Why Anwar Shaikh's theory of Capitalism fails.

Anwar Shaikh's magnum opus, Capitalism; Competition, Conflict, Crises, is not to be dismissed lightly. It is a work of genuine scholarship which repays attention in certain respects.

However, the project is fundamentally misconceived,

Shaikh says-

The goal of this book is to develop a theoretical structure that is appropriate from the very start to the actual operation of existing developed capitalist countries. 

Why develop a theoretical structure for this purpose? What good would it do? Developed capitalist countries seem to be faring well. Either they already have a theoretical structure or the thing is unnecessary. Indeed, it could be argued that theoretical structures are bad for countries. They militate for collective irrationality. As for developing countries, capitalist or socialist or whatever, the truth is the presence of 'theoretical structures' is correlated not with good trajectories but bad ones. Good intentions pave the path to Hell using 'theoretical structures'.

This is not to say that there isn't a market for 'theoretical structures' concerning the Economy just as there is a market for Oracles or Astrologers or interpreters of Dreams. However, what the customer wants, more often than not, is to know what the guy he is paying will say in advance. If the guy has a 'theoretical structure' of laughable simplicity which corresponds in no way with reality- so much the better! There is also a Newcombe's problem type psychological effect here. The idiot Economist with his ludicrous 'theoretical structure', who always says the same thing, nevertheless adds value.

By contrast, a guy with expert cognition who makes good Bayesian predictions might also be worth his wage provided he does not have a 'theoretical structure' as opposed to a bunch of quick and dirty heuristics.

Second, although the book attempts to demonstrate that the capitalist economic system generates powerful ordered patterns that transcend historical and regional particularities, the forces that shape these patterns are neither steely rails nor mere constellations of circumstance.

What is this shit about 'transcending' stuff? No transcending every actually occurs at all. Historical and regional particularities are the only things which exist. Ordered patterns are either historical and regional or else they are an artefact of the theory and thus delusive and egregious.

Every paranoid hate-monger talks about 'forces shaping patterns'.

They are, rather, moving limits whose gradients define what is easy and what is difficult at any moment of time. In this way they channel the temporal paths of key economic variables.

We know life evolves by Natural selection. All Shaikh is describing is adaptation on a fitness landscape. It occurs everywhere there is life. There is nothing teleological about the process. The forces Shaikh thinks he sees have no 'genidentity'- they don't exist in Time. Nothing shapes evolution. There is an uncertain fitness landscape not some oceanic chess board constituted by 'Black' and 'White' struggling for dominion over the Soul of Man.

Indeed, these shaping forces are themselves the results of certain immanent imperatives, such as the “gain-seeking behaviors” that define this particular social form in all of its historical expressions.

Immanent imperatives can't exist if our current theory of Evolution is correct. Nothing defines any social form in all its historical expressions because expressions can be strategic, psychotic or otherwise antagonomic.

It is not a matter of contrasting ahistorical laws to historically contingent outcomes. Agency and law coexist within a multidimensional structure of influences.

In which case McKelvey chaos obtains. This theoretical structure is 'anything goes' and not falsifiable.

But this structure is itself deeply hierarchical, with some forces (such as the profit motive) being far more powerful than others.

So what? That isn't the condition for breaking McKelvey chaos or resolving Djikstra concurrency.

The stage on which history plays out is itself moving, driven by deeper currents.

Then it isn't a stage at all is it? All we have is an uncertain fitness landscape it is pointless to have a 'theoretical structure' for, unless we make our living as charlatans or pedagogues.

Third, the resulting systemic order is generated in-and-through continual disorder, the latter being its immanent mechanism.

If there is an 'immanent mechanism' why not discover what it is and then tinker with it till it does something really cool? A systemic order generated by a mechanism is of no great interest. Finding out how to use that mechanism to generate a systemic order we prefer is the only game in town. The fact that the car is back in the garage at the end of the day is an example of 'systemic order'. It isn't interesting. Finding out how to drive the car to go somewhere cool is interesting.

To attempt to theoretically separate order from disorder, or even to merely emphasize one over the other, is to lose sight of their intrinsic unity, and hence of the very factors that endow the system with its deep patterns.

Cool, if you're into Zen or are writing a poem or something of that sort. Otherwise, why bother? Screw theoretically separating shite. There's an 'immanent mechanism' we need to master so as to do cool stuff.

