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Sure, but also besides the point is the neoclassicist view in toto. This argument can come as easily from a neo-Marxist, assuming chronic over-production in the oil industry; or just any skeptical radical, taking the analysis on its own terms.
Yes. Neo-Marxists, skeptical radicals and others can make these arguments. But it seems to me that in making them, they would reiterate or concur with the neoclassicists.
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Though I’m curious, how do those “hard-core neoclassicists” explain the long term tendency of the oil business to revert (between “external shocks”) to uncompetitive capital returns? Surely, it can’t be explained as a result of low risk. So why does the dis-equilibrium over-capacity persist?
As we see it, the terms ‘uncompetitive returns’, ‘low risk’, ‘dis-equilibrium’ and ‘over-capacity’ are neoclassical images with no objective empirical contents. Neoclassicists explain them, or use them to explain other things, but without being able to prove or refute their explanations. Here is how it works (or rather doesn’t) with respect to oil prices: https://bnarchives.net/id/eprint/432/
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Regarding ‘danger zones’. The difficulty here is that causality cannot be scientifically proven. In terms of the correlations we present, most people are likely to treat ‘energy conflicts’ as relevant but exogenously determined, as you suggest. We think they are causally intertwined with the high politics of differential oil prices and profits. Unfortunately, there is no way prove either of those causal views.
If we are to follow Occam’s razor, there is no need for “danger zones” as an element of a casual interpretation. The simpler explanation above should suffice: decumulation does not necessarily predict conflict, it’s just what we would expect when conflict subsides, and when war appears* (due to its own regional-internal reasons) the oil business simply hitchhikes on it to its differential benefit.
Of course you can make this argument.
In fact, this is what hard-core neoclassicists have insisted all along: (1) there is a pure economic system; (2) this system is subject to unfortunate exogenous shocks (intervening governments, labour unions, monopolies, the weather gods, and recently also oil sheiks, Islamic terrorists and similar irrationalities) (3) these shocks rattle supply and demand; (4) this rattling changes the equilibrium price and/or quantity; and (5) in the case of oil, these changes affect oil company profitability exactly as NC demand/supply/equilibrium theory would predict.
(Of course, the bifurcation between the pure economy and the rest of society is a pure economic fiction, as are the neoclassical concepts of demand, supply and equilibrium — though that, clearly, is besides the point https://bnarchives.net/id/eprint/722/).
Yes, corporate delisting is ongoing, but it isn’t clear that ‘private capital’ is replacing or overpowers ‘listed capital’.
According to Siblis Research (https://siblisresearch.com/data/us-stock-market-value/), between 2012 and 2024, U.S. stock market capitalization more than tripled — from $18.7 to $62.2 trillion (though the rate of expansion might be different if we include outstanding credit and real estate).
See Section 5 in our 2019 paper, ‘Making America Great Again’ (https://bnarchives.net/id/eprint/630/)
Keynes considered the accumulation urge useful in bringing humanity to a state of material bliss, after which it would be recognized for what it was — a pathological condition befitting the psychiatrist couch. Had he though about it as the power drive that organized the capitalist world, he wouldn’t conclude it could be easily discarded.
Interesting proposal, Pieter.
If I understand you correctly, your aim is to create a taxonomy for mapping the processes of coordination, of which power relations are a subset.
Two comments come to mind.
1. Regardless of its specific details, such taxonomy is likely to face the built-in challenge of quantifying qualities – i.e., of bringing the incommensurate aspects of coordination into one or more common denominators without which quantification and aggregation are difficult if not impossible.
2. In some sense, your universal articulation, however tentative, puts the analytical cart before the empirical horses. I think it would be useful – for yourself and for others – to concertize the elements of your proposal with empirical examples and/or research, so as to assess both their logical validity and empirical fruitfulness. In my own experience, concrete examples often proved a useful check against going astray.
An empirical rather than analytical observation, right?
I think a bit of both.
1. Replacement cost is based on prices of newly produced capital goods. Unlike the prices of existing capital goods, which reflect the changing capitalization of their risk-adjusted expected earnings, among other factors, those of new capital goods are commonly ‘administered’ by their producers in line with normal cost and desired markup. During times of inflation and high interest rates, these administered prices tend to rise.
2. Market capitalization is affected by inflation positively (mainly by boosting expected profit in the numerator), as well as negatively (by increasing the discount rate in the denominator). However, the capitalization formula suggests that the latter (-ve) impact will usually outweigh the former (+ve) impact. For example, all else remaining the same, a 5% increase in expected future profit due to 5% increase in prices, accompanied by a 5 percentage points increase in the discount rate from 3% to 8%, will reduce capitalization by roughly 60%.
Obviously, these are partial back-of-the envelope arguments that invite further research….
Thank you for the thoughtful comments, Max. Here are three observations.
1. Our figure uses replacement cost because, in principle, this is what national-account statisticians use to impute the ‘real capital stock’ (= replacement cost / price index of investment goods). In other words, when economic researchers – be they NC or heterodox – use the ‘real capital stock’, they use not its utils or SNALT content, but the capitalized price of ‘capital goods’, corrected, or so they believe, for price changes. And since this ‘real’ measurement template applies not only to capital goods, but to all commodities, it follows that value theories are not only conceptually circular/arbitrary but also lack an objective measure to quantify the ‘real economy’ they theorize.
