Book Review: Classical Political Economics and Modern Capitalism

1016909 RRPXXX10.1177/04866134211016909Review of Radical Political EconomicsBook Review/Essay research-article2021 Book Review/Essay Book Review Review of Radical Political Economics 1–4 © 2021 Union for Radical Political Economics Article reuse guidelines: sagepub.com/journals-permissions rrpe.sagepub.com Classical Political Economics and Modern Capitalism. Lefteris Tsoulfidis and Persefoni Tsaliki. Cham: Springer, 2019. 456 pages. Cloth $139.99. ISBN: 9783030179663. DOI: 10.1177/04866134211016909 Date accepted: April 21, 2021 The object of investigation of this book is generalized commodity production, or, capitalism, a notion that is strikingly missing in standard textbooks supposed to study it, as the authors note. Given the scope of the subjects the book deals with, and the range of theoretical approaches and analytical models covered, one can easily conclude that it is the fruit of decades of work. The book employs an integrated theoretical framework based on the writings of classical political economists, mainly Smith, Ricardo, and especially Marx, to study the growth- and crisis-prone, turbulent nature of capitalist economies. This includes a broad range of subjects from the theory of value and price to competition within and between industries to international trade to recurrent crises and long cycles. The book comprises two parts, and each part consists of five chapters. The first part is titled “Theories of Value and Empirical Evidence.” It opens with a bird’s-eye view of the labor theories of value as found in classical political economists. Marx’s law of value is detailed as the main tool to understand capitalist economies. Chapter 2 picks up from surplus product, the main concern of the physiocrats, and simple and expanded reproduction as Marx framed it in terms of schemes of reproduction in the second volume of Capital. The next chapter deals with two controversies of historical importance, both related to the theory of value. First, the authors give an overview of the so-called transformation problem, briefly sketching the solutions proposed by different scholars in the last quarter of the twentieth century, and favoring Shaikh’s (1977) solution over the others. The second stop is the Cambridge Capital Controversy, where the authors detail how British Cambridge overcame neoclassical Cambridge on theoretical grounds, as was admitted by Paul Samuelson, one of the leading figures in the neoclassical camp. Once the stage is set by the first three chapters for empirical analysis based on classical political economics, chapter 4 studies the empirical deviations between labor values, prices of production, and market prices. It contains an extensive literature review, a detailed discussion of theoretical and empirical models, and both cross-sectional and intertemporal analysis of deviations. The second part of the chapter deals with the empirical relationship between price changes and income distribution following Piero Sraffa’s footsteps. Chapter 5 is on the theory of competition, where the framework adopted by classical political economists was fundamentally different from that of neoclassical economics. In the first part of the chapter, the detailed treatment of how Sraffa’s work on the incompatibility of decreasing, increasing, or constant returns to scale with perfect competition, and his critique of the Marshallian firm led to the monopolistic competition revolution in the interwar period, and how perfect competition reestablished its hegemony is of great history of thought interest. The second half of the chapter details the view of competition as a dynamic process of rivalry between individual capitals, capital and labor, capital and the state, the state and other states, and workers and other workers. Tendencies and patterns observed in prices and profit rates within and between 2 Review of Radical Political Economics 00(0) industries as a result of competition are discussed in great detail. The two appendices at the end of the chapter elaborate on the notions of dominant technique and regulation production conditions, and relates the discussion to intra- and interindustry value transfers. The first five chapters lay the theoretical foundations for the second part of the book. If the reader has background in classical political economics, there is little for them to learn from this part. For the reader who is new in this field, however, it provides a concise yet comprehensive review of the relevant literature and shed light on the controversies and differences between schools of thought based on classical political and neoclassical economics. The second part of the book is entitled “Competition, Trade and Long Cycles: Theory and Empirical Evidence,” which is concerned more with macroeconomic questions, although it is difficult to speak of a clear-cut division. Chapter 6 tests the hypotheses formulated in the previous chapter based on the classical concept of competition. The authors first present evidence indicating that there is no systematic relationship between concentration indices and the profit margin on sales. In their view, this runs counter to what they call the quantitative theory of competition, which links the intensity of competition and the level of profitability to the number of firms in an industry. The second hypothesis the authors test is the turbulent equalization of profit rates in the context of interindustry competition. Evidence from Greek, Japanese, and US cases lends strong support to the classical hypothesis. Chapter 7 is one of the most interesting chapters, presenting empirical analysis of international value transfers by means of trade, a field where little empirical work has been done so far. The authors first start by comparing theories of absolute and comparative advantage in trade. Once the quantity theory of money is dropped, they show that the belief in automatic balancing of trade is in vain. On the contrary, international trade can well reproduce and deepen already existing inequalities. Such asymmetries have been the object of investigation of theories of dependency, uneven development, and unequal exchange. The latter is then studied in the context of profit rate equalization dynamics in the international arena (which relates back to chapter 5), noting that although international trade might enhance uneven development, the root causes lie in the sphere of production where capitalist competition exerts permanent pressure to lower unit labor costs. The empirical analysis using input-output data to study the bilateral trade between Greece and Germany, China and the United States, and Germany and the United States tests for the two channels of