European Tribune - Community, Politics & Progress.

LQD: Sovereign Equity (2) : Why Conventional Economics Is Bollocks

by ChrisCook
Fri Mar 19th, 2010 at 06:33:38 AM EST

This post is a comment on Giles Wilkes' rather good Economics blog.

I thought I would Diary it here, because I think it concerns a very important point which gets to the basis of Why Conventional Economics Is Bollocks.

What would YOU do with £21bn? « Freethinking Economist

Virtually all mainstream economists -and that includes you - mischaracterise sovereign credit ie credit/money issued by a Treasury or Central Bank.
Whether this takes the form of notes and coin (which as recently as 1960 still represented >30% of the money supply) or QE, this is a credit instrument, not debt. ie there is no obligation to repay on a specific date. That being so, it makes sense to consider it as what it actually is - a form of Sovereign Equity akin to a redeemable share.
Strangely enough, and as I blogged on Labour List, the FT leader was suggesting only this Monday that instruments of Sovereign Equity might be a good idea.
If you take this National Equity approach for Sovereign Credit, then it completely changes the calculus of the deficit, and moreover, does so in a way that allows us to look at national investment in a more realistic way in accounting terms.
Underlying this is the point being made by Tomasson and Bezemer What is the Source of Profit and Interest? A classical condundrum reconsidered, and which I have been saying for years, that the credit =money which is tied up in productive assets through the legal claims of equity and secured debt is completely distinct both in its basis, and its economic effect, from the credit needed for the circulation of goods and services and the creation of productive assets.
The former, being based upon location/land and property claims over other productive assets material and immaterial does not, and cannot, circulate. It is only the relatively small amount of credit based on goods and services and (particularly Labour) which actually DOES circulate. You can throw out the usual equations.
In other words, the assumption conventionally used - which is that only Labour can be `productive' - is completely ideological bollocks which is used because it justifies limiting taxation to income earned by Labour, and removing it from unearned rents from privileged property rights over productive assets like Location/land and knowledge (IP) and so on.

In my view we need to look again at the bases of Value - the "Factors of Production" - and this is the epistemological - if not metaphysical question - I doodled with An Economics of Common Sense or even Reality-based Economics.

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LQD: Sovereign Equity (2) : Why Conventional Economics Is Bollocks | 23 comments (23 topical, 0 editorial, 0 hidden)

Re: LQD: Sovereign Equity (2) (4.00 / 4)

I've noted before, but I really like this perspective because it helps explain why so much of conventional economics only considers labour.

My hobby-horse example (boltered by the crisis) is "inflation" - asset inflation is ignored/not measured/not properly defined in conventional economics... only labour inflation really counted in terms of policy making in the run up to the crisis.

Of course, there is a double-bluff in conventional economics in that there are assumptions about "capital" - in effect, conventional economics appears to take it's position that it exists to allocate capital... hence capital is never subjected to analysis... (or indeed, as you point out, taxation.)

by Metatone (metatone [a|t] gmail (dot) com) on Fri Mar 19th, 2010 at 07:08:31 AM EST

Re: LQD: Sovereign Equity (2) (4.00 / 3)

You get to the heart of it.

Metatone:

it helps explain why so much of conventional economics only considers labour.

Mason Gaffney makes a good case that the entire purpose of Neoclassical Economics was as a reaction to the threat to the rich (who funded the development and promulgation of neoclassical economics) represented by Henry George's 'Single Tax' proposal to tax the unearned income from land rental value.

The Corruption of Economics

Neoclassical economics is the idiom of most economic discourse today. It is the paradigm that bends the twigs of young minds. Then it confines the fluorescence of older ones, like chicken-wire shaping a topiary. It took form about a hundred years ago, when Henry George and his reform proposals were a clear and present political danger and challenge to the landed and intellectual establishments of the world. Few people realize to what a degree the founders of Neoclassical economics changed the discipline for the express purpose of deflecting George, discomfiting his followers, and frustrating future students seeking to follow his arguments.

