Re: Re: market "socialism," etc.

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

I wrote: >> The "Austrian" theory of competition is derivative from Marx
and the classicals. I'm pretty sure that Bohm-Bawerk developed most of his
stuff in response to Marx, while appropriating the parts of Marx he liked
(e.g., the dynamic vision of competition).<<

RD comments:> But here's Schumpeter himself, the one Austrian who was
closest to Marx: For Marx the capitalist economy "is incessantly being
revolutionized from within by new enterprise, i.e., by the intrusion of new
commodities or new methods of production or new commercial opportunities
into the industrial structure [...] This is how progress comes about in
capitalist society. In order to escape being undersold, every firm is in
the end compelled to follow suit, to invest in its turn and, in order to be
able to do so, to plow back part of its profits, i.e., to accumulate. Thus,
everyone else accumulates. Now Marx saw this process of industrial change
more clearly...than any other economist of his time. This does not mean
that he correctly understood its nature or correctly analyzed its
mechanism. With him, *that mechanism resolves itself into mere mechanics of
masses of capital. He had no adequate theory of enterprise and his failure
to distinguish the entrepreneur from the capitalist*, together with a
faulty theoretical technique, accounts for many cases of non sequitur and
for many mistakes"<

Marx distinguished an "industrial capitalist" (i.e., the capitalist who
organizes production) from capitalists in general (those who own the means
of production). This is not the same as the distinction between the
entrepreneur and the capitalist, but it is close.

Further, he talks about innovation (the activity which distinguishes the
"entrepreneur" in Austrian lingo), though I don't think he uses that word.
(The distinction seems an "Austrian" innovation.) For example, in chapter
12 of volume I of CAPITAL, he talks about one capitalist introducing an new
way of producing things and how it is then imitated by other capitalists,
due to the coercive force of competition.

Marx's emphasis is on _process_ innovation (rather than product
innovation), though he does talk about new ways to add non-nutritious
filler to food (in order to lower the cost of labor-power). This is partly
a product of the historical era in which he lived.

He also does not sneak in the assumption (as Austrian economists do) that
"innovation" is always a good thing (so that "entrepreneurs" should be
rewarded) or that the market is the judge of what's good. This makes sense,
since both Charles Ponzi and the unknown man or woman who introduced
"crack" cocaine engaged in innovation and were thus entrepreneurs. Marx
seems to assume that innovation can be good (i.e., building up the wealth
needed for socialism) or bad (i.e., encouraging resistance to capitalism).

The Austrians put a big emphasis on prices as signals (of tastes &
scarcity). My understanding of Marx is that one of the bases of his crisis
theory is that these signals are wrong in the sense that they do not allow
"entrepreneurs" to coordinate to prevent underconsumption and the like.
Prices cannot provide an understanding of the nature of the capitalist
totality and the conditions needed for its harmonious expanded reproduction
over time. Instead of gradual change, we see "equilibration" through sharp
crises.

Since Schumpeter doesn't explain what he mans by "faulty theoretical
technique," no comment can be made on that.

>When S says no adequate theory of enterprise he means that M had no
adequate theory of rational behavior. Marx has no concept of rational
action, his 'rational miser' is a mere personification of the capitalist
system. <

The word "rational" in economics is basically a theoretical fiction. NC
economists _assume_ that people are "rational." The usual textbook
economist's meaning of this is that people are self-interested, not caring
about other individuals. But the more sophisticated  theorists use a
definition that's basically tautological, single-minded goal-seeking. The
only thing that differentiates irrationality from rationality is that the
latter involves consistent preferences (i.e., under similar conditions, A
will be preferred to B). But that doesn't make sense over time (since
"tastes" change) and ignores the preference for variety. Crucially, the
concept of  rationality falls away when we realize that due to sociological
effects, tastes are endogenous.

Whether or not this is a reasonable approach is another issue, since social
scientists make a lot of unreasonable assumptions (simplifying in order to
understand). It's my impression that it's not the assumption of
"rationality" that produces predictions or understanding as much as an
understanding of the _constraints_ that limit individual (consumer or firm)
choice. Consumer rationality cannot be used to predict an increased supply
of labor-power as wages rise (because there are income effects) or an
increased willingness to save as the real interest rate rise (for the same
reason). It can't predict that people will prefer chicken to pork. However,
if you bring in other constraints or assumptions, more specific predictions
or understanding can be derived. The assumption of profit-seeking is more
productive theoretically since firms usually don't have tastes (or income
effects?) But too many economists assume that the relative success of this
approach with firms justifies treating consumers as if they were firms.

More crucially, S does not argue here that the "rationality" approach is
the _only_ approach. Rather, he seems to merely assume that there is only
one approach. Marx believed, I think, that a holistic approach was superior
to an individualistic approach. That is, he made a sociological statement
that certain kinds of societies produce certain kinds of attitudes. Thus,
he saw capitalism -- and specifically the societal environment of
capitalist competition -- as encouraging narrow-minded individualistic
profit-seeking (one vision of "rationality"). If Marx is seen as explaining
the basis for profit-maximization, then all the results derived from that
assumption can be accepted by Marx (as long as unreasonable auxiliary
assumptions aren't introduced).

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine