Debunking Neoclassical Economics: The Myth of the Barter Economy

28 Sun Feb 2016

Posted by ztnh in Anti-Capitalism, History of Hip Hop, Marxian Theory (Marxism), Music, Political Economy

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Adam Smith, anthropology, C.R.E.A.M., Encyclopedia, heterodox economics, Ilana E. Strauss, money, neoclassical economics, social formation, The Atlantic, The Myth of the Barter Economy, The Wealth of Nations, Wu-Tang Clan

LUMPENPROLETARIAT—Cash rules everything around me/C.R.E.A.M. get the money/dolla, dolla bill ya’ll, was the popular refrain from the Wu-Tang Clan, as many others before and since. Such an observation conveys a sentiment borne from an awareness that there’s a certain cutthroat reality about how money permeates contemporary human existence. As long as one has money, however it may have been obtained, one can take comfort in life’s comforts and pleasures. Without money, regardless of the lack of jobs or opportunities, one very quickly becomes persona non grata.

“C.R.E.A.M.” by Wu-Tang Clan

Money is a peculiar convention, which conceals complex social relations imbedded within our money-based society. Looking at the nature and origins of money from an academic perspective, we’ve likely been taught that money developed as an alternative to the inconvenience of barter, which, we are told by uncritical economics textbooks and uncritical educators, preceded the use of money for people to exchange the daily necessaries of life. But, as anthropologists, such as David Graeber, point out, this narrative of barter preceding money is proving to be a myth. And it seems to be more than an innocent mistake of a crude pedagogical device or tautological simplification, as David Graeber argues in Debt: The First 5,000 Years, because this myth “makes it possible to imagine a world that is nothing more than a series of cold-blooded calculations.”

In a new article for The Atlantic, which explores actual anthropological evidence of various indigenous societies toward sussing out pre-money social formations [1], Ilana E. Strauss writes [2]:

“But the harm may go deeper than a mistaken view of human psychology. According to Graeber, once one assigns specific values to objects, as one does in a money-based economy, it becomes all too easy to assign value to people, perhaps not creating but at least enabling institutions such as slavery (in which people can be bought) and imperialism (which is made possible by a system that can feed and pay soldiers fighting far from their homes).”

Messina

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THE ATLANTIC—[26 FEB 2016] The Myth of the Barter Economy

Adam Smith said that quid-pro-quo exchange systems preceded economies based on currency, but there’s no evidence that he was right.

Imagine life before money. Say, you made bread but you needed meat.

But what if the town butcher didn’t want your bread? You’d have to find someone who did, trading until you eventually got some meat.

You can see how this gets incredibly complicated and inefficient, which is why humans invented money: to make it easier to exchange goods. Right?

This historical world of barter sounds quite inconvenient. It also may be completely made up.

The man who arguably founded modern economic theory, the 18th-century Scottish philosopher Adam Smith, popularized the idea that barter was a precursor to money. In The Wealth of Nations, he describes an imaginary scenario in which a baker living before the invention of money wanted a butcher’s meat but had nothing the butcher wanted.“No exchange can, in this case, be made between them,” Smith wrote.

This sort of scenario was so undesirable that societies must have created money to facilitate trade, argues Smith. Aristotle had similar ideas, and they’re by now a fixture in just about every introductory economics textbook. “In simple, early economies, people engaged in barter,” reads one. (“The American Indian with a pony to dispose of had to wait until he met another Indian who wanted a pony and at the same time was able and willing to give for it a blanket or other commodity that he himself desired,” read an earlier one.)

But various anthropologists have pointed out that this barter economy has never been witnessed as researchers have traveled to undeveloped parts of the globe. “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money,” wrote the Cambridge anthropology professor Caroline Humphrey in a 1985 paper. “All available ethnography suggests that there never has been such a thing.”

Humphrey isn’t alone. Other academics, including the French sociologist Marcel Mauss, and the Cambridge political economist Geoffrey Ingham have long espoused similar arguments.

When barter has appeared, it wasn’t as part of a purely barter economy, and money didn’t emerge from it—rather, it emerged from money. After Rome fell, for instance, Europeans used barter as a substitute for the Roman currency people had gotten used to. “In most of the cases we know about, [barter] takes place between people who are familiar with the use of money, but for one reason or another, don’t have a lot of it around,” explains David Graeber, an anthropology professor at the London School of Economics.

So if barter never existed, what did? Anthropologists describe a wide variety of methods of exchange—none of which are of the “two-cows-for-10-bushels-of-wheat” variety.

