An analytical and historical overview
Ramaa Vasudevan
The investigation of the process of accumulation of capital forms a rich and distinctive terrain of heterodox economic analysis. The models of economic growth in classical, Marxian, and Post Keynesian approaches differ from the orthodox neoclassical tradition of savings-driven, supply-side models derived from the Solow-Swan growth model (Taylor 2004; Foley & Michl 2010). Apart from the distinctive analysis of economic growth that is centered on the re-investment of profits in production, these traditions share a common conception of the accumulation of capital as an irreversible historical process, taking place in the context of capitalist institutions. The abstract models of steady-state growth represented by Marx’s expanded reproduction scheme or the Cambridge growth equation are only the starting point for the analysis of the process of accumulation. In order to comprehend the complex dynamics of capitalist accumulation, “economic analysis requires to be supplemented by comparative historical anthropology” (Robinson 1956: 59).
Within the neoclassical framework, the growth of technology and the labor force are proximate determinants of the long-run growth path, around which the economy fluctuates when subject to external shocks. The new endogenous growth models in the Solow tradition incorporate endogenous technical change. The fundamental role of institutions in fostering or hampering growth is also recognized as a factor explaining the differential growth performance across countries. However, the investigation of the concrete, non-linear “path of development of an accumulating economy through historical time” (Minsky 1986: 285) that can be found within the different heterodox traditions has no real parallel in neoclassical analysis.
Heterodoxy goes beyond ‘theories of growth’ in its analysis of capitalist dynamics. Accumulation is intertwined in the process of institutional and technological change propelled by the forces of capitalist competition. The development and evolution of the financial system shapes the path of capitalist accumulation. Its trajectory is turbulent and punctuated by crisis.
In this chapter, we present a broad overview of the heterodox approaches to the capital accumulation process, from both an analytical and historical perspective.
Before embarking on a more historically grounded elaboration of heterodox approaches to the accumulation of capital, we will identify the analytical characteristics of heterodox approaches that distinguish themselves from the neoclassical approach. The focus here is more specifically on Marxian and Post Keynesian/structuralist approaches.1 We do not elaborate the theories of growth, focusing instead on the different dimensions of the analysis of the accumulation process.2
In neoclassical savings-driven growth theory, the rate of growth of the labor force is treated as an exogenous factor determining growth. The assumption of the substitutability of capital and labor ensures that labor markets clear and there is full employment of labor.
The investment-driven growth models of Post Keynesian and structuralist theories, in contrast, break with Say’s law and the assumption of the full employment of labor,3 and extend the Keynesian principle of effective demand to the long-run (Taylor 2004). Marx also rejects Say’s law, and locates the sources of demand within the circuit of capital (Foley 1985). Growth in the classical and Marxian models is driven by the re-investment of profits. In the absence of a specification of the investment function governing the rate of re-investment of profits, growth will tend to be ‘profit-led.’ However, effective demand plays a role in the short-run in classical and Marxian models of growth, when capacity utilization differs from the normal capacity utilization level (Shaikh 1991; Duménil & Lévy 1999).
Gibson (2010) makes the argument that the exogenous factor in the Post Keynesian growth model is demand. Aggregate demand is, in turn, based on animal spirits.4 The counterpart to animal spirits as an exogenous factor in Marxian growth models would be the evolution of class relations. Class relations govern the rate of surplus extraction in production, its distribution, and the incentives for technological innovation. The exogenous impact of animal spirits or class struggle allows both the Post Keynesian and Marxian analyses of growth to be open to ‘history.’
This openness paves the way for a conception of the complex qualitative dynamic of accumulation that transcends the underlying abstract model of growth that informs the Marxian and Post Keynesian visions. It also situates the accumulation process firmly in the context of dynamic transformation of capitalist social relations.
The point of departure of heterodox analysis is the fundamental division of the capitalist economy into capitalist entrepreneurs and workers. For Marx, this social-class relation was the key to understanding the capitalist economy; he was thus concerned with discovering the ‘laws of accumulation’ that emerged in the context of capitalist social relations. Capitalism is understood as a totality of relations and processes organized around the accumulation of capital through production, circulation, and the recommitment of surplus to production. However, accumulation involves not just the production and capitalization of surplus value but also the transformation of the production process and the reproduction and extension of capitalist social relations.
