‘Capitalism: Competition, Conflict, Crises’ reviewed by Bill Jefferies

Capitalism: Competition, Conflict, Crises

Oxford University Press, Oxford, 2016. 1019pp., £35.99 hb
ISBN 9780199390632

Reviewed by Bill Jefferies

About the reviewer

Bill Jefferies’ book Measuring National Income in the Centrally Planned Economies; Why the…


Capitalism is Anwar Shaikh’s magnus opus. It is to be compared with the very greatest works of political economy, not least Marx’s Capital, at least according to the comments on the flyleaf.

Shaikh’s argument, developed and applied as an analysis of the major advanced Western economies, is that a “classical” method of analysis can be distilled from the works of Smith, Ricardo, Marx and critically, Sraffa. This classical theory is able to better explain and interpret the world than any of the contemporary rival theories, stretching from neo-classical orthodoxy to other heterodox rivals, including radical Keynesianism. This is not, then, a work of Marxian political economy, narrowly defined. Shaikh effectively abandons the labour theory of value in favour of a slightly modified version of Sraffa’s physical price theory (22). The rationale behind this is not really explained or discussed, rather it is implied that Sraffa’s theory is not only compatible with, but best defines the “classical” tradition. This is moot, to put it mildly.

This theoretical limitation is combined with an empirical one. The transition of the centrally planned economies to the market, the defining event of globalisation, is barely referred to. China hardly features. By only examining half of world capitalism, the empirical architecture of Shaikh’s argument is compromised. His assertion that the world economy entered a phase of stagnation after 2007/8 is unproven. Moreover, some of his claims, one being, for example, that living standards have stagnated or declined in African and Asian countries, “tangled in the coils of capitalism” for “almost three centuries” (71), are plainly wrong. So in spite of the books length, there are questions about its method, range, and the accuracy of the analysis.

Shaikh’s intimate knowledge of the vagaries of virtually every economic theorist, is the defining feature of the work, most of which is taken up with explaining the ins and outs of various economists and exposing their mistakes when judged against Shaikh’s classical framework. This covers familiar ground to those who have read similar works by Steve Keen or John Weeks, but Shaikh is not limited by the desire of those authors to persuade the non-specialist public. As a result the text is laden with algebra, often to the detriment of exposition.

Shaikh posits the idea that at the level of the aggregate, different laws apply to that of the individual, as the “whole is more than the sum of its parts” (84). Laws are emergent, and when taken together they form the basis for a theory of “real competition”, which is “the theoretical foundation for the analysis in this book” (14). He explains that, “under real competition, individual firms face downward sloping demand curves, set prices, have costs that differ, [so] that the low-cost producers become the regulating capitals whose price of production becomes the industry regulating price, and that profit rates are equalised only across regulating capitals” (545).

Real competition forces everyone to compete against everyone else. Producers lower costs to cut prices. The future is “intrinsically indeterminate”, but it nevertheless creates specific patterns. Prices are equalized within industries, and so are profit rates, roughly. Normal profit is not assured, and should not be included in normal costs. A key source for Shaikh’s analysis of the firm is the Oxford Economic Research Group (OERG) which studied the behaviour of UK firms in the run up to, and in the immediate aftermath of the Second World War. Firms face downward sloping demand or marginal revenue curves. Firms are not passive receivers of prices but active participants in the market. Marginal demand and cost curves need not follow the assumptions of neo-classical economics. Shaikh applies this theory of real competition broadly; various models of production, currency, price and finance are considered in the light of it and much of the discussion is both deep and profound. Shaikh has absorbed key aspects of the classical tradition that frame a truly penetrating and very rich critique of a range of other traditions.

Except, the use of Sraffa’s physical model means that much is lost from the analysis production, trade and profit. Capital is defined as “a thing used in the process of making profit” (206). It could be a tool like a “knife” (207); depending on function (208). How is the function weighed? Although Shaikh refers to Marx’s circuit of production, his definition is not Marx’s. What is the unit of measurement of this capital? Shaikh says it can be money, but what does this money measure?

