[Crantag]

I am a weak believer in the efficient market hypothesis. Specifically, I believe it is difficult, but not impossible, to "beat the market". The logic is simple. Easy opportunities to "beat the market" are likely to have already been exhausted. Markets become efficient through a process whereby entrepreneurs repeatedly attempt to take advantage of residual inefficiencies, thereby reducing said inefficiencies.

This holds in all free markets, both financial and non-financial.

I basically agree with these remarks, almost entirely.

As for the issue of monopoly/oligopoly, it is unclear what those terms mean. Specifically, are you merely referring to the number and/or concentration of market participants, or also to the presence or absence of legal, regulatory barriers to entry?

It basically refers to concentration of the industry in a few hands. The big 4 auto producers is an example. Concentration is the going state of affairs in basically every major industry (industrial industry).

Things have changed somewhat these days, with globalization. Nation states are still very important, but global competition has become a considerable influence. This is certainly a game changer. It is something which needs to be considered in contemporary analysis, though less so in the context of the 1960s.

As I said, the authors go to considerable length to show that oligopolistic firms don't typically compete. Competition is a threat to the survival of the enterprise itself. If there is an industry dominated by 4 firms, one steps out of line, and the other 3 collectively retaliate, the company which stepped out of line may be destroyed. There have been price wars of course, but these are very rare occurrences. Baran and Sweezy demonstrate that, on the principles of the economics of monopoly or oligopoly, prices can move upward or downward with equal ease, so as to maximize profits (this is basic economics). In an oligopolistic market though, prices tend to move only upward. This is to avoid the perception that one is seeking to undercut competitors, thereby potentially triggering a price war.

There typically would not be legal or regulatory barriers. Ostensibly, there is free entry. The barriers are economic in nature.

I agree. The explanation I find compelling to this phenomenon is detailed in David Stockman's The Great Deformation - The Corruption of Capitalism on America and has to do with pernicious forms of government intervention in the financial system, through artificially low interest rates, heavy regulations and repeated bail-outs.

Thanks for the link.

Setting aside artificial barriers, the "barrier" picture is misleading. In most industries there is a continuum between many small players and a handful of very large ones. And while entry direct to the "major leagues" is indeed difficult, there is always a gradual route.

Yes, I agree with this as well. This actually does figure into Baran and Sweezy's analysis. For instance, they seek to demonstrate that most innovation does indeed come from small players, the inventions later being purchased by big players.

I actually don't know how I feel about this part of their analysis. There may be something to it. I am also aware, however, that a tremendous amount of product innovation has actually originated in the military. I should state, that Baran and Sweezy do not deny this, either. For instance, Sweezy has written a number of essays in which he references the explosion of commercial and industrial products which grew out of the technological advances effected by WWII.

I think that the topic of where innovation originates from is a complicated topic, and perhaps beyond the scope of 'Monopoly Capital'-related analysis. Nevertheless, the authors do consider the continuum between small producers and big ones, within the context of product innovation. My inclination is to agree with their overall outlook, including on the role of small producers in the way of innovation. I am not sure to what extent innovation truly is, or is not, attributable to large operations. (The authors seek to demonstrate anecdotally that relatively not much innovation is owing to them.)

I guess I will comment in closing that it is very difficult to analyze this sort of thing with total precision. But, I still think the analysis is sound, and I do think that the domination of industries by a few major players amounts to oligopoly.

[Eran]

It basically refers to concentration of the industry in a few hands. The big 4 auto producers is an example. Concentration is the going state of affairs in basically every major industry (industrial industry).

Except there are dozens of auto producers globally. It is true that the top five (Toyota, GM, Volkswagen, Hyundai and Ford) account for about 50% of global sales. But so what? With so many competitors biting at their heels, no producer can afford to behave uncompetitively.

They all compete fiercely for consumer favour. They are all dancing, if you will, to the tune of consumer demand. They have no "market power".

