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Wednesday, April 20, 2016

Capitalism - By Anwar Shaikh

Capitalism: Competition, Conflict, Crises is a comprehensive overview of economics published by the noted heterodox economist Anwar Shaikh. This article is technically not a review, rather a "what I am reading now" article. I have read enough of it to describe the audience for the book, but I cannot hope to summarise the contents of the work, which is just over 1000 pages.

The book was released in February 2016, published by the Oxford University Press. The author is currently at the New School For Social Research, and has been publishing for more than 30 years. I will direct readers to his website -- for biographical details.

Paper Versus Ebook

I have the electronic version of the book, but this is a case where it may be highly worthwhile to consider the hardback version.

Some sections of the book contain a fair amount of equations and mathematical symbols, which are not supported by ebook readers. As a result, they are implemented by graphic images. Oxford University Press did the best job that I have seen in terms of formatting, but the quality is still less than paper typesetting. (I was trained to be picky about the formatting of mathematics; other readers may find this less of a distraction.)

The other difficulty revolves around the length of the book. The text is broken up into many different levels (parts, chapters, sections, subsections), but you lose the subtle visual clues that delineate the structure of the book which would be provided by the text formatting. Other readers may not have this problem, but I found that I sometimes lost track of the overall flow of the argument, possibly due to the generic section formatting.


This book would extremely valuable for those who are interested in economics, and who are not familiar with earlier schools of thought in economics (which describes myself; I am familiar with modern economic theory, but not pre-Keynesian theory). The text is academic in tone, but extremely readable. Some sections have a certain amount of mathematics, but it is not oppressive (unlike the modern "neoclassical"  or mainstream literature). A reader should probably have some familiarity with the subject before tackling the book, but it could be used as an introduction to a great number of areas of economics.

I doubt that most readers would want to attempt to read the book cover-cover; there is a good overview chapter, and other chapters are linked but can be read on a stand-alone basis. That was my reading strategy; I am not hugely interested in microeconomic theory, and just the initial summary was good enough for my first pass.

A reader who is only interested in policy recommendations might find the book less useful. Shaikh does have some discussion of policy issues, but it is a small portion of the text.

I am unsure how this book would be received by an academic reader who is already familiar with these theoretical topics. As I describe below, Anwar Shaikh does have an interesting and distinctive take on economic theory, but the bulk of the book is effectively a literature survey.

What Is It About?

The first chapter summarises the contents of the book, and is itself near the length of a report that I consider acceptable for an ebook. I expect that I will return to his arguments in later articles, and not attempt to summarise them here.

Instead, I will identify what I see as the three major areas of interest.
  1. He discusses some of his research programme which shows that we can get similar aggregate economic behavioural patterns from different microeconomic foundations. These results call into question the "microfoundations" of neoclassical economics. From my perspective, this aspect of the book alone justified my purchase.
  2. He outlines the development of micro and macro economic theory from at least three perspectives -- classical, neoclassical, and post-Keynesian. On some topics, he even brings in other schools of thought, such as the Austrians and Soros' "reflexivity" theory. Effectively, it is an extremely readable literature survey.
  3. He has a theoretical agenda showing the superiority of classical economics over modern variants. As I discuss below, I am less enthusiastic about this aspect of the book, but I need to reflect further on his arguments.

Return Of Classical Economics

Although I think this is a significant work, I would not be surprised if it not greatly embraced within academia. This is because most of the theory that is being praised was developed by people who are long dead. As a cynical ex-academic, this is not a great strategy for building a clique of peers for a publication network, even if it is intellectually honest.

Although Shaikh would probably be considered a heterodox economist in the modern context (but not one hundred years ago), he has some strong critiques of post-Keynesian economics. It seems safe to say that he is not a fan of Modern Monetary Theory; my feeling is that some of his characterisations of it are unfair.

He correctly focusses on the importance of profits in private sector behaviour, and his characterisation of "real competition" as compared to the nonsensical notion of "perfect competition" seems reasonable.

