Marx, Veblen, and the Foundations of Heterodox Economics (2015)

Marx, Veblen, and the Foundations of Heterodox Economics: Essays in Honor of John F. Henry

Edited by
Tae-Hee Jo and Frederic S. Lee

Published by
Routledge (Series in Advances in Heterodox Economics) in May 2015

Synopsis

This book is a festschrift for John F. Henry who has been a critical thinker, prolific economist, eloquent writer, influential and congenial educator over 40 years of his professional career. These characteristics are weaved into his doing of economics, more specifically, history of economic thought as part of heterodox economics. Henry has been concerned about the linkages between theory and society in historical context. Why does a theory emerge and become dominant in a particular time and society? What role does a dominant theory play? Those fundamental questions require, in Henry’s terms, a “general theory of the development of general theory itself.” More importantly, the historical inquiry into theory led him to the critical analysis of the underlying values, institutions, and social relationships that legitimize the theory as if it is natural, normal, and universal.

Contributors of this volume share Henry’s concern. This festschrift is thus put together in order to (re)cast Henry’s (and also Karl Marx’s and Thorstein Veblen’s) questions so that contemporary heterodox economists make economics suitable for “a world that is more humane, more sensible, more amenable to the provisioning process.” With this goal at hand, the overarching theme of this book is “Marx, Veblen, and the Foundations of Heterodox Economics,” which is carefully selected on the ground that radical ideas of Marx and Veblen (Part I) are the essential theoretical  basis of heterodox economics (Part II) as well as of John Henry’s economics (Part III).

Table of Contents

Introduction

Marx, Veblen, and Henry: Breaking up the Illusions of the Epoch / TAE-HEE JO and FREDERIC S. LEE

Part I Radical Ideas of Karl Marx and Thorstein Veblen

  • 1. The Marxian and Veblenesque Elements in the Way I do Economics / G.C. HARCOURT
  • 2. Karl Marx, Thorstein Veblen, and the Global Financial Crisis / JOHN E. KING
  • 3. The Contemporary Relevance of Karl Marx’s Political Economy / PHILLIP A. O’HARA
  • 4. Instincts and Exchange: A Veblenian Exploration / WILLIAM T. WALLER
  • 5. The “Barbarian Status of Women” Revisited in Times of Neoliberalism / ZDRAVKA TODOROVA
  • 6. Is Conspicuous Consumption a Weak Concept? / ANDREW B. TRIGG
  • 7. Veblen on Marx and Marginalism / GARY MONGIOVI

Part II Heterodox Economics: Alternative Critical Theory to the Status Quo

  • 8. Fraud and Neoclassical Economics in the Twentieth Century / FREDERIC S. LEE
  • 9. The “Illusion” or “Paradigm Blindness” of Economics: Ethical Challenges to Economic Thought from the Financial Crisis / ROBERT MCMASTER
  • 10. Re-establishing the Grounds for Free Trade: The (forgotten?) Assumption of Full Employment in Mainstream Economic Theory / STEPHANIE KELTON and JOHN F. HENRY
  • 11. Economics and History: Why Economists and Policy Makers Who Do Not Study History are Condemned to Repeat the Mistakes of the Past / MARIO SECCARECCIA
  • 12. Financial Capitalism Trapped in an ‘Impossible’ Profit Rate / WOLFRAM ELSNER
  • 13. Shaping the Social Determinants of Value through Lobbying and Corporate Capture: An Institutionalist Approach to Capital Accumulation / MARC-ANDRE GAGNON
  • 14. The Rise of Money and Class Society: The Contributions of John F. Henry / L. RANDALL WRAY and ALLA SEMENOVA

Part III The Heterodox Economics of John F. Henry

  • 15. Farewell Lecture: Property and the Limits to Democracy / JOHN F. HENRY
  • 16. A Conversation with John F. Henry
  • John F. Henry’s Publications

Heterodox Microeconomics Reading List

Compiled by Tae-Hee Jo (SUNY Buffalo State), Frederic S. Lee (University of Missouri-Kansas City), Nina Shapiro (St. Peter’s University), Zdravka Todorova (Wright State University).

[Full list at the Heterodox Microeconomics Research Network] [Download in pdf]

Contents

1. History and Methodology of Heterodox Microeconomics
2. Critiques of Mainstream Microeconomics
3. Principles of Heterodox Microeconomic Theory
4. Theory of the Business Enterprise
5. Structure of Production and Costs of the Business Enterprise
6. Costing, Pricing, and Prices
7. Investment, Finance, and Employment
8. Households, Consumption, and Market Demand
9. Industry and Market
10. Competition
11. Corporate Governance, Market Governance, and Market Regulation
12. Social Welfare
13. Heterodox Microfoundations and Modeling the Economy

What if There Are No Conventional Price Mechanisms?

