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Empirical and Theoretical Explorations of the Instability of Capitalism

Paper Session

Friday, Jan. 5, 2018 2:30 PM - 4:30 PM

Loews Philadelphia, Congress A
Hosted By: Union for Radical Political Economics
  • Chair: Sergio Cámara Izquierdo, Universidad Autónoma Metropolitana-Azcapotzalco

Economic Surplus, the Baran Ratio and Global Capitalism

Zhun Xu
Howard University


Generations of economists have studied capital accumulation and the investment decisions of the capitalist class. Keynes famously used "animal spirit" to describe the psychology of investment. Baran, from a Marxist perspective, coined "economic surplus" to analyze (lack of) accumulation and growth in both developing and developed countries. In recent years, the clear decoupling of investment and profit has again become an important question of our time. This paper follows the Marxist tradition to study the utilization of economic surplus since the 19th century. We define and measure economic surplus mainly based on the capital share of GDP and top income share. Then we construct the Baran ratio, defined as the ratio of gross capital formation to a nation's economic surplus. Our results suggest that the Baran ratios for major capitalist economies such as Britain and Germany were largely constant and low from the mid-19th century to early 20th century. In the post-WW2 years the Baran ratios increased to historic high levels among both developed and developing countries. However, the neoliberal era saw a dramatic decline in the Baran ratios among most economies. There are considerable divergences across the globe. The Baran ratios of developed countries tend to stabilize in recent years around a pre-WW2 low level, while the ratios of China and India remain on relatively high levels. The empirical evidence shows that slow capital accumulation and growth is an inherent feature of unregulated capitalism including both pre-WW2 and the neoliberal eras. On the other hand, only regulated capitalism saw high rate of accumulation and growth. We further argue that the “spirit” of the capitalist class is a product of class struggles as well as the overall historical conditions.

Government Policies and Financial Crises: Mitigation, Postponement or Prevention?

Bernhard Schütz
University of Linz
Jakob Kapeller
University of Linz


In the aftermath of the Great Recession governments have implemented several policy measures to
counteract the collapse of the financial sector and the downswing of the real sector. Within a
framework of Minsky-Veblen cycles (Kapeller and Schütz 2014), where relative consumption
concerns, a debt-led growth regime and financial sector confidence constitute the main causes of
economic fluctuations, we use computer simulations to assess the effectiveness of such measures (i.e. bailing out banks, fiscal stimulus, bailing out households, establishing a bank fund and stricter financial regulation). Our results show, on the one hand, that a capitalist economy which has long-run Minskyan features and which opens up credit accessibility to sections of society which did not have such access before, combined with secular tendencies of income inequality and Veblenian
consumption aspirations, would lead to long-run credit-led booms and busts. On the other hand, we
also want to emphasise that credit-led booms and busts are an endemic feature of capitalist economies within shorter time dimensions. This is the case in an environment in which financial markets are relatively liberalised, but where a number of policy interventions take place (as analysed in our fiscal stimulus and various bail-out scenarios), which lead to a dampening of the instability induced by a potentially collapsing financial system. The main result of our analysis is that such moderating influences of policy interventions can have a major impact on the frequency (and amplitudes) of credit-led boom-bust cycles. Particularly, the considered policy measures help to mitigate the impact of financial crises, though they do so at the cost of shortening the time between financial crises. Our results suggest that without the strengthening of financial regulation any any policy intervention remains incomplete.

Two Business Cycles Within the Industrial Cycle of 1991-2009: A Marxist Analysis of the Real Economic Ground of the 2008 Financial Crisis

Ken Hirano
Chuo University


There were two bubble economies in the recent U.S. economy, that is, IT bubble in the last 1990s and housing bubble in the 2000s. The result of the former was the mild recession in 2001, but that of the latter was the severe crisis in 2008-09. This paper will show the reason why they were so different. Behind phenomenon of two business cycles, there was one industrial cycle in 1991-2009. After WWII, the government interventions in order to avoided crises have impeded adjustments of excess capital, which has prolonged the length of industrial cycles. The economy of the 2000s was the stagnant phase of the prolonged industrial cycle of 1991-2009, which is called “Secular Stagnation” today. Due to such stagnant economy, the investment bankers had to use CDOs and take risks by themselves in order to generate the housing bubble. That was the real economic ground of the 2008 financial crisis.

Political Instability and Volatility of Investment Growth: Evidence From Turkey

Osman Can Icoz
University of Massachusetts-Amherst


This paper offers an econometric model that provides an evidence of the positive relationship between political instability and volatility of private investment growth in Turkey during 1984-2015. A politically stable government structure is necessary for stable investment patterns, and hence stable accumulation. Using political instability index (calculated as propensity of an imminent government change) and an economic control variable, regression results on the base model suggest a significant positive relationship between political instability and investment growth volatility. This result is then shown to be robust to introduction of a structural break. A structural break test on the base model suggests dividing the time period into two sub-periods as pre- and post-2000, which is highly consistent with historical facts, as Turkey experienced rapidly changing government during 1990s. It turns out that effect of political instability on volatility of investment growth is positively significant for pre-2000 period, but not significant for the later period. Finally, it is shown that the result is also robust to estimation method of political instability index, as positive relationship during pre-2000 period is preserved even if the political instability index is estimated with a different method.

A Missing Element in the Empirical Post Keynesian Theory of Inflation – Total Credits to Households: A VAR Approach to United States Inflation

Hongkil Kim
University of Missouri-Kansas City


This paper investigates how the total household credit contributed to a rise in inflation rate before the Global Financial Crisis while households’ deleveraging trend, after the crisis, resulted in generating deflationary pressure. According to the structuralist approach to endogenous money theory, banks are not just caricatured as passive players in lending activity, but they actively encourage borrowers to extend their credit more than they can afford, which would boost aggregate demand and in turn trigger demand-pull inflation. The empirical model of US inflation discussed here extends the supply-side Post Keynesian approach to inflation theory by directly taking into account demand-determined inflation that is mainly caused by households’ spending pattern based on excessive debt accumulation/redemption relative to their incomes. Reduced-form vector autoregression analysis is developed to examine the short-run Granger-causal relations and a generalized impulse response analysis based on the estimated VAR is conducted in order to get a more complete picture of the dynamic interactions. It reveals that supply-side variables such as unit labor cost, import price index, and corporate profit per unit are historically major determinants of US inflation. However, the total household credit became only crucial in the recent period from 2000Q3 to 2006Q1. And, monetary policy instruments such as Fed funds rate and money stock (M1 and M2) turn out to be irrelevant to US inflation.
Ozgur Orhangazi
Kadir Has University
Hanna Szymborska
University of Leeds
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles
  • P1 - Capitalist Systems