21. Ibid., p. 119.
22. A. Smith, The Wealth of Nations, Books IV–V, ed. A. Skinner (London: Penguin Classics, 1999), Book IV, p. 30.
23. Smith does not ascribe any value to ‘capital’. This may have been deliberate or may simply have been due to circumstances: capital was not yet very important. The labour theory of value was only displaced when neoclassical economists introduced ‘capital’ as another ‘factor of production’, without any clear definition or measurement.
24. Smith, The Wealth of Nations, Introduction to Book IV.
25. The full quote is: ‘The labour of some of the most respectable orders in the society is, like that of menial servants, unproductive of any value, and does not fix or realize itself in any permanent subject; or vendible commodity, which endures after that labour is past, and for which an equal quantity of labour could afterwards be procured. The sovereign, for example, with all the officers both of justice and war who serve under him, the whole army and navy, are unproductive labourers. They are the servants of the public, and are maintained by a part of the annual produce of the industry of other people. Their service, how honourable, how useful, or how necessary soever, produces nothing for which an equal quantity of service can afterwards be procured. The protection, security, and defence of the commonwealth, the effect of their labour this year, will not purchase its protection, security, and defence for the year to come. In the same class must be ranked, some both of the gravest and most important, and some of the most frivolous professions: churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers, opera-dancers, etc. The labour of the meanest of these has a certain value, regulated by the very same principles which regulate that of every other sort of labour; and that of the noblest and most useful produces nothing which could afterwards purchase or procure an equal quantity of labour. Like the declamation of the actor, the harangue of the orator, or the tune of the musician, the work of all of them perishes in the very instant of its production.’ Smith, The Wealth of Nations, Book II, pp. 430–31.
26. Ibid., p. 431.
27. Ibid., p. 447. The full quote is as follows: ‘A man of fortune, for example, may either spend his revenue in a profuse and sumptuous table, and in maintaining a great number of menial servants, and a multitude of dogs and horses; or contenting himself with a frugal table and few attendants, he may lay out the greater part of it in adorning his house or his country villa, in useful or ornamental buildings, in useful or ornamental furniture, in collecting books, statues, pictures; or in things more frivolous, jewels, baubles, ingenious trinkets of different kinds; or, what is most trifling of all, in amassing a great wardrobe of fine clothes, like the favourite and minister of a great prince who died a few years ago.’
28. ‘When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price’ (Smith, Wealth of Nations, Book 1, p. 158). Moreover, in Smith there is also market price. ‘The actual price at which any commodity is commonly sold is called its market price. It may either be above, or below, or exactly the same with its natural price. The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither’ (ibid., pp. 158–9). Finally, Smith affirms that there exists a process of gravitation of the market prices to natural prices: ‘The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it […] But though the market price of every particular commodity is in this manner continually gravitating, if one may say so, towards the natural price, yet sometimes particular accidents, sometimes natural causes, and sometimes particular regulations of police, may, in many commodities, keep up the market price, for a long time together, a good deal above the natural price’ (ibid., pp. 160–61).
29. Ibid., p. 152.
30. C. Hill, The Century of Revolution 1603–1714 (London: Nelson, 1980), pp. 25–6.
31. D. K. Foley, Adam’s Fallacy: A Guide to Economic Theology (Cambridge, MA: Belknap Press, 2006).
32. J. A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 590.
33. ‘In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts; and in every improved society, all the three enter more or less, as component parts, into the price of the far greater part of commodities.’ Smith, The Wealth of Nations, Book I, p. 153.
34. Foley, Adam’s Fallacy, p. 28.
35. T. R. Malthus, An Essay on the Principle of Population (1798; 2nd edn 1803; 3rd edn 1821); critical edn ed. P. James, 2 vols (Cambridge: University Press, 1989).
36. D. Ricardo, On the Principles of Political Economy and Taxation (Cambridge: University Press, 1951), ch. 5.
37. In other words, Ricardo did not believe that there would be enough productivity increase in agriculture to keep the price of food down. History so far has not confirmed Ricardo’s fear; there has been a lot of improvement in agricultural productivity (at least from the point of view of labour productivity), so food has not become a profit-choking part of production costs. See also Foley, Adam’s Fallacy, for a concise and illustrative discussion of Ricardo’s rent and population theory.