This critique needs to be updated, I think, but reflects the principal reason why economics became complete bollocks.

As you imply, asset price inflation and the FIRE (Finance Insurance and Real Estate) economy are distinct from the real world economy and retail price inflation.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Mar 19th, 2010 at 07:31:56 AM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (none / 1)

That makes sense, except for the fact that Karl Marx is the classical economist most invested in the argument that labor is the source of all value.

But in general I'd bet that only a minority of mainstream economists in the field would disagree with the notion that property/place and institutions are also significant sources of producing wealth independent of labor. That's the mainstream idea already, as shown in the seminal report by the World Bank, "Where is the Wealth of Nations?" which finds that intangible wealth (education and social capital -- the institutions and property rights/places that you speak of) make up most of the wealth in the world, not productive capital or labor resources.

My question is, So what?? How does that change a policy recommendation regarding financial systems?

by santiago on Fri Mar 19th, 2010 at 01:52:24 PM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (4.00 / 2)

santiago:

How does that change a policy recommendation regarding financial systems?

Firstly, if there is a State intermediating financial transactions then it should tax unearned income from the rents which derive from privileged property rights. Secondly, if, as I believe, the State may be dis-intermediated, then we will base undated credit on what in my analysis are the true 'Factors of Production'. ie Location, Energy, and Knowledge.

This disintermediation will take place, in my analysis, through the viral spread of Peer to Peer Finance.

Forget policy 'recommendations' - that assumes others implement policy. I'm backing my analysis by working with others of like mind to implement P2P finance as a reality.

Reality-based community - Wikipedia, the free encyclopedia

And while you're studying that reality--judiciously, as you will--we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors...and you, all of you, will be left to just study what we do

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Mar 19th, 2010 at 02:39:04 PM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (4.00 / 5)

Got it. That makes a lot of sense now. You're an anarchist (in the positive sense of the word).

But here's one aspect that I think needs further research (and economics, to date, hasn't addressed it, although sociology and policy studies are beginning to): If factors of production are location, energy, and knowledge, you are in effect assuming that political power is not such a factor, and this seems to me problematic because so much of value, according to the institutionalist school of thought, is determined by political power. A particular piece of real estate has value, for example, not just because of its random location, but because of the politically determined benefits that a certain location provides. This seems problematic for a project of dis-intermediating economic activities from the state. I.e., P2P is entirely dependent upon an accommodating political environment, just like markets are.

by santiago on Fri Mar 19th, 2010 at 02:54:42 PM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (4.00 / 3)

Very astute comment: I must say I enjoy these exchanges. I think that a reality-based approach would necessarily reinvent politics by redefining and dispersing power relationships.

The position now is that parties are organisations which create policies based on an ideology, and these are then subject to the process of representative democracy and implemented by an executive.

I think that an optimal policy (there must be one, and it must evolve organically) may be defined in protocols by - as J A Wheeler puts it - through continuously asking the right questions of reality. An evolving optimal policy would actually come to define the movement which gathers adherents who act within the policy framework to develop and implement specific implementations.

By way of example, I might write a document - call it a manifesto or kernel - of 'Open' policies based on partnership protocols.

Then any politician who subscribes to these policies could say so, or sign up consensually, and we could then get Open Labour, Open Lib Dem, Open Green, and Open Tory candidates standing for election. The way I see it, I would not have created a Party - merely the basis of an 'Open' movement.

I think - from having had the benefit of long conversations with John Banks (who recently died aged 95) that a Movement, rather than a Party, are what he and the founders of the Common Wealth Party actually had in mind.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Mar 19th, 2010 at 04:28:22 PM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (none / 0)

ChrisCook:

then we will base undated credit on what in my analysis are the true 'Factors of Production'. ie Location, Energy, and Knowledge.

