Essays on Heterodox
Economics
(2)
Alternative analysis to the mainstream “Blackboard Economics”
based on the concept of “Creative Mental Labor”
Hasan Gürak
2013
3
Forward
This book, Heterodox Economics-2, consists of eight articles, which are ‘complementary’ to the subjects presented in the book titled Heterodox Economics published in April 2012 by Peter Lang International, Germany and each section, though independent, is related to the others in presenting an unorthodox and alternative approach to mainstream doctrines in economics. The distinguishing feature of all sections is the concept of the laborer’s “Creative Mental Labor” which, more or less, has the same significance as the Marxist concept of “labor-power”. The reason for this is the consideration that the laborer’s “creative mental labor” is the source of all technological innovation which is the source of “long-term” economic growth.
Two other important and related concepts frequently referred to are “technology-producing labor” and “technology-using labor” for which we will use the shorter term “laborer”.
These articles present alternative views but do not make any claim to have found or to reveal the “absolute truth” in economics. There are, in fact, no ultimate or absolute truths in any science. Therefore, some criticism of the views presented is unavoidable, in fact, it is necessary for any further ideological development.
Obviously, there will be some criticism of the views presented by the supporters of mainstream economics. Hopefully the reader, regardless of her/his ideological commitment will read and evaluate the book with an open-mind and with the same degree of tolerance and indulgence that they would afford to the orthodox or mainstream theories. I would welcome and appreciate any constructive criticism in regard to any errors or shortcomings.
I’m grateful to Prof. Dr. Cihan Dura for his priceless comments and advice on the Turkish version of this book.
And special thanks goes to John Lee from Turgutreis for his patient and valuable “mental and physical labor” in helping with the English translation.
Subject content of the articles:
The “Introduction” presents an evaluation of the present economic system, its concepts and theories.
The first article entitled “Production Factors-Productive Factors & Income Distribution” discusses the basic concepts and issues such as labor-laborer, the interest rate and rent.
The second article entitled “On Value and Price” published in 2004 in YK- Economic Review, discusses the core terms in economics.
The third article entitled “Creative Intelligence and Technology” consists of two separate articles also published in YK- Economic Review: The first is entitled “On Productivity Growth”, (1999) and the second “Economic Growth and Productive Knowledge” (2000).
The fourth and fifth articles are reprint translations of Chapter-5 and 7 of my book entitled “Ekonomik Büyüme ve Küresel Ekonomi” (Economic Growth and Global Economy), published in 2006. Both are slightly modified to adjust to the concepts outlined in this book.
The sixth article entitled “Neoclassical Marxists?” questions whether the well known economists Lucas and Romer were “latent Marxists” due to the similarities in their approach to the concept of “human capital”.
And the seventh and final article remarks on some of the negative impacts of the present economic system and offers some new insights.
Dr. Hasan Gürak
www.hasmendi.net
Contents
Forward V
Contents VII
INTRODUCTION 1
Economic Science and the Human Being 1
Science 1
Technology 2
A Brief Evaluation of Economic Ideologies 5
The Subject Matter of Economics 7
Whose Interests Have Priority in the System? 10
Economic Power & Behavior 12
Being Selfish vs. Unselfish (Benevolent) 14
Concluding Remarks 16
References 18
1- PRODUCTION FACTORS, PRODUCTIVE FORCES & INCOME DISTRIBUTION 19
Introduction 19
The Purpose and the Subject 20
Factors of Production (Fop) & Productive Factors (PF) 21
Factors of Production (FoP) 21
Productive Factors (PFs) 23
Nature: A “Factor of Production” as well as a “Productive” Factor 23
Ecological Balance and the Sustainability of Production 24
Labor (Laborer): A “Factor of Production” as well as a “Productive” Factor 25
Some Related Definitions 25
The Concept Labor (Laborer) (L) - Reconsidered 26
Capital: Is it a “Productive” Factor? 27
Historical Perspective 28
Is Capital a “Productive” Factor Capable of Generating Value? 29
Capital Reconsidered 31
Origin of the Capital-goods 32
Is Capital a Scarce Factor of Production? 33
Other Factors of Production 33
Human Capital: Laborer or Capital? 34
Human Capital & the Laborer without Mental Abilities 35
Types of Incomes: “Earned vs. Unearned” 35