Communities of Iroquois Native Americans, for instance, stockpiled their goods in longhouses. Female councils then allocated the goods, explains Graeber. Other indigenous communities relied on “gift economies,” which went something like this: If you were a baker who needed meat, you didn’t offer your bagels for the butcher’s steaks. Instead, you got your wife to hint to the butcher’s wife that you two were low on iron, and she’d say something like “Oh really? Have a hamburger, we’ve got plenty!” Down the line, the butcher might want a birthday cake, or help moving to a new apartment, and you’d help him out.

Learn more at THE ATLANTIC.

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[1] For a useful article on the Marxian concept of social formation, see:

ENCYCLOPEDIA—Social formation is a Marxist concept referring to the concrete, historical articulation between the capitalist mode of production, persisting precapitalist modes of production, and the institutional context of the economy. The theory of the capitalist mode of production—its elements, functioning at the enterprise level and the level of market relations among enterprises (e.g., processes of competition, concentration, and centralization), and its contradictions, tendencies, and laws of motion—can be found in

Karl Marx’s Capital ([1867] 1967) The capitalist mode of production as such is an abstraction, accessible to research only through social formations; that is, through its concrete, historically specific manifestations in nation states, regions within nations (e.g., the South), or regions encompassing nations (e.g., the European Union). Though Marx (1818–1883) did not define this concept, its meaning and significance can be inferred from his work, particularly from this statement:

The specific economic form, in which unpaid surplus-labor is pumped out of direct producers, determines the relationship of rulers and ruled … and, in turn, reacts upon it as a determining element. Upon this, however, is founded the entire foundation of the economic community which grows out of the production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship between the owners of the conditions of production to the direct producers.… which reveals the innermost secret, the hidden basis of the entire social structure, and … the corresponding specific form of the state. This does not prevent the same economic basis—the same from the standpoint of its main conditions—due to innumerable different empirical circumstances, natural environment, racial relations, external historical influences, etc., from showing infinite variations and gradations in appearance, which can be ascertained only by analysis of the empirically given circumstances. (Marx [1867] 1967, vol. 3, pp. 791–792)

Marx postulates here a necessary, dialectical interrelation between relations of exploitation and political relations, between economic and social systems, a point previously made as follows: “The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness” (Marx [1859] 1970, p. 20). The historical specificity of the relations of production is crucial for understanding the social formation in its universality (i.e., as a capitalist social formation) and in its particularity because, empirically, “the same economic basis” (i.e., the capitalist mode of production) will show “infinite variations” due to a social formation’s unique characteristics among which, the presence and persistence of precapitalist modes of production are of key importance. This is why the study of social formations entails the investigation of the articulation of modes of production; that is, the specific ways in which the capitalist mode of production affects precapitalist modes of production, altering them, modifying them, and even destroying them (Wolpe 1980, p. 2).

RECENT INTERPRETATIONS

The relationship between the capitalist mode of production, social formations, and social change has been interpreted in determinist and dialectical ways. Literal, atheoretical readings of the work of Marx and Friedrich Engels (1820–1895) reduce their views to technological and economic determinism, a result produced also by sophisticated but undialectical readings (e.g., Cohen 1978) that ignore the dialectical nature of Marx’s thought. Marxist concepts are essentially material and social; for example, a machine, in itself, is a physical object that becomes a means of production or a productive force when it enters the production process in the context of historically specific relations of production. Changes in the forces of production occur, it follows, always in the context of political struggles. Cohen, on the other hand, attributes to the productive forces a primary, determinant role in historical change, and he radically divides the social (e.g., relations of production) from the material or extrasocial (i.e., nature, humans, forces of production). Cohen’s undialectical materialism and determinism has to rely, unavoidably, upon transhistorical sources of change: a universal tendency of the productive forces to develop and a “somewhat rational” human nature capable of coping with scarcity (Cohen 1978, pp. 132–160). From this standpoint, then, historical changes are the effect of changes in the forces of production, undialectically understood as mere technological change. Class struggles play no role in historical change for political actors are reduced to rationally adapting to the effects of changing circumstances.

A determinist understanding of Marx would lead social scientists to expect that the penetration of the capitalist mode of production in social formations where precapitalist modes of production are widespread would soon produce qualitative changes in their economic system (e.g., modification or destruction of the precapitalist modes of production) and their superstructure (e.g., culture, legal, and political institutions). Determinist perspectives, however, underestimate the resilience of the noneconomic characteristics of social formations and the extent to which production is a thoroughly social activity that requires social and cultural conditions of possibility that cannot be instituted by decree. Despite appearances, for example, the drastic economic changes introduced in Russia after 1917 and in Eastern Europe after World War II (1939–1945) were, to some extent, superficial, for those countries quickly reverted to capitalism. There are many complex economic and political reasons why revolutionary change did not produce deep and qualitative superstructural changes, but reliance on the determinant and automatic effects of changing the mode of production must have contributed in important ways.

