Alea jacta estEconomic laws and human action in a

time of crisis

© GERET 2015

Alan Freeman

Ἑλληνιστὶ πρὸς τοὺς παρόντας ἐκβοήσας, «Ἀνερρίφθω κύβος», [anerriphtho kybos] διεβίβαζε

τὸν στρατόν’He declared in Greek with a loud voice

“let the die be cast”

And led the army across

Reconsidering SchumpeterFreeman, C. 1997. Schumpeter’s ‘business cycles’ revisited. http://goo.gl/BGpqEs

Freeman, A. 2014. ‘Schumpeter’s theory of self-restoration: a casualty of Samuelson’s Whig Historiography of science’. In Freeman, A., V. Chick and S. Kayatekin (eds). CJE Vol. 38 (3) pp663-669. http://cje.oxfordjournals.org/content/38/3.toc

Freeman, A. 2016 (forthcoming). Introduction to Chris Freeman’s “Schumpeter’s ‘Business Cycles’ revisited”. In European Journal of Economic and Social Science (EJESS) special issue (forthcoming) http://ejess.revuesonline.com/accueil.jsp

Perez, C. 2016 (forthcoming) From long waves to great surges: continuing in the direction of Chris Freeman’s 1997 lecture on Schumpeter’s business cycle. In EJESS op. cit.

Geopolitical Economywww.geopoliticaleconomy.ca

https://goo.gl/heaYi9

“He [Marx] aptly says that ‘the superficiality of Political Economy shows itself in the fact that it looks upon expansion and contraction of

credit, which is a mere symptom of the periodic changes of the industrial cycle, as their cause.’

… We find practically all the elements that ever entered into any serious analysis of business cycles, and on the whole very little error.

…Many economists who went before him had an inkling of it. In the main, however, they focussed their attention on the spectacular

breakdowns that came to be referred to as ‘crises’.

And these crises they failed to see in their true light, that is today, in the light of the cyclical processes of which they are mere incidents”

(Schumpeter 1965:41; emphasis added).

The economic programme of the Communists

• Abolition of property in land and application of all rents of land to public purposes.

• A heavy progressive or graduated income tax.

• Abolition of all rights of inheritance.

• Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.

• Centralisation of the means of communication and transport in the hands of the State.

• Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.

• Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c, &c

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8World Growth

Annual Growth, Constant $US7 year average

The world economy has been slowing down since the mid 1960s.This is a 55-year decline. It is the longest in history. It is a trend, not a cycleIt is not realistic to propose that such a system will fix itself

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Investment as share of GDP, advanced economies

The cause of the decline in growth is a long-term decline in investment

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US Accumulation as per cent of GDP

Source: BEA historical data, Simon Kuznets data series on US output and accumulation

In the US, this decline in accumulation is a very long historical trend as the data from Simon Kuznets and the Bureau of Economic Affairs shows

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US growth Average Growth over business cycle

10-year average growth

Perc

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US

Source: BEA NIPA tables, BEA cycle dating committee

The US economy did recover and this produced a long boom which lasted until about 1865. However the recovery does not date from the New Deal but from

the war.

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Investment and state spending in the USA

Private Investment Government

Source:BEA NIPA tables

The crisis was overcome because government spending rose massively, making up the gap in private investment. This was done in the war. Also during the war, and after it, America exported to its allies and also achieved a one-time productivity leap. It also reorganised the world international order to its advantage by dissolving the German

and Japanese empires and turning Britain and France into subordinate or vassal states. Its advantage was short however and by 1961 Germany and Japan had caught up with

it

Chart 2: UK profit rate made consistent by including financial assets in capital

Chart 3: US profit rate made consistent by including financial assets in capital

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Corporate Value Added/Corporate Capital Stock 'Denominator includes securities (right scale)

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(Unadjusted) Operating Surplus of Private Enterprises/Fixed Assets of Private Enterprises [left scale](Corrected) Operating Surplus of Private Enterprises/(Fixed Assets of Private Enterprises plus Marketable Financial Securities owned by US agencies and persons) [right scale]

Keynes on the long-run trend of the profit rate

• “The demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure… The return from [new means of production] would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment”

Non-substitutable labour

The new technology of human creativity

The strange non-disappearance of labour

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USA

UK

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Share of employment 1948-2007

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Retail+Wholesale InformationFinancial Activities Leisure and HospitalityGovernment Health and EducationBusiness services

GovernmentRetail and Wholesale

Business Services Health and Education

Leisure and Hospitality

Financial Activities

Information

Share of employment in US services

• From 1997 to 2013, UK Creative Economy jobs rose from 1.8 to 2.6 million - 2.3% per year, four times the UK Economy as a whole.

• Creative Industries GVA was £76.9bn in 2013 - 5 per cent of UK output.

• Creative Industries GVA grew 10 per cent in 2012, the last year we have data for. This is more than any other industrial sector.

• The value of services exported by the Creative Industries was £17.3bn in 2012, 8.8 per cent of total UK service exports

• In 2011, the last year we have data for, Creative Industry service exports grew by 11.3%. This compares with 2.8% for total UK service exports.

Health and Social Work

Education

Manufacturing

Construction

Creative Industries

Transport and storage

Financial and insurance

Real estate

0 1000 2000 3000 4000 5000

Projected 2030 2013 jobsSource: DCMS January 2015 estimates

Source: DCMS January 2015 estimates, figure 5 and table 6

The engine of creation

The rise of creative employment