The capitalist entrepreneur making decisions under conditions of fundamental uncertainty is, similarly, at the heart of Post Keynesian analysis of accumulation. The economy consists of groups with conflicting interests that are held together by rules of the game that are “largely concerned with the manner in which work and property are combined in production and with the rights that they give to shares in the proceeds” (Robinson 1956: 4). For capitalist accumulation to proceed smoothly, the cycle of production has to be completed and the proceeds from this cycle to be ploughed back into financing a new cycle.
Accumulation, in Marx’s framework, also entails the processes of concentration (as individual capitals grow larger) and centralization (as capitals merge with and acquire other capitals). This has led to the postulation of a monopoly phase of capitalism with a consequent tendency towards stagnation (Baran & Sweezy 1966). Contrary to this view, it has been argued that concentration and centralization do not abolish competition, but rather reflect and intensify it (Shaikh 1978). The growth of monopolies and oligopolies also impinges on the accumulation process within the Post Keynesian framework. Firms fix prices in terms of a mark-up that reflects monopoly power. Growing monopoly power can lead to secular stagnation, as a decline in effective demand triggers a cutback in capacity utilization, investment, and accumulation.
Both Marxian and Post Keynesian analyses, thus, give primacy to the decisions of capitalist entrepreneurs in search of profits as the source of accumulation and view the process of accumulation as an integrated system of real and financial stocks and flows that are continually reproduced and extended. They are also concerned with how the changing structure, organization, and scale of individual firms and capitals conditions the accumulation process.
Profits and profitability are central to the accumulation process in the Marxian and Post Keynesian traditions. The analysis of the rate of profit in the Marxian tradition is rooted in the sphere of production and is determined by technology (organic composition of capital) and distribution (rate of exploitation). The profit rate (r) can be expressed as
where P is aggregate profits, K is the aggregate stock of capital, Y is aggregate income, π is the profit share, and k the ratio of aggregate output to capital stock.
In Kaleckian models, the profit rate is determined by a mark-up that reflects monopoly power in the market.5 Investment demand and capacity utilization determine profits. The profit rate can thus be decomposed as
where Y* is capacity output, u is the capacity utilization ratio, and k is the capacity output to capital stock ratio.
In the classical and Marxian traditions, profitability regulates growth and accumulation. The growth model of the expanded reproduction scheme boils down to the Cambridge growth equation:
g = sπ r
where g is the rate of growth of capital stock, r is the rate of profit, and sπ is the propensity to save out of profits or the rate of re-investment of profits (under the assumption that workers do not save).
In Post Keynesian and structuralist traditions that derive from Kaldor, Kalecki, and Robinson, profitability affects growth and accumulation through the investment function:6
g = gk(α, u, r)
or in an alternative formulation
g = gk(α, u, π)
where α represents animal spirits. The investment function gives rise to dynamic patterns that are either profit-led and exhilarationist, or wage-led and stagnationist (Marglin & Bhaduri 1990; Taylor 2004).
The primacy of the processes determining distribution is common to both Marxian and Post Keynesian approaches. The former emphasizes class relations, and how distributive outcomes are determined in the sphere of production. Demand varies with changing distribution between wages and profits in Post Keynesian models. The inclusion of Goodwin-style distributive curves, linking the distribution to capacity utilization, into these models incorporates the manner in which the changing bargaining power of workers determines distribution.
Technological change plays an integral role in the accumulation of capital. The Marxian notion of competition is that of the turbulent reciprocal interaction of capitals. That “battle of competition is fought by the cheapening of commodities,” and thus necessitates cost-cutting innovations (Marx [1867] 1976: 626). In a similar vein, Robinson (1956: 6) argues that “the capitalist rules of the game foster large-scale production and the use of elaborate techniques” and that the “capitalist entrepreneur . . . is impelled to do so by the competitive struggle to undersell others.”
Drawing on Myrdal’s principle of cumulative and circular causation and Verdoorn’s law, Kaldor (1961) put forward an analysis of growth and accumulation, which stressed increasing returns to scale and path dependence. Verdoorn’s law, relating the growth rate of output and of productivity, can be explained as an outcome of returns to scale from the division of labor with the expansion of the market, and of gains from ‘learning by doing.’
