Law of supply & ROI expectations

Today, my doubts regarding the collective wisdom of the economists concern the law of supply. In particular, I have my doubts about its monotonicity, as it has been presented to us. (Technically, I have my doubts that price P even can be a proper mathematical function of quantity Q at all, due to the vertical line test, though I think Q might always be a function of P.) This may well be just a case of simplification for a basic macroeconomics class, but it seems worth looking at anyway.

In particular today, I'm considering the possible effects of ROI expectations and attempts at achieving monopolistic dominance on the supply curve. Again, we return to Wikipedia for the basic definition (and assume you know basic law of supply and monopoly):

In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage rather than a fraction.

The initial value of an investment, V_i, does not always have a clearly defined monetary value, but for purposes of measuring ROI, the initial value must be clearly stated along with the rationale for this initial value. The final value of an investment, V_f, also does not always have a clearly defined monetary value, but for purposes of measuring ROI, the final value must be clearly stated along with the rationale for this final value.

This is a typical example of a supply curve. One of the key features, as presented to us, is that as quantity supplied increases, the price increases, and vice versa. Now, we were taught about certain ceteris paribus conditions (meaning, all else being equal) which must be kept constant for the law of supply to hold. But these ROI expectations and monopoly attempts don't seem to fall into any of these categories that we were taught. (Of course, the simplest approach to "fixing" the law might be to add these to the exceptions, rather than considering them separate.)

It seems to me that in modern markets, where a certain rate of return is often expected, this might provide an incentive to flip the supply curve, breaking the traditional law of supply. Follow along in this example graph which roughly represents what I have in mind:

As I see it, if for example a newspaper publisher is strongly expected to produce a 20% annual rate of return by and for the owners (a fairly ridiculous expectation on its face, but one that seems not uncommon of late, which may well be part of the problems resulting in major newspapers closing), but doesn't have much incentive to produce a better rate of return than that, he may be willing to increase the price of newspapers despite and because of dropping numbers of subscribers, so that the gross revenue (price per copy P_cover (the blue marks here) times number of copies Q), plus significant advertising revenue, which complicates things; let's ignore ad revenue for simplicity) minus costs (cost per copy P_production (the orange marks) times number of copies; I'm guessing that newspapers have significant fixed costs, in reporting, editing, and marketing, hence producing many copies costs significantly less per copy) in hopes that subscribers will stay subscribed out of inertia, who might not have subscribed initially at the new price. Note that the gross revenue minus costs can also be expressed as the number of copies times the difference between the cover price and the cost per copy (Q*(P_cover-P_production)). Geometrically, this is equal to the area of the rectangle bounded by the Y-axis on the left (keep in mind that this graph only goes as low as 25, and the Y-axis is at zero), the quantity produced on the right, the cover price on top, and the production cost on the bottom.

It's fairly simple, then, to create several different curves, such that this rectangle has a particular area, i.e. a certain return for the investors. And I could easily imagine a publisher trying to increase the price fully expecting a drop in subscribers, hoping to make it up in increased profit per copy, especially in the short term before subscriptions are canceled or not renewed.

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That's quite a bit for now, so I'm going to go ahead and post the ROI discussion right now. I'll get to the monopolistic exception later tonight, or possibly tomorrow.

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In other news, from discussion of price controls today, it seems that my teacher is fairly firmly in the free-markets-always-good, market-regulation-EVIL!!1! camp. *sigh* I'll try to muddle through regardless.

Production-possibility frontier & sustainability

As of today (well, it's after midnight here now, so to be precise, the 26th), I've started a short but intense macroeconomics class at school. Since it's sure to be fairly relevant, I'm going to blog about various subjects that come up, as we cover them (or sometimes, just because it's suggested by something covered), hopefully on a regular basis for as long as it lasts. For the first installment, I'll discuss the production possibility curve, as my teacher calls it. Wikipedia uses a slightly different term; I don't have a special preference myself, yet.

Let's start off with the basic Wikipedia definition of a production-possibility frontier:

In economics, a production-possibility frontier (PPF) or "transformation curve" is a graph that shows the different rates of production of two goods that an individual or group can efficiently produce with limited productive resources. The PPF shows the maximum obtainable amount of one commodity for any given amount of another commodity or composite of all other commodities, given the society's technology and the amount of factors of production available.