Shaikh blurs the picture further with a reinterpretation of Steuart’s discussion of positive and relative profit. Positive profit adds to the public good. Relative profit is an effect of vibration of the existing stock of wealth. Positive profit is real value added, relative profit cannot exist in aggregate, as what is a gain for one is a loss to the other, of the same amount but in the opposite direction, and yet Shaikh says it can. Shaikh uses the strange example of a burglar stealing a TV. What has this got to do with production? Presumably, if capital is no longer a social relationship, then labour need not be the source of all new value.

Shaikh compounds the confusion when he applies Sraffa’s physical model to examine prices. Shaikh sets up a two commodity economy, with labour paid in iron and corn (212-217). The workers transform 340 corn and 15 iron to 400 corn and 30 iron. How, when it is impossible to produce iron from corn or corn from iron? All production transforms useless inputs into physically different useful outputs, although Shaikh rejects this too (123). His model sacrifices the material world to maths. Other inputs are necessary for the production of iron or corn, such as iron ore, water, fertiliser, and coal etc. However, these are destroyed during the process of production. Actual production exists to change inputs, but not for Shaikh, who assumes “unchanged” inputs, in order to enable Sraffa’s physical measure, as a replacement for Marx’s value measure.

Newton (the noted alchemist) no doubt assumed it was possible to transmute base metal into gold, but he failed, in spite of a great deal of effort, to achieve his purpose in the real world. Shaikh does not face that problem, so he transmutes matter ideally, to produce something from nothing. This imaginary “surplus” – the assumed increase in output – is measured against the “unchanged” inputs, in order to produce a “rate of profit”. How is the assumption of surplus in Shaikh’s model a step forward from the assumption of surplus in a neo-classical model?

As this is a still nominally Marxist version of Sraffianism, the physical bundles of goods are attached to labour hours, and so a labour version of the physical economy is created and a translation between the physical and value based is made. In Shaikh’s model, positive profits require surplus labour, as there is an identity between the assumed physical increase in iron, coal, and labour hours. But as the physical model can be read in either direction, it could equally be said the surplus labour requires surplus coal or iron, or if labour is replaced with some other physical commodity, Sraffa used pigs at one point, then a surplus of pigs is necessary for a surplus iron and coal.

Shaikh’s application of this model also frames his treatment of trade and comparative advantage. Ricardo applied the labour theory of value to trade, using the example of cloth and wine between Portugal and Britain, to show that, as in the domestic economy, specialisation reduced costs to increase the physical quantity of output for the same quantity of labour inputs. This supposedly saves capital and increasing wealth. Shaikh translates this into a Sraffian two commodity model, in which commodity A produces commodity B and vice versa. This contrasts with Ricardo, who had an unspecified number of other physical inputs necessary to produce cloth and wine. It is therefore critical to note that Shaikh’s model is not Ricardo’s.

Shaikh claims to identify a flaw in Ricardo’s logic that “Portugal’s comparative cost advantage cannot change unless the international relative price changes, but international relative price cannot change unless Portugal loses its comparative cost advantage” (511). Shaikh’s model depends on “the real wage and relative international price” of the two commodities, but Ricardo’s model, in contrast, is also sensitive to changes in prices of every other input. As these commodities are outside of Shaikh’s two commodity model, do Shaikh’s conclusions follow?