I see the sense in making location and energy the basis for currency, but knowledge? Knowledge is not limited other then by fiat, and that is fiats that are notoriously hard to upheld. There is a logic in taxing privilege, but I think you should separate between necessary limited factors of production - like land - and those the political system created as limited factors. Otherwise I fear that you could as well base undated credit on the monopoly of trade with India.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Sun Mar 21st, 2010 at 04:36:44 AM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (none / 1)

A swedish kind of death:

I see the sense in making location and energy the basis for currency, but knowledge?

In my analysis, Labour may be deconstructed as to:

(a) Energy (aka manpower) - which is maybe what Keynes was referring to as 'unqualified labour' - and is of course sustained by kcalories; and

(b) Knowledge - in its subjective form, which is what resides between our ears, dies with us, and consists of knowledge, contacts, skill, wisdom, intuition, common sense and so on.

Both our Energy and our Knowledge have a use value over time, and it is an individual's subjective Knowledge that allows him to deploy his energy to optimal effect. Individuals can and do enter into the more or less formal contractual agreements which define 'enterprise models' and enable collaboration and efficiency gains.

Knowledge also exists in an objective form as recorded data patterns of all types, including bit patterns, sound and video, and we are accustomed to the concept of the legal protocols and claims over these data patterns which combine in the concept of Intellectual Property.

IMHO there is not yet a satisfactory legal model for the intellectual property relationship. The transition into a Knowledge economy has been turbo-charged by the direct instantaneous connections of the Internet,and if we can create new forms of property right - using new interactive protocols - then I think that the result will be revolutionary.

Note finally that our (subjective) knowledge and energy/manpower form the basis of credit simply through the issue - by individuals, not banks - of IOUs to each other within a framework of trust provided by a mutual guarantee.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Sun Mar 21st, 2010 at 10:25:36 AM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (none / 0)

ChrisCook:

IMHO there is not yet a satisfactory legal model for the intellectual property relationship. The transition into a Knowledge economy has been turbo-charged by the direct instantaneous connections of the Internet,and if we can create new forms of property right - using new interactive protocols - then I think that the result will be revolutionary.

Looking at the new forms that emerging with the Internet - creative commons, open source - they emphasize the common use and are mostly a hack of the current legal code to protect against enclosure. The results are revolutionary:

When using open source makes you an enemy of the state | Technology | guardian.co.uk

It turns out that the International Intellectual Property Alliance, an umbrella group for organisations including the MPAA and RIAA, has requested with the US Trade Representative to consider countries like Indonesia, Brazil and India for its "Special 301 watchlist" because they use open source software.

But as these forms are against the enclosure of knowledge, I do not see how they could be made into a basis for a currency.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Mar 22nd, 2010 at 05:35:01 AM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (4.00 / 3)

Santiago:

Karl Marx is the classical economist most invested in the argument that labor is the source of all value

See comment below. It also addresses your later question about power.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Fri Mar 19th, 2010 at 04:37:37 PM EST
[ Parent ]

Re: LQD: Sovereign Equity (2) (none / 0)

Good points.

by santiago on Fri Mar 19th, 2010 at 06:54:20 PM EST
[ Parent ]

Re: Why Conventional Economics Is Bollocks (4.00 / 6)

The interesting thing is that both Marx and the Neo-Classicals only consider labor productive, but for different reasons. Marx makes labor the only productive item so that the surplus value of labor, value in excess of what is required to pay the laborer, becomes the basis of the profit which the capitalist expropriates for himself. This becomes the basis of his argument for public ownership of the means of production.

NCE, as you note, does so to justify restricting taxation to labor. In the USA the Republicans are always clamoring to reduce or eliminate "unearned income", i.e. income derived from interest, land rent, or capital rent, as from capital goods used to enable greater surplus value from labor.