However, I have my doubts that about the usefulness of the price theory he discusses in modern developed economies. It is based on the concepts developed by Marx and Sraffa, and are implicitly manufacturing-oriented ("production of commodities by means of commodities"). How costs are related to production capacity is critical in this theory. In the developed world, almost all such manufacturing processes have been outsourced to poorer countries, and what remains are services and speciality manufacturing. Pricing is a marketing decision, and the notion of a demand curve is debatable -- you set prices based on your brand strategy.
If we look at the simple Stock-Flow Consistent model I discussed in earlier articles, one could very reasonably ask how the system determines the value of output within a given accounting period. (As I discuss in "Equilibrium And Steady State In SFC Models.") One could reasonably rip holes in any theory that attempts to explain the in-period solution. My feeling is that we need to be "apathetic agnostics" with regards to questions like this (I don't know, and I don't care). We need some approximation for behavioural laws to pin down the one-period solution for the model; these laws can only hope to be approximations.

Real world capitalism is too complex for tractable behavioural laws. Even if we ignore services (as discussed above), manufacturing does not conform to sensible notions of profit-driven businesses. Asian manufacturing firms, particularly Chinese, have ramped up their productive capacity to insane levels. The strategy only makes sense in the context of a single-minded pursuit of market share, without the question of profitability ever being raised. Most North American firms (outside of technology bubble firms) do not operate in this fashion. That said, those Asian firms are their competition (at least in broad product categories), and so we cannot ignore them. As a result, we are not going to easily come up with a law that covers all these varieties of behaviour.

Concluding Remarks

This book is going to be extremely worthwhile for many readers. I think his analysis is solid, but my feeling is that any simple model -- whether it is classical, neoclassical, or post-Keynesian in inspiration -- is going to have a hard to fit real world experience. This is not entirely satisfactory if you are an academic teaching economics, but it is the reality faced by the rest of us.

In future articles, I hope to discuss specific topics within the book, particularly his discussion of how macro patterns can be somewhat independent of the exact form of micro behaviour, a phenomenon sometimes referred to as "emergent behaviour."

(c) Brian Romanchuk 2015


  1. Thanks for this very useful review.

    Your posts always make for inspiring reading, as, to my taste, they tend to combine a clear profile of what you stand for with a pleasantly relaxed open-mindedness.

    Intending to start reading Shaikh's magisterial tome soon, I am looking forward to your further comments on his magnum opus, which will be in good company as I am going to be reading Marc Lavoie's "Post-Keynesian Economics. New Foundations" in parallel to Shaikh, whose hard-back edition—hurrah!—I expect to arrive any day now.

    Incidentally, the first 70 pages ( = first chapter) of Lavois's synopsis are superb, boding well for the remainder.

    Georg Thomas, Kaiserslautern, Germany

  2. "The strategy only makes sense in the context of a single-minded pursuit of market share, without the question of profitability ever being raised. Most North American firms (outside of technology bubble firms) do not operate in this fashion."

    I think this does not make sense if you ignore the state as one of the main economic actors, and that power and power structures have a role on market behaviour. Capitalism without the state is an impossibility, capitalism as we know it would have never happened without state intervention and would cease to exist with it in a short time frame, to be replaced with other political-economic system (be it something like feudalism or something else, I don't know).

    Simple models choose a set of axioms that are not based on reality, but rather pre-conceptions, before-the-fact, of authors, is normal they are going to fail spectacularly. A case of drinking too much kool-aid and believing your own bullshit IMO (is the same with the so called 'microfundations').

    1. Well, they are theoretically private firms. But yes, the Chinese government/Communist Party is a major driver of this behaviour. That said, we have seen similar patterns in other exporters, such as South Korea and Japan, during their "dash for growth" years. It is unclear whether this was a "private" or "government" preference.

  3. Great review. BUt it's 2016 Brian! Time to update your copywriting!

  4. Brian,

    I hope you continue your review on Capitalism. I'm particularly interested in your opinion on Chapter 10 (Interest rates, bond & stock markets)

    1. Oops - that reminds me that I did not do the actual review...

      I finished the book some time just before I went on vacation, and I then lost track of it. I might have to do it in sections, as it covers some much material that I cannot easily make generalisations about the book.

      The interest rate section was one where I had the most doubts, to be honest. Parts of it were too bank-focussed, and so would be less applicable to a system whre there is a lot of shadow banking.

      I am suppoosed to be finishing my (much shorter!) next book, but I will see what I can address. Thanks for the heads up.


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