Mar 9, 2014
M for Marginalism
Posted on Jan 24, 2014
By Michael Hudson
Malthus, Thomas Robert (1766-1834): British economist and spokesman for its landlord class. His Principles of Political Economy (1820) countered Ricardo’s critique of groundrent by pointing out that landlords spent part of it on hiring coachmen and other servants and buying luxury products (coaches, fine clothes and so forth), thus providing a source of demand for British industry, and part capital improvements to raise farm productivity. This emphasis on consumption and investment endeared Malthus to Keynes, but did not deter Ricardo and the financial classes from pressing to repeal the Corn Laws in 1846 so as to minimize domestic food prices and hence groundrent.
Matters have worked out in a way that neither Malthus nor his adversaries anticipated. Most rent is paid to the mortgage bankers as interest by owners who have bought property with borrowed funds. This phenomenon has led bankers to drop their opposition to economic rent, and to view landed property and monopolies as their largest loan market.
Most notable in Malthusian population theory was his contrast between compound and simple rates of growth, borrowed from earlier debates over the expansion path of interest-bearing debts. Malthus shifted the focus away from finance, blaming the poor for their poverty by warning that they would respond to higher wages simply by having more children, thereby keeping their wage levels down. However, the normal response to rising incomes has been for fertility and reproduction rates to slow, as families spend their income on elevating the educational and living standards of their children.
Marginal utility theory: In the 1870s, classical political economy began to be replaced by a predominantly British and Austrian theory focusing on small changes in psychological pleasure or “pain” resulting from small units added or subtracted from a person’s consumption. As such, marginalist analysis is a synonym for asocial analysis, viewing economic relations in terms of individual psychology based on a crude supply-and-demand schedule of satiation, ignoring the wealth addiction that characterizes rentier income.
Market economy: Every economy is a market economy in one form or another. There are three major modes of market relationships, and they typically co-exist: gift exchange in a system of reciprocity; redistributive exchange at allocated prices; and flexible price-setting markets. Anti-government ideologues usually try to limit the definition of market economy to the latter form, claiming that attempts to regulate prices are inherently futile. But the earliest documented prices are found in Mesopotamia in the third and second millennia BC, in a remarkably stable set of price equivalences among key commodities, salary rates and interest rates administered initially by the palaces and temples and spreading to the economy at large. Standardization always has been primarily a public regulatory function. (See Mixed Economy.)
Market fundamentalism: The belief that the optimum common interest is only achievable through a market equilibrium resulting from individual decisions by market participants seeking to maximize their own private gains. Epitomized by Margaret Thatcher’s declaration that there is no such thing as society, its policy conclusion is that “free markets” should not be distorted by public regulations enacted in the name of the common good. Hence, it has become a synonym for rentier economy, in contrast to progressive economic policy. (See Chicago School and Deregulation.)
Market Bolshevism: The coup by Yeltsin’s oligarchic “family,” so-called because the intolerant and covert means by which financial operators seized power are reminiscent of Lenin’s coup in 1917. Financialized “free markets” require as much centralized planning as does a Keynesian or socialist state, but it is done by large financial institutions. Rather than generating profits in the traditional classical sense of a rate of return on the costs involved in productive investment, the economic surplus takes the form of economic rent – extortionate pricing – as public utilities and natural monopolies are turned over to insiders.
Market price: What the Native Americans sold Manhattan for to the Dutch traders. A power relationship masquerading as a voluntary exchange, as in “Your money or your life.”
Market socialism: Inasmuch as all suppliers attempt to set prices, the main question to ask is who sets them: monopolies, financial managers, or government. Market socialism is a system in which public agencies regulate or administer prices and incomes rather than leaving this function to private suppliers and monopolies. The public objective is to ensure that prices reflect necessary costs of production rather than watered costs, interest or rent; or (in the case of public infrastructure) to subsidize prices for key products or services.
Marx, Karl (1818-1883): Author of Capital (whose second and third volumes were edited by Marx’s collaborator Friedrich Engels posthumously) and its “fourth” volume, Theories of Surplus Value (edited posthumously by Karl Kautsky), the first history of economic doctrines regarding value, rent and price theory (itself three books long, equaling Capital in length). Although acerbic and irascible as an economic writer, Marx was an optimist of the Victorian era in Britain, Marx developed the method of dialectical materialism (irony), which held that financial, political and other social institutions evolved so as to reflect the mode of production, which he viewed in a primarily materialistic, technological light although making it clear that the key consideration was the relationship of labor to ownership of the means of production.
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