Analytical political economy

392 Pages·2018·2.729 MB·English

by  Veneziani, Roberto, Zamparelli, Luca

Analytical Political Economy
Analytical Political Economy
Edited by Roberto Veneziani and Luca Zamparelli
Thiseditionfirstpublished2018
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LibraryofCongressCataloging-in-PublicationData
Names:Veneziani,Roberto,1972–editor.|Zamparelli,Luca,editor.
Title:Analyticalpoliticaleconomy/editedbyRobertoVeneziani,LucaZamparelli.
Description:Hoboken:Wiley-Blackwell,2018.|Series:Surveysofrecentresearchineconomics|Includesindex.|
Identifiers:LCCN2018006239(print)|LCCN2018010004(ebook)|ISBN9781119483335(pdf)|
ISBN9781119483311(epub)|ISBN9781119483366(paperback)
Subjects:LCSH:Economics.|Economicpolicy.|Macroeconomics.|BISAC:BUSINESS&ECONOMICS/
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CONTENTS
1. AnalyticalPoliticalEconomy 1
RobertoVenezianiandLucaZamparelli
2. TakingStock:ARigorousModellingofAnimalSpiritsinMacroeconomics 5
ReinerFrankeandFrankWesterhoff
3. TheAgent-BasedApproachtoPostKeynesianMacro-Modeling 39
CorradoDiGuilmi
4. Stock-FlowConsistentMacroeconomicModels:ASurvey 63
MichalisNikiforosandGennaroZezza
5. HeterodoxTheoriesofEconomicGrowthandIncomeDistribution:
APartialSurvey 103
AmitavaKrishnaDutt
6. EndogenousTechnicalChangeinAlternativeTheoriesofGrowthand
Distribution 139
DanieleTavaniandLucaZamparelli
7. MinskyModels:AStructuredSurvey 175
MariaNikolaidiandEngelbertStockhammer
8. FinancializationandInvestment:ASurveyoftheEmpiricalLiterature 207
LeilaE.Davis
9. QuantitativeEmpiricalResearchinMarxistPoliticalEconomy:
ASelectiveReview 237
DeepankarBasu
10. Value,Price,andExploitation:TheLogicoftheTransformationProblem 269
SimonMohunandRobertoVeneziani
viii CONTENTS
11. AProgressReportonMarxianEconomicTheory:OntheControversies
inExploitationTheorySinceOkishio(1963) 307
NaokiYoshihara
12. South–SouthandNorth–SouthEconomicExchanges:DoesitMatter
whoisExchangingWhatandwithWhom? 339
OmarS.DahiandFiratDemir
Index 381
1
ANALYTICAL POLITICAL ECONOMY
Roberto Veneziani
School of Economics and Finance
Queen Mary University of London
Luca Zamparelli
Department of Social and Economic Sciences
Sapienza University of Rome
Thisspecialissuecollects11surveysonrecentdevelopmentsinAnalyticalPoliticalEconomy.
Originallyabranchofmoralphilosophy,politicaleconomyemergedasanautonomousdisci-
plineduringtheearlystagesoftheindustrialrevolution,thankstotheanalysesofFrenchphys-
iocratsandBritishclassicalpoliticaleconomists.Itcanbelooselydefinedasthesocialscience
thatstudiestheproductionanddistributionofwealthinacapitalistmarketeconomy.Aban-
donedinfavourofthemoreneutral‘Economics’,nowadaysthetermisstillusedtoindicate
approachestoeconomicanalysisthatliebeyondtheboundariesofmainstream,neoclassical
analysisrootedintheWalrasiangeneralequilibriumtradition.
Contributionsgatheredinthisvolumesurveyawidevarietyoftopicsandbelongtodiffer-
entschoolsofthought.Theyaregroupedtogetherastheyallreviewrecentformal,rigorous
economicresearch–boththeoreticalandempirical–thatrejectsatleastsomeofthedefining
featuresofneoclassicaleconomics;hencethenameAnalyticalPoliticalEconomy.