Marx noted the tendency towards a rising organic composition of capital in the course of capitalist accumulation. Within capitalist social relations, technological change takes a particular form of substituting capital for labor and deploying more machinery to enhance labor productivity. Post Keynesian models in the Kaldorian tradition also incorporate such factor-biased induced technological progress. They introduce a technical progress function that relates productivity growth to capital intensity or investment per worker. The growth of real wages induces capitalists to adopt labor-saving technical innovations (Foley & Michl 1999; Taylor 2004)
The idea of endogenous technical change has now been incorporated in the neoclassical endogenous growth models as well. However, in the Post Keynesian framework, technological change is endogenous in the sense of being demand-determined and explicable in terms of the growth and distribution outcomes that are engendered by the process of accumulation (Setterfield 2010). In Marxian models, technological change is endogenous; it is determined by the specific context of class relations in which competition compels innovation. In both of these heterodox approaches, technology develops and responds in a social and historical context.
The accumulation process is shaped by historically specific institutions that govern the organization of production and the distribution of income. Institutions are not simply a factor determining growth, but also a mechanism by which the more complex process of accumulation is mediated and regulated.
Régulation theory and the Social Structures of Accumulation (SSA) approach that draw on both Marxian and Keynesian theoretical traditions explicitly demarcate periods based on the institutional evolution of capitalism. These approaches explain long-term patterns in accumulation in terms of a network of social institutions and social norms. The SSA approach delineates the institutional framework that fosters and stabilizes accumulation and enhances the power and profits of the capitalist class (Gordon et al. 1982; Kotz & McDonough 2010). Régulation theory is framed in terms of the impact on the modes of régulation and regimes of accumulation on the contradictory tendencies that are inherent in the Marxian laws of accumulation (Aglietta 1979).
Marxian analysis is rooted in the investigation of social-class relations. Capital accumulation derives from the exploitation of wage labor and the appropriation, by the capitalist, of the surplus produced by the worker in the production process.7 Marx’s historically grounded account of the process of ‘primitive accumulation,’ the evolution of large-scale industry, and the reshaping of the organization of work and working conditions provides an institutionally textured concrete analysis of the accumulation process.
Post Keynesian analysis of accumulation is framed around the specification of the macroeconomic regime—“a process of income generation embedded within a historically specific institutional framework” (Setterfield & Cornwall 2002: 67). The institutions, though enduring, are not ‘immutable,’ so that a particular steady-state growth path is conditional on the reproduction over time of a specific institutional structure (Setterfield 2011). The principal, institutionally driven characteristics that define a pattern of accumulation comprise the macroeconomic structure, the system of production, rules of coordination, and the international order (Glyn et al. 1990).8
While Post Keynesian analysis of accumulation tends to address institutions through their impact on macroeconomic structures, Marxian analysis of capital accumulation derives from the institutional structures that shape capital-labor relations in the process of production. Fundamental to these approaches is the recognition of the dynamic nature of institutional structures, which is conditioned by, and in turn conditions, the accumulation process. This consideration is what sets these approaches apart from the neoclassical approach, where the role of ‘good institutions’ (in particular property rights and rule of law) is simply added on as another determinant of growth.
Heterodox analyses share a vision of the capitalist economy as an intrinsically financial system. The theory of capitalist production and the theory of money and finance are integrated. The mechanisms of finance, including the development of a market for debt and modes of corporate finance, evolve along with capitalist accumulation.
Neoclassical growth empirics investigate the relationship between both the depth and quality of financial markets and growth. The conventional understanding of a positive relationship between finance and growth within neoclassical approaches has been recently revisited and revised. The functioning of the shadow banking system has also come under scrutiny after the collapse of Lehman Brothers in 2008. However, for an in-depth understanding of the manner in which finance impinges on accumulation dynamics, one has to turn to heterodox analyses, which view the evolution of the credit system and financial relations as being crucial to the expansion and development of capitalism.
Finance paved the way for the emergence of large-scale industry, in particular where large outlays for fixed capital are needed. It is the monetary complement to the large bursts of innovations that enable an extension of the circular flow of income in the Schumpeterian framework. Finance also plays a critical role in the centralization of capital in Marx’s conception of accumulation.
Marx ([1895] 1981) outlined the division of the capitalist class into financial capitalists and industrial capitalists. With the concentration and organization of money capital in the form of large financial institutions, the power and dominance of finance over the accumulation process is entrenched more deeply. The ‘general managers of money capital’ are not simply intermediaries mobilizing and channeling surpluses but confront industrial and commercial capital as powerful interests. Credit offers “command over capital and property of others” (Marx [1895] 1981: 570).