Shaikh pays a heavy price for his abandonment of the labour theory of value; it undermines the entire logical coherence of his argument. The limitation of Shaikh’s model to the advanced Western economies and his use of out of date UK data, further means that his assertions about the equalisation of profit rates, and the factors driving cost reductions, feel out of date. Major Western corporations like Apple, Google, Microsoft, Sony etc. no longer produce significant quantities of output, but commission it from separate firms. They maintain their dominance through control of marketing, research and patent development. The resulting, commonly described, “smiling curve” of value distribution means that firms at the end of the curve, who supply the major technological components, like chip design, or sell branded goods, like iPhones, swallow the vast majority of profits. There is no tendency to equalise profit rates, and the ability of suppliers to reduce their margins does not increase their own profit, but the profit of commissioning firms at the end of the value curve. As the distribution of profits is hidden through transfer pricing, off shore accounts or other dodgy financial tricks, it is difficult to see how these trends can be established through official statistical indices. It is tempting to speculate that this, too, is a consequence of Shaikh’s latter day conversion to Sraffa. A key argument of this physical value theory is that Marx’s entire argument about the difference between values and price is redundant. Shaikh scarcely refers to his earlier proposed solutions to the transformation problem, however inadequate he may now find them.

Shaikh has a very interesting discussion about the effect of chained national income measures on the depreciation of the fixed capital stock. His relentlessly downward profit rates seem wrong. However, implying this requires further examination. Shaik’s discussion of the development of money, and his critique of the quantity theory of money, is very rich and stimulating. He carefully examines various theories of the business cycle, and many other issues of contemporary economics. Shaikh’s book is a most definitely a major work from the heterodox school of political economy. However, his abandonment of Marx’s value theory has very serious consequences for the logical thread of his argument. His limitation of the empirical work to the advanced Western economies is one sided, and occasionally mistaken. This is an interesting book then, but is it really the next Capital?

23 August 2016


  1. Hi Bill,

    Thanks for an interesting review. Your emphasis on real competition and the profit motive are central to Shaikh, at the same time my interpretation departs from yours in some important areas.

    In my estimation this is the most important book in political economy published in my lifetime. It is written for economists and will not have the wide audience success as did Piketty’s Capital.

    Shaikh’s return to Classical Political Economy is important.

    What Shaikh establishes in the first chapter is there is a cyclical pattern to the development of capitalism. Any theory that is capable of explaining capitalist tendencies and capitalist development must be able to explain these cyclical patterns.

    It is not clear to me that Shaikh has abandoned the labor theory value. Rather he has followed the Levy, Duncan, Lipietz approach, aka the New Solution, which is less a solution to the so-called transformation problem, but allows to make operational the labor theory of value in money terms (the advantage here is that we can observe money values). Thus, I completely disagree with your characterization of Shaikh as neo-Ricardian/Sraffian. (Nonetheless, anyone sympathetic to the Classical tradition will find strong affinities with Sraffa, and Marx).

    Capitalism is riddled with transformation problems, Shaikh demonstrates this throughout the book in his discussions of price movements.

    The cornerstone of the argument is real competition, he invokes the metaphor that “competition is war” and the profit motive propels the macrodynamic. His notion of real competition is subtly different from imperfect competition of Post-Keynesianism and neo-Marxism. It is my estimation that his lasting contribution will pivot on his astute insights on real competition and profits. At the same time, he underemphasizes the “coresepective” nature of big business, i.e. competition is often far less than “war.”

    The first great accomplishment of Shaikh’s theory is the macrodynamic he articulates in chapter 13. The first time I read through the book, it seemed to me this was the book’s culmination, yet the book has four additional dense chapters. In these last four chapters he demonstrates that any macroeconomic law-like tendencies are contingent on class struggle. This is crucial and should not be left out of a review. In addition, Shaikh underscores the importance of money, and impressively addresses the monetary aspects of capitalism that much of Marxian Political Economy is too weak on.

    As to Shaikh’s focus on the US or mature capitalist economies, this is advantageous. The basic regularities and patterns Shaikh identifies have enormous implications for other domestic economies.