As I said, the authors go to considerable length to show that oligopolistic firms don't typically compete. Competition is a threat to the survival of the enterprise itself. If there is an industry dominated by 4 firms, one steps out of line, and the other 3 collectively retaliate, the company which stepped out of line may be destroyed.

How would the other three retaliate? What power do they have? Are there any real-world examples of that actually happening?

But even in a cooperating oligopoly, prices cannot go up only. The cartel will still try to maximize profits. And sometimes, maximizing profits requires lowering prices.

[lucky]

They have no "market power".

So you claim Toyota has zero market power? I.e. they are facing infinite price elasticity of demand for their cars? Where did you get that data? Surely not from Toyota. The scare quotes make this even funnier, as if to underscore that you don't know what you're talking about.

How would the other three retaliate? What power do they have? Are there any real-world examples of that actually happening?

This is typically covered at length in chapters titled "monopolistic competition" and "oligopoly" in any microeconomics textbook you'll find on amazon. You need to read this stuff if you want to discuss it, so that at the very least you know what you're trying to criticize.

I would try to explain the theory to you, but I know that you're not actually here to learn the answers, and any such attempt would be met with "I hate theory", "this is bullshit propaganda", as usual, so there's no point.

[Truth To Power]

You should look into the land prices in Japan.

The land prices are still lower today than they were in the 1980s. The real estate bubble in Japan popped in 1990.

Sunshine, I was LIVING in Japan at the height of the bubble, and witnessed its peak and collapse at first hand. Land prices are still below the 1990 peak for a number of reasons, including:

1. The peak was so insanely overvalued that the grounds of the Imperial Palace in Tokyo were thought to be worth more than the entire state of California.
2. Japan has experienced deflation since then, so obviously prices in general are not going up.
3. The Tokyo Nikkei stock index is even farther below its peak than land prices.
4. GDP growth (which aggregate land rents track) has been persistently weak.
5. Economic, social and demographic forces have united against household formation, a key driver of residential real estate prices.
6. Mortgage terms have been tightened drastically (no more 100-year mortgages!).
Etc.

[Truth To Power]

Japan presents a somewhat extreme example, but it is a demonstrable example of the effects of surplus capital being poured into real estate, causing a massive asset price bubble, from which 25 years later, the country has never 'recovered'.

Exactly.

Additionally, Truth to Power is evidently very involved in looking into the effects of land rents, and suggests land as an absorber of surplus. I suggest he should look into Japan because it provides what I think may be a significant counter example (1), and also because it seems potentially relevant to the topic he is pursuing (2).

It's not a counter-example at all, because while land PRICES have crashed and stayed down for reasons already explained, land RENTS have continued to track GDP -- which has been stagnant. They are absorbing the surplus just as before. The difference is that instead of real estate speculation soaking up excess purchasing power, it's been government debt.

I am from the US, and I live in Japan, and these are the two economies I know most about. But, I do think the Japan case is very relevant to the discussion here.

It is indeed. It just doesn't mean what you think it means.

[Crantag]

Except there are dozens of auto producers globally. It is true that the top five (Toyota, GM, Volkswagen, Hyundai and Ford) account for about 50% of global sales. But so what? With so many competitors biting at their heels, no producer can afford to behave uncompetitively.

They all compete fiercely for consumer favour. They are all dancing, if you will, to the tune of consumer demand. They have no "market power".

How would the other three retaliate? What power do they have? Are there any real-world examples of that actually happening?

But even in a cooperating oligopoly, prices cannot go up only. The cartel will still try to maximize profits. And sometimes, maximizing profits requires lowering prices.

I have basically addressed these matters. I said that globalization is a bigger factor now; though it wasn't so much in the 1960s. I said that the analysis requires some reevaluation in the present context.

I also stated that prices can go up and down with equal ease. This is of course basic microeconomics. But in practice, prices tend to move only up, for the reasons I gave.

[Nunt]

This is typically covered at length in chapters titled "monopolistic competition" and "oligopoly" in any microeconomics textbook you'll find on amazon. You need to read this stuff if you want to discuss it, so that at the very least you know what you're trying to criticize.

