nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2023‒04‒17
eleven papers chosen by
Karl Petrick
Western New England University

  1. The paradox of debt and Minsky cycle: Nonlinear effects of debt and capital, and variety of capitalism By Yuki Tada
  2. The Industrial Degradation of Workers That Thorstein Veblen Overlooked By Jon D. Wisman
  3. Alexandre Lamfalussy and the origins of instability in capitalist economies By Ivo Maes
  4. Bifurcation analysis of the Keynesian cross model By Xinyu Li
  5. The Dynamics of International Exploitation By Jonathan F. Cogliano; Roberto Veneziani; Naoki Yoshihara
  6. Left-behind vs. unequal places: interpersonal inequality, economic decline, and the rise of populism in the US and Europe By Andres Rodriguez-Pose; Javier Terrero-Davila; Neil Lee
  7. Ladislaus von Bortkiewicz’s Errors and a Reliable Solution to the Marxian Problem of Transformation in Direct and Inverse Formulation By Kalyuzhnyi, Valeriy
  8. Main Concepts and Principles of Political Economy -- Production and Values, Distribution and Prices, Reproduction and Profits By Christian Flamant
  9. Both invariant principles implied by Marx’s law of value are necessary and sufficient to solve the transformation problem through Morishima's formalism By Norbert Ankri; Païkan Marcaggi
  10. Bridging the short-term and long-term dynamics of economic structural change By James McNerney; Yang Li; Andres Gomez-Lievano; Frank Neffke
  11. Physics Breakthrough Disproves Fundamental Assumptions of the Chicago School By Cortelyou C. Kenney

  1. By: Yuki Tada (Department of Economics, New School for Social Research, USA)
    Abstract: The main aim of this paper is to study the variety of financialized capitalism which are contingent on the institution, policy, and path dependency. Using the neo-Kaleckian model we study to model the US and UK shareholder-oriented financialized capitalism using our own version of the Miskyan cycle. Meanwhile, Japanese partially fledged financialized capitalism with high retention rates of firms is analyzed by using the paradox of the debt (Steindl) cycle. The analysis shows (1) instability arises when firms have a high retention rate of profit to deleverage; (2) debt-led Minsky regime and the debt-burdened paradox of debt regime can be distinguished by setting sufficiently low retention rates for the former and sufficiently high retention rate for the latter; (3) both in the Minskyan and Steindl regime we observe fixed capital investment is sluggish and observe secular stagnation in accumulation rate; (4) in the Steindl paradox of debt model, the debt-burdened economic stagnation transforms into a long wave cyclical growth with sufficiently high firms animal spirits, which exhibits the possibility of the investment-led cyclical growth after the secular stagnation from the paradox of debt.
    Keywords: Minsky, paradox of debt, capitalism, growth, financial instability, supercycle
    JEL: B52 D21 E12 E32
    Date: 2023–04
  2. By: Jon D. Wisman
    Abstract: Thorstein Veblen gave special importance to work in human society. He claimed that once humans became tool users, their work activity was driven by an instinct of workmanship. This instinct is "an object of attention and sentiment in its own right" beyond providing provisioning and serving another instinct, that of parental bent, or society's wellbeing. Given appropriate social institutions, workmanship enriches personal and social lives. Yet, during his lifetime between 1857 and 1929, the rapid industrialization of the American economy massively proletarianized workers and degraded not only their work experience, but also their lives. In Europe, this proletarianization and degradation of workers had begun centuries earlier with the rise of capitalism, and greatly accelerated with more rapid industrialization during Veblen's lifetime. Yet, paradoxically, Veblen ignored this degradation of work and presented industrialization as positive for workers. This article surveys the process of proletarianization, focusing especially on the American experience. It then explores Veblen's understanding of the impact of industrialization on workers and probes for an understanding of how he could have missed a far-reaching labor-degrading process that provoked massive and violent insurrection, and which had much earlier been recognized and addressed by political economists as diverse as Adam Smith and Karl Marx. Because he failed to recognize the proletarianization of workers, he failed to see its role in generating the explosion of conspicuous consumption by Americans of all classes, the subject of his most renowned work, The Theory of the Leisure Class.