2. Why does the replacement cost of the capital stock oscillate inversely with corporate capitalization? Although we haven’t researched this question, one possible answer is the co-movement of inflation and interest rates, which tends to have a positive effect on the replacement cost of the capital stock and a negative impact on corporate capitalization.
3. You suggest that established heterodox political economists are busy analyzing the ‘distortions’ of finance and other extra-economic ills and are unaware of or indifferent to the fact that they do not have a consistent theory of value to stand on. I agree – but, based on our long experience, I don’t think this is a trap we can easily trick or lure them out of. We are likely to be better received by younger thinkers — though even here, the window of opportunity tends to close rather quickly.
“…the real capital stock, which political economists see as the beginning and end of capitalism, has nothing to do with (tangible) book value, which is the sole god of heterodox, anti-finance, economists.”
While this statement may be theoretically correct, it is NOT what we want to say.
Our point, rather, is that forward-looking capitalization and backward-looking real capital are de-linked (and in the U.S. case inversely correlated, as the figure below shows).
I think that Hudson’s reference to ‘book value’ here is misleading; as I indicated above, book value represents forward-looking capitalization at the point of its recording and therefore includes rent which Hudson wishes to exclude…. From his vantage point, it would be more accurate to talk of ‘real capital’, and specifically, of the direct + indirect ‘labour cost’ of producing it.If I understand you correctly, your question concerns the difference between ‘real capital’ and ‘book value’.
REAL CAPITAL is an economic concept, denominated in universal units of either neoclassical utils or Marxist SNALT (socially necessary abstract labour time). The utils/SNALT presumably contained in any real capital were generated/produced in the past. Economists claim they can measure real capital, but as we explain in Chapter 8 of Capital as Power (2009), their measurement is entirely arbitrary if not circular.
BOOK VALUE is an accounting concept, denominated in dollars and cents. Usually, it denotes the money price of the asset at the time of its purchase. In Capital as Power (pp. 255-256) we note that book value represents the asset’s forward-looking capitalization at the time of its acquisition (the oil-tanker example). This feature means that, unlike the fluctuating market capitalization on the stock and bond markets, once set, book value no longer changes.
Are these two concepts related? Perhaps — but only in a perfectly competitive equilibrium with a perfectly known future (+ other assumptions that eliminate all resemblance to any known society).
Responding with fundamental critiques of neoclassical or Marxist value theories is not really effective in this context. So a reorientation of exposition and argument might be required if we to facilitate more fruitful engagements.
So far, our exposition — namely, a critique of existing neoclassical and Marxist frameworks and findings + an articulation of CasP’s own framework and research — seems to have resonated with young, free-spirited researchers (like yourself) and to have elicited more or less dead silence from established political economists.
So something in our exposition (and substance) speaks to one group while deterring another, and I wonder how you and others think this exposition can be ‘reoriented’ to make engagements more fruitful without diluting CasP’s contents.
The ‘dark-matter’ syndrome is inherent to scientific modelling. All scientific models are wrong to some extent – either because the modellers exclude important elements and misrepresent or omit relevant relations, or because they over-simplify. The built-in errors are not always apparent — for example, initially, Ptolemaic cosmology seemed superior to the heliocentric one. And often the errors are being hidden by inventing new terms, such as Phlogiston in chemistry, the production-function ‘residual’ in economics, and (perhaps) the ‘dark matter’ of cosmology.
I think that, as a new approach with few researches and a very limited number of studies, CasP must be full of dark matter, residuals and Phlogiston-like substances. And I suspect that its unknowns extend far beyond the black and grey economies and unreported activities. In the grander scheme of things, CasP theory is still in its early sketching stages, and even its most brilliant studies merely scratch the empirical surface.
But there is an upside. Unlike neoclassical theory, which gave up science in defence of capitalism, and contrary to Marxism, which has been impaired by dogma and/or surrendered to postism, CasP is still young and uncommitted and therefore able to plow through many of these difficulties — at least for the time being!
Svetlana Alexievich’s Secondhand Time chronicles the transition from the Soviet mode of power to Russia’s new capitalist mode of power. And it is unique because it is written not from the top, but from the bottom. The book is a collection of interviews conducted over a period of more than twenty years following the fall of communism. Alexievich spoke with many people from all walks of life, old and young, communist and anti-communist, those who lived in the Soviet Union and others born after its collapse. None of them belonged to the elite. They were all from the underlying population.
The stories are riveting, sometime mind-bending and often horrific. They are also very diverse and therefore difficult to generalize, certainly not after the first read.
But one lesson seems clear: hierarchical modes power, be they communist, capitalist or something else, are incredibly powerful. Stalin’s regime, like its tsarist predecessors, managed to butcher, enslave, terrorize and condition Russians in the millions. And the capitalist oligarchs and their current czar, Putin, use new social technologies to achieve similar ends.
Faced with these mega-machines, the path toward direct democracy is daunting indeed.