Yet order is not synonymous with optimality, nor is disorder synonymous with an absence of order.

No one thinks 'order' is synonymous with optimality. A noisy class may come to order if teacher swishes his cane. But it won't perform optimally.
Disorder, on the other hand, is synonymous with the absence of order- at least in the English language.

Order-in-and-through-disorder is of a piece, an insensitive force that tramples both expectations and preferences.

Nonsense. It is an oxymoron which can't trample anything because it does not exist. This is just worthless verbiage of a theological stripe.

This is precisely the source of the system’s vigor.

It is also the source of its rigor, as well as being its digger and jigger and that Aunt of Sligger Urquhart who tended to wax Hegelian when of strong waters taken.

Fourth, if one is to demonstrate how order and disorder are intimately related in given circumstances, it is necessary to identify particular mechanisms.

If a particular mechanism exists then we can make it do something we want by changing its inputs or adding or subtracting operations or something else of that sort. Understanding the intimate relations between 'Order' and 'Disorder' does nobody any good. Changing things for the better is where the action is.

And here, the central goal of this book is to demonstrate that a great variety of phenomena can be explained by a very small set of operative principles that make actual outcomes gravitate around their ever-moving centers of gravity.

The central goal of David Icke's books is to demonstrate that all phenomena- including the Syrian Refugee crisis and the fact that my neighbor's cat is spying on me for Mossad- to a very small set of operative principles- concerning different species of extra terrestrial shape shifting lizards- that cause outcomes to gravitate around their ever-moving centers of gravity.

This is the system’s mode of turbulent regulation, whose characteristic expression takes the form of pattern recurrence.

Yes. David Icke repeats himself too. Paranoia does that to you.

The theoretical and empirical applications of these two notions are woven into the structure of this book. Turbulent regulation and pattern recurrence apply to the system’s various gravitational tendencies. Of these, the first set consists of those that channel commodity prices, profit rates, wage rates, interest rates, equity prices, and exchange rates. These processes have two aspects. Equalizing tendencies driven by the restless search for monetary advantage, whose unintended outcome is to narrow the very differences that motivate them.

An Muth Rational arbitrageur- i.e. one who knows the correct Economic theory- does intend to do what his actions will cause to happen. Does George Soros really not know what the effect of his actions will be? Does any hedge fund boss?

And shaping tendencies which direct the path around which the equalizing tendencies operate. For example, equalization processes make individual wage and profit rates gravitate around the corresponding averages. 

Competition among workers and capitals plays a key role here. At the same time, the average wage rate itself depends on productivity, profitability, and the balance of power between employers and employees, while the average profit rate depends on wages, productivity, and capital intensity.

The average wage rate may rise though productivity, profitability and the balance of power between employer and employee all worsen for an exogenous reason. This could take the form of a 'Resource curse' or windfall transfer or a change in the property regime such that rents are redistributed such that the Labor supply curve contracts. Remittance economies could also see something similar- e.g. Kerala after the Gulf boom.

The averages emerge from individual (micro) economic interactions in which competition plays a central part. Both of these processes therefore fall within the domain of real competition, in which the profit motive plays the central role.

This is only true if you define 'profit' in a circular fashion. There are competitive non-monetary markets where no profit arises. When our son was born, we joined a baby-sitting circle of ill paid academics in a similar predicament. We advertised our availability at different times so as to earn points which we could use when we wanted a night out. Competition forced sub-standard baby sitters to up their game or exit the market.

As we shall see, the notion of real competition developed in this book is very different from that of perfect competition and its dual, imperfect competition. Real competition does not fit on some sliding scale between these two theoretical markers.

It also does not fit in a world where entrepreneurs are rational and can read Economics textbooks. Shaikh is talking about a world where everybody joins a Ponzi scheme confident the thing will crash only after they've been paid off.

The second set of gravitational tendencies arises from the system’s turbulent macro-dynamics with its characteristic expansionary processes, waves of growth and slowdown, persistent unemployment, and periodic bouts of depression including the global crisis that began, very much on schedule, in 2007.

What global crisis? There was a shakeout and a bailout and then...urm.. nothing much happened.

Once again, it is the profit motive that is the dominant factor in the regulation of investment, economic growth, employment, business cycles, and even inflation.