    Keywords: Industrialization; Proletarianization; Instinct of Workmanship; Worker alientation
    JEL: A13 B15 Z10
    Date: 2023
  3. By: Ivo Maes (Chaire Robert Triffin, Université catholique de Louvain & ICHEC Brussels Management School)
    Abstract: In this paper the vision of the “Young” and “Elder” Lamfalussy on the origins of instability in capitalist economies will be contrasted. The young Lamfalussy found the origins of instability in medium-term cumulative processes in the real sector of the economy, very much inspired by the vicious circles in the British and Belgian economies in the postwar period, in contrast to the virtuous growth processes of the German and Italian economies. The Elder Lamfalussy focused on financial innovations and the short-term myopic behavior of financial markets, very much inspired by his experience of the Latin American debt build-up and ensuing crisis in the early 1980s. The Euro area crisis showed the importance of both processes, as it was the consequence of both short-term myopic behavior in financial markets and medium-term cumulative processes in the real sector.
    Keywords: Lamfalussy, economic instability, economic cycles, financial innovations, Latin American debt crisis, Euro area crisis.
    JEL: A11 B22 B32 E3 E F02 G10 N10
    Date: 2023–03
  4. By: Xinyu Li
    Abstract: This study rigorously investigates the Keynesian cross model of a national economy with a focus on the dynamic relationship between government spending and economic equilibrium. The model consists of two ordinary differential equations regarding the rate of change of national income and the rate of consumer spending. Three dynamic relationships between national income and government spending are studied. This study aims to classify the stabilities of equilibrium states for the economy by discussing different cases of government spending. Furthermore, the implication of government spending on the national economy is investigated based on phase portraits and bifurcation analysis of the dynamical system in each scenario.
    Date: 2023–03
  5. By: Jonathan F. Cogliano (University of Massachusetts Boston.); Roberto Veneziani (Queen Mary University of London); Naoki Yoshihara (University of Massachusetts Amherst)
    Abstract: Abstract: This paper develops a framework to analyse imperialistic international relations and the dynamics of international exploitation. A new measure of unequal exchange across borders is proposed which captures the territorial structure of imperialistic international relations: wealthy nations are net lenders and exploiters, whereas endowment-poor countries are net borrowers and exploited. Capital flows transfer surplus from countries in the periphery of the global economy to those in the core. However, while international credit markets and wealth inequalities are central in generating international exploitation, other factors, including labour-saving technical change, are shown to be essential in explaining its persistence.
    Keywords: International exploitation; Imperialism; Unequal exchange; Uneven development; Capital movements.
    JEL: F54 B51 D63
    Date: 2022–09–15
  6. By: Andres Rodriguez-Pose; Javier Terrero-Davila; Neil Lee
    Abstract: Economic change over the past twenty years has rendered many individuals and territories vulnerable, leading to greater interpersonal and interterritorial inequality. This rising inequality is seen as a root cause of populism. Yet, there is no comparative evidence as to whether this discontent is the consequence of localised interpersonal inequality or stagnant growth in ‘left-behind’ places. This paper assesses the association between levels and changes in local GDP per capita and interpersonal inequality, and the rise of far-right populism in Europe and in the US. The analysis —conducted at small region level for Europe and county level for the US— shows that there are both similarities and differences in the factors connected to populist voting on both sides of the Atlantic. In the US, neither interpersonal inequality nor economic decline can explain populist support on their own. However, these factors gain significance when considered together with the racial composition of the area. Counties with a large share of white population where economic growth has been stagnant and where inequalities have increased supported Donald Trump. Meanwhile, counties with a similar economic trajectory but with a higher share of minorities shunned populism. In Europe, the most significant factor behind the rise of far-right populism is economic decline. This effect is particularly large in areas with a high share of immigration.
    Keywords: populism, anti-system voting, interpersonal inequality, interterritorial inequality, economic growth, Europe, US.