sources of value: (1) differences in capital intensities, and (2) differences in wages (or the rate of surplus value). The authors find evidence in favor of the theory of absolute cost advantages, and that transfers of value take place mainly through the first channel. The analytical model as well as the empirical study of value transfers are informative and new. The reader could extract more, however, if the results were put into the context of more recent discussions on imperialism and value transfers on the left, such as the work of Harvey (2003), Patnaik and Patnaik (2017), and Smith (2016). Chapter 8 takes up the notion of long cycles from Nikolai Kondratiev and argues that the world economy has gone through five such cycles since the 1790s. The cycles are brought about by fluctuations in investment, which is determined by the expected rate of profit (net of interest). The authors then discuss different interpretations of long cycles in the literature. The rest of the chapter provides a concise recapitulation of the mechanics of the law of the falling rate of profit in the context of competition and a clear presentation of different compositions of capital used in the literature from both theoretical and analytical viewpoints, discusses various formal representations of falling profitability, and carefully elaborates on the theoretical links between the rate and mass of profit, and economic fluctuations. Before empirically testing the falling profitability hypothesis in the context of the labor theory of value, it is necessary to understand the theoretical framework underlying empirical categories in national accounts and to adjust the latter so that the data are coherent with the theory. Relying Book Review/Essay 3 considerably on Shaikh and Tonak (1994), this issue is addressed in chapter 9, where the distinction between productive and nonproductive activities is traced from the physiocrats to classical political economics to neoclassical theory. The discussion of the distinction between, on the one hand, production activities and, on the other, the spheres of circulation and social consumption is supported by a mapping of modern national accounts into categories of classical political economics. The last chapter tests the book’s central premise that goes back to classical political economists, particularly Marx: it is the profit that puts capitalist economies in motion, and there is an interplay between the average rate of profit, the mass of net profit, and the economy’s growth rate (and the long cycles). Empirical results lend support to the Marxist hypothesis of increasing value composition of capital. This is partially offset by an increasing rate of surplus value, which has, however, limited impact, and thus fails to overturn the long-term tendential fall in the maximum and empirical rate of profit. The authors put the evolution of the profit rate into the context of the postwar economy and relate the changes in output and employment to the rate and mass of net profit. They conclude that the economy is still in the recession phase of the fifth long cycle, but there is no reason to believe that this is an ultimate crisis. It is difficult to disagree with the conclusion that the mechanisms regulating the operation of the capitalist system can very well set the stage for a new long cycle. Devaluation of capital through a new wave of innovation, wars, and institutional changes in favor of capital is among such candidate channels. However, when speaking of crises and capitalism today, taking the ecological constraints into account is imperative given that the preservation of the biosphere is a prerequisite for any production independent of its character. As more and more radical political economists apply the heritage of this tradition to studying gender, social reproduction, racism, ecosystem destruction, and other faces of capitalist social formation, one expects some treatment of these matters—at least pointing to these bodies of literature and further avenues of research. In addition, some of the topics the authors elaborate in the first part of the book, such as the transformation problem, Cambridge Capital Controversies, the neoclassical concept of perfect competition, and the development of theories of monopolistic competition, are loosely connected to the empirical analysis in the second part of the book, or, for that matter, the claim that the “book deals with the economics of capitalism,” as Tsoulfidis and Tsaliki (v) put in the preface. The authors could have saved space by referring to their own as well as other researchers’ previous work instead of recapitulating theoretical and empirical results established in Marxian economics.1 This could allow them to engage with contemporary banking and financial systems, exchange rate regimes, and the potentials and limits of fiscal and monetary policy within the structural tendencies of capitalist economies that the authors investigate. An analysis of modern capitalism, as the title of the book suggests, is hardly complete when these elements are not incorporated. That said, however, Classical Political Economics and Modern Capitalism has many virtues that classify it as a good read. One crucial strength of the book is that each chapter provides a panoramic theoretical view of its subject, comparing the approach of classical political economics with other historical and modern schools of thought. In addition, the book is rife with mathematical and empirical models for readers and researchers interested in testing classical hypotheses. Data sources are given in clear references, and appendices on empirical work are very helpful for studying similar questions on empirical grounds. All in all, it is a must-read for researchers and students of classical political economics. Güney Işıkara Liberal Studies, New York University New York, NY 10003 Email: guneyisikara@nyu.edu 4 Review of Radical Political Economics 00(0) ORCID iD Güney Işıkara https://orcid.org/0000-0001-9867-6954 Note 1. Anwar Shaikh seems to have a particular influence on their work. References Harvey, David. 2003. The New Imperialism. New York: Oxford University Press. Patnaik, Utsa, and Prabhat Patnaik. 2017. A Theory of Imperialism. New York: Columbia University Press. Shaikh, Anwar. 1977. Marx’s theory of value and the transformation problem. In The Subtle Anatomy of Capitalism, ed. Jesse G. Schwartz, 106–39. Santa Monica, CA: Goodyear. Shaikh, Anwar, and Ahmet E. Tonak. 1994. Measuring the Wealth of Nations. The Political Economy of National Accounts. New York: Cambridge University Press. Smith, John. 2016. Imperialism in the Twenty-First Century. Globalization, Super-Exploitation, and Capitalism’s Final Crisis. New York: Monthly Review Press.