Commentary on Political Economy

Monday 8 August 2011

New Excerpt from 'Krisis'

To reward our loyal friends visiting this site in droves now, here is another excerpt from Joseph Belbruno's major study titled 'Krisis: Exegesis and Critique of Capitalism'. A chapter from this planned work has now become a separate book in itself, called 'Umwertung: On Nietzsche's Transvaluation of All Values', which should be available very soon.

These excerpts are intended to indicate to visiting friends the sophistication of the "framework of analysis" that we are developing, and to show that our "opinions" are not based on whimsy or fantasy. Friends are invited also to browse through the site for other "theoretical" extracts. Merci a' tous!
Here is the extract - enjoy!

Fragment On Exchange:

The profound incomprehension of the fundamental problem of economic theory and the well-nigh total confusion and misconception of the fact that it cannot be “reduced/traduced” to a simple problem of “exchange” is again made evident by Boettke et alii:

“Hayek’s focus on the epistemic properties of the market process led him to recognize the role of the division of knowledge in promoting social order just as Smith (1776) emphasized the division of labor to promote economic prosperity. Adam Smith taught us that the great increase in the productive capacity of a people resulted from expansions in the division of labor.  Hayek, similarly, taught us that a division of labor also entailed a division of knowledge in society.  Both emphasized the complexity that the division of labor and division of knowledge implied and the enormity of the coordinative task that must be accomplished by the market system to realize the great benefits of specialization and trade,” (‘Context’, p3, my emphasis).

The problems are compounded by the fact that, as Boettke et alii confirm above, both Smith and Hayek sought to theorise the role of competitive market ‘co-ordination’ (“the market system”) “to realize the great benefits of specialization and trade”. In other words, they are aware of the fact that “best use of resources” is not just an “epistemic” problem, but also one of “specialization and trade” – or rather… one of productivity and growth!

The “allocation of resources” can get us to “distribution” and then to “productive distribution using existing technological and human resources” – which returns us to the “technical (engineering)” definition of ‘co-ordination’. But it will not take us to “innovation”, because otherwise market co-ordination would have to encompass not just existing technologies but also other “combinations” of technologies and innovation (Schumpeter). [Metcalfe (‘Evol.Econs.&Cr.Destr.’) agrees with the futility of pursuing this line of enquiry.]

But then we need also a theory of how market system ‘co-ordination’ not only ‘allocates’ resources but also causes these resources to grow. And yet, the mechanism that causes resources “to grow” (the economy “to develop”) must be conceptually and institutionally distinct and separate from the market process of ‘co-ordination’ through exchange of resources!

In other words, it is not possible to incorporate the notion of “development and growth” in the concept of ‘co-ordination’ because the former involves more than sheer ‘co-ordination’, whether of ‘given resources’ or of ‘knowledge about use of existing resources’. It involves the expansion of resources however defined.

So, what can Boettke et alii mean by “the enormity of the coordinative task that must be accomplished by the market system to realize the great benefits of specialization and trade”? Because no “enormity of the coordinative task” will ever be enormous enough to cause “the market system to realize the great benefits of specialization and trade”, once we concede (as we must) that “the great benefits of specialization and trade” are necessarily distinct and separate in theory and in practice from “the co-ordinative task of the market system”!

The economic concept of “productivity and growth”, or “development” involve social mechanisms or interactions that are quite different from the concepts of ‘co-ordination’ and ‘exchange’ and ‘allocation’. For growth and development to occur, we need to specify a “motor or engine of growth or development”.

Recall that it was Adam Smith’s original confusion of exchange as the cause of specialization (rather than the other way around) that led him astray from his quest “to enquire into the nature and causes of wealth” (that is, ‘growth’) and that condemned him ultimately to seek ‘value’ in the sphere of exchange and to turn therefore into “the father of general equilibrium” (Arrow and Hahn) and to invoke “the invisible hand” (timeless equilibrium determined by simultaneous equations).

Even if we follow the orthodox interpretation of Schump’s ‘theory’and locate ‘innovation’ endogenously with Rosenberg within ‘corporations/firms’, there is still absolutely no conceptual link between “the market” as a “co-ordinating” mechanism of “knowledge/information utilization” (Hayek) and the actual process of “innovation”.

And even superficially, quite apart from the ‘conceptual’ difficulties of Boettke’s hypothesis,there is ample evidence to show that, purely at a ‘geographical/logistical’ level, “innovation” very often takes place in a ‘non-market’, non-competitive setting – “the fourth quadrant”, as Steven Johnson has called it.

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