Social science
Disciplinary Approaches to Social Science Econologic I
SOSC 1000 6.0
Lecture 15
Jan Krouzil PhD
July 13, 2021
Agenda
Announcements
PART I Forms of capital and capital accumulation
PART II Capitalism as a social and economic system
PART III Why a knowledge of economics matters
PART IV What compels ‘the drive for capital’?
PART V What is the politics of capitalism about?
Keywords
PART I Forms of capital and capital accumulation (1)
What is ‘capital’ ? (in economics)
consists of assets that can enhance one's power to perform economically useful work
a stone or an arrow is ‘capital’ for a hunter-gatherer can use it as a hunting instrument, while roads are capital for inhabitants of a city
Adam Smith (1723-1790)
defines capital as ‘that part of man's stock which he expects to afford him revenue’
capital as distinct from land (or non-renewable resources) in that capital can be increased by human labor
Forms of capital and capital accumulation (2)
an input in the production function
homes and personal autos are not usually defined as capital but as durable goods because they are not used in a production of saleable goods and services
in Marxist political economy, capital is money used to buy something only in order to sell it again to realize a profit
for Marx capital only exists within the process of the economic circuit (represented by M-C-M’) —wealth that grows out of the process of circulation itself
for Marx it formed the basis of the economic system of capitalism
in more contemporary schools of economics, this form of capital is generally referred to as ‘financial capital’ and is distinguished from ‘capital goods’
Forms of capital and capital accumulation (3)
Classical and neo-classical economics
regard capital as one of the factors of production, alongside the other factors – land and labor
all other inputs to production are called intangibles in classical economics - organization, entrepreneurship, knowledge, goodwill, or management (which some characterize as talent, social capital or instructional capital
Marxist economics
distinguishes between different forms of capital
constant capital (refers to capital goods)
variable capital (refers to labor-inputs, where the cost is ‘variable’ based on the amount of wages and salaries are paid throughout the duration of an employee's contract/employment,
fictitious capital (refers to intangible representations or abstractions of physical capital, such as stocks, bonds and securities (or ‘tradable paper claims to wealth’)
Forms of capital and capital accumulation (4)
Forms of capital
earlier illustrations described capital as physical items
such as tools, buildings, and vehicles that are used in the production process
since the 1960s economists have focused on broader forms of capital
investment in skills and education can be viewed as building up human capital or knowledge capital
investments in intellectual property can be viewed as building up intellectual capital
these terms lead to certain questions and controversies
some political economists treat capital not as a productive entity but solely in financial terms
capital values measure the relative power of owners over the broad social processes that bear on profits (Nitzan and Bichler 2009)
Forms of capital and capital accumulation (5)
Modern types of capital
classifications of capital used in various theoretical or applied uses
financial capital
in the form of capital assets, traded in financial markets
its market value is not based on the historical accumulation of money invested but on the perception by the market of its expected revenues and of the risk entailed
natural capital
inherent in ecologies and increases the supply of human wealth
social capital
a concept of inter-relationships between human beings having money-like value that motivates actions in a similar fashion to paid compensation
Forms of capital and capital accumulation (6)
Human development theory
describes human capital as being composed of distinct social, imitative and creative elements
the basis of triple bottom line accounting and is further developed in ecological economics, welfare economics and the various theories of green economics
instructional capital
defined in academia as that aspect of teaching and knowledge transfer that is not inherent in individuals or social relationships but transferrable
human capital
a broad term that includes social, instructional and individual human talent in combination
used in technical economics to define ‘balanced growth’ - the goal of improving human capital as much as economic capital
Forms of capital and capital accumulation (7)
public capital
a blanket term to characterize physical capital considered infrastructure
encompasses the aggregate body of all government-owned assets that are used to promote private industry productivity, including highways, railways, airports, water treatment facilities, telecommunications, electric grids, energy utilities, municipal buildings, public hospitals and schools, police, fire protection, courts, etc
a problematic term insofar as many of these assets can be either publicly and/or privately owned - Public Private Partnerships (3Ps)
ecological capital
the world's stock of natural resources, which includes geology, soils, air, water and all living organisms
some natural capital assets provide people with free goods and services called ecosystem services
clean water and fertile soil underpin our economy and society and make human life possible
Forms of capital and capital accumulation (8)
Capital accumulation (also termed the accumulation of capital)
the dynamic that motivates the pursuit of profit
involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return in the form of profit, rent, interest, royalties or capital gains
the aim of capital accumulation
to create new fixed and working capitals,
broaden and modernize the existing ones
grow the material basis of social-cultural activities,
as well as constituting the necessary resource for reserve and insurance
Forms of capital and capital accumulation (9)
Capital accumulation as social relation
‘accumulation of capital’ refers in Marxist writings to the reproduction
of capitalist social relations (institutions) on a larger scale over time
i.e., the expansion of the size of the proletariat and of the wealth owned by the bourgeoisie
this interpretation emphasizes that capital ownership predicated on command over
labor, as a social relation
the growth of capital implies the growth of the working class (a ‘law of accumulation’)
Marx refers to the ‘fetishism of capital’ reaching its highest point with interest
-bearing capital because now capital seems to grow of its own accord without
anybody doing anything
the process of capital accumulation forms the basis of capitalism
one of the defining characteristics of a capitalist economic system
Part II Capitalism as an economic system (1)
Capitalism as a social and economic system
an economic system based on the private ownership of the ’means of production’ and their operation for profit
Characteristics central to capitalism
private property, capital accumulation, wage labor, voluntary exchange, a price system and competitive markets
in a capitalist market economy decision-making and investments are determined by every owner of wealth, property or production ability in financial and capital markets
whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets
Capitalism as an economic system (2)
Economists, political economists, sociologists and historians
different perspectives in their analyses of capitalism and recognize various forms of it in
practice
laissez faire or free market capitalism
welfare capitalism
state capitalism
different forms of capitalism feature varying degrees of free markets, public ownership, obstacles
to free competition and state-sanctioned social policies
the degree of competition in markets, the role of intervention and regulation and the scope of state
ownership vary across different models of capitalism
the extent to which different markets are free as well as the rules defining private property are
matters of politics and policy
most existing capitalist economies are mixed economies which combine elements of free markets
with state intervention and in some cases economic planning
PART III Why a knowledge of economics matters (1)
The Economic Problem (Heilbroner 2006)
how to organize the process of production and distribution of goods and services?
