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Money and Capital in Theory and Practice

Paper Session

Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM

Loews Philadelphia, Washington A
Hosted By: Association for Evolutionary Economics
  • Chair: Hiroyuki Uni, Kyoto University

Rethinking Money as an Institution of Capitalism: What Can Modern Institutionalists Learn from Karl Polanyi?

Mario Seccareccia
,
University of Ottawa
Eugenia Correa
,
National Autonomous University of Mexico

Abstract

Much of institutional theory of money and of monetary relations originates from the views of Veblen and his theory of business enterprise in which the logic of capitalism, as Marx had so succinctly described in his M-C-M’ formulation of the circuit of money-capital, is tied to the activity of production, or what Keynes referred to as the theory of a monetary production economy (Dillard 1987). Veblen analyzed the role of finance and absentee owners in affecting these underlying monetary relations of capitalism in which the driving force is credit/debit relations that permeate its evolutionary process. Indeed, as emphasized by more modern institutionalists going back to Minsky (1980, 1986), the dynamics of capitalism is the process of cash inflows/cash outflows, which ultimately underlies the process of capital formation (Ranson, 1983, 1987; Foster 1987). While agreeing with the essentials of this broad analysis, we wish to argue that this conception of money and monetary relations needs to be extended to all societies in which specific property rights give rise to varying social forms of credit/debit relations that are not just specific to capitalism. Polanyi’s numerous writings serve as an important source of understanding of money in which the latter is seen as a social device to discharge liability in a credit/debit relation (Polanyi 1977). It also reveals the importance of precise institutions in which the state is given greater prominence (Peacock, 2013).

An Institutionalist Theory of Capital in the Modern Economy: Formation, Accumulation, and Appropriation

Avraham Izhar Baranes
,
Rollins College
Eric R. Hake
,
Catawba College

Abstract

Institutionalist theories of capital are communal, revolving around the creation and maintenance of the community’s joint stock of knowledge. Baldwin Ranson (1987) discusses the institutionalist theory of capital formation, emphasizing how it is that technology, developed through the community’s joint stock of knowledge may come to be considered “capital” and how the process of capital formation generally occurs within this framework. This paper expands upon Ranson’s theory, incorporating the issues of economic power discussed by Klein (1987). Specifically, we examine the process of capital formation within a financialized economy, emphasizing the importance of intangible assets. In other words, the process of capital formation should be seen as a step in the reproduction of the communal life process, but later steps will determine whether or not the community’s capital will be used in this way. We examine not only the process of capital formation in a modern economy, but also capital accumulation and – most importantly – what we call capital appropriation. Intangible assets are a vital part of this last step, in which the community becomes blocked off from accessing its capital qua joint stock of knowledge. Issues of power, finance, and accounting will be included, as it is through these concepts that capital becomes “appropriated” rather than “accumulated”. Overall, our paper provides an important step towards understanding how institutional economists should view capital in the modern economy.

The Policy Ramifications of Capital as Ideas

Eric Scorsone
,
Michigan State University
Mary Schulz
,
Michigan State University

Abstract

In 1987, Baldwin Ransom wrote about capital and technology in economic growth. Ransom argues capital should be defined as intangible ideas and technology that are not subject to supply and demand constraints. Veblen described his conception of capital as, “it is found in possession of something in the way of a body of technological knowledge – knowledge serviceable and requisite to the quest of a livelihood” (Veblen, pg. 518, 1908). Commons wrote in a similar vein, stating, “capital is not the accumulation of past produce of stored up labor – these are transitory and aimless – capital is a going plant of industrial knowledge and experience” (Commons, pg. 662, 1934).
More recently, Cesar Hidalgo (2016) and Paul Romer (1990, 1993) have also written about the idea of capital as ideas and the key to economic growth. Hidalgo wrote that, “so the growth of information in the economy results from the coevolution of our species collective computation capacity” (Hidalgo, pg. 178. 2016). The first section of this paper explores the linkages between the older generation and more recent thinkers on the intersection of capital as technology and ideas.
The second section of the paper than explores the policy ramifications of this conceptualization of capital. Romer argues that temporary monopolies are needed to encourage investment in innovation. Veblen and Ransom argue that these rules do not allow for the full social value of ideas to be utilized. The second part of this paper explores these differences using A. Allan Schmid’s Situation-Structure –Performance model (SSP).

Capital as Practice: Social Embeddedness, Identity, and Normativity

Paul Firenze
,
Wentworth Institute of Technology

Abstract

This paper supplements the work of Christoforou and Davis (eds., 2014) on social capital by redescribing capital as a form of social practice. Starting from a broad understanding of capital as the “produced means of production,” the paper uses insights from sociological and philosophical practice theories (going beyond Bourdieu), wherein practices are viewed as sets of activities linked by actors’ shared understandings of how to carry on, continuous with past activities, and thus governed by norms that both enable and constrain the production of “goods.” Like capital, practices transmit value (meaning, skills, trust) from the past (they have been produced) to the future (they are means of future production). This practice theory of capital bridges the twin concepts of social capital as social embeddedness (Christoforou) and social identity (Davis). Individuals become embedded in collective agencies by appropriately engaging in social practices, which in turn become constitutive of identity—the person’s relationship to others as an expression of commitment to those with whom they share the normative practices. By taking practices, rather than individuals or social wholes, as ontologically basic, this theory also accounts for the value of human capital (predominately education and skills). Finally, this paper locates the practice theory of capital in the evolutionary tradition by marking its similarities with Veblen’s own understanding of capital (1908) as including the collectively held “immaterial equipment of industry,” via “accretions to the common stock” of social practices.

Is China Living a Minsky Moment? Between the “Lender of Last Resort” and the Chinese Financial System

Alicia Girón
,
National Autonomous University of Mexico

Abstract

The Central Bank of China (PBOC) after Lehman Brothers bankruptcy (2008) creates a big package of 1.3 trillion dollars to reactivate the Chinese economy. Financial Instability in the international financial circuits made necessary the participation of the State Big Banks, the regional banks, and the new institutional financial investors to induce growth and development in the Chinese Financial System (CFS). It was a necessary key measure to reactivate the economy and to try to keep the two digits of GDP growing before the Great Crisis. What happened years later after these measures were taken by the PBOC, the Economic and Financial Reforms and the ‘One Belt, one Road’ (OBOR) mentioned by the Communist Party was the development of the Chinese Shadow Banking System (CSBS) during the Great Recession. The CFS today is characterized by growing debt of corporations, overdue portfolios and nonperforming loans of banks and institutional investors. At the same time, financial fragility has caused concern to international financial organizations and rating agencies by the indebtedness and instability of CSBS, The objective of this study is to demonstrate the relation between the PBOC and the CSBS through new financial instruments; second, the CFS and its implications in the international economic environment; third, deregulation and financial liberalization within the framework of the Economic and Financial Reforms of the current management of China.
Discussant(s)
David A. Zalewski
,
Providence College
JEL Classifications
  • G0 - General
  • B5 - Current Heterodox Approaches