytical tools they use are pretty standard neoclassical ones, Resnick and Hymer are drawing on many of the themes of a Marxian analysis of the transition from feudalism to capitalism.

Resnick put those issues up front in his 1975 critique of bourgeois development economics. He notes, at the start, the differences between the “underlying theories of value” informing neoclassical and Marxian approaches to development and identifies, in language that would be familiar to mainstream economists, the problems inherent in their method:

Simply put, the neoclassical approach is misspecified because of the omission of production relations and thus yields biased policy conclusions and unreliable predictions. Further, although this approach has recently appended to its analysis the more obvious social and political issues, they are added as unexamined external givens never seen as the direct outgrowth of the underlying structure of production, i.e., the value relation between labor and labor power. Neoclassical development cannot analyze anything outside of a framework of market or exchange relationships because that is the theory upon which it is based; it is trapped not by inadequate data or lack of “better” models, but rather by its narrow focus on supply and demand and its total neglect of those historic forces that have produced international relations of production and technology based upon an exploitive system of one class over another.

Resnick then proceeds to tell a radically different story, albeit a pretty traditional Marxian story (replete with a falling rate of profit and the exploitation of some countries by others), of the history of capitalism and imperialism in the Third World.

And that was the last time Resnick would be permitted to publish his research in a mainstream economics journal. After that—after his publicly becoming identified as a Marxist—the doors of the mainstream wing of the profession were closed to him.

Once the new department was up and running, and considerable progress had been made in the project of rethinking Marxism (with Wolff and in discussion with some of the doctoral students at UMass), Resnick published the results in three key articles:

“The Theory of Transitional Conjunctures and the Transition From Feudalism to Capitalism in Western Europe” (with Richard Wolff), Review of Radical Political Economics (Fall 1979): 3-22

“Marxist Epistemology” (with Richard Wolff), Social Text (November) 1982: 31-72**

“Classes in Marxian Theory” (with Richard Wolff), Review of Radical Political Economics (Winter 1982), 1-18**

In the theory of “Theory of Transitional Conjunctures,” Resnick and Wolff announced their new understanding of “Marxist social science” and then illustrated their approach with an intervention into the discussion of the transition from feudalism to capitalism in Western Europe. They rely heavily on the work of Louis Althusser to argue that Marx inaugurated a radical break from other social sciences—based on a different epistemology (an alternative to both rationalism and empiricism), a different methodology (based on overdetermination, and thus a rejection of all forms of essentialism, including theoretical humanism and economic determinism), and a specific definition of class (focused on the production, appropriation, and distribution of surplus labor). They then use their rethinking of Marxian theory to identify various ways Marx’s “simple sketch” of the transition from feudalism to capitalism had been interpreted by other Marxists—from Paul Sweezy-Maurice Dobb through Immanuel Wallerstein—and to produce their own interpretation of that transition. Their view is that it is necessary to focus on the contradictions between the feudal class relation (specified in terms of what they refer to as fundamental and subsumed classes) and its social conditions of existence, out of which the conditions of existence of a different class relation—that of capitalism—were produced, which in turn undermined what remained of the feudal class process.

In the Social Text article, Resnick and Wolff explain in more detail what they mean by a specifically Marxist epistemology. They explain how rethinking dialectical materialism in terms of overdetermination rules out the various essentialisms that have characterized the pendulum swings within debates in the Marxist tradition (back and forth between various forms of empiricism and rationalism, and between economic and  humanist determinisms). They then trace the effects of those debates through various key theoreticians, including Marx and Engels, Lenin, Lukács, and Althusser. Their conclusion is that Marxian theory comprises a particular way of “thinking about society, history, and the process of thinking itself: dialectically materialist, anti-essentialist, and with class as its conceptual entry and goal point.”

Then, in “Classes in Marxian Theory,” Resnick and Wolff present the concepts of class they think are central to Marxian theory—concepts that are different both from the traditional Marxist “two-class model” and from more recent efforts to update that model by considering various other classes and class fractions (e.g., peasants, the petty bourgeoisie, and the so-called professional-managerial class). Their solution takes the form of fundamental and subsumed classes, which is their way of bringing together the class analyses Marx carries out in volume 1 of Capital with those elaborated in volumes 2 and 3. In their view, Marxian class analysis is based on a double complexity: first, a difference between the production of surplus labor and its distribution; and second, the idea that individuals often occupy multiple, different class positions, both fundamental and subsumed. One of the results is that the “working class” is reconceptualized as a variable alliance of distinct classes, including both laborers who occupy both fundamental and subsumed class positions. Class struggles are similarly rethought: Resnick and Wolff shift the focus from the subject to the object of such conflicts. Thus, class struggles are redefined as collective efforts to change, either quantitatively or qualitatively, the extraction or distribution of surplus labor.

