Core concepts in non-Marxian, (and largely institutional) critical political economy taken from various sources and referenced where possible.
Affluent society – Galbraith asserts that classical economic theory was true for the eras before the present, which were times of “poverty”; now, however, we have moved from an age of poverty to an age of “affluence”, and for such an age, a completely new economic theory is needed.
Arkhéderivative – Concept developed by Suhail Malik about the primacy of contingent finance and the primacy of the derivative – qua contingent wager on the future of it’s underlying asset – over the “real” economy. The full text of his article can be found here, plus conference video explaining the concept can be found here.
Conspicuous consumption – the spending of money on and the acquiring of luxury goods and services to publicly display economic power—either the buyer’s income or the buyer’s accumulated wealth. In the 20th century, the significant improvement of the material standard of living of a society, and the consequent emergence of the middle class, broadly applied the term “conspicuous consumption” to the men, women, and households who possessed the discretionary income that allowed them to practice the patterns of economic consumption—of goods and services—which were motivated by the desire for prestige, the public display of social status, rather than by the intrinsic, practical utility of the goods and the services proper.
Differential accumulation – an approach for analysing capitalist development and crisis, tying together mergers and acquisitions, stagflation and globalisation as integral facets of accumulation. The concept has been developed by Jonathan Nitzan and Shimshon Bichler. The concept of differential accumulation emphasises the powerful drive by dominant capital groups to beat the average and exceed the normal rate of return. This concept is tied to a definition of capital as a social category rather than a material category (as seen by neo–classical thinkers). A firm can raise its profit through “breadth” by adding more employees to the organisation. Conversely the firm can pursue “depth” by generating higher profit per employee. Each avenue of breadth and depth can be divided into pursuing differential accumulation through “internal” or “external” means. This gives us four categories of differential accumulation: internal breadth by amalgamation (buy or join other businesses), external breadth through greenfield investment (build new factories), internal depth via cost–cutting (make workers work harder or find ways to reduce the price of inputs), and external depth through stagflation (raise prices faster than the competition). his formula is basic to finance which is the overarching logic of capitalism. The logic is also inherently differential as every capitalist strives to accumulate greater earnings than their competitors (but not profit maximization). Nitzan and Bichler label this process differential accumulation. In order to have a power theory of value there needs to be differential accumulation where some owners’ rate of growth of capitalisation is faster than the average pace of capitalization.
Differential accumulation regimes, breadth – Dominant capital can increase its differential earnings and capitalisation by increasing the relative size of its organisation
Differential accumulation regimes, depth – Dominant capital can increase its differential earnings and capitalisation by increasing the relative elemental power of its organisation
Dual economy – he revised sequence concept applies only to the industrial system – that is, the manufacturing core of the economy in which each industry contains only a handful of very powerful corporations. It does not apply to the market system in the Galbraithian dual economy. In the market system, composed of the vast majority of business organisations, price competition remains the dominant form of social control. In the industrial system, however, composed of the 1,000 or so largest corporations, competitive price theory obscures the relation to the price system of these large and powerful corporations. In Galbraith’s view, the principal function of market relations in this industrial system is, not to constrain the power of the corporate behemoths, but to serve as an instrument for the implementation of their power. Moreover, the power of these corporations extends into commercial culture and politics, allowing them to exercise considerable influence upon popular social attitudes and value judgments. That this power is exercised in the short-sighted interest of expanding commodity production and the status of the few is both inconsistent with democracy and a barrier to achieving the quality of life that the new industrial state with its affluence could provide.
Evolution – the interaction between outcomes and institutional structure causes economies to evolve over time in a process of cumulative causation along different path– dependent trajectories.