    JEL: D31 D72 R11
    Date: 2023–03
  7. By: Kalyuzhnyi, Valeriy
    Abstract: The paper argues that economists still regard the solution to the problem of the transformation of values into prices of production, got by L. von Bortkiewicz, as belonging to Marx himself. After all, it was allegedly “correctly corrected” by the said author in 1907. Bortkiewicz based his solution on several erroneous interpretations’ theory of Marx. Because of Bortkiewicz’s errors, the representatives of the mainstream see no connection between the “value system” and the “production price system”. They claim that the transformation problem itself results from impossibility and that Marxist value theory is, at best, irrelevant and irremediably inconsistent. The paper shows that the solution to the transformation issue exists in both the direct and inverse formulation. We used for this purpose the Tugan-Baranowsky—Bortkiewicz three-sector model. These results are consistent with the concept of Marx within the dualistic approach. They coincide with the results generated by the author in his previous work (see In the present paper, we introduce methods and examples of transformation, including iterative and based on solving systems of simultaneous equations. We prove again with their help that at equilibrium prices, profit arises from surplus value, or more precisely, from the newly created value generated by workers’ labour and from no other source. We also show that a dualistic approach to transformation allows us to see the advantages of value prices, which, unlike production prices, do not limit the growth of the productive power of labour when enterprises introduce new machines. Value prices are in demand under socialism.
    Date: 2023–01–17
  8. By: Christian Flamant
    Abstract: This book starts from the basic questions that had been raised by the founders of Economic theory, Smith, Ricardo, and Marx: what makes the value of commodities, what are production, exchange, money and incomes like profits, wages and rents. The answers that these economists had provided were mostly wrong, above all by defining the equivalence of commodities at the level of exchange, but also because of a confusion made between values and prices, and wrong views of what production really is and the role of fixed capital. Using the mathematical theory of measurement and the physical theory of dimensional analysis, this book provides a coherent theory of value based on an equivalence relation not at the level of exchange, but of production. Indeed exchange is considered here as an equivalence relation between money and a monetary price, and not between commodities, modern monetary theory having demonstrated that money is not a commodity. The book rejects the conception of production as a surplus, which owes much to Sraffa's theory of production prices, and is shown to be severely flawed. It founds the equivalence of commodities at the level of a production process considered as a transformation process. It rehabilitates the labor theory of value, based on the connection between money and labor due the monetary payment of wages, which allows the homogenization of various kinds of concrete labor into abstract labor. It shows that value is then a dimension of commodities and that this dimension is time, i.e. the time of physics. On this background, the book shows that the calculation of values for all commodities is always possible, even in the case of joint production, and that there cannot be any commodity residue left by this calculation. As a further step, this book provides a coherent theory of the realization of the product, which occurs in the circulation process. Using an idea - the widow's cruse - introduced by Keynes in his Treatise on Money, it brings to light the mechanism behind the transformation of money values into money prices and of surplus-value into profits and other transfer incomes, ensuring the formation of monetary profits. The book sheds some light on the rate of profit, its determinants and its evolution, showing in particular the paramount importance of capitalist consumption as one of its main determinants. In passing it explains the reasons why in the real world there is a multiplicity of profit rates. Finally, it allows to solve in a precise and illustrated way the problems raised by the Marxist law of the tendency of the rate of profit to fall. Most of the results obtained translate into principles, the first ones being truly basic, the following ones less basic, but all of them being fundamental. All in all, this book might provide the first building blocks to develop a full-fledged and scientific economic theory to many fellow economists, critical of neo-classical theory, but who have not yet dicovered the bases of a complete and coherent alternative.
