Capitalism without Capital: Accounting for the crash

187 Pages·2015·2.357 MB·English

by  Alan Shipman

Capitalism without Capital
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Capitalism without
Capital
Accounting for the crash
Alan Shipman
Lecturer in Economics, Open University, UK
© Alan Shipman 2015
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accordance with the Copyright, Designs and Patents Act 1988.
First published 2015 by
PALGRAVE MACMILLAN
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registered in England, company number 785998, of Houndmills, Basingstoke,
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E-ISBN: 978–1–137–44244–4
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expected to conform to the environmental regulations of the country of origin.
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Shipman, Alan, 1966–
Capitalism without capital : accounting for the crash / Alan Shipman.
pages cm
Summary: “An unusual consensus has developed among economists that the
‘long boom’ before 2008, and the subsequent crisis and recession, resulted from a
global excess of capital. Over-supply of saving drive down capital costs, encouraging
excessively risky investment and preventing the scrapping of outmoded plant.
Capital’s inexorable growth is also blamed for a prolonged squeeze on wages, rising
elite wealth and worsening global inequality. This book explores the obvious clash
between such arguments and actual measurements of capital, which show a small
and shrinking ‘productive’ component, and a deepening disconnection between
capital accumulation and economic growth. It traces the conflict to the continued
absence of consistent definitions or measurements of capital, and neglect of the
complex connection between aggregate capital and wealth. Capital ‘gains’ and
‘losses’, and the growing domination of income statements by balance sheets,
undermine attempts to sidestep the problem by reconstituting economics as a
system of flows”—Provided by publisher.
ISBN 978–1–137–44243–7 (hardback)
1. Capitalism. 2. Financial crises. 3. Recessions. I. Title.
HB501.S5854 2015
330.12’2—dc23 2015003629
Contents
List of Tables vi
Introduction 1
1 An Obvious Excess of Capital 9
2 A Still More Obvious Excess: Capital as Wealth 27
3 In Practice It’s Scarce 51
4 What Isn’t There? Capital Definitions and Measurements 71
5 The Destination of Wealth 93
6 Economics without Capital 123
7 Economies without Capital 139
References 169
Index 177
List of Tables
5.1 Composition of gross capital stock, Euro Area 17, % 107
5.2 Net stock of fixed assets (at current prices), US 108
5.3 Composition of private net wealth, various
countries, 1990–2010 (percentages) 109
7.1 Asset holdings: median household, 2013
(EUR thousands) 142
7.2 General government gross debt, G7 countries,
1996–2013 (% of GDP) 163
vi
Introduction
Off the shelf
Early versions of ideas distilled here took shape in the Marshall Library
of Economics. The ‘Marshall’ has, for over 40 years, been housed in the
architecturally dubious but intellectually salubrious Austin Robinson
Building, with offshooting corridors that run past rooms named
after John Maynard Keynes and James Meade. Over the years, the
Marshall’s book and journal stock has been constantly replaced and
updated, so that few of the tomes that informed Economics Triposes
of the past now remain on display. Vast amounts of new writing (and
some new thinking) have occurred in economics since the library’s
inauguration, and the edited highlights have trickled remorselessly
onto its shelves. Yet while the contents continually change, they have
never expanded. The stacks remain far enough apart for natural light
to bathe the reading desks, and retain enough empty space to per-
suade next year’s intake that there is still something more to be said.
Although not all can match the Marshall’s scenic windows and
squeaky floors, other libraries have taken the same one-in, one-out
approach to managing stock. I can confirm this from the documen-
tary research that went into this book. Almost all the referenced titles
that had been published before 2000 were no longer stocked in librar-
ies, and were eventually obtained as second-hand copies that had
been withdrawn and sold by those same libraries (the rubber rejec-
tion stamps ranging from Manchester to Michigan).
Libraries’ lack of expansion is, of course, an intellectual if not an
optical illusion. The Marshall (and its many surrounding libraries)
1
2 Capitalism without Capital
holds an expanding array of items that are not on display, but stored
in basements or off-sit archives, to be called back if eager readers with
long memories wish to revisit them. Only the miniaturizing wizardry