The literature on social formations subject to the penetration of the capitalist mode of production through gradual, nonrevolutionary processes indicates that forms of articulation between the capitalist mode of production and precapitalist modes of production cannot be logically deduced from Marx’s theory of the capitalist mode of production. The notion of articulation refers to “the relationship between the reproduction of the capitalist economy on the one hand and the reproduction of productive units organized according to pre-capitalist relations and forces of production on the other” (Wolpe 1980, p. 41). How these processes actually interact varies a great deal from one social formation to another, thus leading to the construction of conflicting perspectives about the nature of social formations: (1) Social formations lack a necessary structure; one mode of production may dominate or several modes of production may be articulated with or without one dominant mode; (2) A social formation’s necessary structure may be formed by a dominant mode of production and its conditions of existence, which might include elements of precapitalist modes of production, or it may simply be the effect of the articulation of any number of modes and their respective conditions of existence; (3) Given a dominant mode (e.g., the capitalist mode of production) in any social formation, all other modes will be subordinate to its structures and processes so that they are reduced to mere “forms of existence” of the dominant mode (Wolpe 1980, p. 34).

These and other perspectives entail different implications depending on whether the mode of production is defined in a restricted sense, as a combination of relations and forces of production, or in an extended sense, encompassing linkages among enterprises as well as other economic and political/cultural elements constitutive of the mode of production and conducive to its reproduction over time (e.g., distribution, circulation, exchange, the state) (Wolpe 1980, p. 40; Marx [1859] 1970, pp. 188–199). Because modes of articulation are unique to specific social formations (e.g., in South Africa, racial ideology reproduced and sustained capitalist relations of production [Wolpe 1980, p. 317]; in Peru, agrarian reform contributed to the proletarianization of Indian communities [Bradby 1980, p. 120]), it could be erroneously concluded that social formation and articulation are useless concepts, for their use in research is unlikely to yield testable empirical generalizations.

These concepts are exceedingly important, for they contribute to the adjudication of an important issue in Marxist theory: the extent to which Marx is or is not an economic determinist. The historical and empirical variability in the conditions of reproduction of the capitalist mode of production that is documented through research in social formations and modes of articulation demonstrates the nondeterminist nature of Marx’s theories.

While the structure, processes, contradictions, and tendencies of the capitalist mode of production remain the same, thus constituting the “innermost secret” of the economic and political structures in social formations where the capitalist mode of production is dominant, the historical conditions for the reproduction of the capitalist mode of production vary historically and cross-culturally in the terrain of social formations, where political struggles carried under a variety of banners (class, race, religion, and nationalism) shape the different and spacialized outcomes of capitalism’s never-ending expansionary tendencies.

Dialectically considered, social formations are the unity between the universal (the capitalist mode of production) and the particular, the concrete conditions within which the capitalist mode of production operates. The concept of social formation, unlike the abstract non-Marxist concept of “society,” opens up the possibility of a realistic and historical understanding of social reality, based not on inferences from transhistorical tendencies, functional prerequisites, or concepts of human nature, but upon the historical specificity of the social formations within which capitalism operates.

“Formation, Social.” International Encyclopedia of the Social Sciences. 2008. Retrieved March 03, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3045300847.html

Learn more at ENCYCLOPEDIA.

[2] “The Myth of the Barter Economy” by Ilana E. Strauss, The Atlantic, 26 FEB 2016: http://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/

Published (online) by The Atlantic

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[3 MAR 2016]

[Last modified 3 MAR 2016 14:45 PDT]

[Thanks to Dr. John Henry for running Dr. Lee’s UMKC-LEE ECONGRAD Announcement List.]

Christian Parenti: The State Is Strong Enough to Discipline Capital

05 Thu Nov 2015

Posted by ztnh in Anti-Capitalism, Globalisation, History, International Trade, Macroeconomic Analysis, Neoliberalism, Open Economy Macroeconomics, Political Economy

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Adam Smith, AKP, AKP Party, Behind the News, Christian Parenti, Coordination for the Refoundation of the Fourth International, CRFI, Doug Henwood, Henry Clay, import substitution industrialisation, ISI, Jacobins, Justice and Development Party (Turkey), KPFA, NYU, Pacifica Radio, RedMed.org, state intervention, Sungur Savran, Tropic of Chaos, Turkey, Whig Party

LUMPENPROLETARIAT—Earlier today, economic journalist Doug Henwood broadcast an update on the recent election in Turkey as well as a conversation with Christian Parenti, who assures us, among other things, that the state is strong enough to discipline capital. That’s interesting, especially for those who will argue that the social relations inherent in capitalist social relations, by which predation and extraction occur, is by its very nature incapable of being disciplined. Listen (or download) here.