    It seems to me that you are not entirely accurate in Shaikh’s definition of capital. Here is what Shaikh writes, all of which is in the context of Marx’s circuits of capital, i.e. M-C-M’ and C-M-C’:

    “The two circuits interact, since wages received by employees are part of the capital expenditures of firms, while the consumer goods and financial assets purchased by employees are part of the profit-motivated sales of firms.
    So it is not the qualities of the thing but rather the process within which it operates that turns it into capital. […] Capitalist relations add another dimension because within the grip of capital both the labor process and the commodity’s price become means of realizing a profit” (206 – 7).

    My reading of Marx has this statement very consistent with the notion of capital.

    The Classical/Shaikh version of surplus is radically different from neo-classical surplus (in brief social product versus willingness-to-pay). Although the word is the same, the conceptions share little else. Shaikh is correctly and explicitly critical of the neo-Ricardian notion of surplus, because it changes when the distribution between wages and profits change (this is a transformation problem).

    There plenty within Shaikh to disagree and debate. Nonetheless, in my estimate Shaikh’s book is political economy at it very best and will be _the_ reference point of Marxian political economy for the twenty-first century.

  2. Hi Hans, thanks for those interesting and thought provoking comments, you point out quite rightly that there are other possible points of emphasis for the review of this book, and there is much to respect in it and learn from it, having said that, there have been plenty of reviews celebrating the book, but I wanted a more critical aspect. In no particular order.

    On the definition of capital, Shakih elides the definition of the physical thing with the social thing, or in other words, he equates means of production, the physical things used to produce stuff, with capital. As you quote him “So it is not the qualities of the thing but rather the process within which it operates that turns it into capital.” He replaces the relationship of the producer with the thing that they use to produce, (the worker with the means of production) with the social relationship of the producer with the owner of means of production i.e. the capital relationship (the worker with the capitalist).

    This is related to his abandonment of the labour theory of value, which I think is unambiguous from the text and logically necessary from the argument. Why have the labour theory of value at all? The labour theory of value was rediscovered from Smith by Ricardo (on the prompting of Malthus) when Ricardo realised that outputs are *always* different from inputs, even in the famous corn model. As outputs are physically different from inputs so they are incommensurate with them and need to be measured by something else outputs have in common, the labour time necessary for their production. Note this is a physical argument around real production.

    Marx inherited this argument and repeats it at the beginning of Capital I. It is the essential premise for value theory and underpins the logic of the entire work. Shaikh rejects it.

    Shaikh, and in this he is sadly common to a whole generation of Marxian economists, assumes that outputs are identical with inputs, that inputs do not change in the process of production, and that the purpose of production is *not* to produce useful things. In other words he accepts and applies Sraffa’s method. This is evident as, every single example Shaikh uses, have a number of specified commodities as inputs and outputs, which do not change through the production process. This assumption is made in order that inputs are directly commensurate with outputs and so can be measured against each other. If this is true there is no need for labour time to measure value, as things are directly commensurate the one with the other. This assumption destroys the logical and practical necessity for the labour theory of value and is incompatible with it. In this sense the Sraffians – including Shaikh – are superior to the Marxians inasmuch as they recognise the inherent necessity of the abandonment of labour as a measure of value under the assumptions of Sraffa’s model.

    But this does not do away with Ricardo’s critique of physicalism. In no real production process are inputs identical with outputs, inputs are never unchanged, and the purpose of production (including capitalist production) is to produce useful things. As outputs are incommensurate with inputs so they must be measured against something else they have in common, the socially necessary labour time required for their production, however modified by price.

    I notice that while you object to my assertion that Shaikh has abandoned the labour theory of value, a definitional question in the end, you do not question the logic of my argument. I put a higher value on this, as I cannot accept that a model of economic output that conflicts with every actual system of production can be valid and therefore, useful. This of course, also modifies my attitude to the entire work.

    The transformation problem is a slightly different issue suffice it to say here, the reason that Marxists have been unable to solve it, was that they answered von Bortkiewicz’s impossible conundrum, not Marx’s.

