Shackle and uncertainty

Reading this interview with G.L.S. Shackle, I am struck by this point:

“involuntary unemployment” merely means that there are people who haven’t enough faith in their expectations to give employment.

Something I’ve always been unclear about with regards to Keynes is whether he (and the post Keynesians, and weird hybrids like Shackle) believed that uncertainty was the only barrier to full employment. There is no obligation on anyone to use all the resources at their disposal. You could argue that the only reason anyone ever maintains excess resources is because of uncertainty, but this presupposes that you – the individual entrepreneur – have direct control the quantity of the resources available to you.

In this context the “resource” is the population of employable people. The entrepreneurial class does not control the population of employable people, and it is not clear that they would necessarily choose to employ the entire population of employable people, even if they had perfect foresight. Indeed it could be argued that the *ahem* entrepreneurial class has an interest in keeping a reserve army of labour unemployed so as to maintain discipline within the ranks of those they do choose to employ.

Once again, economics ignores the political dimension.

Markets vs. central planning: some distinctions

I left the following comment on Unlearning Economics’ post at Peria:

As I see it, there are three intermingled debates going on here. They are: 1) An argument about the relative information-theoretic and allocative abilities of centralised hierarchical systems on the one hand and decentralised market systems on the other; 2) an argument about the intrinsic ethical and moral status of various types of political economy; and 3) an empirical argument about which nation states have killed the most people, and been responsible for the most suffering.

On the subject of argument 1): Free markets are not the same thing as capitalism. Central planning is not the same thing as communism. There has been a tendency for capitalist countries to exhibit far greater decentralisation of decision making and a greater reliance on some form of market system; but this historical fact doesn’t mean that ‘private ownership of the means of production’ necessarily requires a market system, nor does it mean that the historical tendency for communist countries to adopt central planning means that *all* future communist or socialist economies must be built around central planning.

I would also note that the most economically successful countries have historically used *both* central planning (in the form of large, centralised private firms; large, centralised government departments; and government-directed industrial policy) and decentralised market systems. Markets and hierarchies are tools, and different jobs require different tools.

I recommend ‘The Market System’ by Charles Lindblom on this subject. ‘The Origin of Wealth’ by Eric Beinhocker is also very good.

 

Capitalism vs. communism and markets vs. central planning

Reading the comments under this excellent article by Unlearning Economics, I am struck by the fact that most of the arguments in the capitalism vs. communism debate are let down by the two sides failing to lay out rigorous definitions from the outset. In order for a proper debate to take place, both sides must specify what they consider to be the necessary and sufficient conditions for an economy to be considered ‘communist’ or ‘capitalist.’

I have pointed out before that markets are not the same thing as capitalism; it would be useful now to note that central planning is not the same thing as communism. Historically, most so-called communist states have attempted to engage in central planning, rather than in market-based solutions to problems of resource allocation; but this does not mean that all conceivable communist states must necessarily engage in central planning.

I’ve just realised I used the phrase ‘so-called communist states’ in my previous paragraph; in doing so, I could be accused of ‘special pleading’, and claiming that ‘true communism’ has never existed. This wasn’t my intention, which was to highlight the fact that just because people give something a particular name doesn’t mean that the name is accurate or descriptive.

So what is communism?

I’m not entirely sure. I can think of several highly limited and unsatisfactory definitions off the top of my head. Marx himself was somewhat vague on the subject of exactly what communism would look like. This continuing vagueness is part of the problem; communism can mean lots of things to lots of different people, just like capitalism. All this just shows how important it is to lay out rigorous definitions at the outset.