Post Keynesian analyses, analogously, distinguish the entrepreneur from the speculative rentier. Minsky (1996), writing in the context of ‘money-manager capitalism,’ which saw a large share of liabilities of corporations being held by financial institutions and large institutional investors, elaborates how this development leads to the domination of speculation over enterprise.
In these approaches, the balance and interconnection of the real and financial flows is integral to the dynamics of capitalist accumulation; these changing balances have an impact on production and distribution. The notion of fictitious capital was elaborated by Marx in the context of financial assets representing titles to future flows of income; these are valued by the capitalization of these future flows at the prevailing rate of interest. The notion of fictitious capital foreshadows Minsky’s ([1986] 2008) formulation of the endogenous generation of financial instability. Minsky theorizes the emergence of financial instability in terms of the divergent movements of the prices for current output and those of financial and capital assets and the impetus to speculative and Ponzi positions during periods of stability and prosperity.
Both Marx and Minsky share a conception of the dual character of finance. The growth of finance fosters accumulation, but also exacerbates fragility. On the one hand, finance furthers the material development of technology and the creation of the world market; on the other hand, however, it accelerates the violent outbreak of contradiction and crises of accumulation by fueling excessive speculation (Marx [1895] 1981: 572). It “acts as the sometimes dampening sometimes amplifying governor for investment” (Minsky [1975] 2008: 127). In both of these heterodox traditions, the process of accumulation is embedded in and inseparable from the evolution of the financial system.
Accumulation is not a smooth and harmonious process. The trajectory of capitalist accumulation is subject to both cyclical turbulence and more profound structural crises. In contrast to the neoclassical framework, departures from the steady state are not necessarily triggered by exogenous shocks and there are no automatic stabilization mechanisms to restore the economy to a steady-state path.
Cyclical patterns can emerge endogenously in heterodox models from the instability of investment through the multiplier-accelerator mechanism (in the Post Keynesian models), or through labor market dynamics in Goodwin cycles (which have been incorporated in both Marxian and structuralist models). The imbalances between the real and the financial sector, the cyclical expansion, and rupture of the network of debt also cause cyclical patterns in both Marxian and Post Keynesian frameworks. But even apart from these cyclical fluctuations, the trajectory of accumulation is punctuated by periodic systemic breakdowns.
In Post Keynesian analysis, fundamental uncertainty associated with expectations of future profits imparts volatility and unpredictability to investment, and can lead to breakdowns. On the one hand, excessive investor pessimism that manifests itself in a liquidity trap can trigger a collapse of investment demand. On the other hand, attempts to depress real wages below a threshold that reflects socially acceptable norms can trigger a wage-price spiral. The floor to lowering real wages poses ‘an inflationary barrier’ to the growth of profits and investment (Robinson 1956, 1962). The Keynesian dilemma arises because the level of activity has to lie above a threshold level that ensures financial viability on the one hand, and below the level of the inflationary barrier on the other (Patnaik 2008). The rupture of the accumulation process is not amenable to automatic resolution. Intervention by the state and new institutional arrangements to stimulate demand and redistribute income is necessary before accumulation can be resumed.
There is no single theory of crisis in Marxian scholarship. If we sidestep the debates, Marxian accounts of the causal mechanisms of crisis fall into two broad categories: a crisis of aggregate demand and a crisis of profitability (Basu & Vasudevan 2013). The first category highlights the tendency towards the widening gap between the growing productivity of workers and their falling share of the gains from productivity growth. The crisis—a realization crisis—is characterized by difficulty of maintaining aggregate demand in the context of large and growing surplus and expresses a core contradiction of the pattern of accumulation—the ‘tendency for the rate of exploitation’ to rise (Foley 2012). The second category focuses on ‘the tendency of the falling rate of profit’ caused by the specific pattern of technical change that promotes mechanization and rising capital investment as the means of increasing labor productivity. These two tendencies express the contradictory nature of capitalist accumulation, and demonstrate that crises are moments of forcible resolution of these inherent contradictory tendencies.