no two societies mobilize their work forces to produce and distribute their products exactly the same way
tradition, command, and market as the ‘solutions’ to the ‘problem’ of assuring society’s material continuance (societal provisioning)
Tradition
the hunting and gathering society of the !Kung – the so-called Bush people of the Kalahari Desert in Southern Africa
an organization of production and distribution under the guidance of tradition
Why a knowledge of economics matters (2)
the essential task of training a labor force takes place as part of a process of socialization
no need for 'economics’ in studying the mode of operation
nothing in the socialization process that calls for the special expertise of an economist
motives and shaping forces that affect production and distribution are intermixed with the cultural or political or technological attributes of those societies (Heilbroner 2006)
Command
solves the problems of production and distribution by orders ‘from above’
differs from tradition
requires an enforcement mechanism – coercion (the actual or threatened use of punishment) that is different from the internalized pressures of socialization
Why a knowledge of economics matters (3)
what of the economics of command?
is there such an economics - a special kind of knowledge?
the Soviet planning setup
Centrally Planned Economy (CPE) - the blueprint of the central planners
call it 'management' than 'economics’
the mode of organization required to effectuate deliberate changes in
the trajectory of society (i.e., war, revolution, provision of welfare)
Market
the organizing principle of capitalism
the relation between the market as a means of organizing production and distribution and capitalism as the larger social order in which the market plays a crucial role
Why a knowledge of economics matters (4)
..market society in the grip of subterranean forces that have a life of their own
the principle of motion imparted by these forces gives us a special kind of dynamism to which we bestow the title of 'economics’ (Heilbroner)
in its most dramatic form the dynamism has taken the form of waves of invention that have altered not only the productive capabilities of society but its social composition, even its relationship to nature itself
1st_the Industrial Revolution of the late 18th and early 19th C’s - the cotton mill and the steam engine, mill towns and mass child labor
2nd_revolution -the railway, the steamship, the mass production of steel, and a new form of economic instability - business cycle
Why a knowledge of economics matters (5)
3rd-revolution introduced the electrification of life and the beginnings of a society of mass semi-luxury consumption
4th-introduced the automobile that changed the locations of centres of population
5th-has computerized life in our own time
change itself has became the norm of daily life - a sense of immanent change
the continuous remaking of the social environment as the most noticeable aspect of the market's impact on social provisioning
the deeper aspect of this kaleidoscopic changefulness is that it conceals a kind of orderliness, whereby the forces that are unleashed work blindly but not haphazardly
Why a knowledge of economics matters (6)
there are control mechanisms, feedbacks, and self-generated limitations built into the torrent of market-driven change - evidences of systemic patterns
What are these patterns, this orderliness, this trajectory?
what are the sources of the relentless, ubiquitous pressure for change that has been capitalism's contribution to history, for worse as well as better?
capitalism carries us all along into futures that are unforeseeable, and yet the manner in which those futures will be formed and shaped is far from being utterly unpredictable (Heilbroner 2006)
PART IV What compels ‘the drive for capital’? (1)
The drive for capital
the activity at the heart of the capitalist order - the drive to get ahead, to make money, to accumulate capital (Heilbroner 2006)
an integral connection between 'capital' and the system that is built on its name - a connection that is veiled, or even concealed, in the everyday terms of 'getting ahead’ or 'making money’
Wealth is not capital
what is ‘wealth’?
monuments as objects of virtue and embodiments of the community's spiritual life
wealth as a symbol of power and prestige accruing to the personage to whom it belongs
What compels ‘the drive for capital’? (2)
..wealth is inextricably associated with inequality
the matter of inequality between the owners of the ‘means of production’ and those who work with these means - between capitalists and workers (labor)
What distinguishes capital from wealth?