Originally appeared on the New Economic Perspectives Blog, Posted on November 26, 2013

Whether it be inflexible prices, wage rates that are too high and sticky, or interest rates that cannot become negative, they all have the common property of disrupting the smooth workings of the price mechanism, thereby causing recessions, preventing economic recovery, and creating unemployment. But what if there is no price mechanism that allocated scarce resources among competing ends? Then the ‘price problem’ would disappear and the causes of recessions and persistent unemployment would be quite different. Ignoring the issue whether scarce resources as defined in mainstream economics exist or not, I am going to interrogate the supposed existence of the price mechanism that lies at the theoretical core of all mainstream explanations of recessions and unemployment.

Clearly there can be momentary glitches in the working of the price mechanism; but I am not concerned with these correctable imperfections. Instead the issue is: when does the waywardness of prices, wage rates, and interest rates cease to be glitches in price mechanism and actually eliminate it altogether. Starting with prices, since the 1930s, it has been known that price stability dominate the industrial, wholesale, and retail areas of the American economy. The 40-50 studies in the past fifteen years by Alan Binder and others which cover developed countries around the world further support the existence of price stability. One basis for its existence is the administered cost-plus pricing mechanism (used by virtually all business enterprises to set the prices) which neutralizes the impact of changing sales on costs hence prices. So price stability and its underlying pricing mechanism are systemic features of developed economies such as the American economy resulting in a disjuncture between price and quantity.

Turning to wage rate stability, evidence of its existence goes to the 19th century. Moreover, from the 1980s, wage rate stickiness has been a major concern of mainstream economists; and since the early 1990s, numerous empirical studies have shown its widespread existence, thus, as in the case of price stability, making it an irrefutable economic fact. Other studies show that wage rates are of minor importance when enterprises make hiring decisions. On the other hand, studies in how wage rates are actually determined are few; but what can be gleaned from the human resource literature is that the marginal product of labor has no role in the determination process whatsoever. Altogether, the implication is that there is no connection between the wage rate and the demand for labor.

Finally there is the question of the interest rate and its connection to investment decisions in plant and equipment and research and development. Again, the empirical evidence on the investment decision process shows that enterprises take a great many variables into account, including the interest rate. But in the end, the significance of the interest rate in the final decision is almost reduced to nothing. This is in part due to the fact that enterprises finance their investment from retained earnings (thus avoiding the financial markets) and that going enterprises do not view financial assets as substitutes for ‘real investment’.

A working price mechanism requires price, wage rate, and interest flexibility and most importantly a direct and inverse law-like connection to outputs/sales, employment, and real investment. However, with price and wage rate stability, they are not connected to sales and employment; and interest rates (whether nominal or not) have little bearing on investment decisions. Mainstream economists have over the past 70 years come up with ad hoc explanations/theories why any one of these outcome may occur; but they have never come up with an explanation why all three occur at the same time and have been persistently occurring for at least the past 80 years (if not for the past two centuries). So instead of continually blaming some kind of temporary imperfections in the working of the price mechanism as the cause of a malfunctioning economy, perhaps it is time to drop the myth of the price mechanism and dismiss the fictitious ‘price problem’ and seriously consider that problems of economic recessions and unemployment are only heterodox/Post Keynesian effective demand problems.

State Funding of Research and the Narrowing of Economics in the United Kingdom

A column written by Frederic S. Lee. Published in Global Labour Column, October 2, 2013

In 1986, the United Kingdom instituted an exercise through which the allocation of state research funds to universities and their departments was based on the quality of the research they produced. While the official justification for the exercise was the need to be selective in the allocation of limited research funds, the non-talked about agenda behind the exercise was to reduce the number of research universities to a manageable number and to ensure that these elite universities conducted research and carried out teaching that was consistent with the interests of the economic and political elite which control the state. Consequently the ensuing research selectivity exercise known as the Research Assessment Exercise (RAE) was and is popular with the Tories, New Labour, and anybody else who believes that the State should have quasi-direct and complete control over the thinking and research activities of its citizens.