The eating motive and the fucking motive and shitting motive are even more important. If a motive is important, we human beings must have evolved very sophisticated ways of expressing it and forming judgments on the basis of that expression. Shaikh's theory covers only stupid, ignorant sociopaths.  Why have a shite theory of a motive most people have a far more sophisticated pre-verbal understanding of?
Why bother?

The centrality of the profit motive has several implications.

A motive has no implications unless it is linked to means and opportunity. A Profit metric may have explanatory value if it regulates entry and exit. A profit motive can have none absent such a metric. However, Shaikh has defined profit in a manner such that it has no metric.

First of all, the theory of profit, and hence of the theory of wages, takes on special significance.

Profit is the reward for risk. But not all risk can be specified by a probability distribution. Knightian Uncertainty is of this type. There can be no 'theory of profit' because of it. Wages too have some measure of uncertainty and thus are examples of 'incomplete contracts'. There is no way of decomposing this risk related aspect of a worker's emoluments. To construct a theory when we know no theory can be comprehensive is a type of misology.

Second, it becomes important to delineate the precise role of profitability in the theory of real competition, because it affects all aspects of the behavior of the firm.

The behaviour of firms can and should be studied. A range of different theories are useful in describing such behaviour. However these theories delineate nothing precisely. They are merely heuristic.

This influence extends to the theory of competitive price setting and the theory of (endogenous) technical change.

These theories are a crock of shite. Only a small number of academics bother with them.

Third, the notion that (expected) profitability regulates both investment and growth implies a particular mode of interaction between aggregate demand and supply.

Only in classroom models.

We shall see that the resulting dynamic is neither neoclassical, nor Keynesian, Kaleckian, or Harrodian but rather fundamentally classical: profit regulates both supply and demand.

Being 'fundamentally classical' means being Aristotelian- that is teleological and un-empirical. One may as well say 'Allah determines everything' or 'Money is Satan and perverts everything' or  speak of the 'genius' of this ethnicity as opposed to the 'cunning' of that race.

Profitability also plays a critical role in the theory of persistent unemployment, through the channel of endogenous technical change and a correspondingly endogenous “natural” rate of growth.

Once again, this theory is a crock of shite. It can prevent sensible measures being taken on the basis of 'first order' knowledge.

Finally, we will see that newly created purchasing power can pump up output and employment, just as Keynes argued, but that this can lead to a reduction in the rate of growth.

D'uh! Growth is something real. It depends on doing smart and useful things. In the short run, stupid and useless measures can create an evanescent fool's paradise.

Keynesians suggested that useless work- e.g. digging holes and filling them up- could be a good thing in a Depression. They were being silly. A useless type of work won't be subject to the same market forces militating for quality control. So, at the margin, resources will move from useful industries to useless ones. Rent seeking behavior will reinforce the underlying misallocation.

Then while short-run output will be higher than it would otherwise have been, long-run output will be lower than it would otherwise have been. Empirical evidence plays so large a part in this text that it is important to note that data is never just a collection of pre-existing facts.

A fact is a deed as the Latin word factis implies. What law is applied to it- i.e. how it is classified is a different matter. However such determinations are themselves deeds and therefore facts which must be reckoned with if Theory is ever to recover the road to Reality.

Theory always intervenes, not merely in the interpretation of events, but in their very representation (and occasionally in their suppression, as we know only too well). For instance, no analysis of unemployment can proceed very far without recognizing that in all official accounts in the advanced countries, a person is counted as “employed” if she/he “did any work at all for pay or profit” during the week.

or were on strike or on vacation or were helping out with a family business or had taken time off, paid or unpaid, for some other reason.  

It was only in the last three decades that US agencies have begun to publish measures of partially employed and discouraged workers, which, of course, reveal a much bleaker picture of the economy.

Actually, having partially employed and discouraged workers is a sign of affluence. People can afford to be choosy.  

We will see that a similar problem exists in official measures of the stock of capital, which have changed considerably as neoclassical constructs have supplanted classical and Keynesian ones in this field.

What is or isn't Capital is only discoverable after the event. As with Labor, there is a definite aggregation problem because the thing is heterogeneous.  

Not just the levels and trends, but the very notion of capital itself, has been transformed. This is of some importance because the capital stock plays a critical role in the calculation of the rate of profit. Unlike Candide, data is never innocent. 

This is quite true. It explains why 'Econophysics' won't be able to pull any 'Scientific' rabbits out of an essentially Ideological hat.