Parallels can be drawn between the two contradictory tendencies in Marxian analysis and the dilemmas of Post Keynesian analysis. On the one hand, the accumulation process is subject to disruption when there is a shortfall in aggregate demand consequent to the collapse of investor confidence or to excessive surpluses as the share of workers is squeezed. On the other hand, falling profitability, as the economy hits the inflationary barrier or is confronted with falling capital productivity (rising organic composition), also leads to a rupture in the accumulation process. The contradictions and dilemmas of accumulation thus relate both to the inadequacy of aggregate demand and to declining profitability.
The foregoing overview of the Marxian and Post Keynesian theoretical-analytical framework highlights the common core of these approaches to the accumulation process that distinguish them from the mainstream analysis, while clarifying some of the critical differences between them. This bare-bones overview of the theoretical approaches to capital accumulation can be given some flesh through a concrete analysis of the historical trajectory of accumulation. Such an exposition will allow for a better appreciation of the distinctive analysis of accumulation that these heterodox traditions share. Instead of simply focusing on the quantitative aspect of the growth in scale of the economy, the heterodox analysis seeks to comprehend the interlinked, qualitative dimensions of the process of accumulation. While institutions, technology, and even the development of finance are seen as causal factors determining growth in neoclassical growth theory, there is no counterpart to the holistic, historically informed analysis of accumulation that is characteristic of the broader heterodox tradition.
Instead of attempting to present a sweeping, encompassing account of the historical process of the accumulation of capital, we focus more narrowly on the post-war experience of the United States (US) in order to illustrate the manner in which Marxian and Post Keynesian traditions comprehend the concrete process of accumulation. While this account of the historical trajectory of the accumulation of capital is US-centric, it serves as a lens through which the rich distinctiveness of the heterodox approach can be illuminated.
In the spirit of Kaldor (1961: 178), who built his abstract model of growth on the basis of “the characteristic features of the economic process recorded by experience,” we present a ‘stylized view’ of the three broad trends and tendencies in the post-war history of the US economy that are of relevance to understanding the dynamics of capitalist accumulation in the recent historical period. These are the trends in income inequality, the share of finance, and the profitability; they are the pivot around which we survey the heterodox analyses of two distinct phases in the path of accumulation of the post-Second World War US. This demarcation of two distinct phases is also relevant to other advanced capitalist economies (see Glyn et al. 1990).
Figure 22.1 presents the share of the top one percent in the US income distribution. Inequality, represented by the share of the top percentile, rose in the early decades of the twentieth century until the onset of the Great Depression. The post-Second World War decades were characterized by declining inequality until the 1970s. Since then, the share of the top percentile has risen sharply, indicating a resurgence of the trend of rising inequality.
Figure 22.1 Share of the top 1 percent in household incomes, USA Note: The Y axis displays the share of the top percentile of households in income distribution as a percentage of the total income of all households in the US . Source: Emmanuel Saez and Thomas Piketty dataset (available from http://eml.berkeley.edu/~saez/).
Finance as a share of income, and financial assets as a ratio to income, in the US (presented in Figure 22.2) both rose until around 1932. The period of the Great Depression and the Second World War saw a decline in the share of finance. The post-war period was marked by a steady rise in finance, which had significantly surpassed its inter-war peak in the nineties. Financial assets rose to be more than three times Gross Domestic Product (GDP) after 2000.
Figure 22.2 The rise of finance Note: The share of the financial sector in GDP (ratio) is displayed on the right axis and financial assets as a ratio of GDP on the left axis. Source: Thomas Phillipon dataset (available from http://pages.stern.nyu.edu/~tphilipp/research.htm).
Figure 22.3 Decomposition of the profit rate Note: The profit share (P/Y) and the rate of profit (P/K) are displayed on the left axis; capital productivity (Y/K) on the right axis. Source: Duménil & Lévy dataset (available from http://www.jourdan.ens.fr/levy/biblioa.htm).
Figure 22.3 presents the trends in the decomposition of the profit rate in the tradition of Foley & Michl (1999). The trends in profitability are decomposed into the trends in the profit share and capital productivity. Capital productivity rose in the early decades of the twentieth century until around the mid-1940s. Since the mid-1960s, after a period of fluctuations with no discernible trend, capital productivity declined until the mid-1980s. The 1990s witnessed a slow rise in capital productivity. This trend reversed in 2000 (Basu & Vasudevan 2013). The profit rate rose between 1910 and 1945 (apart from the sharp break during the Great Depression). Since then, profitability has displayed a declining trend. This trend was broken in the 1980s (Basu & Vasudevan 2013).