    Finally on the question of the range of the book and the accuracy of its empirical examples, in my opinion, a central error of the contemporary stagnation/catastrophist consensus of radical political economy is that it is based on an analysis of the Western world. This might have been fine, to a degree, when the G7 dominated the world, before the transition of the centrally planned economies to capitalism. It is not fine now. The domination of value chains by Western multi-nationals means that surplus extraction via unequal exchange in trade is a key factor in the world economy today. In addition, the stagnation thesis, cannot explain the virtually total absence of traditional class struggle today, which I think is only understandable in the context of the rise of material living standards for most people over the last couple of decades (notwithstanding the rise of income inequality etc.)

  3. I thank Bill Jefferies and Hans Despains for their interesting comments on this book, which I have not yet read myself. I have learned a great deal from them both.

    I will however disagree with Bill’s statement that there is a;
    “virtually total absence of traditional class struggle today, ”

    This is factually just not true. For example, the Marikana Miners’ strike in South Africa. I would also say that class struggle has metamorphosed in form. It may be suggested that this is due to the defeat of the ‘dreaded’ Soviet Union and its associated Communist Parties!
    I am not passing judgement. I am trying to make an objective observation.

  4. Hi Bill,

    There is a plenty to unpack in your argument. I will make several broad comments.

    (1) I completely agree with Sydney, the class struggle is thick, only its form has changed. Just a little investigation into labor in China and India will establish it globally. The economic refugee problem (i.e. migrating workers) is occurring everywhere. Here in the US there is a nation wide effort for $15 minimum wage (essentially doubling the federal minimum wage). Brexit is another recent remarkable example. These are just a handful of examples, everywhere I look I see class struggle. The fact in the US that young college students take out school loans to pay for a social education, class struggle; the lack of childcare subsidies, class struggle; massive underemployment, class struggle; the proliferation of unpaid internships, class struggle; the precariousness of workers, class struggle, etc. etc. etc.

    (2) We have discussed unequal exchange in the context of Chris Smith’s book. Although I have sympathy for your strong point, I still maintain that exploitation of suppliers and superexploitation of global workers is more important. The global supply chains have allowed financial firms to usurp revenue streams from trade. So I don’t disagree that there is unequal exchange, but there is far more going on.

    (3) As to Shaikh as a Sraffaian, I wonder what Shaikh would respond? Of course he doesn’t reject Sraffa. Sraffa is important, and Sraffa is certainly a major figure in supporting Classical Political Economy. My purpose is not to critique Sraffa.

    (4) One thing that Sraffa does accomplish is to question the relevance of the LTV (which does not mean that Sraffa is inconsistent with some version of LTV). For the Classicals the LTV explained prices and profits. Marx rejects the first, and accepts the second only partially. Marx shows that LTV explains surplus value, profits are a function of class struggle and competition between firms.

    (5) The New Solution allows us to stay committed to the LTV, but to reinterpret it into monetary terms (De Brunhoff 1967 and Foley 1986 establish the consistency of this with Marx and the power it has for understanding contemporary capitalism).

    So from Sraffa we learn that we do not necessarily need the LTV to understand the production of social surplus (Baran and Sweezy make a similar move), from Marx we learn we don’t need the LTV for explaining prices and profits. So do we need the LTV? The short answer is yes.

    First, the LTV was always important for Marx’s theory of Surplus Value, so to understand Marx we need to have a conception of the LTV. However, there is a far more important reason. For the Classical economists, and especially for Marx, Value establishes a philosophical orientation and is the ontology of the relationship between individuals and social structure (Value is a type of social philosophy). In contrast to neo-classical economics notion of Rationality, which is necessarily a commitment to methodological individualism, Marx’s notion of Value explicitly rejects methodological individualism, to understand individual behavior, one must first understand the social structure they are embedded in. Marx’s “Capital” set out to do this, i.e. understand the social structure and macroeconomic dynamic.