Five years later, Resnick and Wolff published two extraordinary books:

 Economics: Marxism vs. Neoclassical (Baltimore: The Johns Hopkins University Press, 1987)

 Knowledge and Class: A Marxian Critique of Political Economy (Chicago: University of Chicago Press, 1987)

The first was a product of and a testament to their commitment and skill as teachers. In it, Resnick and Wolff not only compared neoclassical and Marxian economic theories; they set forth a nondeterministic way of comparing the two theories, based on their entry points and logics, and their different consequences for analyzing economic events and institutions.***

The second has to be counted among the most significant books of twentieth-century Marxian theory. Resnick and Wolff accomplish nothing less than a wholesale rethinking of the basic concepts of the Marxian tradition, from the theory of knowledge through its methodological orientation to class analysis. They start with the basic proposition that “Marxian theory has a distinctive concept of what theory is” and then proceed to elaborate that distinctiveness in terms of both contemporary philosophy (through the work of such figures as Thomas Kuhn and Richard Rorty) and the Marxian tradition itself (from Marx and Engels through Althusser to Barry Hindess and Paul Hirst). Next, they discuss how Marxists can “construct a knowledge of an ever-changing overdetermined social totality.” During the remainder of the book, they present their rethinking of the concepts of Marxian class analysis, apply those concepts to some of the major arguments in Marx’s Capital, and produce specifically Marxian theories of capitalist enterprises and the state.

It is impossible to exaggerate the importance for contemporary Marxism of Knowledge and Class. There is simply no major topic in our understanding and use of Marxian theory today that is not affected by the theoretical self-consciousness and thorough-going antiessentialism demonstrated in Resnick and Wolff’s reinterpretation of Marxian theory.

The tremendous impact of Resnick’s written work can be seen in his own later work as well as in the articles and books published by his former students and colleagues and in the pages of the journal Rethinking Marxism. I know that I could not have made my own modest contributions to the rethinking of Marxian theory without the theoretical inspiration and comradely encouragement provided by Resnick over the years.


*The story of those early years at UMass has been told by Donald W. Katzner in At the Edge of Camelot: Debating Economics in Turbulent Times (New York: Oxford University Press, 2011). My review of Katzner’s book can be found here.

**These articles were reprinted in New Departures in Marxian Theory, ed. S. A. Resnick and R. D. Wolff (New York: Routledge, 2008).

***A new edition of that book, Contending Economic Theories: Neoclassical, Keynesian, and Marxian, with additional chapters on Keynesian theory and recent developments in neoclassical theory (coauthored with Yahya Madra), has been published by MIT Press.


Back in January, I noted that I expected to be writing more about Stephen Resnick’s gifts and his great legacy to the world. Well, it’s taken me a while to begin to confront the loss and to finally return to that task.

Here, I want to focus on two things: his teaching (in this post) and his writing (in another post).

Resnick was, by all accounts, a great teacher. And I was fortunate to witness that first hand: as one of his teaching assistants (for Introduction to Microeconomics) and as a graduate student (in his course on European Economic History)—not to mention many conversations, seminars, and conferences over the years. (For readers who did not have the opportunity to sit in one of Resnick’s courses or to hear him present at conferences, you can get a sense of his commitment to teaching in his on-line Marx course).

The first thing that struck me was that, at least on certain levels, Resnick didn’t distinguish between undergraduate and graduate students. He treated them equally. I remember as if it were yesterday that, in both undergraduate Microeconomics and graduate European Economic History (and I was in both during my first semester at UMass), he started in the same way: with history and epistemology. He taught both groups of students (1) that capitalism had a history (and therefore a beginning and an end) and (2) that different economic theories produced different conceptions of capitalism (and, of course, had different consequences for that system). So, I literally went from his undergraduate lectures to 250 students to his graduate course with 25 students and heard the same thing. Yes, the language was somewhat different but the lesson was the same: history and theories mattered.

And that’s one of the reasons Resnick took teaching so seriously. History and theories matter. And if undergraduate students were only going to take one course in economics, and if they took it from Resnick, they learned that capitalism had a history (and thus was not the only way of organizing economic and social life) and that economic theories were important (since they affected everything, from individual decisions about whether or not to go to college to economic policies enacted in national and international institutions). Graduate students learned the same lessons, which meant that we were taught from the very beginning that history was important (studying the transition to capitalism implied the possibility of a transition beyond capitalism) and so were different theories (which gave us a reason to study both neoclassical economics and the Marxian critique of political economy).

The other major reason Resnick was so successful as a teacher was because he took the students seriously—again, both undergraduate and graduate. He treated them/us as subjects, capable of both thinking and acting. And therefore of changing the world. In other words, he didn’t teach economics as a dismal science, and therefore as a set of laws that needed to be mastered and obeyed. Instead, economics was alive, both useful and problematic, and therefore important for students to know well and critically. He taught the students to understand how and why different groups of economists told the stories they did and arrived at particular conclusions, because that was the only way they were going to be able to understand the role that economics plays in the world—and then to do something about it.

Back in 1998, I was asked to provide a letter of reference when Resnick was nominated for a Distinguished Teaching Award (which he then won). Here’s what I wrote:

Steve is fond of saying that the only thing he has learned during thirty-five years of teaching is that he hasn’t learned anything. Such statements are, I think, a testament to his humility: he neither accepts all the credit for the many successes he has achieved as a teacher nor is he willing to assume the position of the many merchants of educational “snake oil” who are quick to sell to frustrated teachers the elixir for solving any and all problems they encounter in the classroom.

That was a position that Resnick maintained right to the end. He was proud to be a teacher, and humble about how and why he was so successful. “Sometimes it works, and sometimes it doesn’t,” he often said. “And I have no idea why.” But that never stopped him from walking into the classroom, each and every time, with the idea that history and theories matter and with a fundamental respect for the students sitting before him.