I would try to explain the theory to you, but I know that you're not actually here to learn the answers, and any such attempt would be met with "I hate theory", "this is bullshit propaganda", as usual, so there's no point.

So can we agree that the automotive market is something in between monopolistic competition and and oligopoly? Well, then what is the problem? Sure, perfect competition would be better, but this is not a viable alternative. Perfect competition is a theoretical ideal, not an accurate way to describe reality. Monopolistic competition/oligopoly is probably the best possible market given the scale advantages in the automotive industry.

Sure, Toyato does not have 0 market power. Again perfection doesn't exist and perfect price elasticity doesn't exist either. But the opposite isn't true either. It's not like Toyota can really disregard the market. Even big companies will be kept in check by the market. They can't do what they please. Just look at what happened to general motors. They were very big, but weren't able to satisfy consumer demand and got in big trouble.

Even with high market concentration companies can still get punished by the market. Especially in the long run. While Toyota can could probably get away with a price increase for its cars in the short run. Over the course of a decade or so there are enough competitors to undercut Toyota.

The market isn't perfect, but it's dynamic and their are mechanisms to punish abuse.

[Eran]

So you claim Toyota has zero market power? I.e. they are facing infinite price elasticity of demand for their cars? Where did you get that data? Surely not from Toyota. The scare quotes make this even funnier, as if to underscore that you don't know what you're talking about.

The scare quotes indicate precisely that the term is not used its technical sense but in a way that alludes to people's concerns that firms with a large market share can somehow use their position in a sinister way. In this non-technical sense, Toyota has no "market power".

In the technical sense, virtually every firm has market power. From Wikipedia, "Market power is the ability of a firm to profitably raise the market price of a good or service over marginal cost.". But then every profitable company charges more than marginal cost, at least for some of its products and at least some of the time. Do you really think that your local supermarket charges exactly or under marginal cost for each product? Can you think of any firm without market power?

Moreover, market power in the technical sense isn't sinister. There is nothing wrong with firms having market power.

I would try to explain the theory to you, but I know that you're not actually here to learn the answers, and any such attempt would be met with "I hate theory", "this is bullshit propaganda", as usual, so there's no point.

I haven't asked for a theoretical explanation. As you rightly note, theoretical explanations are easy. I have asked for a real-world example of what opponents of capitalism claim is both endemic and inevitable.

[lucky]

So can we agree that the automotive market is something in between monopolistic competition and and oligopoly? Well, then what is the problem?

I did not mention a "problem". What are you talking about? I was just criticizing Eran's nonsense claims.

Sure, Toyato does not have 0 market power.

So we agree.

The scare quotes indicate precisely that the term is not used its technical sense but in a way that alludes to people's concerns that firms with a large market share can somehow use their position in a sinister way.

You are the only one here that is trying to use those terms in some fuzzy undefined fashion to suit your own arguments. The audience that presumably assigns that same alternate meaning to them does not exist. And even if they did, it wouldn't help to perpetuate the confusion in terminology.

Moreover, market power in the technical sense isn't sinister.

I did not say market power was sinister. You imagine things being said.

[Eran]

lucky,
I was responding to statements such as: "If there is an industry dominated by 4 firms, one steps out of line, and the other 3 collectively retaliate, the company which stepped out of line may be destroyed. "

It is clear from the context that my mention of "market power" (and the scare quotes should have made it clear that I wasn't referring to the technical term) refers to the power to destroy your competition through collective retaliation.

[lucky]

I was responding to statements such as: "If there is an industry dominated by 4 firms, one steps out of line, and the other 3 collectively retaliate, the company which stepped out of line may be destroyed. "

It is clear from the context that my mention of "market power" (and the scare quotes should have made it clear that I wasn't referring to the technical term) refers to the power to destroy your competition through collective retaliation.

The technical term for that situation is "price war". In an oligopoly situation, each company has market power, each has an ability to initiate a price war, and each has an ability to retaliate in response. It is not necessarily beneficial for any company to initiate a price war.