These stylized facts suggest a break in the post-Second World War trajectory of capitalist accumulation around the 1970s. This post-war period can be divided into two distinct periods. The period before the 1970s is characterized by declining inequality, a share of finance that is slowly rising but relatively small, and declining profitability after the peak in the mid-1960s, along with falling capital productivity. After the 1970s, the US economy witnessed a sharp rise in inequality and a surge in the share of finance to unprecedented levels, along with a break in the trend of declining profitability. The two periods have been characterized as the Golden Age and the neoliberal age, respectively. This periodization reflects a fundamental transformation of the institutional and technological parameters that shape the accumulation process. This transformation is itself viewed as a response to the crisis that unfolded in the 1970s.
Before setting out the distinctive manner in which the Post Keynesian and Marxian traditions analyze the recent path of accumulation in the US, we briefly outline some of the defining institutional and macroeconomic features of the two periods.
The decades immediately following the Second World War were characterized by buoyant expansion and prosperity in the US. The edifice of the welfare state and a social safety net had been established in the wake of the Great Depression, under the New Deal. The role of the Federal Reserve as a lender of last resort evolved with the implementation of deposit insurance and the implicit guarantee of mortgages. At the same time, the regulatory structure instituted under the Glass–Steagall Act of 1933 legislated for the separation of commercial and investment banking activity and sought to rein in speculation. Under the prevailing Fordist work-contract, unionized workers agreed to cede control over the workplace and entered into productivity bargains in exchange for the assurance of better work conditions and wages. As a consequence, income inequality declined as real wages kept pace with labor productivity. A progressive tax regime with high marginal tax rates at the top income brackets also helped curb incomes at the top.
Internationally, the Bretton Woods System—hinged around the peg of the US dollar to gold and capital controls—facilitated relatively stable patterns of international capital flows. This period, also referred to as the Golden Age, came to a close in the 1970s, when the US (and other advanced capitalist countries) experienced soaring inflation and stagnation accompanied by a decline in capital productivity and profitability.
The 1980s launched the neoliberal period. The regulatory apparatus and the social safety net set up under the New Deal were rolled back as the imperative to combat inflation became the focus of macroeconomic policies. Monetary policy came to play a more central role in managing the economy and public spending faced increased scrutiny and cutbacks. Financial and labor markets were deregulated and the legislative framework that sought to rein in speculative investment activity was dismantled. The financial institutions entered a period of rapid innovation and growth. Tax breaks for the top income groups were initiated under the Reagan administration. Unions came under attack and collective bargaining systems were eroded. The Fordist work organizational system was replaced by lean production systems based on zero-inventory, just-in-time systems, a flexible unorganized workforce, and the outsourcing and offshoring of production. Real wages remained stagnant even as labor productivity rose sharply. Private borrowing and household debt grew as the banking sector expanded its reach. Both inequality and the share of finance began to rise sharply. Profitability and investment grew in the 1990s, but the 2000s saw a sharp decline in capital productivity and the rate of growth of investment also fell. A new international payments regime based on a floating dollar with liberalized international capital markets emerged after the collapse of the Bretton Woods System. Liberalized capital and trade flows facilitated the global relocation of production.
The transformation of the macroeconomic regime/structure plays a significant role in the historical development of US capitalism within the Post Keynesian framework. During the Golden Age, counter-cyclical fiscal policy under the prevailing Keynesian consensus helped maintain aggregate demand. This commitment to reducing unemployment through demand management policies buttressed accumulation.
A key feature of this period was the close link between the growth rate of labor productivity and real wages—“the golden rule,” which was “embedded in the particular institutions of the wage-determination process” (Glyn et al. 1990: 58). Strong national unions and minimum wage regulations helped establish broader wage norms. The social bargain over the distribution of the gains in labor productivity underpinned the golden rule. The lower cost of job loss, in the context of the social safety net and demand management policies enshrined in Keynesian consensus, also buttressed the bargaining position of workers and undermined the ability of capital to discipline workers (Marglin 1990).9
The rise in real wages in the late 1960s and 1970s, along with flagging labor productivity, broke the balance between wage and productivity growth. Inflationary pressures built up and profits were squeezed (Bowles et al. 1983; Glyn et al. 1990; Setterfield & Cornwall 2002).