Here is a graph I made of the particular example that was used in class, where the X-axis represents butter, and the Y-axis guns. (A classic hypothetical example; no particular significance, other than one being a military want and the other a civilian want.) It represents this idea that as more of one good is produced, more of the other good must be sacrificed to produce the first, at an accelerating rate. When very little butter is being produced, sacrificing a small part of gun production can increase butter production significantly. When a great deal of butter is produced, a much greater part of guns must be sacrificed to achieve a similar gain in butter production.

The relevant facts of the curve for my purpose at the moment are that areas above or to the right of the curve represent productions that cannot be obtained with current technology, resources, and time (that is, the curve represents maximum production for a certain period, whether that's a year, or month, etc.). Points to the left of or under the curve represent production combinations that can be achieved, but the further they are from the curve (and the closer to the origin), the less the productive efficiency is. That is, at such points, the resources available are not being converted into guns and/or butter at the fastest rate possible. At points on the curve, this fastest rate is being achieved, and productive efficiency is maximized.

This is where I have to object to the way this is expressed and presented. It seems to be implied that any of these points under/left of the curve are inherently undesirable outcomes, and productive efficiency should be maximized. (We also covered positive and normative statements in economics today; this would be one of the latter.) This, in turn, means that we should seek to exploit natural (and other) resources as quickly as we can extract them. But, for resources that are nonrenewable and consumable (or those that are renewable, but at the PPF, are being used at a rate in excess of their renewal), such as oil and other fossil fuels, it can mean that in the end, they will be used less efficiently overall (there's probably a name for the particular kind of efficiency I mean here, but we haven't gotten to a term for it yet), and they will dry up sooner.

The End of Civilization As We Know It being accelerated is not what I, for one, would really consider an optimal solution. I hope that those who've taken more serious economics classes are getting a good clarification, that this production efficiency isn't always most overall efficient, and something to always strive for. But I'm afraid it might well be that it's promoted, with at best a few of those crazy tree-hugging liberals pointing out that this efficiency isn't necessarily ideal. And that would be, frankly, tragic.

The Trouble With Capitalism: more Market Saturation

Picking up where we left off, we get right into some of that material that nicely describes our current market situation, on pp. 36 & 37

This danger was one governments began to discover from around 1970, as they resorted to stronger than ever doses of fiscal and monetary stimulus to sustain growth.

And right now, we're hearing a lot of talk about whether the Federal Reserve even has enough power to keep things afloat. Lots of talk about "how many bullets do they have left."

This was reflected both in higher state budget deficits (reaching the equivalent of 1.1 per cent of GDP in the OECD area in 1970, compared with a surplus equal to 0.7 per cent of GDP ten years earlier) and sharply accelerated expansion of bank lending (see Chapter 4 [The Illusion of Orthodoxy]). Moreover, to the extent that such artificial boosting of demand was achieved by making consumer credit more readily available, it was simply serving to make future recession even deeper.

High US budget deficits: check. Accelerated bank lending: check. Readily (overly, even!) available consumer credit: check.

Deeper future recession: Well, we'll just wait and see about that.

This is because, by increasing the level of consumer debt relative to current income, it was making it more inevitable that a greater proportion of future income would have to be devoted to debt repayment in later years — to the obvious detriment of the level of consumption....

Naturally an important consequence of the slowing growth of consumer demand was that competition for market share intensified, leading to a drive to cut costs and hence in turn to a squeeze on staffing levels and higher rates of unemployment in most OECD countries in the late 1960s and early 1970s — that is, even before the end of the boom. Yet predictably this process, by squeezing purchasing power, did nothing to reverse the decline in the marginal propensity to consume of the population as a whole.

That squeeze is getting tighter and tighter these days. As the companies are racing each other to win that almighty investor dollar, they're throwing first the "dead weight" overboard, then the rudder, then the motor.... And demand is down, even though credit is way up, for now. In the end, of course, it might be worth pointing out that the net effect of the debt repayment Shutt mentions is to take more money from the lower classes, and transfer it to the investors. That goes not only for private, personal debt, but also for public government debt. When they talk about a $3 trillion cost for the Iraq war/occupation, a big chunk of that is for debt service. And that money doesn't just go up in smoke; it goes to whoever has enough money now to lend some of it to the government. China will get a big chunk of that, as has been pointed out, but of course there are private investors who will be making a shiny penny off of it, too.