Price wars obviously happen, they do reduce profits, and they do sometimes cause companies to leave markets. Other times, they don't happen, when companies manage to avoid them and coordinate for mutual benefit via some sort of implicit collusion scheme such as price signaling.

Studying these situations, using game theory, is a major topic in economics. This is a very common situation in many markets. Corporate strategies often revolve around these pricing game theory issues.

It's ridiculous to claim this is somehow an imaginary topic, especially when you're evidently confused about terminology and clearly have no idea about the introductory theory of oligopoly straight from freshman textbooks. It's exactly as when ignorant people go around pronouncing evolution is bullshit, simply because their vague idea of what it implies doesn't quite match their worldview, when they don't even know what a mutation is.

When you're rejecting established knowledge with large literature, it's your task to support your claims somehow. It's not really constructive to simply be defiant and keep saying you're right and others are wrong. It's one thing if you just wanted to learn and asked questions, quite another to keep claiming everybody is wrong but providing no analysis. In particular, you'd need to reference standard theory in explaining why yours is better.

[Crantag]

The May issue of Monthly Review arrived in my mailbox yesterday.

To my slight surprise, the lead article has to do essentially exactly with the topic of this thread.

Stagnation and Financialization: The Nature of the Contradiction

[Classicliberal]

It's sort of beside the point, but Stalin and Mao were horrendous tyrants with whom I would never align myself.

Glad to hear; and additionally, that you only align yourself with, and praise, the school of thought which allowed them to become "horrendous tyrants" in the first place, very comforting. But really, though--who needs that bourgeoisie derived separation of powers, if you have that lovely, scientific, class consciousness to keep people always accountable to the greater good of the governed!

American pro-capitalists who think that China is turning capitalist engage in wishful thinking, for their part

I don't think any American "pro-capitalists" think China is turning into a legitimate Western-styled, mixed-market economy; that would require a level of political accountability the authoritarian Chinese Communist Party is unable to give, as they're too busy liquidating milk adulterating enemies of the State. What I have heard from Americans relevant to this discussion is a certain amount of hope that the steady rate of economic liberalization beginning in the late 1970s in China, which has lifted millions out of poverty, could lead to, or put the impetus on, China to politically democratize as well. Moreover, there is a significant amount of capitalism, and private business/investment--typically in the form of Western multinationals--in China today.

The Central Government in Beijing is still very much in control, and very many industries are directly state owned.

True, but the State monopolies suffer from all the usual problems of both the lack of competition and market incentives, which creates, in the long term, massive economic, and social, liabilities for them. A clear example of this is the massive excess capacity of China's Steel and Iron conglomerates and this isn't limited to just steel; this is a macroeconomic problem for China, and their technocrats foresaw it coming as well.

The Chinese State reserves the capacity to make absolutely sweeping economic decisions, and they have at times done so.

I never contested this point; in actuality, I was just making the point that China abandoned the centrally planned economy, or command economy, decades ago in favor of a gradual mix of State and free market capitalism, the trend being, albeit slowly, towards the latter to maintain growth and eliminate inherent inefficiencies in nationalized industry.

It does have an interesting mix, but the country is indeed communist. The opening up of free enterprise is a deliberate policy measure. This is one of the reasons for confining it to economic zones, so that it is still under the auspices of the state control.

Yes, it was a deliberate policy measure because China pre-1978 was in Eastern bloc style economic stagnation and Deng Xiaoping was smart enough to have the foresight the Chinese Communist Party wouldn't last if it couldn't deliver real economic gains. Thus, ideology was sacrificed for economic growth; hence, why outside of nominal indoctrination, the CCP is keen to stay away from most Marxist-Leninist orthodoxy and emphasize its justification for Western multinational exploiting cheap Chinese labor with phrases like: "socialism with Chinese characteristics", etc.

[Crantag]

I have no intention to respond to, or even read, any further slanderous posts liked the one above in this thread.

Moreover, I would expect people here to display more maturity than making blanket assumptions of someone they have never met and do not personally know.