38. Ricardo, Principles of Political Economy, p. 71.
39. Another piece of Ricardian theory that has informed economics to the present day is his theory of comparative advantage to explain trade patterns.
40. M. Lavoie, Introduction to Post-Keynesian Economics (Basingstoke: Palgrave Macmillan, 2009), pp. 1–24.
41. J. M. Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936), ch. 24.
42. Ricardo, Principles of Political Economy, p. 150.
43. Ibid., p. 151 fn.
44. Ibid.
45. Ibid., p. 151.
46. This is the principle of primitive accumulation, the historical discussion of which is full of details of chilling violence and cruelty in Marx, Capital: A Critique of Political Economy, vol. 1 (London: Penguin Classics, 2004), Part VIII: Primitive Accumulation.
47. Already mentioned in K. Marx, Economic and Philosophical Manuscripts of 1844 (Amherst, NY: Prometheus Books, 1988).
48. Marx, Capital, vol. 1, ch. 1.
49. Ibid., ch. 8, p. 317.
50. Marx, Capital, vol. 3 (London: Penguin Classics, 1992), chs 38 and 39.
51. In vol. 3 of Das Kapital Marx built a theory of crises of capitalism around the problem of a tendency of the average profit rate to fall as capitalism developed. This is because the composition of capital – variable and constant – tended to shift towards more constant capital relative to variable capital. But that implied that there would be less and less labour power to create the surplus value, so it would shrink relative to the investments necessary on the part of the capitalist, resulting in a falling rate of profit.
52. Ibid., ch. 10.
53. In Marx’s time, ‘transferring money’ could involve transporting gold bullion from one country to another (Marx, Capital, vol. 3, ch. 19).
54. One of several passages to this effect in Marx (Capital, vol. 3, ch. 17) reads: ‘Just as the labourer’s unpaid labour directly creates surplus-value for productive capital, so the unpaid labour of the commercial wage-worker secures a share of this surplus-value for merchant’s capital.’ The difficulty lies
here: ‘Since the merchant’s labour-time and labour do not create value, although they do secure for the merchant a share of already produced surplus-value, how does the matter stand with the variable capital that the merchant lays out in purchasing commercial labour-power?’
55. Marx, Capital, vol. 3, ch. 17.
56. Ibid.: ‘To industrial capital the costs of circulation appear as unproductive expenses, and so they are. To the merchant they appear as a source of his profit, proportional, given the general rate of profit, to their size. The outlay to be made for these circulation costs is, therefore, a productive investment for mercantile capital. And for this reason, the commercial labour which it buys is likewise immediately productive for it.’
57. Marx (Capital, vol. 3, ch. 23): ‘Money … may be converted into capital on the basis of capitalist production, and may thereby be transformed from a given value to a self-expanding, or increasing, value. It produces profit, i.e., it enables the capitalist to extract a certain quantity of unpaid labour, surplus-product and surplus-value from the labourers, and to appropriate it. In this way, aside from its use-value as money, it acquires an additional use-value, namely that of serving as capital. Its use-value then consists precisely in the profit it produces when converted into capital.’
58. Marx, Capital, vol. 3, chs 21–36.
59. Marx, Capital, vol. 3, ch. 17: ‘All these [circulation] costs are not incurred in producing the use-value of commodities, but in realizing their value. They are pure costs of circulation. They do not enter into the immediate process of production, but since they are part of the process of circulation they are also part of the total process of reproduction.’
60. See I. I. Rubin, Essays on Marx’s Theory of Value (1928; Detroit: Black and Red Press, 1972), ch. 19 for a detailed discussion of how labour is or is not productive depending on which function of capital it is employed by.
61. H. P. Minsky, ‘The capital development of the economy and the structure of financial institutions’ (1992), Hyman P. Minsky Archive, paper 179.