1- Wages - “Earned Income” 36
2- Profit: – “Earned” or “Unearned” Income? 37
3- Interest - "Unearned" Income 40
4- Rent: “Unearned Income” 48
Functional Income Distribution 49
1- Income Distribution with a “Given” Technology 50
2- Income Distribution with “Technological Progress” 51
Concluding Remarks 54
References 56
2- ON VALUE AND PRICE 61
Introduction 61
The Hypothesis 61
Why Price Theory? 62
Towards a New Mindset" 63
A Brief Historical Review 63
The Original Sources of Value: Nature and Labor-Power 65
The Labor-power 66
Value Generation - A Simple Model 67
Initial Exchange Conditions 68
“Unfair” Equilibrium 69
Unequal Exchange 70
A More Likely Outcome 70
Different Qualities of Mental Labor 71
Value-Price Relation 72
Relative Prices 73
Relative Prices in the Service Sector 75
Commodity Sector Price Formation 76
Transformation of Values into Prices 76
A Case of "Barter-Exchange" 76
Price Formation in a Monetary Economy 78
Production with Multiple Inputs 79
How Influential is Variations in Demand? 81
Technological- (Macro-) Productivity Growth & Price 83
Concluding Remarks 85
References 87
3- THE CREATIVE MIND & NEW TECHNOLOGIES 89
Introduction 89
The Subject of this Study 90
Knowledge - Science & Technology 91
Knowledge 91
Science or Scientific Knowledge 92
Productive Knowledge (Technology) 92
A Brief Historical Review 94
A. Smith 95
Ricardo 95
Marx 96
Marshall 96
Keynes 96
Schumpeter 97
Changing Trends in the 1950s 97
Paul Romer 98
Increased Productivity (Growth) 98
The Quantity vs. Value Approach 100
How to Increase Productivity? 101
The Genesis of Productivity Growth 103
Do We Need a Value-Price Theory Embodying Productive Knowledge? 103
Value Generation & Growth 104
A Simple Model Based on Productive Knowledge 104
New Technology and Growth 104
New Technology and the "Productivity Growth" 105
a- Quantitative Increase 105
b- Increase in Terms of the Market Values and Prices. 106
New Technology and the "Exchange Relations" 106
An Exchange with Relative Prices 106
Exchange with Respect to Market Prices 108
New Products and New Methods of Production 111
The Quantitative "Macro" Growth 111
The Growth in the Added Value at a “Macro level” 111
The Accumulation of Knowledge 112
Some Ethical Questions 114
Concluding Remarks 114
References 116
4- AN ALTERNATIVE GROWTH MODEL 119
Introduction 119
Labor, Technological Progress & Growth 121
The Genesis of Growth: The Qualifications of the Labor Force 123
Is it possible to measure the "Qualification Level of the Laborer" accurately? 126
Productive Factors and Production Factors (Inputs) 128
Output, Exchange & Distribution in a “Stationary” Economy 130
Barter-exchange and Growth: 1-a 132
Technological-productivity growth 132
Growth Function 133
Barter-Exchange and Growth: 1-B 134
Assuming the presence of a new market for any additional output 134
Limits of Growth 135
Barter-exchange and Growth -2 135
Technological productivity growth-2: New product and a new production method 135
“New Markets” for the “New Product” 136
Growth Process in the Real Economy 137
1- Growth without Technological Change: A “Given” Technology 138
2- Growth with “Technological Progress” 139
Growth: Reconsidered - Both in the Short- and Long Term 143
Conclusions 144
Reference 146
5- TECHNOLOGICAL PROGRESS & GROWTH 147
Introduction 147
The Purpose of the Study 149
Productivity, Productivity Growth & the "Measurement" Problem 151
Productivity (V) 151
“Productivity Growth” (Economic Growth) 153
Efficiency and Technological-Productivity Growth 158
Growth-1: Efficiency (Micro-Productivity) Increase 158
Growth-2: Technological Productivity Growth 160
Reflections on Technological Productivity Growth 164
A “Given” Product & a “New” Production Process 164
A New Product & a New Production Process 169
A New Product, “Monopoly” and the Profit Rate 171
Technological Productivity Growth and Price 172
A “New Product” & a "New Production Process” 172
A "New” Product, a "New" Process and a “New” Price 173
Other Factors Influencing the Price Level 174
The Service Sector and Productivity Growth 175
Conclusion 177
References 179
6-THE NEOCLASSICAL MARXISTS 181
Introduction 181
Lucas 182
The Mechanical Model 183
Is Lucas a disguised Marxist? 184
Romer 184
The Role of Knowledge 185
Romer's Inputs and Sectors 185
Concluding Remarks 187
References 188
7- FINAL REMARKS 189
What Kind of Economic Order? 190
From the Lordship of Possessions to the Lordship of Humanity 191
From the Producer’s Point of View 193
Competition vs. Coexistence 197
The Lessons to be Drawn from the Ahi Institution 199
From the Consumers Point of View 199
Concluding Remarks 200
Bibliography 204
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