Moreover, Truth to Power, though I can see you have knowledge, you are clearly a complete know-it-all. By definition, that means you are terribly biased and therefore not someone who's opinions are even credible or who is to be taken seriously.

[Truth To Power]

Moreover, Truth to Power, though I can see you have knowledge, you are clearly a complete know-it-all.

That's rich, coming from a follower of the biggest know-it-all in history, Karl Marx.

By definition, that means you are terribly biased

Oh? What definition would that be? And for bias, see Marx again, who raised bias to an epistemological principle.

and therefore not someone who's opinions are even credible or who is to be taken seriously.

I can't make you read, Crantag. But if you do read, I can make you think. And I do. And that is apparently what you can't tolerate.

"He who knows, and knows that he knows, is wise. Follow him."

[Crantag]

Reported for repeated harassment.

You do not know me.

[Truth To Power]

Truth to Power... you are clearly a complete know-it-all. By definition, that means you are terribly biased and therefore not someone who's opinions are even credible or who is to be taken seriously.

And you reported me??!?!?

[MeMe]

Crantag has addressed an intriguing subject. I appreciate the expert comments of Rugoz and Eran. Thanks for sharpening my insights. I hope to return the favour some time.

I appreciate, Rugoz, taking the time to present your thoughts and link some source material. I look forward to going through it a bit.

(Eran, )These are indeed good questions and good points. ... Yes, this is perfectly true. ... I basically agree with these remarks, almost entirely.

I fully agree.

I'd like to try to answer in greater depth later, but I will say that the economic organization has changed. The book Monopoly Capital appeared in 1966, and much of the contents was based on ideas worked out in the 1930s, or based on the 1930s. So, it was a book about the industrial system, especially. The US economy has certainly changed significantly, and many points need to be reevaluated for the present-day context.

In addition I recommend "Industrial organization in context" by S. Martin as excellent reading material for anyone, who is interested in oligopolies. He reviews how scientists try to model the tricks of business men. However, be warned, for it is a book of 1000 pages (and lots of theories, models and facts).

Once accumulation of capital reaches an apex, the effect is stagnation.

It is conceivable that capital will become increasingly abundant. This may lower the rate of interest (or profit), but it does not imply stagnation (in the sense of a steady or shrinking economy). Moreover, the financial sector has become global, so that now more opportunities for foreign investment are available. This helps the newly industrializing countries (NICs). For instance, the Japanese profit rate did not peak until 1970. And the Chinese rate of investment (I/Y) has shown a tendency to rise especially in the last decades. The NICs lower the global costs of production, and create new markets for western products. This shows the dynamics of the global economy, which is difficult to reconcile with the rigid model of monopoly capitalism.

Besides, it may well be that human and social capital become the dominant factors for growth. Then money capital will be invested in education and institutions. Probably Baran and Sweezy would even applaud this development.

Keynesian economists seem to implicitly deny the potential for systemic overaccumulation.

Perhaps, but AFAIK Keynes himself does believe that capital could become abundant, and thus the rate of interest will approach zero.

It results in stagnant economic states under capitalism, which is dictated by a logic which demands capacity not be idle for economic health.

This is true, in principle. However, in a situation of full employment the power of the trade unions rises to such an extent, that the economy suffers from the upward pressure on the wage level. To put it differently, a high utilization will further inflation. Some unemployment is crucial for a sound operation of the economy. You may call this the natural level of unemployment, if you like.

The thread may give the impression that the problem of idle equipment is the core of the theory of monopoly capitalism. But this is not the case. The actual problem is the continuing centralization of private capital, also in public utilities. For instance, Baran and Sweezy complain that whereas this capital penetrates the military in a massive way, it is hardly allocated to social housing. Evidently this is a question of priority. Imhb security is definitely a vital concern, notably for the common people.

It is my argument that basically the entire post-WW2 history of the US has confirmed Sweezy's position

Rugoz pointed out that the post-war period (in French: les Trentes Glorieuses) is exceptional, and I tend to agree with him. In the same way the later growth of the Japanese economy was exceptional. The European states disposed of well-educated workers, whereas capital was scarce. So profits could be high. America also benefitted from this period of rising prosperity. In addition during the war and the previous depression many new inventions had not been developed into marketable products. The innovations had to make up arrears, which raised profits.