62. A. Barba and G. de Vivo, ‘An “unproductive labour” view of finance’, Cambridge Journal of Economics 36(6) (2012): http://doi.org/10.1093/cje/ber022; Duncan K. Foley, ‘Rethinking financial capitalism and the “information” economy’, Review of Radical Political Economics, 45(3) (2013), pp. 257–68: http://doi.org/10.1177/0486613413487154
2. VALUE IN THE EYE OF THE BEHOLDER: THE RISE OF THE MARGINALISTS
1. J. B. Clark, The Distribution of Wealth: A Theory of Wages, Interest and Profits (New York: Macmillan, 1899), p. v.
2. A. Roncaglia, The Wealth of Ideas: A History of Economic Thought (Cambridge: University Press, 2005), ch. 4.
3. Léon Walras, Elements of Theoretical Economics, trans. and ed. by D. A. Walker and J. van Daal (1883; Cambridge: University Press, 2014), p. 5.
4. Roncaglia (Wealth of Ideas, p. 278) quoted Howey to say that Wicksteed and Wieser were the first to use ‘marginal’ in 1884, and that ‘marginalism’ was not introduced until 1914.
5. Jeremy Bentham, A Fragment on Government (London: 1776), Preface, p. ii. Niccolò Machiavelli, in his masterpiece The Prince (1513), expressed similar reasoning.
6. Jean-Baptiste Say, Traité d’économie politique (Paris: 1803); Roncaglia, Wealth of Ideas, p. 165.
7. ‘By utility is meant that property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness (all this, in the present case, comes to the same thing), or (what comes again to the same thing) to prevent the happening of mischief, pain, evil, or unhappiness to the party whose interest is considered.’ Bentham, An Introduction to the Principles of Morals and Legislation (1789), quoted in W. S. Jevons, The Theory of Political Economy, ed. R. D. Collison Black (Harmondsworth: Penguin Classics, 1970), ch. 3.
8. L. Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan, 1932).
9. The classical economists were well aware that supply and demand changed prices – for example, Marx in Part 1 of vol. 3 of Capital – but saw this as fluctuations around the price determined by labour time.
10. P. Mirowski, ‘Learning the meaning of a dollar: Conservation principles and the social theory of value in economic theory’, Social Research 57(3) (1990), pp. 689–718.
11. Behavioural economics, which deploys psychology, sociology, neuroscience and other disciplines to look at how individuals really make choices, casts doubt on the simple assumptions of marginalism. See A. Tversky and D. Kahneman, ‘Advances in prospect theory: Cumulative representation of uncertainty’, Journal of Risk and Uncertainty, 5 (4) (1992), pp. 297–323; doi:10.1007/BF00122574
12. Robbins, Essay on the Nature and Significance of Economic Science, pp.73–4.
13. A term that Lerner actually picked up from Vilfredo Pareto, who first set the proposition in 1894. V. Pareto, ‘Il massimo di utilità data dalla libera concorrenza’, Giornale degli Economisti 9(2) (1894), pp. 48–66. This proposition was further refined by other economists, among whom we find Lerner, whilst nowadays the accepted proof is the one elaborated by Kenneth Arrow in 1951: ‘An extension of the basic theorem of classical welfare economics’, in Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability (Berkeley and Los Angeles: University of California Press, 1951), pp. 507–32.
14. E. N. Wolff, Growth, Accumulation, and Unproductive Activity: An Analysis of the Postwar U.S. Economy (Cambridge: University Press, 1987).
15. T. Veblen, ‘The Limitations of marginal utility’, Journal of Political Economy, 17(9) (1909), pp. 620–36.
16. See Foley, ‘Rethinking financial capitalism and the “information” economy’ for further examples.
17. ‘entrepreneur ne faisant ni bénéfice ni perte’; Walras quoted in J. A. Schumpeter, History of Economic Analysis, p. 860.
3. MEASURING THE WEALTH OF NATIONS
1. C. Busco, M. L. Frigo, P. Quattrone and A. Riccaboni, ‘Redefining corporate accountability through integrated reporting: What happens when values and value creation meet?’, Strategic Finance, 95(2) (2013), pp. 33–42.
2. P. Quattrone, ‘Governing social orders, unfolding rationality, and Jesuit accounting practices: A procedural approach to institutional logics’, Administrative Science Quarterly, 60(3) (2015), pp. 411–45.