In Capital as Power Nitzan and Bichler argue convincingly that neither of these approaches holds together, that neither concepts of labor value are coherent or have usable metrics and that, embarrassingly, neither Marxist nor NCE Economics can account for profit, capital accumulation or price. Profit and price are best accounted for by Veblen's theories of business damage or strategic sabotage. Capital accumulation is based on the creation of order in the political sphere that enables the businessman to organize profitable production--the laws and social norms of the society-- which are of the same order as the power that was used by the Pharaohs, as described by Lewis Mumford in Technics and Civilization, The City In History and The Myth of the Machine.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Fri Mar 19th, 2010 at 12:38:44 PM EST

Re: Why Conventional Economics Is Bollocks (none / 1)

ARGeezer:

Profit and price are best accounted for by Veblen's theories of business damage or strategic sabotage.

According to Tomasson and Bezemer you have to go back to Bentham to get to the bottom of Profit and Money, and then to a long obscured tract.

PT=MV was - for other reasons - getting a roasting on FT Alphaville today.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Mar 19th, 2010 at 07:19:40 PM EST
[ Parent ]

Re: Why Conventional Economics Is Bollocks (none / 1)

It seems to me that the authors of the FT Alphaville article cited don't allow for the differences in market sentiment between boom times, when greed predominates, and down times, when fear predominates. It seems bloody obvious to me that, when you are fearful, you are likely to hold on to your money, and that this will decrease V. I suspect that they have no concept of dV/dt, t=time in this case, as they live in a timeless world.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Fri Mar 19th, 2010 at 10:10:36 PM EST
[ Parent ]

Re: Why Conventional Economics Is Bollocks (none / 1)

Fear and Greed are motivations both for investment in assets, which may inflate asset prices, and for levels of discretionary spending, which may inflate retail prices.

My point is that V relates to two distinct monetary circulations:

V1 - money circulating in the financial economy or FIRE sector as Hudson has it;

V2 - money circulating in the 'real' economy.

It is the fiscal interface between these two monetary flows which is crucial.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Sat Mar 20th, 2010 at 09:08:42 AM EST
[ Parent ]

Re: Why Conventional Economics Is Bollocks (none / 0)

But in the current climate V1 is reduced from those wealthy who dislike the risk/reward profile and V2 is reduced from the rest, who have limited resources and can see the need to carefully husband them. Double whammy.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sat Mar 20th, 2010 at 11:47:52 AM EST
[ Parent ]

Re: Why Conventional Economics Is Bollocks (none / 0)

That's quite right ... the V of Friedman's MV=PT is sometimes a mis-measured V2 when talking about GDP, and sometimes V1+V2 when talking about the total money stock.

V_GPD is not, of course, either V2 or V1 ...

Switching to w for the wealth management FIRE sector and o for the output of real goods and services sector, because M1 and M2 for money stock allocated to the service of each sector is too confusing with the M1 and M2 monetary aggregates ...

In MV=PQ, which is due to, V:=$GDP/M, and Q:=($GDP/P)

... if M=Mw+Mo, Vo:=($GDP/Mo), so that the correction from the synthetic V_GDP to Vo is:

Vo = ($GDP/Mo) = [$GDP/(Mw+Mo)][(Mw+Mo)/Mo], so
Vo = V_GDP[1+Mw/Mo] = V_GDP + V_GDP[Mw/Mo]

If V_GDP was to be rising while Mw/Mo is falling, it would be quite possible for Vo to be either stable or declining.

To the extent that the rate of change in Vo and Vw are both constrained by institutional rules (the real world equivalent of Friedman's arbitrary assumption that velocity is stable), it may well make sense to track them independently, since they would to a substantial extent be constrained by <i>distinctive</i> institutional rules.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sat Mar 20th, 2010 at 03:44:41 PM EST
[ Parent ]

Re: Why Conventional Economics Is Bollocks (none / 0)

re: business damage or strategic sabotage

That idea in Veblen's theory is a description of monopoly conditions in a market, where a group of producers conspire to combine or pool their resources (factors of production including force of law that indemnifies such cooperative behavior as well as property claims, disposition of; indeed Veblen waxes poetic throughout characteristics of "natural rights of ownership" incompatible with modern machine technology) to control demand for and supply of goods or services within an industry offered for sale. That control over factors of production is, the "market power" of a specified group of producers, whether "businessmen" or laborers.