Messina

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BEHIND THE NEWS—[5 NOV 2015] Hello. I’m Doug Henwood. And we’re moments away from Behind the News. Today, the political economist Sungur Savran talks about the recent election in Turkey. And Christian Parenti will tell us what the climate movement can learn from the theory and practice of the developmental state. But, first, some news headlines. [1]

Hello and welcome to Behind the News. My name is Doug Henwood. The usual ration of two guests today: first, in seconds, the political economist Sungur Savran will talk about the recent election in Turkey, which saw the ruling AKP Party solidify its grip on power. And, at the bottom of the hour, Christian Parenti will talk about the role of the state in capitalist development and what the environmental movement can appropriate from this history.

First, Sungur Savran. Savran is an Istanbul-based academic political economist and editor of the website RedMed.org produced by a trio of Marxist political parties: one Italian, one Greek, one Turkish. [2] [c. 32:01]

Next, Christian Parenti. Christian is the author, most recently, of Tropic of Chaos, a book about climate change, state collapse, and violence. He teaches in the Liberal Studies programme at NYU and has an article in the Jacobin magazine website, JacobinMag.com called “Why the State Matters and What the Environmental Movement Can Learn From the History of State-Led Capitalist Development“.

Learn more at BEHIND THE NEWS.

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NEWSWEEK—[3 NOV 2015] “Election Results Have Dire Consequences for Turkey” by Michael Rubin.

This article first appeared on the American Enterprise Institute site.

Turkish President Recep Tayyip Erdogan crowed triumphant after the Sunday election victory of his Justice and Development Party (known by its Turkish acronym, AKP), but the rest of the world should mourn. The AKP victory confirms not democracy but rather dictatorship.

The election was a farce. In any election, AKP cheating gives it an extra 5 percent or so bonus. That figure, cited privately by Turkish politicians, diplomats and veteran Turkish journalists, takes into account stuffed ballots, lost ballot boxes from opposition-held areas, voter suppression and—in the November 1 election—enough registered dead people to make a corrupt Chicago politician blush.

Learn more at NEWSWEEK.

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[*] Behind the News airs Thursdays on 94.1 FM, KPFA, Berkeley, CA and other Pacifica Radio stations and independent stations throughout the USA.

[1] News Headlines (read by Gabriela Castelan)

[2] Read the website RedMed.org:

RedMed is a web site that is run by three political parties that are all sections of a revolutionary Marxist international organisation, the Coordination for the Refoundation of the Fourth International (CRFI). The three parties are: the Partito Comunista dei Lavoratori (PCL) of Italy, the Ergatiko Epanastatiko Komma (EEK-Workers Revolutionary Party) of Greece, and the Devrimci İşçi Partisi (DIP-Revolutionary Workers’ Party) of Turkey.

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[Last modified 5 NOV 2015 14:22 PDT]

Microeconomic Aspects of Globalized Production Processes by Sudeep Regmi

10 Fri Apr 2015

Posted by ztnh in Free Speech, Globalisation, International Trade, Macroeconomic Analysis, Microeconomic Analysis, Open Economy Macroeconomics, Political Economy

≈ 1 Comment

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Adam Smith, Buddhist economics, comparative advantage, flexible production, global economy, just-in-time production, labor, labour, labour theory of value, lean production, marginal productivity theory of distribution, Marxian economics, neoclassical economics, world economy

LUMPENPROLETARIAT—On Friday, 10 APR 2015, one of my favourite thinkers of UMKC’s heterodox economics department, Mr. Sudeep Regmi, delivered a presentation entitled “Microeconomic Aspects of Globalized Production Processes”. It involved a historical overview of how the human production of goods and services, the daily necessaries (and unnecessaries) of life have been produced. Mr. Regmi described how societies have gone from forms of production processes structured around local, regional, and national or nationalistic parameters to anational, multinational, and transnational production processes, wherein the production process occurs scattered around the globe. In the final segment of the presentation, Regmi opened up the discourse to questions and challenges from the UMKC economics students in the audience.

-Messina

University of Missouri-Kansas City, Department of Economics, Spring 2015

MR. SUDEEP REGMI: “So, this is a talk on economic history and microeconomic perspectives on certain developments, that we’ve seen over the last two centuries, actually. But I’ll be focusing, mostly, on the micro perspective, even though there should not really be a distinction between macro and micro. But, for the purposes of teaching classes, I think, we make a distinction between micro and macro issues.