Finance, primacy of – Existing theories of political economy, liberal as well as Marxist, see capital as a dual entity. According to these theories, the “real” essence of capital consists of material/productive commodities, while the “financial” appearance of capital either accurately mirrors or fictitiously distorts this underlying reality. Bichler and Nitzan reject this duality. Capital, they argue, is finance, and only finance. In its modern incarnation, capital exists as forward-looking capitalization, a universal financial ritual that discounts expected future earnings to a singular present value. This has conception of capital, along with sabotage and differential accumulation, provides an alternative account for understanding the political economy of innovation, productivity and labour. Capital is best identified as quantified, vendible ownership claims over groupings of tangible and intangible assets that are expected to generate streams of earnings. Veblen recognized that accumulation is not achieved by way of production itself, but as a result of changed expectation of future earning streams. Such a change can be achieved not only by increasing the stock of productive machinery or the actual quantity of output, but also through a reorganisation of existing systems of production that is viewed favorably by market participants. Any intangible entity that can be both turned to accumulatory advantage and can be transferred among owners, becomes an asset under capitalist control, and thereby contributes to capital.
Institutions – institutions are bodies of rules, both formal and informal and explicit and tacit, that are built out of property rights (broadly defined) and define the rules of the economic game and the resources, constraints, opportunity sets, incentives, and strategic interdependencies faced by economic agents. Institutions determine the structure (and existence) of labour markets, which in turn determine their behaviour and performance.
Modes of coordination – economies have alternative institutional modes for coordinating transactions, including markets and organisations. Markets use prices as the coordinating device; organisations use command and administration.
Markets(price-takers) and Antimarkets (price-setters) – Nowhere is the need for real history more evident that in the subject of the dynamics of economic power, defined as the capability to manipulate the prices of inputs and outputs of the production process as well as their supply and demand. In a peasant market, or even in a small town local market, everybody involved is a price taker: one shows up with merchandise, and sells it at the going prices which reflect demand and supply. But monopolies and oligopolies are price setters: the prices of their products need not reflect demand/supply dynamics, but rather their own power to control a given market share. When approaching the subject of economic power, one can safely ignore the entire field of linear mathematical economics (so-called competitive equilibrium economics), since there monopolies and oligopolies are basically ignored. Yet, even those thinkers who make economic power the center of their models, introduce it in a way that ignores historical facts. Authors writing in the Marxist tradition, place real history in a straight-jacket by subordinating it to a model of a progressive succession of modes of production. Capitalism itself is seen as maturing through a series of stages, the latest one of which is the monopolistic stage in this century. Even non-Marxists economists like Galbraith, agree that capitalism began as a competitive pursuit and stayed that way till the end of the nineteenth century, and only then it reached the monopolistic stage, at which point a planning system replaced market dynamics. However, Fernand Braudel has recently shown, with a wealth of historical data, that this picture is inherently wrong. Capitalism was, from its beginnings in the Italy of the thirteenth century, always monopolistic and oligopolistic. That is to say, the power of capitalism has always been associated with large enterprises, large that is, relative to the size of the markets where they operate.
Power – power is the ability to satisfy one’s desires and obtain a greater share of an institution’s scarce goods (material and non–material).
Power, Countervailing or countervailence – is the idea in political theory of institutionalized mechanisms that the wielding of power within a polity having two or more centres can, and often does, provide counter–forces that usefully oppose each other. This political organization stands in contrast to polities such as principalities where “various princes were absolute rulers in their domain”[1] or in modern examples of totalitarian governments. In the 20th century, “Countervailing Power” is a theory of political modification of markets, formulated by American economist John Kenneth Galbraith in his 1952 book American Capitalism. In the classic liberal economy, goods and services are provided and prices set by free bargaining. According to Galbraith, modern economies give massive powers to large business corporations to bias this process, and there arise ‘countervailing’ powers in the form of trade unions, citizens’ organizations and so on, to offset business’s excessive advantage.
Power, Market power – is the ability of a firm to profitably raise the market price of a good or service over marginal cost. In perfectly competitive markets, market participants have no market power. A firm with total market power can raise prices without losing any customers to competitors. Market participants that have market power are therefore sometimes referred to as “price makers” or “price setters”, while those without are sometimes called “price takers”.
