Capital & Class

http://cnc.sagepub.com/ Nonlinear Dynamics and Unemployment Theory

Capital & Class 1997 21: 151 DOI: 10.1177/030981689706100109 The online version of this article can be found at: http://cnc.sagepub.com/content/21/1/151

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Book Reviews
class struggle in the late 1980s and 1990s. Nor is there any concrete discussion of what constituted capital. There is no mention of the massive changes in the ownership and management of productive capital in Britain since 1979 or of one of its most signicant features: the growing unevenness of technological changewith very low average levels of productivity concealing islands of very high competitive performance, usually,

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though not always, owned externally. These factors are unlikely to have been unimportant for the cohesion of capital in Britain, the articulation of interests at national level and the emerging splits within the Conservative party over the international orientation of policy. Historically these splits may well prove of more importance than the greyness of John Major.

Boe Thio

Nonlinear Dynamics and Unemployment Theory

Peter Lang, Frankfurt. pp.421. ISBN 3-631-46870-9 (pbk)

Reviewed by Alan Freeman

While marxism was discovering eigenvalues, bad mathematics and Sraffa, a small group on the borders between it and what has become Post-Keynesianism was ploughing a different furrow. A seminal article by Richard Goodwin (1951) addressed the achilles heel of neoclassical theory: why dont business cycles go away? Willi Semmler, Peter Flaschel and others have since worked hard to develop a macroeconomic dynamics nurtured to a greater or lesser degree by Marxs insights. Boe Thios book is a welcome addition to this tradition. Economic Dynamics has feet in the camp of both neoclassical and marxist theory, which makes books like this hard to categorise. It has become conventional to divide economics into marginalists who deal with consumption, and marxists who deal with production. The Surplus Approach school added the prejudice that the antidote to neoclassical theory is to reject marginalism for an allegedly objective physical underlying economic reality. This has established a paradigm organised around the structural properties of a static, market-clearing economy. The problem, which is unsolvable, is to explain the formation and level of prices, wages and prots from the technical characteristics of the economy. The method, which is unworkable, is to dredge the mathematics of static equation systems for arcane predictions. The data. which is unusable, is obtained by reading input-output tables as if they were tables of physical magnitudes. This has deprived marxist economics of either the mathematics or the concepts to describe economic change. As a result, genuine dynamics in Marxs tradition is hard to come bya tragic negation of Marxs own contribution. It will have to be reconstructed. Goodwin posed a different problem, more successfully at the macroeconomic than the microeconomic level: what governs the course of the business cycle? What explains the regular transition from boom to slump and slump to boom, which variables express this explanation

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and what kinds of equations might imitate it? The mathematics is perhaps more difficult but richer. A difference or differential equation system can model almost anything. Indeed a remarkable but disturbing paper by Rubel (1981) exhibits a single differential equation which can indeed model everything in the sense that by suitable choice of parameters and initial conditions, a solution can be found as close as required to any given set of empirical data. The difficulty is therefore the opposite of static systems, which simply do not possess a sufficient number of degrees of freedom to model the complexity of a real market economy. A fairly simple set of differential equations in two or three variables, easily produces periodic, chaotic, or any desired behaviour. This could easily become the basis of a vacuous school of trendy chaos models. What would it mean to say a dynamic system is valid? Must it be so fluid it tells us nothing? Paradoxically, the quantitative predictions of such systems are far less important than in statics. Modern dynamic theory from the epochmaking work of Henri Poincar onwards has realised that, precisely because of their complex behaviour what matters is the qualitative or topological behaviour of dynamic systems; whether they exhibit limit points, saddle points or cycles, whether these grow, disappear or settle to a steady level, and whether these characteristics change radically or only gradually when parameters are modied. Thios work begins, in the tradition of Goodwin. from the decisive qualitative feature of modern capitalism, the existence of recurrent or persistent cycles. This mere fact, if treated honestly, rules out all explanations for crisis based on external interference or shocks and invalidates all static equilibrium approaches.

Capital & Class #61

But it does not tell us which of the many quantities which vary, many in parallel, can be considered causally responsible for cyclic behaviour, or provide us with a structure of abstraction through which to identify the variables which express or summarise them. Thio, like many writers in this field, does not give a precise reason for his own choice of causal variables. He makes a serious go of it, summarising the stylised facts which he hopes to explain and concluding with support for Goodwins (1987:xi) hypothesis that growth generates cycles and cycles interrupt growth. He then cites the two main, and apparently contradictory types of model: 1. multiplier-accelerator models, based on a lagged feedback between output (employment) and investment. Investment regularly overshoots and then undershoots some optimum level because capitalists base their investment decisions on the past behaviour of the economy, which is invalidated by these very decisions. Such models began with Samuelson in 1939; Goodwin (1951) produced persistent cycles by adding nonlinearity. 2. income-distribution models, based on a dynamic prot-squeeze account also originating with Goodwin (1967): in the boom employment rises, raising wages which eat into profits. The profit squeeze cuts off investment which reduces output, causing unemployment which leads wages to fall. Thio argues the two can be reconciled, and the book is, I think it is fair to say, his attempt to do so. After a long and informative discussion of employmentinvestment models. he extends these by grafting on a Philips model of monetary effects and wage-price interactions expressing the competing claims of wages

Book Reviews
and profits for a share of net output. In the model, or class of models eventually derived in chapter 5, wage-prot conicts interact with changes in the structure as well as the utilisation of capital; technical progress itself comes into play in shaping the level of employment. Not only should the book be read, but marxists who feel that mathematics has a place in economics should try to grasp the structure of the argument it contains, which is alien to much of what passes for marxism. The reason is not that it deploys Marxs value categoriesthe variables it deals with are either unreconstructed prices or unanalysed quantities, no attempt being made to express the fundamental relations of the system in terms of value magnitudes. It is that dynamic mathematics is the proper and appropriate formalism for value analysis, and those who use it References
Goodwin, R.M. (1951) The nonlinear accelerator and the persistence of business cycles in Econometrica 19(1): 1-17. __________ (1967) A growth cycle in Feinstein (1967). Reprinted in Good-win (1982). __________ (1982) Essays in Economic Dynamics. Macmillan, London.

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competently and without neoclassical prejudices provide a better account, even without value analysis, of the qualitative features of the cycle than the so-called marxists. This is a sad fact. The analysis has limitations, most of which space prevents us listing; for example, the absence of the profit rate itself (rather than the pure mass of prot) as the determining inuence on accumulation, or the eclecticism and sheer number of equations needed to describe what is essentially a very simple movementalways a sign that the most vital initial abstractions have not been made properly. We can only speculate on what could be achieved if the marxists espoused a genuinely dynamic approach, or if practitioners of macroeconomic dynamics preceded their valuable techniques with a proper analysis of the value relations they seek to model.

Goodwin, R. and L. Punzo (1987) The Dynamics of a Capitalist Economy. Polity, Boulder, Colorado, Westview and Cambridge. Rubel. L.A. (1981) a Universal Differential Equation Bull Amer Math Soc. New series #4: 34549.

Makoto Itoh

Political Economy for Socialism

Macmillan/St. Martins Press, Basingstoke & London, 1995. ISBN 033355 338 1 (pbk) 14.99

Reviewed by Costas Lapavitsas

In the last two-three years there has been a veritable reux of social theory, as the New Left Review called it. After the shock and disillusionment from the collapse of the Eastern bloc, the disasters of neoliberal economic policies, East and West have given new urgency to rethinking the socialist alternative to capitalism. This is an important book within this trend. Makoto Itoh has had a British readership for many years now. One of the most prominent exponents of the Uno tradi-