“So, macro issues would be things, that are concerned with the economy at the general level; whereas micro is concerned with the economic relations between individuals, between individuals and firms, between firms and firms. So, all those economic interactions, that hold within an economy, however you want to define an economy, is generally considered in the microeconomics category.

“So, I’ll be looking at the past four or five decades of changes in the world economy and see if our microeconomic theories [which are dominant today] about economies still hold, or to what extent do they hold.

“So, I’ll first begin with a brief description of the capitalist production process, the topic that is the subject of our inquiry in microeconomics. And, then, I’ll go on to outline this change we have seen from something called a world economy to a global economy. A world economy would be economic relations, that are mostly limited to international trade, international trade flows, and, you know, flow of goods and services, maybe, a little bit.

“There used to be a time, before the First World War, before 1914. But, then, gradually, over the course of 60, 70, 80 years, we have seen the emergence of something called a global economy. But this trend has started long before the First World War period. We can identify a period beginning with Adam Smith’s period, the 1770s. And, so, we can periodise our history in different ways. The one I choose here is based on the development of productive forces, the development of economic inquiry, and, in general, the modifications in the production process, that the capitalist firms have been using. So, I’ll be looking at five periods, beginning with the 1770s and ending with right now.

“Simultaneously, I’ll be looking at the evolution of production processes. One could break down different types of production processes into three kinds. There’s craft production, using very simple machinery. And there is mass production of items, using specialised and standardised methods. And there is something, we have seen in the recent past, in the recent twenty or thirty years called flexible or lean production, that originated mostly in Japan, although their motto was: learn from [Henry] Ford. So, they were learning Fordist methods, but then modifying [them] to the Japanese environment. And, so, they developed this thing called lean production, which subsequently was used by capitalist enterprises in the west.”

MESSINA: “Is that also referred to as just-in-time?”

SUDEEP REGMI: “Yeah.

“And, then, simultaneously, with that excursion into economic history of production processes, I’ll be looking at how firms and corporations have evolved over the past two centuries. So, we’ll be beginning with national economies or national firms and national corporations. And, then, we’ll go on to making a distinction between national and international, multinational and transnational firms, which is what we have right now. (c. 6:15)

“And, then, we’ll be looking at how firms and corporations have, at times, skipped this path and jumped from national to transnational without, necessarily, having to go through all these things. So, this is not a deterministic framework. This is what we have seen. But you could always skip certain phases because some corporations are born globally. They are suddenly transnational at their birth. So, whether we are looking at it in the conventional path or some parallel path that could be followed, or that sometimes has been followed by corporations. That will give us enough background to look at globalised production processes. And, [due to] the lack of time and space, we’ll be looking at two or three selected issues in the global production process, namely, comparative advantage, supply and demand, and productivity of labour[*]. And, then, this will give us a good foundation to launch an inquiry, whether these concepts, as they are, still hold when we try to describe the existing capitalist economies. Then, that will give us an opportunity to ask some open questions, that have not been answered so far.”

[full transcript pending]

[*] For a Marxian economic perspective, consider the Marxist immiseration thesis, which refers to the view that the nature of capitalist production logically requires an ever greater reduction in real wages and worsening of working conditions for the proletariat.

For a Buddhist economic perspective, consider “Buddhist Economics for Business” by Laszlo Zsolnai. Buddhist economics is a spiritual approach to economics, which incorporates Buddhist concepts. For example, the concept of the Middle Way emphasises the need for time to be divided between working towards consumption and meditation. It also seeks to understand the optimal allocation between these two activities through meditation intended to lower one’s desire for consumption and to inculcate a sense of appreciation and satiety with less consumption and the work, which that involves. In conventional economic terms, this means the “marginal productivity of labour utilized in producing consumption goods is equal to the marginal effectiveness of the meditation involved in economizing on consumption without bringing about any change in satisfaction.”

For a neoclassical economic perspective, consider the perspectives of Samuel Mountiford Longfield (1802-1884), who opposed the Marxian approach utilising the labour theory of value.

His most important work in economics was “Lectures on Political Economy”, which was published in 1834. He argued against the labor theory of value and developed a marginal revenue productivity theory of labour and capital distribution. It was unusual for its time and was only rediscovered after 1900; some of his ideas on capital and interest foreshadowed the work of the Austrian School.

His main approaches revolved around the labor theory of value, an analysis of capital and distribution theory (based on a concept of marginal productivity). He applies insofar as the representative of the marginal utility theory avant la lettre.