They seem to ignore the human costs of the downturns in the way of hunger, homelessness, crime, etc. That doesn't matter to them.

Is that so? Perhaps Baran and Sweezy would agree. But presently almost nobody wants to abolish all social security.

They make what I consider to be a compelling argument, that the tremendous rise in the allocation of capital to FIRE had to do with the lack of opportunities for investment in the real economy, owing to the conditions of stagnation.

This is true, provided that stagnation means a reduced growth rate. Like you write, apparently the economic structure changes. More effort is made to reduce and insure the financial risks. Marx would say: an effort is made to further the realization of the produced commodities during the circulation phase. There is merit in that.

As for firms being tempted to waste their excess cash on frivolous purposes such as office renovations or excessive advertising, this is a case of governance failure.

Why is an office renovation frivolous? People spend a significant part of their lives there. And advertising positions the product in society. It propagates an image, thus allowing the people to express their personal identity by means of consumption patterns. Diversity in consumption enriches the peoples' lives. I have never understood the aversion of even moderate social-democrats against marketing. It is patronizing.

How do you define capacity underutilization? It may be the output level that minimizes unit costs. ... In any case, I don't see how long-term average capital utilization below 100% contradicts profit maximization. ... you end up with a utilization permanently below 100%, despite individual industries and firms operating at 100% or more during certain periods

That is an interesting thought. In addition, equipment may be idle due to repair and maintainance. I do not know how these vary in the long run, and whether they are filtered out in the definition. Moreover, probably the utilization during the Trentes Glorieuses was exceptionally high. Since 100% capital utilization is normally impossible in a dynamic economy, there is no obvious optimum for the utilization. A fascinating subject, which deserves more attention.

[TheRedBaron]

I have read "Monopoly capital" already 11 years ago, and it is comforting to see that I am not the only one. Evidently the book is dogmatic and controversial, but it contains some interesting ideas. Just like Crantag explains, Baran and Sweezy argue that in capitalism the oligopolies become the leading power in the economy. For the sake of convenience, but rather confusing, they call the system of oligopolies the monopoly capitalism.

They state that monopoly capitalism has increasing difficulties in finding new profitable investments. The marxist law of the falling tendency of the rate of profit is maintained, even in the case of oligopolies. Baran and Sweezy refer to this situation as a stagnation. They argue that she degenerates into harmful attempts to perpetuate the existing rate of profit. For instance, the expenses for unproductive activities rise extremely. Although unproductive activities are necessary, in capitalism they start to grow over the productive economy.

Nevertheless, I do not like this book. My dissatisfaction is caused by their elaborations of the monopoly model, which are just not convincing. For instance, the authors believe that in capitalism the armed forces are meant to repress popular rebellions against the economic system. On the other hand, the Soviet Union strives for peaceful coexistence (which imhb is a rather one-sided view on the Cold War). The authors believe that in the sixties the black proletariat is a potential force of revolution. Of course they are convinced that the common people (you and me) are alienated by their existence in capitalism. The mental illnesses could ultimately undermine the system.

These are some examples to illustrate that the arguments are demagogic and thus condescending and even a bit intimidating. This is not a surprise, because in essence "Monopoly capital" is an American variety of the enormous Leninist literature. But Leninism is a petrified doctrine, which offers a narrow-minded and outdated perspective on society. An abstract model is presented as the absolute truth. Even worse, this doctrine is used to justify a radical revolution of the existing liberal society.

There is this joke from the former Soviet Union, which summarizes the absurdity of dogmatism. What is the fate of global capitalism? It wavers on the verge of the abyss. And what do the capitalists do? They watch down on us.

[MeMe]

@ TheRedBaron
Why are you so negative about the arguments of Baran and Sweezy? Their ideas resemble the theory of the Austrian Rudolf Hilferding, and he was a moderate social-democrat.