Re: [OPE-L] what is irrational in the functioning of capitalism?

From: Jerry Levy (Gerald_A_Levy@MSN.COM)
Date: Tue Nov 28 2006 - 08:41:38 EST

Hi Dogan:

The belief that capitalism is inefficient and irrational is implied by
mainstream economic theory.  

Consider a production possibilities curve for the macroeconomy.
Label the axes 'guns' and 'butter' if you like.  On the production 
possibilities curve, all resources (land, labor,  capital) are being
fully and efficiently utilized.  If there is unemployment, however,
then it necessarily follows (within the context of the PPC graph)
that the economy is  not on the curve itself  (rather, it is to the left
of the curve) and is therefore *not* fully and efficiciently utilizing all 
available resources because it is not fully and efficiently 
utilizing all *labor* resources.  To the extent that one could claim 
that there is a structural association between periodic unemployment 
and capitalism, one can conclude -- *using only mainstream theory!*
-- that capitalism has an element of inefficiency and irrationality to
its operation.  This is a point which is often overlooked by mainstream
economists themselves.  (The more important point here, though,
is not that capitalism is inefficient but rather that the concepts 
associated with mainstream theory -- in this case, opportunity costs,
scarcity, choice -- are not capable of fully grasping the dynamic of 

In reply to Martin, you wrote:

> From the entrepreneurs point of view it does not matter whether 
> there is unemployment.

I strongly disagree: whether there is unemployment or not has huge
consequences for individual capitalists.  Putting aside the issue for 
now of demand-effects, if there is unemployment then capitalists 
will be in a stronger bargaining position to get wage-workers to work
for lower wages and benefits, increase the length of the working day,
increase the intensity of labor, etc. 

In solidarity, Jerry

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