Most academics initially thought the exercise would be a fair way of allocating state research funding when the state decided to reduce its commitment to higher education. However, in some disciplines, such as economics, it became evident by the mid-1990s that the exercise was also being used to cleanse economic departments of heterodox economic ideas that did not conform to mainstream (neoclassical) economic theory and with the neoliberal, pro-market policies based on the theory and which the state approved of. But the precise manner through which the cleansing process operated was not clearly understood. The rest of the article deals with the cleansing process, its consequences for UK economics, and what can be done about it.

The UK Research Assessment Exercise and the narrowing of UK economics

“The UK Research Assessment Exercise and the narrowing of UK economics,” by Frederic S. Lee; Xuan Pham; Gyun Gu. Cambridge Journal of Economics, 2013 37: 693-717

AbstractFull Text | PDF

Press Release, July 8, 2013

New paper warns that the Research Assessment Exercise is causing a homogenisation of UK economics

05 July 2013 Oxford University Press (OUP)

  • Under embargo until 07 July 2013 23:01 GMT

 

UK economics is becoming increasingly homogenised, and runs the risk of becoming “a purely quaint academic subject with no connection to the real world,” according to the authors of a new paper published in the Cambridge Journal of Economics today (Monday 8 July). Crucially, this homogenisation may mean that significant economic events that don’t conform to mainstream economic ideas may be missed.

Frederic S. Lee, Xuan Pham, and Gyun Gu examined how economics is researched and taught in English universities alongside the Research Assessment Exercise (RAE) and forthcoming Research Excellence Framework (REF) in 2014, which assess the amount of quality research (QR) generated by academics. They chose to focus on only English universities, rather than those in the rest of the UK because 80% of economics departments are in England, and therefore dominate UK economics. They say that the impact of the UK RAEs on economics is that universities are increasingly marginalising heterodox, or non-mainstream, economics (and by extension, economists) in their pursuit of high RAE scores and therefore more chance of research funding.

In their paper, ‘The UK Research Assessment Exercise and the narrowing of UK economics’, Professor Lee and colleagues developed an empirically grounded model of UK economics that, in the context of the RAE and local department decision making, shows there are three major on-going trends in the discipline:

  • the ostracising of heterodox economics – and economists
  • the concentration and homogenisation of UK economic research
  • the dominance of UK economics by a few elite and near-elite departments

They write: “The interactive process between research-publishing and hiring resulted in department staff compositional change over the past two decades being positively wilfully/casually correlated with the concentration of scholarly work in the core research areas and with the increase in Diamond List* journal submissions and negatively causally correlated with the decline of non-mainstream research areas and with heterodox submissions to the economics RAE panel.”

Further, they argue that due to the increased emphasis on international excellence when it comes to the RAE and the allocation of funding, university departments that are not considered elite, or near-elite, are losing out. Professor Lee says, “Over the past two decades, national excellence in research quality has gone from being quite important in terms of funding to being completely unimportant, while international excellence is now the only criterion relevant for research funding. This, in turn, has ensured that QR funding is becoming increasingly concentrated in and among fewer economics departments.

“Moreover, the composition of the universities submitting to the RAE economics panels has changed significantly in favour of departments from the ‘old universities’.”

The authors found that since the 1992 RAE the participation of the new universities in economics declined by 75%, and its allocation of QR funding declined “to virtually nothing”. Professor Lee argues that this restricts the upward migration of departments, with the majority of QR funding going to “perhaps about 13 elite and near-elite departments. The number of research rated economics departments has declined from 46 to 28 since 1996.

“The elite and near-elite departments have turned the assessment exercises into a self-promotion activity where those ‘other’ lower class departments are marginalised.”

As these departments continue to hire mainstream economists who publish and teach in a way that conforms to the idea of “good economics”, heterodox economists are increasingly marginalised, according to Professor Lee: “Mainstream economists hold quite punitive attitudes towards heterodox economists and their ideas – both are so unacceptable that they should not be part of just economics but all of academia. Mainstream economists do not believe that students should be introduced to heterodox economic ideas, but rather should only be taught their theory.

“The issue is not who is right or wrong with regards to economic theory; it is about the right to be wrong or possibly wrong without fear of punishment. The single mind-set of economists in many UK departments makes it more likely that significant economic events that do not conform to that mind-set will be missed – such as the 2008 financial crisis. Not only can Queen Elizabeth II ask why economists did not see it coming, so can everyone else.”

* The Diamond List is a list of 27 core economics journals drawn up by A. Diamond in 1989.

See also, REF ‘risks narrowing economics’, Times Higher Education, July 10: http://www.timeshighereducation.co.uk/news/ref-risks-narrowing-economics/2005673.article