Stagflation persisted through the 1970s, as the way was paved for the resurgence of monetarism and the eclipse of the Keynesian policy consensus. The priority was to contain inflation with a sharp hike in interest rates in 1979; monetary tightening thus paved the way for a new macroeconomic regime based on a neoliberal policy agenda favoring deregulation and rollback of the state’s role in stabilizing demand and maintaining the social wage. The pattern of co-respective competition and the avoidance of predatory pricing and pre-emptive investment that had contributed to stability was replaced by one of coercive competition, cutthroat pricing, and over-investment. The increased vulnerability of workers helped keep real wages stagnant. Labor productivity grew much faster than real wages, and the social bargain that was the centerpiece of the Golden Age was dismantled. Expansionary policies to restore the economy from recessions now depended on a form of asset-Keynesianism with a permissive monetary regime fueling the growth of the financial sector. Demand was maintained in the face of stagnant wages by an unsustainable dynamic of debt accumulation. The collapse of this dynamic with the bursting of the housing bubble precipitated the problem of insufficient aggregate demand.
The relatively “stable pattern of cyclical growth with rising inflation” in the Golden Age thus gave way to a “combination of real and financial trends that supported fairly steady growth with moderate inflation on one hand and rising income inequality and financial instability on the other” (Taylor 2013: 208).
The point of departure in Marxian approaches is the balance of class forces and how class tensions are mediated through institutional arrangements. The capital-labor accord and the rise of the welfare state are, in this framework, a systemic response to the crisis of the 1930s. At issue, in this crisis, was the problem of maintaining aggregate demand in a context of growing surpluses.
These specific institutions of the Golden Age were crucial in resolving the crisis after the Second World War. The capital-labor accord committed workers, through their unions, to maintain high levels of productivity while sharing some of the gains though rising wages and benefits. The social acceptance of the role of the state in regulating demand and managing class conflict helped stabilize accumulation. By the 1960s, in the face of worker resistance to further increases in productivity, the limits of Taylorization as a strategy to maintain favorable trends in productivity became evident and profitability began to decline (Bowles et al. 1987). Falling profitability in this period has been ascribed in the literature to falling capital productivity (Shaikh 1987), the pressure of rising wages (Body & Crotty 1975), “excessive competition” (Brenner 2006), and the stagnationist tendencies of monopoly capitalism (Sweezy & Magdoff 1981).
Capital launched a full-scale offensive pushing back against its declining shares of income and wealth in the post-Second World War period. The imperative from the point of view of capital was to force concessions from the unions and put a lid on rising wages. A sharp increase in unemployment was necessary to undermine worker security and the power of unions in order to intensify exploitation and ensure the restoration of profitability. With the Volcker shock of 1979, the fight against inflation was deployed as a tool for restructuring class relations. This coup of finance ushered in a period of consolidating the power of financial and corporate capital in the US alongside a concerted attack on labor (Duménil & Lévy 2004). The growing gap between labor productivity and real wages was symptomatic of the ratcheting up of the rate of exploitation and surplus extraction. The trend of declining profitability was broken. The growing concentration and centralization of corporate capital alongside a global reorganization of production further consolidated the power of capital. Growing inequality and the rising power of finance posed fresh constraints to the accumulation process. The resolution of the crisis of the 1970s had thus set in motion trends that led to the current crisis.
The above account of Post Keynesian and Marxian analysis of accumulation in the US of the post-Second World War period does not do justice to the vast and rich literature and the debates within it. It does, however, showcase the distinctive heterodox conception of how accumulation is shaped by institutional and technological developments, the contradictions and dilemmas that emerge, and how crises bring about a profound structural transformation in their wake.
What is remarkable, however, is the broad convergence in both accounts, not only with respect to the differentiation and characterization of the core features of the two periods but also with regard to their analysis of the distinct constraints to accumulation. The social compromise and its dismantling is central to both accounts of the Golden Age. Furthermore, both strands identify the trends of rising household indebtedness, growing US trade deficits, and the dependence on the rest of the world to finance this deficit as threats to the sustainability of the macroeconomic trajectory (Godley 1999; Duménil & Lévy 2010) in the neoliberal period. The structural constraints of the neoliberal mode of accumulation arises from the weakened capacity to generate aggregate demand as the pace of investment slows down and consumption spending becomes the primary driver of demand; they are also impacted by the growth in inequality as exploitation is intensified and capital successfully pursues its quest for higher incomes. The disproportionate growth and unraveling of the financial system is also of significance in both approaches (Wray 2009; Lapavitsas 2013)
Accumulation in the neoliberal period has been characterized by the twin forces of globalization and financialization. These processes are tied to the growing power and changing role of the top managerial executive of large multinational corporations with the rise to dominance of the ideology of the maximization of shareholder value. Recent literature in the heterodox tradition addresses the significance of financialization and the new role of the managerial class in transforming the dynamic of accumulation. This literature demonstrates how heterodox approaches can respond to the concrete forms in which the capitalist economic system evolves.