    Value theory establishes that there will be riddles of transformation problems due to the fallacy of composition, under certain assumptions these transformation problems can be solved, under other assumptions not. Then we get bogged down on arguing about assumptions. This is not my project, I will leave it to others to do this dance. (To paraphrase Kalecki, capitalism makes theory appear contradictory, it is not theory but the system that is contradictory. Thus, we need Value).

    You seem to dislike formal modelling. Again assumptions of formal modelling are always unrealistic, Shaikh has plenty of formal modelling, I think it always has relevance, and never is he reducing his position to a formal model.

  5. Hi Hans and Sydney, thanks for those comments.

    On the class struggle, I think that South Africa is a good example, when I was growing up there was a mass semi-insurrectionary movement involving millions of workers against apartheid capitalism, today there is some class struggle but it is a shadow of that. It’s the same everywhere across the world the UK strike figures after 1992 are lower every year, than any year before it. You can also see it in the decline of the labor movement in the USA, etc. Even in China with an industrial working class of 150 million plus, there are a small number of short strikes every year.

    Where I differ from Hans is over the critique of Sraffa. That is my purpose. Interestingly you can trace this back to the value debates in the USSR in the 1920s. Basically there were two sides back then, the idealists around Rubin, who emphasised the necessity of value, and the planners around Bodganov, who wanted to replace value with physical measures. Sraffa of course was around the CP and wrote his first equations in 1928, coincidentally the first year of the five year plan. He then went to Cambridge where he worked very closely with Maurice Dobb, the foremost Stalinist in the UK, who held the Bogdanov view, which had triumphed over the idealists by 1930. Rubin was tortured and murdered for his pains, but that’s another story. The Stalinists had a conundrum, how to measure the output of the plan when there was physical output but no value? Their solution was familiar the simply attributed “value” i.e. aggregates of physical labour hours to planned production. This is basically what Shaikh does. Indeed, Sraffa’s model of 1960 is largely a version of the Soviet material product system applied to a market economy. But, unlike the Stalinists, Sraffa consciously rejected labour time as a measure of value, which he regarded as “mystical”. His system was championed by Dobb (and Ronald Meek) as it fulfilled the Stalinists search for value in the physical system.

    Unfortunately, (for those Marxians who want to use it) Sraffa’s model also destroys the necessity for the labour theory of value in the market economy (that is what it was designed to do). This is what Steedman and others pointed out in the 1970s. They were right to do so, if you accept the assumptions of Sraffa’s model, there is no need (i.e. logical necessity) for the labour theory of value. What bemuses me in the response of the Marxists at the time and since is that no one pointed out that Sraffa’s model does all that, but only at the price of violating all social and natural laws of production. I’m not against formal modelling – I am against formal models that rely on the transmutation of matter. The assumptions of a formal model need to be an abstraction from reality, i.e. they need to be consistent with natural and social laws to present them in a purified form. That doesn’t mean it’s legitimate to assume you can make iron from corn.

    As far as the new solution goes, it had its place as a holding position if you will, but in my opinion failed to get to the root of the matter, my recollection is however, that Shaikh explicitly rejects it in his book.

  6. Hi Bill,

    We have disagreements for sure. I can live with disagreements. To be clear what I am disagreeing with:

    (1) Your characterization of Sraffa is too narrow, Sraffa’s resurrection of Classical Political Economy is what I am defending. His 1960 book is a much larger story.

    (2) Characterizing Shaikh as Sraffian seems to be misleading. However, we would have to solve (1) above before we could begin to adjudicate Shaikh/Sraffa.

    Sraffa develops a long line of theorists in the “surplus” approach. Sraffa in 1960 develops this surplus approach primarily as an explicit critique of marginal theory. Aside from some Sraffian assumptions, the two main developments are: (a) a very different conception of capital from the neo-classical tradition (this has established Sraffa’s relevance as long as neo-classical theory exists); (b) the surplus approach underscores an asymmetry between the factors of production and distribution of income.