Despitetheheterogeneity,wecanusesomebroadcategoriestodescribethesurveyscom-
prisedinthisspecialissue.PapersbyReinerFrankeandFrankWesterhoff,CorradoDiGuilmi,
andMichalisNikiforosandGennaroZezzadealwithtopicsbelongingtoKeynesianmacroe-
conomics. One of the fundamental claims of Keynes’s analysis is that in a monetary econ-
omy there may be no tendency to full employment as investment and saving decisions are
taken by different economic actors. In fact, the role of investors’ beliefs, expectations and
confidence about the future state of the economy is crucial in determining the equilibrium
level of employment and economic activity (Keynes, 1936). Franke and Westerhoff review
recentapproachestoformalizeandmodel‘animalspirits’inmacrodynamicmodelsthatex-
plicitlyrejecttherationalexpectationhypothesis.Theydosobydevelopingacanonicalframe-
workthatisflexibleenoughtoencompasstwowaystomodelattitudestowardoptimismand
AnalyticalPoliticalEconomy,FirstEdition.EditedbyRobertoVenezianiandLucaZamparelli.
Chapters©2018TheAuthors.Bookcompilation©2018JohnWiley&SonsLtd.Published2018byJohnWiley&SonsLtd.
2 VENEZIANIANDZAMPARELLI
pessimism:thediscretechoiceandthetransitionprobabilityapproach,whereindividualagents
faceabinarydecisionandchooseoneofthemwithacertainprobability.Theseassessments
areadjusted–eitherupwardordownward–inresponsetowhatagentsobserve,whichleads
tochangesinaggregatesentimentandthereforeintherelevantmacroeconomicvariables.
DiGuilmisurveysthegrowingliteraturesparkedbytherecentcross-fertilizationofagent-
basedmodellingandPost-Keynesianmacroeconomics.Hearguesthatagent-basedmodelling
isfullyconsistentwiththePost-Keynesianapproachandthatbothareasofresearchcanbene-
fitfrommutualengagement.Thesurveydiscusseshowvariousmodelshavesolvedtheissues
raised by the adoption of the bottom-up approach typical of agent-based models in a tradi-
tionally aggregative structure and highlights the novel insights derived from this modelling
strategy.Thepapersreviewedaregroupedintofourdifferentcategories:agent-basedmodels
thatformalizeHymanMinsky’s‘FinancialInstabilityHypothesis’;evolutionarymodelswith
Post-Keynesianfeatures;neo-Kaleckianmodelswithagent-basedfeatures;andStock-Flow-
Consistentagent-basedmodels.
Stock-Flow-Consistent models are the focus of the analysis developed by Nikiforos and
Zezza.TheyfirstillustratethegeneralfeaturesoftheStock-Flow-Consistentapproach,force-
fullyshowingthatitisaframeworkcapableofaccountingfortherealandthefinancialsides
oftheeconomyinanintegratedway.TheythendiscusshowthecoreStock-Flow-Consistent
modelhasbeenrecentlyextendedtoaddressissuessuchasfinancializationandincomedis-
tribution,openeconomiesandecologicalmacroeconomics.
ThetwopapersbyAmitavaDutt,andDanieleTavaniandLucaZamparellireviewthelatest
developmentsinmodelsofgrowthandincomedistribution.Therelationbetweengrowthand
distributionhasbeencentralinpoliticaleconomysincetheclassicaleconomists–Smithand
Ricardoinparticular–arguedthattheaccumulationofcapitalmustbefinancedbysavingout
of profits. The direction of causality has been later inverted by Post-Keynesian economists,
whoconsidereddistributionastheadjustingvariable,giventheKeynesianassumptiononthe
exogenousnatureofinvestment(seeKurzandSalvadori,1995foranintroductiontothediscus-
sion).Bothpapersdevelopunifiedframeworks,which,oncecoupledwithdifferentclosures,
can describe Classical-Marxian, Kaleckian, and Post-Keynesian heterodox growth models.