capital is wealth insofar as one who possesses capital is a person who enjoys esteem and who wields power in the marketplace
capital is wealth whose value does not inhere in its physical characteristics
but in its use to create a larger amount of capital
What compels ‘the drive for capital’? (3)
capital differs from wealth in its intrinsically dynamic character
changing its form from commodity into money and then back again in an endless metamorphosis (M->C->M’)
makes clear its integral connection with the changing nature of capitalism itself
What drives this process?
that Marx called the ‘self-expansion of capital’
‘At this focal point our understanding becomes uncertain’ (Heilbroner 2006)
the motive of ‘maximizing’ our satisfactions inadequate to account for the insatiability of the drive to ‘accumulate’ (Marx)
a ‘desire of bettering out condition’ by making money (Adam Smith)
What compels ‘the drive for capital’? (4)
linking the drive to amass wealth with unconscious motives
derived from infantile fantasies of omnipotence (Heilbroner 2006)
why these fantasies take the form of an expansion of capital
A second motive
competition - the consequence of each capitalist seeking to expand his scope of operations leads to the collision of capitalist against capitalist
‘One capitalist always kills many’ (Marx)
an element of the ‘spirit of war’
What compels ‘the drive for capital’? (5)
The emplacement of capital accumulation
as the moving force of the new capitalist social order
explains why capitalism revolutionizes material and social life
the drive for capital is directed at the foundation of society, not at its apex (Heilbroner 2006)
the continuous conversion of commodities into money
achieved across the broad spectrum of production
acts as a powerful force to augment the quantity and change the quality of output
What compels ‘the drive for capital’? (6)
the accumulation process exerts its immediate impact on the social
environment by multiplying the productivity of labor
Adam Smith’s ‘pin “manufactory’’’, ‘division of labor’ and specialization
nowadays economists emphasize the more innovative aspects of technology as the source of growth – not so much the ‘division of labor’
the introduction of new products or new processes
pins with colored heads->’safety’ pins->paper pins->zippers and Velcro
The process of ‘creative destruction’ (Schumpeter 1942)
a theory of economic innovation and the business cycle
remains the central agency of change in all advanced capitalist
economies
What compels ‘the drive for capital’? (7)
The nature of the capitalist order
the peculiar dynamics of its never-ending, never-satisfied drive for
capital
accumulation brings both ‘success’ and ‘failure’
‘success’ because it is indispensable for material well-being
‘failure’ because it is inseparable from adverse social effects, including instability
can the ratio of ‘success’ to ‘failure’ be changed?
as long as a drive to accumulate capital constitutes capitalism’s vital
principle (‘modus vivendi’) there will not be one without the other
Part V What is the politics of capitalism about? (1)
Capitalism as a political order
the life process of capital expansion has political as well as economic consequences
generating inequalities alongside material well-being
for Marx, the economics of capitalism arose from the ‘contradictions’ generated by its drive for production and its politics arose from the ‘class struggles stemming from its mode of distribution
‘class relations’ – as the fundamental political issue of capitalism
What is the central political issue in capitalism?
the relationship between business and government
between the economy and the state
the separation of governance into two mutually dependent realms
What is the politics of capitalism about? (2)
The duality of realms
‘the state’ – its institutions of law and order, its apparatus of force, and its ceremonial functions
‘the economy’ –its factories and stores, banks and markets, want ads and employment offices
it is the business of the state to govern and that of the economy to produce
somewhat ‘smudgy’ boundaries
two realms of capitalism establish the framework for its political life
motivated by different imperatives
What is the politics of capitalism about? (3)
Imperatives of the two realms
in the ‘private realm’ – the drive for accumulation
for the state (the ‘public realm’) – assertion of national identity, national power, patriotism, etc
Mutual dependency
the realm of capital cannot perform its accumulative task without the complementary support of the state (i.e., physical and educational infrastructure)
government is dependent on the healthy condition of the economy for the revenues it needs for its own policy objectives
the realm of capital normally holds the upper hand (Heilbroner 2006)
What is the politics of capitalism about? (4)
the relation between the realms has changed
as the technological and institutional texture of capitalism has altered its dynamics
The idea of ‘freedom’ in interaction of the two realms
is there a linkage between the drive for capital and the enjoyment of freedom?
the very pursuit of wealth is, in itself, an expression of an absolutely basic freedom on which all kinds of liberty is founded (Heilbroner 2006)
capitalism itself appears to be a social order that is both the embodiment and the expression of freedom itself
Heilbroner contends that ‘a social order in which there exists a partitioned-off economic realms is necessary for freedom, and that to date the only such society has been that of capitalism’ (2006)
the state of explicit political liberty that we loosely call ‘democracy’ has so far appeared only in nations in which capitalism is the mode of economic organization
Keywords
capital (in economics)
forms of capital
modern types of capital
human development theory
capital accumulation
capitalism
competition
duality of realms
mutual dependency
political liberty