Power theory of value – Nitzan and Bichler argue that it was never possible to separate economics from politics. This separation is required to allow for neoclassical economics to base their theory on utility value and for Marxists to base the labour theory of value on quantified abstract labour. Instead of a utility theory of value (like neoclassical economics) or a labour theory of value (as found in Marxist economics), Nitzan and Bichler propose a “power theory of value”. The structure of prices has little to do with the so–called “material” sphere of production and consumption. The quantification of power in prices is not the consequence of external laws—whether natural or historical—but entirely internal to society. Private ownership is wholly and only an act of institutionalized exclusion, and institutionalized exclusion is a matter of organized power.
r>g – One of Thomas Piketty’s central concerns in Capital in the 21st Century is the inequality between the rate of return on capital (r) and the growth rate (g). Will also be used to argue the primacy of finance–capital.
Reasonable value – economic agents individually and collectively have a notion of what is fair and reasonable; whenever an outcome or process falls outside the bounds of reasonableness, they undertake action to redress the imbalance and alter the institutional matrix of rules and rights.
Revised sequence – Galbraith expanded his analysis of the role of power in economic life, arguing that very few industries in the United States fit the model of perfect competition. A central concept of the book is the revised sequence. The ‘conventional wisdom’ in economic thought portrays economic life as a set of competitive markets governed, ultimately, by the decisions of sovereign consumers. In this original sequence, the control of the production process flows from consumers of commodities to the organizations that produce those commodities. In the revised sequence, this flow is reversed and businesses exercise control over consumers by advertising and related salesmanship activities. The revised sequence concept applies only to the industrial system – that is, the manufacturing core of the economy in which each industry contains only a handful of very powerful corporations. It does not apply to the market system in the Galbraithian dual economy.
Sabotage – Per Veblen, it is the conscientious withdrawal of efficiency in industry by business. The mechanical industry of the new order is inordinately productive. So the rate and volume of output have to be regulated with a view to what the traffic will bear — that is to say, what will yield the largest net return in terms of price to the business men who manage the country’s industrial system. Otherwise there will be “overproduction,” business depression, and consequent hard times all around. Overproduction means production in excess of what the market will carry off at a sufficiently profitable price. So it appears that the continued prosperity of the country from day to day hangs on a “conscientious withdrawal of efficiency” by the business men who control the country’s industrial output. They control it all for their own use, of course, and their own use means always a profitable price. Bichler and Nitzan expand this concept of business sabotage as it is used to gain power in differential accumulation, either by preventing others from producing, or by increasing in size through organic growth and acquisitions in order to better control output in its competitive sector.
Sovereignty – economics is always “political economy” because the institutions and their derivative rules are in part determined through a political process in which people individually and collectively seek to capture and use the power of sovereignty to shape the institutions and rules to promote their interests and ethical viewpoints.
Technostructure – is a term coined by the economist John Kenneth Galbraith in The New Industrial State (1967) to describe the group of technicians within an enterprise (or an administrative body) with considerable influence and control on its economy. It usually refers to managerial capitalism where the managers and other company leading administrators, scientists, or lawyers retain more power and influence than the shareholders in the decisional and directional process. The lack of control of the technostructure resulted in managerial abuse notably on its salaries during the economic crisis of the 1970s. The prime objective of the neoliberal economic theories is the maximization of the profits in order to maximize stock value. This, quite evidently, greatly differed from the objectives of the technostructure which caused massive restructuring in the 1990s. In order to maximize profits, enterprises now had to take draconian measures to cut expenses and ensure profits for the shareholders. This greatly encouraged the exportation of manual or simple tasks to foreign countries where labour is much less expensive and caused massive layoffs in developed countries. Likewise, it reduced salaries and caused a decline in income of the working class. Paradoxically, the salaries of the managers increased and the constant demand for profits played an important role in the accounting scandals in 2002.
Veblenian dichotomy – a distinction between what he called “institutions” and “technology”. Veblen defines “ceremonial” as related to the past, supportive of “tribal legends” or traditional conserving attitudes and conduct; while the “instrumental” orients itself toward the technological imperative, judging value by the ability to control future consequences. The theory suggests that although every society depends on tools and skills to support the life process, every society also appears to have a “ceremonial” stratified structure of status that runs contrary to the needs of the “instrumental” (technological) aspects of group life.