This "marginal propensity to consume," by the way, is closely related to one of my own especial hobby-horses. There's another concept, the velocity of money, that I think needs an extra twist (added to it as it now stands, not replacing it). The best term I have for this idea so far is "specific velocity of money." The idea being, that it's a measure of how quickly a particular group of people (how they're grouped is irrelevant; could be by income quintile or percentile, by occupation, or by age, etc.) spends the wealth which they possess. It should be equal to annual expenditures divided by worth (net or gross? I'm not sure, but I lean towards net). It's certainly closely related to this "marginal propensity."

The Markets

I thought I should further note that this blog is very much a "big picture" blog, not one about the financial markets, however exciting they might be at the moment. However, I will certainly be willing to relate, for instance, material from this The Trouble with Capitalism book I've been reading to the current crisis situation. It's hard not to; the book keeps going on about moral hazard, lender of last resort, deregulation; and the comments about Bear Stearns and its ilk keep bringing up those very same things.

If you are looking for more on the more immediate matters of the financial markets, I'd suggest almost any of the blogs listed over to the right under "Blue Team". Most of them give fair to excellent discussion of the current markets, especially Angry Bear and Calculated Risk.

Introducing Class Wargames

So, it's about time to write up a little blurb to introduce my latest blog, I suppose.

First things first. Let's explain the name, Class Wargames. Obviously, a reference to "class war" and "class warfare," a much-maligned boogeyman of those in power, oddly enough, considering that they seem to be the ones "who started it," and who benefit most from it — funny how that works, isn't it? I thought to combine it with the term "wargames":

A wargame is a game that simulates or represents a military operation. Wargaming is the hobby dedicated to the play of such games, which are also called conflict simulations. The somewhat similar, professional study of war is generally known as a military exercise or "war game," with the words war and game kept separate. Although there are occasional disagreements as to what qualifies as a wargame, the general consensus is that they are not only games about organized violent conflict or warfare, but that they must explore and illuminate or simulate some feature or aspect of human behaviour directly bearing on the conduct of war.

So, this blog could be viewed as exercises and simulations in class warfare, if one were to take the title much too seriously. In reality, I'll just be covering whatever economics-related topic happens to catch my fancy, of course.

At the same time, the title does suggest some interesting plays on words. A few that have come to mind already:

• Although class struggle is a terrible burden on those at the lower end of the Pareto distribution, for those near the top, one would think it was all just fun and games, the way they play at it.
• Especially in light of the cliché, "he who dies with the most toys, wins." (Always a "he", it seems.)
• I'm not sure how prominently it will explicitly feature in my posts here, but I'm fairly fond of exercises in game theory.
• I'll also likely be discussing the roles and (mis-)identifications of zero-sum and positive-sum ("win-win") games.

Oh, and for the record, yes, I'm quite fond of Wikipedia as a source; why do you ask?

But, in slightly more seriousness, and title aside, the points in economics most interesting to me would be those concerning creation and distribution of wealth and income (and why the income side of that gets so much more attention); sustainability of something resembling our way of life in the (very) long term; and in general, anything that leans more towards the macro side of economics.

For the record, again, although some of my rhetoric might come across as such, I am not a Marxist or communist. My own thoughts on Karl Marx, I have in the past expressed as, "he asked a lot of the right questions, but didn't necessarily come up with all the right answers."

If you're looking for my more political, less economic opinions, those can be found at sibling blog Liberal Hyperbole.

That should about cover the basics here, for now. Now, make your move, and roll the dice.

Daily Goods

I'm importing a feature from sibling blog Liberal Hyperbole which I already called "Daily Goods" there, and it seems especially fitting a name for an economics blog. Here's the explanation from there:

Starting today, I'm going to be doing daily posts when appropriate merely consisting of links to comments I've made on other blogs, and perhaps sometimes even to posts on other blogs where I haven't commented on. The main reason for this is to show a bit more of my thinking than my somewhat sporadic posting here reveals, and incidentally to give myself a handy reference wherein I can find those comments I've left elsewhere but forgotten just where. Secondarily, it's a way to indicate others' posts that I find interesting enough to comment on (although often, that interest is merely that it conjures up a "witty" joke that I just can't pass up, so quality is not assured).