The motor of capitalist economies is the accumulation of capital. Despite important differences, Post Keynesian and Marxian traditions share enough common ground in their approach to point towards a coherent alternative to neoclassical approaches to growth. Instead of deriving their abstract analytical framework from the assumptions of the optimizing behavior of atomistic agents, the conception of capitalist accumulation is based on the investigation of observed patterns and regularities in the trajectory of capitalist accumulation. Accumulation is understood as a totality of reciprocal interactions and relations between different dimensions and parts of the economic system.
What are some of the directions, which a heterodox research agenda could usefully pursue? Recurrent and newly emerging empirical regularities and patterns in the global economy, both historically and in terms of a wider geographical spread, need further investigation and analysis. Such analysis would be the empirical foundation for broadening and deepening the understanding of the trajectory of capitalist accumulation.
The task of building more plausible and realistic microfoundations for the analysis of accumulation is another area which heterodox research needs to explore. Plausible microfoundations would need to comprehend the complexity of the reciprocal interactions that drives capitalist dynamics.
Finally, the methodological framework of heterodox traditions is particularly well-equipped to address some of the emerging challenges that confront the future of capitalist accumulation. The urgent dilemmas posed by climate change and the ecological crisis for the accumulation of capital is one such pressing question. Another potentially important question is that of the implications for capitalist dynamics of the institutional and technological changes that are unfolding in the wake of the growth of the information-based technology driven ‘a new economy.’
These questions are by no means exhaustive but are suggestive of the distinctive ways in which heterodox economics can contribute to deepening the understanding the capital accumulation process in the contemporary global capitalist economy.
1 The term heterodox economics is a bit of a catch-all term encompassing approaches ranging from Marxians, Sraffians, and Post Keynesians to Austrians. This chapter does not address the debate on what constitutes heterodox economics. Instead of attempting the heroic task of dealing with the full range of heterodox approaches in the space of a single chapter, the chapter is limited to the Marxian and Post Keynesian strands.
2 Foley & Taylor (2006: 77) identify the core features that unify heterodox perspectives as “a focus on the functional distribution of income; the avoidance of model closures that are imply full employment of a given labor force; differential modeling of the consumption and savings decisions workers and capitalists; the adoption of an investment demand function independent savings decisions; and a separate treatment of the firm as an economic agent independent of its owner households.”
3 Full employment (à la Kaldor) or labor-constrained models (à la Goodwin) are special cases, but growth is in the general case constrained by capital not labor (Foley & Michl 2010). The supply of labor is explicitly endogenous in structuralist growth models where inflows to and outflows from the workforce, in response to the pace of accumulation, regulate employment. In classical-Marxian models, induced labor-saving technological change, with rising wages or tight labor markets, would replenish the reserve army of labor (Foley & Michl 2010).
4 Uncertainty has a bearing on animal spirits and class conflict would be an important source of uncertainty (Setterfield 2011).
5 Palley (2013), however, distinguishes between firms’ market monopoly power and workers’ bargaining power as two independent determinants of profit share.
6 Robinson (1962) elaborates the double-sided nature of the relation between profits and rate of accumulation with the rate of accumulation also affecting the rate of profit.
7 We use ‘surplus’ throughout the chapter to refer to national income less wages paid to productive labor.
8 The macroeconomic structure encapsulates “macroeconomic relations which ensure the perpetuation [of] the growth path including that between wages and productivity, profits and capital employed, and investment and consumption.” The system of production refers to “general principles governing the techniques of production and the organization of work.” The rules of coordination ensure the compatibility between individual behavior and the macroeconomic pattern (Glyn et al. 1990: 40–41).
9 Such a regime also characterized other advanced capitalist economies (see Glyn et al. 1990).
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