Duttextendsthegeneralframeworktoshowhowrecentcontributionshaveenrichedtheorigi-
naltheorieswithnewtopicssuchasmoneyandinflation,financeanddebt,multisectorissues,
openeconomyandenvironmentalquestions.TavaniandZamparelli,instead,focusonendoge-
nous technical change and use the unified structure to compare heterodox and neoclassical
modelsofexogenous,semi-endogenousandendogenousgrowth.
Thepapers byMariaNikolaidi and Engelbert Stockhammer, andLeila Davisfocus on fi-
nanceandthefinancialsector.Minsky’s‘FinancialInstabilityHypothesis’(Minsky,1986)is
arguablythemostinfluentialtheoryoffinancialmarketsinnon-mainstreameconomics.Itisa
theoryofendogenouscyclesbasedondebtaccumulationbytheprivatesector.Timesofeco-
nomicstabilityandprosperitymakeborrowersandlendersprogressivelyunderestimaterisk.
Theiroptimismengendersanexcessiveexpansionofcredit,which,eventually,createsfinan-
cial bubbles and busts. Minsky’s analysis was mostly qualitative but in the latest decades a
numberofscholarshaveformalizedhisintuitionsinmacroeconomictheoreticalmodels.
Nikolaidi and Stockhammer review these efforts by distinguishing between models that
focus on the dynamics of debt or interest, and models in which asset prices play a key role
in the evolution of the economy. Within the first category of models they classify: Kalecki–
Minskymodels;Kaldor–Minskymodels;Goodwin–Minskymodels;credit-rationingMinsky
models;endogenoustargetdebtratioMinskymodelsandMinsky–Veblenmodels.Withinthe
ANALYTICALPOLITICALECONOMY 3
secondcategoryofmodels,theydistinguishbetweentheequitypriceMinskymodelsandthe
realestatepriceMinskymodels.
TheworkofMinskyisalsocentralintheliteraturediscussedbyDavis.Shesurveystheem-
piricalliteraturethathasstudiedtheeffectsofthepost-1980expansionoffinanceinadvanced
economies,or‘financialization’,oncapitalaccumulation.Afterintroducingarangeofempir-
icalindicatorstodefinewhatisindeedmeantby‘financialization’,sheproposestousethree
approaches to categorize the literature on financialization and investment. The first two ap-
proachesemphasizerisingincomeflowsbetweennonfinancialcorporationsandfinance:first,
growthinnonfinancialcorporations’financialincomesand,second,growthinthepayments
ofnonfinancialcorporationstocreditorsandshareholders.Thethirdapproachemphasizesthe
mostdevelopedbehaviouralexplanationlinkingfinancializationtoreducedinvestment:share-
holdervalueorientation.
ThepapersbyDeepankar Basu,SimonMohun andRobertoVeneziani, andNaokiYoshi-
harasurveyaratherdifferentstrandofAnalyticalPoliticalEconomy,astheyfocusonrecent
advances inMarxianeconomics. Basureviews empirical research inMarxistpolitical econ-
omy, focusing in particular on: Marxist national accounts, probabilistic political economy,
profitabilityanalysis,andClassical-Marxiantheoriesofgrowthandtechnicalchange.Healso
considersrecentempiricalstudiesfocusingontheClassical-Marxiantheoryofrelativeprices
andvalues,whichisattheheartoftheothertwosurveys.Thelabourtheoryofvaluestatesthat
theeconomicvalueofacommodityisdeterminedbytheamountoflaboursociallynecessary
toproduceit(Marx,1867).ItliestraditionallyatthecoreofMarxianeconomicanalysis;and
itisatthecentreofinnumerabledisputesaroundtheso-called“transformationproblem,”in-
vestigatingtherelationshipbetweenlabourvaluesandprices,andexploitationtheory.Mohun
and Veneziani adopt an axiomatic approach to interpret the ‘transformation problem’ as an
impossibilityresultforaspecificinterpretationofvaluetheorybasedonspecificassumptions
anddefinitions.Theyprovideacomprehensivereviewofrecenttheoreticalliteratureandshow
that, contrary to the received wisdom, there are various theoretically sound, empirically rel-
evant and logically consistent alternative interpretations of the labour theory of value based
ondifferentassumptionsanddefinitions.Yoshiharathoroughlyanalysesthedevelopmentof
exploitationtheoryinmathematicalMarxianeconomicsfromthe1970stilltoday,withaspe-
cial focus on the controversies surrounding the relation between profits and exploitation in
capitalisteconomies,anditsrelevanceforthedefinitionoftheconceptofexploitation.