If Veblen's theory can be said to identify a "basis" (rule or metric) of profit or price per se apart from an anachronistic "pecuniary" fetishism shared by businessmen (property owners) and human laborers (dispossessed property owners), it is expressed arbitrage --an activity by no means exclusive to financial capitalism. Arbitrage, in other words, is any measurable difference between transaction costs attributed to market participants, buyer and seller, at point of sale. Wherever exchange, business, occurs arbitrage is the absence of reciprocity. Chiefly, ignorance of production values signified by a price claim. Inequality is a crucial requirement of profit. And this is what some "businessmen" plan to achieve to obtain it.

Count the frequency with which he employs "difference" and "differential" to describe "pecuniary gain."

This follows from the fact that the putative increase of earnings on which prosperity rests is in substance an apprehended differential gain [read: profit] in increased selling price of the output [read: revenue] over the expenses of production [read: cost of work] of the output. Only so long as the selling price [or "market price"] of the output realizes such a differential gain over the expenses of production, is the putative increased rate of earnings realized; and so soon as such a differential advantage ceases, the era of prosperity enters on its closing phase.

Of course all profit is the difference of what is (realized) and what will be (unrealized) that is created by work, i.e. the transformation of things tangible and intangible: profit = what will be - what is. In other words, p = R - C. Veblen happens to be fixated on money market ("capital market") transaction "advantages" among firms in an industry competing for maximum revenue. Because machine technology being one of a number of factors of production --labor inputs-- obviates quantity of work and costs of work attributable to human laborers. duh.

(1) Industry [read: work] is carried on by means of investment [read: unrealized work or cost of work], which is made with a view to pecuniary gain (the earnings) [read: revenue = quantity of work]. The business man's endeavors in managing the affairs of the concern in which investment has been made look to the same end. The gains [read: profit] are kept account of as a percentage on the investment, and both they and the industrial plant or process through the management of which they are procured are counted in terms of money [read: price per quantity of realized work (R) or unrealized work], and, indeed, in no other terms.

While Veblen appreciates the pecuniary efficiencies obtained by combinations (pools, trusts, monopolies), he resorts to euphemism, when discussing "lobbying" by businessmen or trade unions for legal protection of various monopolistic practices (combination, pool, trust), elsewhere he glosses in commentary of such industries as railroad property and railroad securitization.

To the business man who aims at a differential gain arising out of interstitial adjustments or disturbances of the industrial system, it is not a material question whether his operations have an immediate furthering or hindering effect upon the system at large. The end is pecuniary gain, the means is disturbance of the industrial system, - except so far as the gain is sought by the old-fashioned method of permanent investment in some one industrial or commercial plant, a case which is for the present left on one side as not bearing on the point immediately in hand.(7*) The point immediately in question is the part which the business man plays in what are here called the interstitial adjustments of the industrial system; and so far as touches his transactions in this field it is, by and large, a matter of indifference to him whether his traffic affects the system advantageously or disastrously [read: business damage or strategic sabotage]. His gains (or losses) are related to the magnitude of the disturbances that take place, rather than to their bearing upon the welfare of the community.
The outcome of this management of industrial affairs through pecuniary transactions, therefore, has been to dissociate the interests of those men who exercise the discretion from the interests of the community. This is true in a peculiar degree and increasingly since the fuller development of the machine industry has brought about a closeknit and wide-reaching articulation of industrial processes, and has at the same time given rise to a class of pecuniary experts whose business is the strategic management of the interstitial relations of the system. Broadly, this class of business men, in so far as they have no ulterior strategic ends to serve, have an interest in making the disturbances of the system large and frequent, since it is in the conjunctures of change that their gain emerges. Qualifications of this proposition may be needed, and it will be necessary to return to this point presently.

Ironically, I see him comfortably modeling Deming or Drucker in his era.

