MARX, NEOCLASSICAL ECONOMICS, AND VEBLEN

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MARX, NEO-CLASSICAL ECONOMICS, AND VEBLEN

• Sixth Lecture
• October 1, 2009
• William R. Eadington
• eadington_at_prodigy.net

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KARL MARX

• Dialectical Materialism The philosophic
  perspective
• The Evolution of Society Base v.
  Superstructure Historic application
• Feudal to Merchant to Manufacturer to Capitalist
• Stages of evolution
• Tribal to Feudal to Primitive Capitalism to
  Industrial Capitalism
• Superstructure (laws, ceremony, obligations) v.
  the Base (means of production) gt Conflict
• Labor theory of value Source of profits
• Exploitation of labor through the imbalance of
  bargaining power
• Profit is a form of theft Wealth must be matched
  by immiseration and poverty
• Consistent with the classical economists

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KARL MARX

• 1848 The Communist Manifesto
• Labor theory of value Source of profits
• The Laws of Motion
• Assume competitive markets prevail
• Monopolization of the means of production
  Capitalists and Laborers
• The cycle profits gt accumulation gt increased
  demand for labor gt wages increase, profits fall
  gt Labor saving technology gt short run profits,
  reserve army of unemployed but inadequate demand
  gt eventual price cuts, bankruptcies gt Financial
  Panic, crash gt Repeat

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KARL MARX (continued)

• Repetition of the cycle leads to greater
  concentrations of wealth gt instability,
  ultimately collapse gt emergence of socialism
• Observations on Capitalism Amorality, profit is
  linked to poverty, alienation, directed role of
  government (to support those in power
  capitalists)
• Profit and poverty are two sides of the same
  coin
• Long term trajectory Socialization of the means
  of production gt Utopian resolution
• Principles of Socialism
• From each according to his abilities
• Superstructure consistent with the economic base
• Reality after 70 years The collapse of
  socialist block Chinese capitalism gt Only Cuba
  and N.Korea

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INTERESTING OBSERVATIONS ON MARX (21st Century
implications)

• Role of government is to support those presently
  in power gt Lackeys of the capitalists
• Business cycles are a natural outcome of the
  laws of motion, the internal contradictions of
  capitalism
• Over time, business organizations and capital
  itself will become increasingly concentrated
  among a smaller group of individuals
• An organized proletariat will provide the
  alternative to private ownership of the means of
  production
• What will trigger the revolution will be a crisis
  in legitimacy of the capitalist class and the
  entire superstructure

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IMAGES OF IDEALIZED MARXISM (USSR)
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NEO-CLASSICAL ECONOMICS (1880s to 1930s)

• Shift in emphasis away from class, to the
  individual
• Economics as a positive, rather than normative,
  science
• Efficiency as a primary criterion
• Optimization, quantification U, p, C, GDP
• Mathematizing of economics
• Marshall The relative role of supply and demand
  (two blades of the scissors)
• Anti-trust, property rights, monetary policy,
  Natural monopoly, Says Law
• Full Employment equilibrium is a natural state of
  a capitalist economy
• Like the tides of the sea
• Interest rates held artificially high could
  create problems

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THE OVER-ALL LOGICAL STRUCTURE OF NEO-CLASSICAL
ECONOMICS

• Economics is a science Positive v. Normative
  analysis
• Primacy of the individual and of demand as the
  driving forces gt Consumer sovereignty
• Givens Tastes and preferences (utility) goal
  oriented (optimizers) laws and regulation to
  govern trade and business behaviors well-defined
  property rights along with an initial allocation
  of resources
• Comparative static analysis Game Theoretic
  analysis General equilibrium analysis
• Importance of competition primacy of efficiency
• Externalities call for action, but the Coase
  Theorem
• Role of Market Structure Branding Product
  differentiation
• Economic Rent-Seeking behavior
• Attempt to change laws or influence them to
  increase income Non-Productive Profit Seeking
  Behavior

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NEOCLASSICAL BELIEFS AND POLICIES

• Pareto Optimality
• Pareto improvements and potential Pareto
  improvements
• Belief in Free Trade
• Measuring the welfare loss from quotas on sugar
• Externalities can be addressed via taxes or
  subsidies
• Anti-trust, property rights, monetary policy,
  Natural monopolies, Says Law

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Modern Variations of Neo-Classical Economics

• Competition vs. monopoly
• Challenge of profitability gt Driving a wedge
  between price and cost (Michael Porter)
• Price discrimination
• Branding and the economics of information
• The market for lemons Asymmetric Information
• Insurance and the spreading of risks gt
  threatened by better information, i.e. genetic
  testing for propensity of disease gt Exclusion
  for pre-existing conditions
• Adverse selection Health insurance policies
  rental cars with daily insurance gt more abused
  than those without
• Moral hazard Having insurance might encourage
  one to take on greater risks big cars and
  defensive driving
• Emergence of behavioral economics
• Hyperbolic discounting
• Neuro-economics gt explanations for addictions,
  poor life style and health choices

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Modern Variations of Neo-Classical Economics

• Competition vs. monopoly
• Challenge of profitability gt Driving a wedge
  between price and cost (Michael Porter)
• Price discrimination
• Branding and the economics of information
• The market for lemons
• Insurance and the spreading of risks gt genetic
  testing for propensity of disease
• Adverse selection
• Emergence of behavioral economics
• Hyperbolic discounting
• Neuro-economics gt explanations for addictions,
  poor life style and health choices

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THORSTEIN VEBLEN AND THE THEORY OF THE LEISURE
CLASS

• Start with the givens of utility theory
  Tastes and Preferences are given
• Attacks the primacy of consumer sovereignty by
  demonstrating the process by which tastes and
  preferences are established
• Anthropological basis Subsistence gt Surplus gt
  emergence of a leisure class
• Honorable professions based on taking, not
  making gt Predatory
• Honorable Hunters, Military, Clerics,
  Politicians
• Dishonorable farming, gathering, servants,
  factory work redundant, womens work
• Use value vs. Demonstration value
• Admiration of the Rich and Famous gt Keeping up
  with the Joness

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Veblen and the Determinants of Demand

• Conspicuous Consumption
• Conspicuous Waste, Leisure
• Pecuniary Emulation
• Beauty Waste
• Reinterpretation of Marx

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MODERN VARIANTS OF VEBLEN CONSUMPTION

• Hunting as sport, Manicured lawns
• Ritualistic, symbolic
• Fine art, collectibles, expensive wines
• Control over talented resources ability to
  afford such wasteful luxuries
• Expensive cars
• Extensions of oneself (Marxist) You are what you
  drive
• Dogs
• Shitzu, Wolfdale, Corgi gt The less useful, the
  more valuable
• Luxury vacations or second homes
• The modern Las Vegas (until 2007)
• Aspen, the O.C., Incline, Jackson Hole, Maui, St.
  Moritz, St. Tropez gt See and be seen
• Conspicuous Leisure

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VANDERBILT MANSION IN NEWPORT, R.I.
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CHATEAU ZHANG LAFFITTE (BEIJING SUBURBS)
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THORSTEIN VEBLEN AND THE THEORY OF BUSINESS
ENTERPRISE

• Production for use vs. production for profit
• Capitalist gt the saboteur of the system
• Become a monopolist
• Hold back new technologies
• Financial manipulations
• Military expansion war through business control
  of politics and colonialism
• Battle between capitalists and technocrats
• Production base vs. financial superstructure
• Create crisis to find profit opportunities

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THE GREAT DEPRESSION HOW AND WHY?