Finally,thepaperbyOmarDahiandFiratDemirfocusesoninternationaltradeanddevelop-
menteconomics,andinparticularitanalysesthecost-benefitliteratureonSouth–Southversus
South–Northeconomicexchanges.Afterprovidingadiscussiononthedefinitionofthenotions
of‘North’and‘South’andofferingastatisticaloverviewofSouth–Southeconomicrelations,
thepaperprovidesaframeworkforsituatingtheliteraturebyreviewingthetraditionaltargets
ofdevelopmentaswellasthebenefitsanddrawbacksofintegrationintotheglobaleconomy
inbothSouth–SouthandNorth–Southdirections.
References
Marx,K.(1867[1977])Capital.ACritiqueofPoliticalEconomy,Vol.I.London:Penguin.
Minsky,H.P.(1986)StabilizinganUnstableEconomy.NewHaven:YaleUniversityPress.
Keynes,J.M.(1936)TheGeneralTheoryofEmployment,Interest,andMoney.London:Macmillan.
Kurz, H. and Salvadori, N. (1995) Theory of Production: A Long-Period Analysis. Cambridge:
CambridgeUniversityPress.
2
TAKING STOCK: A RIGOROUS
MODELLING OF ANIMAL SPIRITS
IN MACROECONOMICS
Reiner Franke
University of Kiel (GER)
Frank Westerhoff
University of Bamberg (GER)
1. Introduction
Akeyissueinwhichheterodoxmacroeconomictheorydiffersfromtheorthodoxyisthenotion
of expectations, where it determinedly abjures the rational expectations hypothesis. Instead,
to emphasize its view of a constantly changing world with its fundamental uncertainty, het-
erodoxeconomistsfrequentlyrefertothefamousideaofthe‘animalspirits’.Thisisauseful
keywordthatposesnoparticularproblemsingeneralconceptualdiscussions.However,given
the enigma surrounding the expression, what can it mean when it comes to rigorous formal
modelling?Moreoftenthannot,authorsgarlandtheirmodelwiththisword,eveniftheremay
beonlylooseconnectionstoit.Thepresentsurveyfocussesonheterodoxapproachesthattake
thenotionofthe‘animalspirits’moreseriouslyand,seekingtolearnmoreaboutitseconomic
significance,attempttodesigndynamicmodelsthatareabletodefinitivelycapturesomeof
itscrucialaspects.1
Thebackground ofthetermasitiscommonly referredtoisChapter 12ofKeynes’ Gen-
eralTheory,wherehediscussesanotherelementary‘characteristicofhumannature’,namely,
‘thatalargeproportionofourpositiveactivitiesdependonspontaneousoptimismratherthan
on a mathematical expectation’ (Keynes, 1936, p. 161). Although the chapter is titled ‘The
stateoflong-termexpectation’,Keynesmakesitclearthatheisconcernedwith‘thestateof
psychologicalexpectation’(p.147).2
Itisimportanttonotethatthisstatedoesnotariseoutofthebluefromwhimsandmoods;
itisnotanimperfectionorplainignoranceofhumandecisionmakers.Ultimately,itisdueto
theproblemthatdecisionsresultinginconsequencesthatreachfarintothefuturearenotonly
AnalyticalPoliticalEconomy,FirstEdition.EditedbyRobertoVenezianiandLucaZamparelli.
Chapters©2018TheAuthors.Bookcompilation©2018JohnWiley&SonsLtd.Published2018byJohnWiley&SonsLtd.