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The Development of the Theories of Production: Valid Insights and Shortcomings

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The Growth Spiral

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Abstract

In part one we examined the relationship between market and money. Our next step is to consider the theory of production in more details, for explaining how production and the market interact with each other, with production following the dynamics of the market.

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Notes

  1. 1.

    cf. Birger P. Priddat (2002, p. 67): “The travail productif defined here is not based on a reshaping of materials from nature but rather on a stimulation of the potential hidden in nature.”

  2. 2.

    cf. Rainer Klump (2000), Birger P. Priddat (2000), and Hans Ch. Binswanger (2000).

  3. 3.

    The concept of capital as an advance can already be found in a statement of Turgot: The owner of capital will employ his “advance[s] partly for the construction of the establishment and the purchase of materials, partly for the daily wages of the workmen … ” (Turgot 1981, p. 137). The profit is earned for the use of the money as an advance, with the compensation for the risk that the businessman takes along with the reward for his business acumen playing an essential role. Turgot says that “with money we can furnish means for cultivation, establish manufactures, and set up trade. The profits of which accumulated and frugally saved, will become a new capital; since in short, money is the principal means of begetting money” (Turgot 1981, p. 147). To this extent, Turgot was even more modern than the classical economists, who perceived the relationship between money and profit, but did not include it in their theory.

  4. 4.

    It is important to keep in mind that Petty, who worked in Ireland, based his observations on the situation there of extensive farming where the cattle could pasture day and night in open fields in summer and winter, and the cultivation and care of the land was not necessary.

  5. 5.

    Petty’s concept of the net product theory is explained in detail by Tony Aspromourgos (2005).

  6. 6.

    See Hodgskin (1964), Bray (1957), Proudhon (1847/1849), Marx/Engels (1956).

  7. 7.

    In a dispute with Adolf Wagner, Marx wrote: “At any rate, in my presentation even, profit on capital is in actual fact not only a subtraction from, or a robbery of the worker. On the contrary, I depict the capitalist as the necessary functionary of capitalist production and demonstrate at great length that he not only subtracts or ‘robs’ but enforces the production of surplus value, thus first helping to create what is to be subtracted” (Karl Marx, Notes on A. Wagner, in: Marx/Engels 1956, vol. 19, p. 358). This quotation makes clear that the classical understanding of the capital as a factor of promotion also had its influence on Marx, though only marginally. The theory of exploitation takes center place with him. See Hans G. Nutzinger (1974, 68f.).

  8. 8.

    See also Erich Streissler (1999b, p. 27): With his claim that the supply of money only influences prices, Adam Smith explicitly stresses “that with this statement he is targeting a certain system of the political economy, specifically mercantilism.”

  9. 9.

    The mercantilists’ understanding of the production-promoting effect of increasing the money supply is also underscored by Karl-Heinz Schmidt (1994, p. 40): “The increase in the money supply is meant to contribute to the creation of new jobs in trade and industry, to make one’s own country independent from the import of important industrial goods, and by doing so to expand the nation’s economic and political power.”

  10. 10.

    See in addition Hans Ch. Binswanger (1993).

  11. 11.

    Nevertheless, in contrast to their value theory, in the explanation of the market process, Adam Smith and his successors took it completely for granted that profit and interest are monetary figures and all factors of production are to be monetarily compensated. Wesley C. Mitchell points this out when he writes: “Political economy … is the science of business, and economic men are money-makers; nevertheless, the use of money is a fact of no importance for economic theory. This seeming contradiction between the letter of the economic law and its spirit as interpreted by loyal commentators long passed without notice. It was part of the classical tradition to accept both views, and not to think of them at the same time” (Mitchell 1950, p. 151).

  12. 12.

    See Erich Preiser (1961 b, p. 266): “Just as the classical theory opens up to an indictment, the marginal productivity theory tends toward an apology, and not only with John Bates Clark. In the hands of Marx, who was a faithful follower of Ricardo, the classical theory of distribution became a terrible weapon. Ownership of the means of production leads to the owner appropriating portions of the produce of the workers, who are without property, and so, this appropriation is, strictly speaking, robbery, even when done according to the general laws of exchange. This was countered by the marginal productivity theory, most notably by Clark. He examines the laws of income creation. He shows that the amount of return is not only dependent on labor but also on real means of production, which he summarizes as capital including land. So there is not just one factor of production but several—at least two, labor and capital, as the sum of real means of production—, and a portion of the returns inevitably must belong to the owners of these means. For this reason, the income of property is not the appropriation of the wages of others for their labor, but rather a ‘rent getter‚’ a ‘product creator.’ So, in this way, Clark justified the de facto distribution of income, or at least he thought he justified it.”

  13. 13.

    Quoted from Heinz D. Kurz (1999, 157f).

  14. 14.

    See also Thomas Möller (1986).

  15. 15.

    See also Herman Daly (2001, p. 12): “Low resource prices are not evidence of nonscarcity and unimportance, but rather a consequence of rapid drawdown leading to increasing technological dependence on a large throughput of cheap resources.”

  16. 16.

    See also the article by Luigi Pasinetti on “The Sraffa-enigma: Introduction” (2005), in the European Journal of the History of Economic Thought’s special issue on Sraffa, as well as the lectures that were given at the Piero Sraffa conference 2003 in Rome.

  17. 17.

    For a comprehensive survey of the Historical school, refer to the essay by Heinz Rieter (1994), who concisely summarizes its main ideas.

  18. 18.

    See also Jürgen Löwe (1998, p. 64).

  19. 19.

    This assessment is also true of the classical school. See also Heinrich Bortis: “Time plays a crucial role in classical-keynesian political economy which is … essentially historical. Objectively given causal forces by applied or real-type causal models are historical by nature since the process of causation … goes on in historical time” (Bortis 1997, p. 118).

  20. 20.

    See Lukas Hagen (2002, p. 20): “In Absentee Ownership, Veblen notes this general consolidation and spreading of montetary thinking, which is an absolutely necessary condition for thinking in the category of profit-oriented property and the general credit financing of economic activities.”

  21. 21.

    For a survey on the development of evolutionary economics, see Giovanni Dosi and Richard R. Nelson (1994), as well as Marco Lehmann-Waffenschmidt (2001). For an overview of the general fundamentals of evolutionary economics, see Kurt Dopfer (2005).

  22. 22.

    The connection of evolutionary economics and ecological economics is particularly highlighted by Joseph A. Weissmahr (2001).

  23. 23.

    See also Mathias Binswanger (1992).

  24. 24.

    For more information on entropy law as an economic category, see Costanza et al. (1997), and Malte Faber et al. (1996).

  25. 25.

    For an overview of the development of ecological economics, see Martin Held (2005).

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  1. Institute for Economy and the Environment, University of St.Gallen, St. Gallen, Switzerland

    Hans Christoph Binswanger

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Binswanger, H.C. (2013). The Development of the Theories of Production: Valid Insights and Shortcomings. In: The Growth Spiral. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-31881-8_5

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