This is an open access article from the European Journal of the History of Economic Thought.
The name “capitalism” derives from Marx’s false analogy between medieval land ownership and the “ownership of the means of production.” However, unlike medieval land, capital goods can be rented out, e.g., by Frank Knight’s entrepreneur, and then the capital owner does not hold those management or product rights. What then is the characteristic institution in our civilization? It is the voluntary renting of workers. What then is the relationship between Classical Liberalism, the dominant philosophy behind Economics, and a lifetime labor contract? Frank Knight had plenty to say against the doctrine of inalienable rights which disallows such contracts.
Is “Capitalism” a Misnomer? On Marx’s “capitalism” and Knight’s “civilization”
Keiretsu, Proportional Representation, and Input-Output Theory
This is Chapter 9 in my book: Ellerman, David. 1995. Intellectual Trespassing as a Way of Life: Essays in Philosophy, Economics, and Mathematics. Lanham MD: Rowman & Littlefield.
This essay grew out of an attempt to model mathematically the possible cross-ownership arrangements that might arise between privatizing firms in the former Yugoslavia [see Ellerman 1991]. The cross-ownership arrangements resemble the groups of Japanese companies called keiretsu. There is cross ownership between the companies in the group as well as some ownership outside the group that is traded on the stock market. In spite of the partial outside ownership, the keiretsu often behave as “self-owning” groups. If firm A owns shares in B, then the management in A usually signs over its proxy on shares in B to the management in firm B. And the management in B does likewise with respect to the managers in A. Thus within certain constraints, each firm can act like a “self-owning” firm, not totally unlike the self-managing firms of the former Yugoslavia.
Finding the Markets in the Math: Arbitrage and Optimization Theory
This is Chapter 10 from my book: Ellerman, David. 1995. Intellectual Trespassing as a Way of Life: Essays in Philosophy, Economics, and Mathematics. Lanham MD: Rowman & Littlefield.
One of the fundamental insights of mainstream neoclassical economics is the connection between competitive market prices and the Lagrange multipliers of optimization theory in mathematics. Yet this insight has not been well developed. In the standard theory of markets, competitive prices result from the equilibrium of supply and demand schedules. But in a constrained optimization problem, there seems to be no mathematical version of supply and demand functions so that the Lagrange multipliers would be seen as equilibrium prices. How can one “find the markets in the math” so that Lagrange multipliers will emerge as equilibrium market prices?
Are Marginal Products Created ex Nihilo?
This is Chapter 5 from my book: Ellerman, David. 1995. Intellectual Trespassing as a Way of Life: Essays in Philosophy, Economics, and Mathematics. Lanham MD: Rowman & Littlefield.
When an orthodox economist considers the principle of people getting the fruits of labor, he or she will invariably interpret it in terms of marginal productivity. The orthodox claim is that under the conditions of competitive equilibrium, each unit of labor “gets what it produces.” Well-meaning capitalist liberals emphasize that actual capitalism may be neither competitive nor in equilibrium, and in any case, there are enormous difficulties in measuring the “marginal product of each factor of production.” In other words, they accept that interpretation of marginal productivity theory in principle but fuss about its applicability in practice.