of microfilms, databases and disks have stopped these subterranean
storage vaults fanning out into collision with the metro tunnels and
mining shafts. Digitization arrived just in time to avert a knowledge-
driven deforestation. Now libraries can expand invisibly, as portals
to an electronic collection that can grow without limit, until Iceland
sinks beneath the weight of its snow-cooled server farms.
The stock of claims to economic knowledge is therefore not as
bounded as the Marshall’s perennially uncluttered aisles might sug-
gest. Academic and professional economists have been far from
unproductive over the past half century, even though they have ren-
dered numerous economies unproductive during that time. Indeed,
under ever-rising pressure to publish, they spew out more articles and
books than ever, a surge tide from which this slender volume strug-
gles to detach itself.
But the degree course which most of the Marshall’s term-time visi-
tors are pursuing does not expand in scale or extend in length. An
undergraduate BA in Economics is still completed in three years of
three terms, each no more than eight weeks long. Students complain
of a growing intensity of work, but they have always done so. The time
traditionally set aside for local rowing, brewing, playmaking and late-
night crenellation climbing has not been noticeably squeezed. Those
who deliver the courses insist that they have relentlessly updated
them to include the latest theoretical and empirical advances. So if
the standard commodities, wage-profit frontiers, multiplier effects
and capital reversals of a generation ago are expunged from today’s
curriculum, it can only be because they have been encompassed or
superseded. Either they are needed no more, or the historians next
door can pick them up.
According to its custodians, then, the stock of relevant economic
knowledge has not grown. It has merely been transformed within
unchanging boundaries of time and space. New breakthroughs shrink
past general theories into special cases of one more encompassing,
or show them to be wholly dispensable, like bygone chemistries’
aether and phlogiston. Mathematics and experimentation, the two
levers with which economists seek to shift their ground from social
to natural science, have been especially effective (in the view of their
Introduction 3
practitioners) – to raising quality while even reducing quantity. The
laboratory tests (on computer-simulated economies, and occasion-
ally unsuspecting residents of a real one) reject substantially more
past assertions than they accept. The algebraic ‘formalizations’ rid
the subject of excess verbiage, ultimately reducing it to a sequence
of theorems that a passing linear programmer could master in an
afternoon.
While heterodox economists protest that much of value has been
ditched to make space for the newly equation-filled orthodoxy, they
reinforce the impression of zero-sum knowledge gain by designing
courses that teach the mainstream and some alternatives and still
compressing them into the standard one- or three-year courses.
Concerned as they are to reinstil a critical realism into the subject,
a temporal realism rules out any expansion of received wisdom that
would detain the learners longer. Lengthening the instruction period
is impossible when students’ debts rise in direct proportion to it.
Intensifying the injection of new knowledge, to cram more in, would
collide with other calls on learners’ time, be it the essential relaxation
from study or the evenings behind the counter that are needed to
finance it.
Undazzled by the ever more sophisticated models and forecasts,
the public concluded from the widely unforeseen crash of 2008 that
economists knew a lot less than they thought. So few can plausibly
dispute the claim that their stock of useful knowledge can evolve and
transform without growing. Many would be surprised to be told it
has not shrunk, with new ideas subtracting more than they add.
The subject’s greatest architects have always engaged in comprehen-
sive demolition of what previously stood, before beginning their
reconstruction. Despite the vast difference in their aims, this was the
strategy adopted in common by (among many others) Marx against
the free marketeers, Keynes against the ‘classics’ (including Marx), the
General Equilibrium and Rational Expectations theorists against the
Keynesians, Barro (1974) and Sargent and Wallace (1975) against any
advocacy of fiscal policy effectiveness, Robinson (1954) and Felipe
and McCombie (2001) against any models based on aggregate pro-
duction functions and Granger and Newbold (1974) against all previ-
ous time-series analysis.
But if economists want this in relation to their own stock of knowl-
edge, they should accept it might apply to other stocks as well.