    For neo-classical theory of income to be true, labor has to be treated as analogous to capital and land. This is implicit in Jevons and (to some degree) Marshall, but becomes very explicit in Human Capital Theory (developed exactly as Sraffa is developing his critique).

    In the surplus approach labor is radically distinct from capital and land. Moreover, the value of capital radically depends on the distribution of income (profits and wages). Thus, before we can talk about capital we are logically forced to address the determination of distribution. In my interpretation this throws us into the issue of class struggle and political/economic power relations (i.e. politics and monopoly power). This is why Marx begins with Value.

    How Sraffa gets to all these points is a fine thing to critique, but I find his larger goal and larger points the essence and hub of the matter.

    (3) You would be very hard pressed to defend your assertion that Dobb was a Stalianist. He studied Russian and Soviet development, and certainly emphasized the rapid industrialization the Soviet’s achieved, a Stalinist he was not.

    Sraffa (1926) and Dobb (1925), when they were completely independent of each other intellectually, were the greatest critics of the new “marginalism” (Dobb called this the Jevonian Revolution), which would develop into modern neo-classical economics. Dobb would always contrast the new marginalism and utility theory of value with the labor theory value. Moreover, Dobb and Sraffa both advocated a return to Classical Political Economy, and their primary critique of Joan Robinson’s interpretation of Marx was that she could never understand the labor theory of value in a more qualitative interpretation.

    (4) Shaikh follows the New Solution, which he calls more accurately the New Interpretation. Shaikh embraces this approach see (pp 240 – 3). There seems to be some importance here to the issue of money in chapter 15, and for profits and growth in chapter 16. If chapter 13 is Shaikh’s return to classical political economy (the warrant to a relationship with Sraffa), chapter 14 in particular, but also 15, 16, establish his commitment to Marxian political economy.

  7. Bill,
    I hope that you will forgive me, but I cannot resist the temptation to write the following.
    You clearly do not like ‘Stalinists’. That is fine, very few people do.
    But you draw attention to the vitality of the class struggle in South Africa when you were growing up. I will again stick my neck out and assert with complete confidence that this was due in large part to the leadership of the South African Communist Party in both the workers’ struggles and in the anti-apartheid struggle. And that Party, I imagine you would agree, was as classical a ‘Stalinist’ Party as ever existed, with very few exceptions. I have in mind, for example, Govan Mbeki.
    Perhaps the awful ‘Stalinists’ did objectively sometimes play a useful and progressive function in the world. Awful thought.

  8. Hi Sydney and Hans

    First Sydney I don’t want to get into the reasons for the decline in the class struggle, suffice it to say at least your last post recognises it.

    To Hans, disagreements ware what make life interesting. My basic contention is that the classical surplus tradition is a catch all label that conflates two distinct and counter posed theories. On the one side the heirs of the Idealists around II Rubin, or the tradition of real classical political economy of Smith, Ricardo and Marx predicated on the labour theory of value, and on the other hand, the heirs of the Mechanists or planners, in other words the physicalists in various forms.

    As these traditions are incompatible so their assumptions are mutually inconsistent. I’m on the side of Rubin and co. Sraffa’s “revival” of classical economics is what I’m criticising. As you point out Sraffa convincingly refutes the explanation of the price of capital being due to scarcity, for as he points out, on the assumptions of the marginal model there is re-switching. The problem is his explanation for the origin of surplus is no explanation at all, as his model assumes something is created out of nothing, inputs are “unchanged” as Shaikh puts it. His assumptions violate every actual process of production anywhere. The value of capital does not depend on the distribution of profits, but the cost of production of the physical goods used as means of production, i.e. the socially necessary labour time required for their production, modified by the movement of surplus to equalise profit rates, just like every other commodity. Sraffa has no actual explanation for the production of surplus or their distribution, Indeed in his pure model there are no people.