In doing this, I'll be modifying my general rule of never editing a post without noting it (usually with "Update:", "Added:", or "Edit:"). These I'll be adding to over the day (or however long) as I make comments, or find interesting articles. This way, I won't fall into the Eschaton trap of posting a dozen or two one-sentence links to articles in one day. Not that there's anything wrong with that, but it's just not my style.

And here's the Daily Good for today, so far:

• Angry Bear — On The Limits of Growth, zero growth, and Malthusian thought. The comments are pretty good too, and introduced me to a term for one of the ideas that's been rattling around in my head for a while now: Steady state economy.

  Afterthought 2008-03-10: One point in particular I like to make on this theme, in response to those who would say, "but they've been predicting doom for us since [Malthus, 1970s, 1990s, pick any], and none of that has happened yet! Therefore they must be wrong at all times!" Based on that kind of reasoning, I can sleep soundly in the knowledge that I will live forever, because I've never died yet. And, if they would respond that we have evidence of other people dying around us, so presumably we will too? I'd point out that the same goes for other species than H. sapiens; the vast majority of them have died off in the past (and now at an ever-increasing rate, for good measure).

The Trouble With Capitalism: Market Saturation

pp. 35 & 36:

Market Saturation

The increasing maturity of most consumer markets in the industrialised countries was becoming a noticeable constraint to economic growth in the industrialised world by the end of the 1960s. This meant that in addition to static demand for non-durable goods (food, drink and clothing) the markets for most durable products (automobiles, television sets etc.) tended more and more to be governed mainly by replacement demand rather than by the continuous opening up of new groups of first-time buyers, which had been possible throughout the 1950s and early 1960s. Hence demand for goods generally began to grow more in line with population — which was in any case increasing more slowly than in the immediate post-war period — rather than at the rapid rates recorded up to the mid-1960s.

The result was that companies serving these markets were obliged to diversify into new products or services in their unavoidable quest for further expansion, especially as they were barred by anti-monopoly restrictions from taking over their competitors, at least within their national frontiers. One consequence of this was the emergence, particularly in the USA, of 'conglomerate' groups or companies with diversified activities ranging from telephone equipment manufacture to hotel chains....

One thing that I'm particularly sensitive to in reading this book, and elsewhere, is the idea that at least a significant part of the trouble with the modern economy is exaggerated expectations of return on investment on the part of investors. This is essentially one reference to it here. Still, it doesn't seem to crop up as much as I'd guessed it would. I'm not sure whether this is because the author understates its role (or I'm just wrong in its significance), or he just assumes it as a near-axiom, not worth mentioning because it's a given.

Yet gradually, as may now be recognised with the benefit of hindsight, the development of such new consumer markets proved insufficient to offset the impact of the saturation of existing ones.... Thus for many it was an article of faith that every economy was subject to a normal or 'underlying' growth rate or trend, from which it might be expected to deviate only under abnormal circumstances and, implicitly, for relatively short periods. Likewise, as already noted, many of the cruder apostles of Keynes had convinced themselves that 'demand management' could actually permit the stimulation of increased consumption simply by injecting more money into the economy, and that consequently excess productive capacity need never be a problem again. Thus they, along with most OECD governments, failed to appreciate that, once the short-term limits of purchasing power have been reached, the only consequence of artificially trying to extend them further is bound to be inflation.³

3. Even now it is quite common to find economists who reject any notion of limits to demand growth, usually on the grounds that it is based on the 'lump of labour fallacy' — that is, the suggestion that there is a fixed amount of output (and hence labour) required to meet demand (cf. S. Brittan, Capitalism with a Human Face, Fontana, London 1996). The obvious perversity of this argument is based on a refusal to bring the time factor into the equation, since it is not a question of suggesting that demand is finite in any absolute sense but only over a given time period. Yet since rates of return on capital are reckoned in relation to periods of time it should not be necessary to point out that it is the short- or medium-term limitation which is crucial in defining whether there is a ceiling on demand growth.

I think we're getting pretty close now to the "limits of purchasing power," "bound to be inflation" point he's talking about. By the way, have you checked the price of wheat lately?