Diversity is the key to economic and political evolution.

by Cat on Sat Mar 20th, 2010 at 12:20:48 PM EST
[ Parent ]

This is not an equivalence ... (none / 0)

That idea in Veblen's theory is a description of monopoly conditions in a market

Monopoly conditions in a market is one fstrategic position that frequently enables a firm to engage in business sabotage, but its certainly not the only such position.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sat Mar 20th, 2010 at 03:48:25 PM EST
[ Parent ]

Re: This is not an equivalence ... (none / 0)

re: use of the indefinite article, "a"

Competition between firms is a tenent of price "discovery" and price "clearing," according to free market ideology. "Business damage" and "business sabotage" are competitive tactics deliberately employed by "businessmen" to eliminate rivals thereby establishing one of several conditions that constitute exclusive market power within an industry. As you know, one crucial test of Westworld antitrust prosecution are stationarity and more generally a pattern of predatory pricing (beggaring the question of prospective dominance and "pecuniary gain"), for example.

GC.ca: Predatory prices are an investment in a future monopoly, a sacrifice of today's profits for tomorrow's. The investment must be recouped. If a monopoly price later is impossible, then the sequence is unprofitable and we may infer that the low price now is not predatory. More importantly, if there can be no "later" in which recoupment could occur, then the consumer is an unambiguous beneficiary even if the current price is less than the cost of production....
Because determination of likelihood of recoupment is easier than undertaking the price/cost characterization and comparison,(37) the court held that trial courts ought to undertake the recoupment analysis first. If recoupment is implausible, then one need not undertake the laborious price/cost exercise.

Veblen also discusses, with his idiosyncratic ambivalence to scale of comparative terms, beneficial cooperation between firms in order to regulate prevailing price. First, "animus" of business damage:

It is notorious, beyond the need of specific citation [BWAH!], that the great business coalitions and industrial combinations which have characterized the situation of the last few years have commonly been the outcome of a long-drawn struggle, in which the industrial ends, as contrasted with business ends, have not been seriously considered, and in which great shrewdness and tenacity have commonly been shown in the staving off of a settlement for years in the hope of more advantageous terms. The like is true as regards further coalitions, further consolidations of industrial processes which have not been effectcd, but which are known to be feasible and desirable so far as regards the mechanical circumstances of the case. The difficulties in the way are difficulties of ownership, of business interest, not of mechanical feasibility.
These negotiations and much of the strategy that leads up to a business consolidation are of the nature of derangements of industry, after the manner spoken of above. So that business interests and manoeuvres commonly delay consolidations, combinations, correlations of the several plants and processes, for some appreciable time after such measures have become patently advisable on industrial grounds. In the meantime the negotiators are working at cross-purposes and endeavoring to put their rivals in as disadvantageous a light as may be, with the result that there is chronic derangement, duplication, and misdirected growth of the industrial equipment while the strategy is going forward, and expensive maladjustment to he overcome when the negotiations are brought to a close.(11*)

What he does not theorize is valuation of either profit or price. That pseudo-scientific activity is known as axiology.

Diversity is the key to economic and political evolution.

by Cat on Sat Mar 20th, 2010 at 09:06:14 PM EST
[ Parent ]

Re: This is not an equivalence ... (none / 0)

"Business damage" and "business sabotage" are competitive tactics deliberately employed by "businessmen" to eliminate rivals thereby establishing one of several conditions that constitute exclusive market power within an industry.

That is true, but that does not imply that business damage and business sabotage are only employed to eliminate rivals. And of course broader institutional constraints are an important element in that.

As you know, one crucial test of Westworld antitrust prosecution are stationarity and more generally a pattern of predatory pricing (beggaring the question of prospective dominance and "pecuniary gain")

This is an institutional constraint, which was not entrenched at the time that Veblen was writing. Yes, of course the legal tests that are used to apply anti-trust legislation are then part of the landscape which helps determine where the strategy opportunities for business damage and business sabotage lie, and is indeed one of the reasons that business damage and sabotage tended to involve more industrial collaboration in the US following World War II.