    Dobb joined the Communist Party in 1920 and never left until his death in the mid 1970s. Naum Jasny, a key commentator on Soviet national income measures after the Second World War, poked fun at him as a particularly adroit follower of the Moscow line. Search for articles by Jasny on Dobb. In Dobb’s history of Soviet Economic Development originally published in 1948, there is only one reference to the purges, which complains they may have temporarily interrupted the rate of economic growth. He was as Stalinist as it’s possible to get. The relevance of that here is that Stalin in his 1951 Problems of Socialism, explained that the law of value existed in the Soviet Union, even though it did not exist as a regulator of production i.e. not as the law of value! Sraffa helped Dobb explain this contradiction in terms. Dobb and Sraffa collaborated on editing Ricardo’s papers, and Sraffa’s theory is very similar to the Soviet material product system.

    Before and independently of Dobb, Soviet planners, the heirs of the “mechanists”, developed the material product system to measure the “national income” of an economy without national income. They used aggregates of concrete labour hours applied to physical quantities, to estimate a “value” of output post factum. This is essentially the procedure of Shaikh, and has nothing to do with the “classical” approach if you want to put it like that. That approach, the approach of Smith, Ricardo and Marx, explains why labour time is necessary as an objective value of exchange value due to the incommensurate nature of physical output with physical input in a market economy. This is exactly what is assumed away in the models of the “surplus approach”.

    Shaikh of course, not only explicitly accepts Sraffa’s procedure, but uses it in all of his models too, mostly importantly, he assumes that outputs are identical with inputs – to ensure commensurability. But any model that assumes physically identical inputs and outputs violates the key assumptions of the “classical” models which were predicated on actual production, or that, to put it another way, the whole point of production is to change inputs from one physical form into a different physical form, so that physical inputs and outputs are incommensurate.

  9. Hi Bill,

    It seems to me you are asking Sraffa’s position to do something it is not intended to do. It does not seem to me that there is a Sraffian political economy, because his propose is far more particular. Sraffa has fallen out favor, in part due to those sympathetic to his accomplishment. This will impede people from fully understanding Shaikh’s accomplishments. In brief, this is to have a theory of relative prices, which necessities a theory of money and its movement, surplus, and class struggle. It is all there in Shaikh, and he is able to further demonstrate the macrodynamic these theories entail generate tendencies toward inequality, instability and socioeconomic crisis. A massive accomplishment.

    There exists no comparable contemporary theorist. In addition he provides excellent critiques of orthodox and heterodox positions in the midst of developing his position.

    As to Dobb. Look, he is writing Soviet economic development history. I do not take it as either pro- or anti-Soviet. Dobb had a very personal commitment to the British Communist Party, well not to The party itself, but to the tradition of communism. He believed starting a political movement a new was a mistake. I don’t know if he is correct, and I certainly never understood why he tolerated the abuse from the BCP, but it doesn’t make him Stalinist. He suffered abuse from the Soviet Marxists also. Dobb seems to allowed implicit censorship from the Soviets to influence some of his pamphlets, his books far less so. Again we have little to go on to understand his decisions, it may have been to have open access to study the Soviet political economy, could have been for other personal or political reasons. Nonetheless, it is a big leap to declare him a Stalinist. It would seem to me that a Stalinist should have some positive commentary on Stalin and his policy.

  10. Hi Hans, I think you’ve summarised our differences well, my issue with Shaikh is not that he has a new theory of Sraffa, it’s that he uses the old one. As for Dobb, I don’t doubt he suffered abuse, unfortunately it was a very abusive current, but that doesn’t mean that he didn’t in all essentials agree with and advocate its line. Jasny is particularly insightful and amusing on this, I also think it explains his enthusiasm for Sraffa’s theory, but I’m repeating myself now.

    In conclusion as I said in the review at the beginning there is much to value in Shaikh’s book which is in many respects an awesome achievement, but it falls short in my opinion, for the reasons we’ve discussed above.

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