3. Studenski, Income of Nations, p. 127.
4. Ibid., p. 121.
5. Ibid., p. 20; J. Kendrick, ‘The historical development of national-income accounts’, History of Political Economy, 2(2) (1970), p. 289.
6. A. Marshall and M. Marshall, The Economics of Industry, 4th edn (London: Macmillan, 1909), p. 52.
7. Studenski, Income of Nations, chs 7, 8, 9.
8. A. C. Pigou, The Economics of Welfare (London: Macmillan, 1926), Part 1, ch. 1, p. 5.
9. A. Vanoli, A History of National Accounting (Washington, DC: IOS Press, 2005), p. 280.
10. Ibid.; and E. J. Mishan, The Costs of Economic Growth (New York: Praeger, 1967).
11. S. Kuznets, National Income: A Summary of Findings (New York: National Bureau of Economic Research, 1946), p. 122.
12. United Nations, A System of National Accounts and Supporting Tables, Studies in Methods, series F, no. 2, rev. 1 (New York, 1953).
13. http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf
14. SNA 2008, p. 2.
15. Ibid.
16. P. S. Sunga, ‘An alternative to the current treatment of interest as transfer in the United Nations and Canadian systems of national accounts’, Review of Income and Wealth, 30(4) (1984), p. 385: http://doi.org/10.1111/j.1475-4991.1984.tb00487.x
17. B. R. Moulton, The System of National Accounts for the New Economy: What Should Change? (Washington DC: Bureau of Economic Analysis, US Dept. of Commerce, 2003), p. 17: http://www.bea.gov/about/pdf/sna_neweconomy_1003.pdf
18. The development of income and growth estimation is sometimes depicted as a purely empirical affair that is barely influenced by theory (R. Reich, The Work of Na
tions: Preparing Ourselves for 21st-Century Capitalism (New York: Knopf, 1991)). In fact, some histories of estimating growth tend to break off the link with theory that they acrimoniously depict up to Smith and Marx, and simply observe that a ‘comprehensive measurement concept’ prevailed in the capitalist world at the end of the nineteenth century (Studenski, Income of Nations; Kendrick, ‘The historical development of national-income accounts’). Some individual estimators – such as Timothy Coughlan, an engineer in Australia who might not have been closely acquainted with economic theory – have seen themselves as neutral statisticians who simply compiled what was ‘obviously’ or ‘common-sensically’ value. However, these individuals – just like the politicians who demanded the statistics – were probably the ‘slaves of some defunct economist’, in this case the marginal economists, as the well-known quote by Keynes reminds us.
19. Source: Bureau of Economic Analysis (2016), NIPA Tables 1.1.5: GDP, 1.3.5: Gross Value Added by Sector, and 3.1: Government Current Receipts and Expenditures.
20. https://www.gov.uk/government/publications/independent-review-of-uk-economic-statistics-final-report
21. Ibid., p. 40.
22. Coyle, GDP, p. 14.
23. U. P. Reich and K. Horz, ‘Dividing government product between intermediate and final uses’, Review of Income and Wealth, 28(3) (1982), pp. 325–44.
24. SNA 2008, p. 583.
25. Ibid., p. 119.
26. B. R. Moulton, ‘The Implementation of System of National Accounts 2008 in the US National Income and Product Accounts’ (Eurostat Conference: The Accounts of Society, Luxembourg, 12–14 June 2014), p. 4.
27. The full quote reads: ‘In studying the changes in the economic activity of an advanced industrial country it is unnecessary to impute an income to family services or to the services of household equipment and may even prove an embarrassment to do so, since, not only are there very little data in this field, but the principles on which such imputations should be made are obscure. On the other hand, if a comparison is to be made with a country in which subsistence and family production are important, problems of imputation will have to be faced squarely; indeed, for this purpose, it may be desirable to set up the system of accounts in a different way.’ R. Stone, ‘Definition of the national income and related totals’, in Sub-committee on National Income Statistics, Measurement of National Income and the Construction of Social Accounts (Geneva: United Nations, 1947), p. 25.
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