Then you quote a long block which seems to be quite valid for the time to which Veblen is referring. You seem to object to:

It is notorious, beyond the need of specific citation [BWAH!], that the great business coalitions and industrial combinations which have characterized the situation of the last few years have commonly been the outcome of a long-drawn struggle, in which the industrial ends, as contrasted with business ends, have not been seriously considered, and in which great shrewdness and tenacity have commonly been shown in the staving off of a settlement for years in the hope of more advantageous terms.

... and offends post WWII University social science sensibilities, but other than the offense to our delicate modern sensibilities, and at the time the claim was made, it certainly was quite notorious, and of course one of those inconvenient truths that the neoclassicals had to find ways to ignore when pursuing their theory of monopoly.

Is the complaint that the argument is not based in a neoclassical or quantitative Marxian fashion on quantities that are indeterminate until the type of strategic decisions being discussed have been made? That would seem to be a point in favor of the argument rather than a point against it, that it does not rely on fictions like the neoclassical "natural level of output" or a notion of an intrinsic level of surplus value.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sat Mar 20th, 2010 at 10:38:40 PM EST
[ Parent ]

Re: This is not an equivalence ... (none / 0)

but that does not imply that business damage and business sabotage are only employed to eliminate rivals.

Veblen sez otherwise. Refer to text, exerpted above or other, if you would to illustrate how "businessmen" or trade unions damage or sabotage their own going concerns.

This is an institutional constraint [sic], which was not entrenched at the time that Veblen was writing.

"Institutional constraint" is another euphemism for statute(s), prohibitive or affirmative state sanction of business conduct. Veblen's text would seem to contradict a retrospective claim, such as yours, that neither prohibitive nor affirmative antitrust statutes were "entrenched" [read: enforced?] as of 1904. Or that he was unaware of prohibitive or affirmative antitrust enforcement up to and including 1904.

The landmark Sherman Act of course established federal standards to test anti-competitive business conduct in 1890 (you may want to review Veblen notes to the text). Prior to that act, one, sufficient schooled in Anglo or Black's jurisprudence, may argue that private actions ("litigation") among firms enforced "institutional constraints" on conduct alledged to restrain trade at least in the US from the 1850s.

English courts generally let restrictive contracts stand because they did not consider themselves suited to judging adequacy or fairness. Over time, courts looked more closely into both the purpose and the effect of any restraint of trade. The turning point came in 1711 with the establishment of the basic standard for judging close cases, "the rule of reason." Courts asked whether the goal of a contract was a general restraint of competition (naked restraint) or particularly limited in time and geography (ancillary restraint). Naked restraints were unreasonable, but ancillary restraints were often acceptable. Exceptions to the rule grew as the economic philosophy of laissez-faire (meaning "let the people do what they please") spread its doctrine of noninterference in business. As rival businesses formed cartels to fix prices and control output, the late-eighteenth-century English courts often nodded in approval.

May I remind you that I am quoting Veblen, and anyone may take a turn to excerpt the text that illustrates his or her intepretation(s) of his keen, novel analytical insight on scale efficiences of "business" motives, accounting, and credit strategies.

Incessantly questioning or ascribing value judgements to my motives is beside the issue.

Diversity is the key to economic and political evolution.

by Cat on Sun Mar 21st, 2010 at 02:59:57 PM EST
[ Parent ]

Re: This is not an equivalence ... (none / 0)

Possibly related post:

book review, polemic
Kuznets invented national income statistics, et seq
intellectual history of national income accounting, e.g. 1, 2
axiology

Diversity is the key to economic and political evolution.

by Cat on Sun Mar 21st, 2010 at 03:56:54 PM EST
[ Parent ]

LQD: Sovereign Equity (2) : Why Conventional Economics Is Bollocks | 23 comments (23 topical, 0 editorial, 0 hidden)

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