    Date: 2023–03
  9. By: Norbert Ankri (AMU - Aix Marseille Université); Païkan Marcaggi (AMU - Aix Marseille Université, CNRS - Centre National de la Recherche Scientifique)
    Abstract: The unit value of a commodity that Michio Morishima's method (and its variations) enables to determine correctly, is the sum of the value of the commodities it contains (inputs) and the quantity of labor required for its production. However, goods are sold at their market production price only when they meet a solvent social need that involves the entire economy with its interconnections between the different industrial sectors. This condition gives full meaning to Marx's fundamental equalities, which derive from the law of value and constitute invariants that apply to the economy as a whole. These equalities are necessary to determine market production prices. We demonstrate that they also enable to solve the transformation problem for a simple reproduction system without fixed capital by starting from Morishima's formalism and returning to a formalism closer to that used by Marx.
    Abstract: La valeur unitaire d'une marchandise que la méthode de Michio Morishima (et ses variantes) permet de déterminer correctement, est la somme de la valeur des marchandises qu'elle contient (intrants) et de la quantité de travail nécessaire pour sa fabrication. Cependant les marchandises ne sont vendues à leur prix de production de marché que si elles répondent à un besoin social solvable qui fait intervenir la totalité de l'économie avec ses interconnections entre les différents secteurs industriels. Cette condition donne tout son sens aux égalités fondamentales de Marx qui découlent de la loi de la valeur et constituent des invariants s'appliquant à l'économie dans sa totalité. Ces égalités sont nécessaires pour déterminer les prix de production de marché. Nous démontrons qu'elles permettent également de résoudre le problème de la transformation pour un système de reproduction simple sans capital fixe en partant du formalisme de Morishima et en revenant à un formalisme plus proche de celui utilisé par Marx.
    Keywords: Labor theory of value, Karl Marx, capitalism, profit, surplus value, Théorie de la valeur-travail, Capitalisme, plus-value
    Date: 2023–02–17
  10. By: James McNerney; Yang Li; Andres Gomez-Lievano; Frank Neffke
    Abstract: Economic transformation – change in what an economy produces – is foundational to development and rising standards of living. Our understanding of this process has been propelled recently by two branches of work in the field of economic complexity, one studying how economies diversify, the other how the complexity of an economy is expressed in the makeup of its output. However, the connection between these branches is not well understood, nor how they relate to a classic understanding of structural transformation. Here, we present a simple dynamical modeling framework that unifies these areas of work, based on the widespread observation that economies diversify preferentially into activities that are related to ones they do already. We show how stylized facts of long-run structural change, as well as complexity metrics, can both emerge naturally from this one observation. However, complexity metrics take on new meanings, as descriptions of the long-term changes an economy experiences rather than measures of complexity per se. This suggests relatedness and complexity metrics are connected, in a hitherto overlooked way: Both describe structural change, on different time scales. Whereas relatedness probes transformation on short time scales, complexity metrics capture long-term change.
    Date: 2023–03
  11. By: Cortelyou C. Kenney
    Abstract: Classical law and economics is foundational to the American legal system. Centered at the University of Chicago, its assumptions, most especially that humans act both rationally and selfishly, informs the thinking of legislatures, judges, and government lawyers, and has shaped nearly every aspect of the way commercial transactions are conducted. But what if the Chicago School, as I refer to this line of thinking, is wrong? Alternative approaches such as behavioral law and economics or law and political economy contend that human decisionmaking is based on emotions or should not be regulated as a social geometry of bargains. This Article proposes a different and wholly novel reason that the Chicago School is wrong: a fundamental assumption central to many of its game theory models has been disproven. This Article shows that a 2012 breakthrough from world famous physicist Freeman Dyson shocked the world of game theory. This Article shows that Chicago School game theorists are wrong on their own terms because these 2 x 2 games such as the Prisoner's Dilemma, Chicken, and Snowdrift, ostensibly based on mutual defection and corrective justice, in fact yield to an insight of pure cooperation. These new game theory solutions can be scaled to design whole institutions and systems that honor the pure cooperation insight, holding out the possibility of cracking large scale social dilemmas like the tragedy of the commons. It demonstrates that, in such systems, pure cooperation is the best answer in the right environment and in the long run. It ends by calling for a new legal field to redesign the structures based on the outdated assumptions of the Chicago School game theorists.
    Date: 2023–03

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