Main Concepts and Principles of Political Economy - Production and Values, Distribution and Prices, Reproduction and Profits Christian Flamant To cite this version: Christian Flamant. Main Concepts and Principles of Political Economy - Production and Values, Distribution and Prices, Reproduction and Profits. In press. hal-02161861 HAL Id: hal-02161861 https://hal.archives-ouvertes.fr/hal-02161861 Submitted on 21 Jun 2019 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. Main Concepts and Principles of Political Economy Production and Values, Distribution and Prices, Reproduction and Profits Prelude to a Reconstruction of Economic Theory by Christian Flamant 1 Main Concepts and Principles of Political Economy By Christian Flamant Copyright © 2018 Christian Flamant Deposit certificate: 3DVJ1J9-10 September 2018 (France) Case # 1-6938394841 (US Copyright Office) All rights reserved. ISBN: to follow __________________ All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form, or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission, in writing, from the publisher. 2 To my wife Anne, And my children Nicolas, Aurélie, Alexandre and Camille 3 4 Preface The intention to write this book arose from the double ascertainment that economic science is in deep trouble, to such a point that it can hardly be considered as a science, but that at the same time no prominent economist has so far published a book which could be widely considered as a true reconstruction of this science, based on solid foundations. When I use the terms “economic science”, I refer to the theory that is socially considered as constitutive of this science, because it is widely taught in all universities over the world and developed in numerous articles published in the most prestigious economic reviews, i.e. the neo-classical theory, based on the paradigm of equilibrium on the market as the best way to allocate scarce resources. This theory has nevertheless failed, on two different but related grounds. First, at a purely theoretical level the theory has been criticized and refuted over the years by a number of heterodox economists. The best synthesis of all these criticisms might well be the book of Steve Keen: “Debunking Economics”, published in 2001 for the first edition, and in 2011 for a revised and expanded edition. Second, at a more concrete and empirical level, neo-classical theory has been the doctrinal basis of neo-liberal economic policies implemented in most developed economies by almost all governments, whatever their location on the political spectrum, since 1980. These policies have in the vast majority of rich countries encouraged changes in favor of liberalization, financialization and globalization, which have resulted in disastrous consequences worldwide, i.e. a global reduction in the rate of growth, a rise in unemployment and finally the world financial crisis of 2008, which the neo-classical theory had been unable to foresee, and is still unable to explain correctly. To be sure a small number of economists had predicted the occurrence of the crisis, and Steve Keen was one of them. His own explanations can be found in a series of articles which have been regrouped in a new book, published in 2015: “Developing an economics for the post- crisis world”. These explanations can also be found in chapter 14 of “Debunking Economics” (second edition), which develops a monetary model of capitalism. This model relies on a Keynesian theory of money, as interpreted in particular in the works of Minsky. On this basis Keen develops a theory of debt which is consistent and has great heuristic value. However none of his two books can be considered as a full-fledged economic theory, encompassing an integrated theory of production, distribution, values and prices. Indeed, after examining various theoretical alternatives to neo-classical theory, in the last two chapters of Debunking Economics, Keen himself recognizes that “at present, however, the various non neo-classical schools of thought have no coherent theory of value as an alternative to the neoclassical school’s flawed subjective theory of value” (page 443). This is undoubtedly a big problem, because it is a “central organizing concept” (ibid.). Economic theory still needs therefore to be reconstructed, and as for any construction, this has to start from the very foundations of economic analysis. These foundations are the essential characteristics which constitute the logical fundaments of a theory, and therefore its main and primary assumptions, allowing to define its basic concepts. This is the reason why they are 5 called principles. To try and define such fundamentals principles was therefore the main motivation for writing this book. As for its epistemological bases, they rely on the idea that the world of experience exists independently of the theories that try to explain it, and that each theory is nothing else than a picture of the world. I refer here to what Wittgenstein wrote in his Tractatus Logico- Philosophicus: “a picture is a model of reality” (Wittgenstein, 1921, p. 9). Each theory has its own set of concepts, which constitute a paradigm, in the sense that Kuhn gave to this word, on second thoughts, i.e. “ ‘a disciplinary matrix’ - ‘disciplinary’ because it is the common possession of the practitioners of a professional discipline and ‘matrix’ because it is composed of ordered elements of various sorts” (Kuhn, 1974, p. 3). These elements are symbolic generalizations, models, and exemplars, the latter being defined as “concrete problem solutions, accepted by the group as, in a quite usual sense, paradigmatic” (Kuhn, 1974, p. 4). A paradigm can be analyzed as a system of concepts, and in such a system a special emphasis must be placed on these particular concepts which are the basic and simple assumptions underlying the other elements of the system. These assumptions constitute by themselves a set of concepts which are explained and defined on the basis of the experience that we can derive from our perception of the real world. A concept is always an element which can be defined only through its relations within the system of concepts to which it belongs. But what makes the specificity of these assumptions that can be considered as principles is that they must relate to a context which is outside the theory per se, because it is the world of experience as we perceive it. The role of these principles is indeed a fundamental one, since they define the nature and give its signification to the object which is built by a theory. They constitute indeed the semantics of a theory. A problem can therefore arise when some of these assumptions are implicit, and when they happen to be contradictory to other implicit or explicit assumptions or to the process of construction of some concepts. The view on which this book is based is that it is indeed what has befallen to the neo-classical theory: despite the fact that the syntax of this theory, under the form of an impressive mathematical apparatus, is generally correct, the loose definition of its principles has resulted in a semantics which is highly flawed, and made it unable to give a coherent description of the world as it is. This inherent shift from reality will ultimately lead to the loss of its scientific statute. It is to contribute to this process that this book has been written and it is why it will attempt to rebuild economic theory from its main concepts and principles. If it will do so by trying to stick to the common perception that ordinary human beings can have of the real world, it will also try to use the teachings of various theories, considered as scientific ones, which have been developed in other unrelated fields of knowledge, such as the mathematical theory of measurement or the physical theory of dimensional analysis. 6 “Pure logical thinking cannot yield us any knowledge of the empirical world; all knowledge of reality starts from experience and ends in it. Propositions arrived at by purely logical means are completely empty as regards reality.” Albert Einstein, Ideas and Opinions (1933) 7 8 CONTENTS LIST OF ABBREVIATIONS .................................................................................................. 13 LIST OF FIGURES AND TABLES ........................................................................................ 17 Chapter 1. Introduction: the basic concepts and principles. Commodities, Exchange and Money ....................................................................................................................................... 19 PART I - PRODUCTION WITH A SURPLUS: A THEORETICAL DEAD-END ............... 37 Chapter 2. The Ricardian theory of production, distribution and value ................................... 39 Chapter 3. Distribution and prices in Piero Sraffa’s theory ..................................................... 61 Chapter 4. Commodities do not produce commodities: the biased concept