The Trouble With Capitalism: Investment promotion

Investment promotion (pp. 23 & 24)

Besides undertaking to apply the weapons of macroeconomic management to influence the level of output and employment, governments resorted to other forms of intervention to help sustain activity. Most conspicuously, they became significant promoters of investment, whether through state subsidies or incentives to private investment, or else through direct state equity participation in enterprise. The proliferation of such mechanisms — including grants, tax concessions, loan guarantees and subsidies to research and development — was for many countries (notably those of continental Europe as well as Japan) simply an extension of their traditional approach to economic development. Yet its rapid growth throughout the Western market economies (including the United States) in the post-war period meant that 'corporatism' had become a universally accepted element in the post-war capitalist system. What was scarcely perceived at the time — and is still not widely accepted even in the supposedly more laissez-fair 1990s — is that such uncontrolled use of state support for enterprise (whether in the private or public sectors) was bound to result in serious distortion of competition and international trade patterns.⁵

5. See H. Shutt, The Myth of Free Trade, Basil Blackwell/The Economist, Oxford 1985

Note that I would certainly agree that, here in the US, the "grants, tax concessions, [and] loan guarantees" have certainly gotten rather out of hand. More on that when I cover the later chapters.

Transnational corporations (p. 32):

Such was the basis of what was later to become known as the 'global economy'. Perhaps surprisingly, it has been widely acclaimed in the 1990s as the very model of a dynamic, free-market economic system in which the inability of either governments or private corporations to control the pattern of development is treated as a positive virtue. However, as suggested in this chapter, it is really the legacy of a post-war attempt to organise the world economy along the lines of international cooperation rather than uncontrolled competition & in a climate of opinion which had, indeed, come to reject laissez faire as an intolerably unstable basis for economic management. The fact that it proved a recipe for anarchy based on rampant market distortion was the result of misplaced commitment to the idea of the sovereign nation-state, combined with a lack of political will to curb the power of transnational corporations.

The Trouble With Capitalism: The New Deal

I'll be mostly glossing over the next couple of chapters in The Trouble With Capitalism, as the mostly deal with historical background. But I'll doubtless find a few bits worth mentioning. Like the following. (pp. 15 & 16)

[W]hen US President Roosevelt assumed office for the first time in 1933 he was committed to a programme of vigorous intervention by the federal government to stimulate and underpin a recovery in the US economy — the New Deal — based on broadly similar principles to those applied by the Fascist regimes in Italy and Germany....

It is significant that one area where the Roosevelt administration's proposals for state intervention in the economy met with little opposition was support for the financial sector. Nothing had been more fatal to attempts to restore confidence in the United States following the Wall Street crash than the catastrophic collapse in the banking sector, with no fewer than two thousand banks failing in 1930 alone. This prompted the new administration to introduce, as one of its earliest measures, legislation requiring all banks to insure their deposits (up to a maximum level for each one) through a government agency, the Federal Deposit Insurance Corporation, thus guaranteeing small savers against total ruin.¹³ This measure... foreshadowed what was to become, after World War II, an implicit commitment by the state to act as 'lender of last resort' to the banking community — in other words, to come to the rescue of any institution whose failure could be considered a threat to the stability of the financial system as a whole, regardless of how reckless its lending policy may have been. Yet as with so many other moves tending to advance the role of the state in sustaining the capitalist system, this far-reaching commitment was made as a purely pragmatic response to otherwise ruinous market trends. It is scarcely a matter of wonder that those responsible, who were also closely linked to the main beneficiaries, were not inclined to emphasise its ideological implications.

13. In reality the use of an insurance scheme was cosmetic, since the level of premiums paid by the banks never corresponded to the actuarial cost of providing the necessary cover and it has been understood ever since that the federal government will provide whatever support is necessary to avert the collapse of any bank which might entail 'systemic risk'.

In short, the kind of trouble that these policies were meant to avert does sound a lot like the current problems of the sub-prime collapse. Especially that bit about "com[ing] to the rescue of any institution whose failure could be considered a threat to the stability of the financial system as a whole, regardless of how reckless its lending policy may have been."

Counting the costs

This story in The Australian ties in rather well with my current reading, and helps bridge the gap of the decade since it was written.

THE Iraq war has cost the US 50-60 times more than the Bush administration predicted and was a central cause of the sub-prime banking crisis threatening the world economy, according to Nobel Prize-winning economist Joseph Stiglitz.

The former World Bank vice-president yesterday said the war had, so far, cost the US something like $US3trillion ($3.3 trillion) compared with the $US50-$US60-billion predicted in 2003....

