Developments in Major Fields of Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 5: Capital theory
Capital theory as intended in this entry is the study of the implications, for the functioning of market economies (centrally planned economies will not be discussed), of advances of produced means of production and/or of wages relative to the obtainment of a saleable output, advances on whose value a rate of return is obtained. The explanation of this rate (called rate of profits by the classical authors and later identified with the rate of interest by the marginalist authors) is the central problem of capital theory. There are deep differences between the capital theory of the two successive main approaches to value and distribution: the earlier Surplus approach called Classical by Karl Marx and undergoing nowadays a considerable revival, and the later marginalist or supply- and-demand approach (nowadays also called Neoclassical, or even Classical, a confusing terminology suggesting a continuity between the surplus and marginalist approach where in fact there is sharp opposition). In this survey of the historical development of capital theory in the two approaches, some reference to their overall structure will be indispensable to grasp the different difficulties encountered by them in the treatment of capital. The classical or surplus approach starts with Petty, Cantillon and Quesnay, is dominant up to the 1830s, is resumed by Marx at a time when the main current of economic thought is already moving in a different direction, and is then nearly completely submerged by the marginalist approach and no longer well understood until the clarification of its structure by Sraffa (1951) and Garegnani (1960, 1987). It revolves around the notion of social surplus, that is, what is left of the yearly social product (that is, of the vector of all commodities produced during a year), after the replacement of the goods – inclusive of the subsistence of labourers – advanced and used up for production so as to permit the repetition of productive activity on an unchanged scale the subsequent year. Its origin lies in the perception of the labourers’ subsistence as a production expense as necessary as fodder for horses, and nearly as fixed (although not only by physiological but also by social processes); this allows a determination of the excess over what is indispensable to the continuation of production as a residue. The size and the destination of the surplus determine the incomes of the social classes other than labourers, and the potential for economic growth as well as for state revenue (and hence for military and other state expenses).
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