GROWTH AND CYCLES, IN THE MODE OF MARX AND SCHUMPETER
| Date | 01 September 2009 |
| Published date | 01 September 2009 |
| DOI | http://doi.org/10.1111/j.1467-9485.2009.00492.x |
| Author | Michele Boldrin |
GROWTH AND CYCLES, IN THE MODE
OF MARX AND SCHUMPETER
Michele Boldrin
n
Abstract
I propose a theory of endogenous growth and cycles under competitive conditions.
Firms choose how many workers to hire, how much to invest, and which
technologies to use. New capacity, embodying labor-saving technologies, is costlier
than old one but allows for a lower wage bill. The interaction between labor-saving
innovations and changes in the relative price of labor is the source of growth cycles.
I Intro ductio n
Marx predicted that the capitalist system would collapse because the amount of
capital needed to extract the surplus value from workers will become so large
that compensating it with a positive, if not decent, rate of return had to become,
eventually, impossible. He argued – especially in the Book 3 of Das Kapital
(Marx (1909), see Part III, Chapter 13 for a summary) – that, in order to keep
the growth process going, capitalists must increase the intensity of exploitation,
which, in turn, requires introducing machines capable of extracting an ever-
increasing surplus from a given amount of labor; this, he thought, was
impossible to sustain. More precisely: the cost of such machines would grow
faster than the amount of labor they could employ (hence, of the surplus-value
they could extract) thereby leading to a fall in the rate of profit. This is
equivalent to saying that, eventually, labor-saving technological progress is
either impossible or too expensive in relation to the gains it provides. In such
circumstances, labor becomes the scarce factor, capitalists face a declining rate
of profitability on their investments, and economic growth must stop.
Schumpeter predicted that, in order to keep growing, the capitalistic system
will have to become more and more concentrated and monopolized. His concern
was not with workers becoming too expensive but with the pure absence of
technological progress altogether. The latter, he believed, will become more and
more difficult and expensive due to some form of ‘decreasing returns’ in the
innovative activity: only very large companies with increasing monopoly power
will be capable to muster the excess surplus needed to continue innovating. New
n
Department of Economics, Washington University in Saint Louis, Missouri, U.S.A.
CEPR – London, U.K.
FEDEA – Madrid, Spain.
Scottish Journal of Political Economy, Vol. 56, No. 4, September 2009
r2009 The Author
Journal compilation r2009 Scottish Economic Society. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
415
machines and new products could be invented almost limitlessly, Schumpeter
believed, but they will be the products of ever-growing monopolistic
conglomerates because the fixed cost of inventing new things will grow faster
than the size of the economy.
Almost a century separates the relevant writings of Marx and Schumpeter
and more than half a century separates us from the latter. While we have
witnessed very many economic crisis, including long periods of recession or
stagnation, the collapse of ‘capitalism’ (better: of the market system) has not
arrived yet and it will apparently not arrive this time either. Furthermore,
workers are not starving: in the advanced capitalist countries, workers may feel
(possibly be) exploited by capitalists, but their living conditions are remarkably
better than a century or two ago, or even than just 50 years ago. Popular claims
and complaints notwithstanding, even relative inequality did not grow: it has
probably decreased while a growing number of countries around the world have
started to develop at a remarkably high pace. We are not at the end of times,
hence Marx may ultimately turn out to be correct (there is a sense in which
he will for sure, as long as we live in a finite universe) but we can safely say
that what he meant to predict, the demise of capitalism within a century or so,
did not happen.
Contrary to what many pundits appear to believe, the specific predictions of
Schumpeter have not fared much better either. While technological innovation
has been the engine that moved our economic well being forward, innovations
have not taken place thanks to the activity of monopolies and conglomerates
but, instead, in spite and against them. Innovations have come from small firms,
often from startups lead by individual entrepreneurs, from the breakdown of
monopolies and the liberalization of markets, from imitation and competition,
and from many other things. But, for the most part, they have not come from
pre-existing monopolies and large conglomerates: the latter have generated a
small, and ever dwindling, fraction of all technological innovations. Innovations
certainly helped in the establishment of new monopolies and, when the latter
lasted too long, innovation and growth slowed down in the unfortunate country
or industry. Further, while the fixed cost of certain innovations has risen, it has
done so at a lower pace than the size of the economy, while the cost of most
innovations has in fact decreased. The actual process of creative destruction and
growth we have been witnessing, in other words, resembles much more the one
Schumpeter sketched in his earlier Theory of Economic Development, Schump-
eter (1911), than the one for which he later became popular and he envisaged in
Capitalism, Socialism and Democracy, Schumpeter (1942).
At the core of the growth-engine, in its pistons so to speak, is the conflict over
income distribution between the scarcest of all resources (labor) and the most
reproducible one (capital). While this feature of the growth process may appear
less self-evident than the rest, I just state it here without providing much
evidence, lest this paper turn into something else. I should add that, quite
obviously, the conflict between capital and labor is not the only piston in the
engine: natural resource holders also work hard to increase their share of income
and, more generally, any input that is in fixed supply (or whose supply grows
MICHELE BOLDRIN416
r2009 The Author
Journal compilation r2009 Scottish Economic Society
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