Professor Stiglitz told the Chatham House think tank in London that the Bush White House was currently estimating the cost of the war at about $US500 billion, but that figure massively understated things such as the medical and welfare costs of US military servicemen.

The war was now the second-most expensive in US history after World War II and the second-longest after Vietnam, he said.

The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

"The regulators were looking the other way and money was being lent to anybody this side of a life-support system," he said.

That led to a housing bubble and a consumption boom, and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history, he said.

Professor Stiglitz, an academic at the Columbia Business School and a former economic adviser to president Bill Clinton, said a further $US500 billion was going to be spent on the fighting in the next two years and that could have been used more effectively to improve the security and quality of life of Americans and the rest of the world.

The money being spent on the war each week would be enough to wipe out illiteracy around the world, he said.

Just a few days' funding would be enough to provide health insurance for US children who were not covered, he said.

The public had been encouraged by the White House to ignore the costs of the war because of the belief that the war would somehow pay for itself or be paid for by Iraqi oil or US allies.

"When the Bush administration went to war in Iraq it obviously didn't focus very much on the cost. Larry Lindsey, the chief economic adviser, said the cost was going to be between $US100billion and $US200 billion - and for that slight moment of quasi-honesty he was fired.

"(Then defence secretary Donald) Rumsfeld responded and said 'baloney', and the number the administration came up with was $US50 to $US60 billion. We have calculated that the cost was more like $US3 trillion.

"Three trillion is a very conservative number, the true costs are likely to be much larger than that."

This is just the kind of thing Shutt is going on about in this book. (My reading in it is currently far ahead of my posting about it.)

Afterthought (added 03-01): I might also point out that that sum comes to around $10,000 for every man, woman, and child in the United States. Enjoy your tax cuts!

The Trouble With Capitalism blogging

Note: To get this blog off to a start, I'm copying my recent entries on economics from my more political blog, Liberal Hyperbole. Henceforth, the Trouble With Capitalism blogging will continue here, for the most part.

So, since I've gotten myself an old new book from the library, The Trouble With Capitalism: An Enquiry into the Causes of Global Economic Failure by Harry Shutt, and I'm reading it now, I thought I'd share some of the choicer excerpts as I go along. Some, I'll just post without comment; others, I might point out things that have come to pass since then, or how it relates to my own beliefs in the area, or even where I feel it might be in the wrong. Keep in mind, it is a 1998 book, so some of it is a bit dated. I might even pick on it a bit in places, for instance where it says the Interwebs don't seem to be really taking off. But it'll be good-natured; in that example, his thoughts seem to have been born out eventually by the bursting of the New Economy dot-com bubble.

A choice bit from the very first page of the introduction, to start off with:

The rapid advances of this new consensus [the superiority of laissez-faire capitalism] to near universal acceptance owes much to the recent conspicuous failure of economic models based on extensive state intervention to deliver adequate levels of prosperity or security — most spectacularly in the fallen Soviet empire. Yet despite this apparently compelling logic, anyone endowed with a reasonable capacity for impartial observation of everyday realities — and for treating official propaganda with due scepticism — might recognise that such claims of a triumph for the free market and of its supposedly magical powers are profoundly perverse, for at least three reasons.

Further on in the introduction (added 2-28):

This book is an attempt to expose the realities of the contemporary evolution of the global capitalist economy, and thereby to dispel the illusions which lie behind the neo-laissez-faire prospectus. By viewing it in the context of the longer-term development of the world economy it also seeks to demonstrate that the reason for the aggressive and irrational dogmatism of the Western political establishment in trying to forge this new consensus is a growing sense of the increasing fragility of capitalism rather than of its enduring strength. Indeed the reader may well conclude that only acute awareness of a genuine threat to the survival of the dominant vested interests could explain such systematic distortion of reality.

In some respects, it may be noted, the analysis presented here of the chronic weakness of profit-maximising capitalism is traditional, in that it emphasises the distorting and destabilising effects of the recurrent excess supply of capital in relation to the demand for it. What is perhaps less familiar is the revelation that technological change is leading to a long-term relative decline in the demand for fixed capital, thereby rendering traditional capitalist structures obsolete — much as the new technology of steam power made inevitable the replacement of feudal structures and cottage industries by capitalist enterprise some two hundred years ago.