Reading between the lines in the Classical Capitalist Model (see Higgins, 1985, Chapter 4) and the Neoliberal Model, Capitalism and Inequality go together. Higher concentration of wealth ensures that funds are available for investment in the unceasing drive to accumulate capital. Too high concentrations of capital result in the Crisis of Capitalism. Too low concentrations require Neoliberal Renewal of Unfettered Capitalism.
I can develop these insights by starting with Higgins Classical Model and adding a GINI Coefficient (0 = perfect equality, 1= perfect inequality) as an output of the Classical System State in the causal diagram above, O=(L,Q,T). By applying the ideas of Systems Theory, the Capitalist Error Correcting Controller (ECC) is now the major output. What this means is that the relationship between Inequality (GINI) and Capital Accumulation (K) has to be monitored in a Capitalist System. From the perspective of Systems Theory, this ECC is one way to possibly maintain Capitalist growth, by continuing to keep (GINI > K).
When I apply the Marxist and Neoliberal insights to the US (see the Measurement Matrix in the Notes below), we get three components: Classic1 is the overall growth in Capital, Investment and Inequality explaining about 96% of the variation. Classic2 is the important controller here, ECC2=( 0.80 GINI - 0.778 K) that explains only about 3% of the variation. Classic3 is another controller for Investment, ECC3 = (0.548 GINI - 0.795 I) and explains another 0.08% of the variation. What the small explained variance for the ECCs means is that, in the Post WWII period, it has not be necessary to exert much control over capital accumulation in the US.
When we put Classic2 in a state space model (here), and construct an attractor path for the US, the result is presented in the time series plot at the beginning of this post. Numbers above zero (dark black line) indicate increasing Inequality available for capital accumulation. The attractor path (dashed red line) indicates that Inequality has been well below expected levels and has plenty of room to increase under the Trump II administration. But somehow, since the 1980s, the US has stayed fairly close to (GINI - K) = 0.
What is notable is that there was a Neoliberal accumulation crisis during the Reagan years (the start of Neoliberalism in the US) and an impending Marxist Overaccumulation Crisis starting after 2000. But still, the US is below the World System attractor path.
The attractor path at the beginning of this post is driven by the World System, overall growth of the system, environmental effects of agriculture and world markets. The graphic above takes the World System out of the model and allows ECC2 to work as expected.
European Neoliberalism after WWII was meant to reintegrated the World System after the shock of Fascism. The Trump II administration is signaling that Neoliberalism is at an end in the US and that some type of Right-Wing Authoritarianism is being planned along with Isolationism.
The World System attractor path reaches a steady state after 2060 which may signal an impending Crisis of Capitalism in the US or simply that there would now be enough inequality to ensure continued accumulation for ever. Although the current Trump II Administration is committed to increasing inequality to really high levels, it is also committed to detaching from the World System--contradictory policies that may cancel each other out.
Notes
The Measurement Matrix above was constructed using Principal Components Analysis with data from the World Development Indicators. The USL20 Capitalism model with input from the World System is stable and cyclical (Eigenvalues = (0.8023969+0.119491i 0.8023969-0.119491i) and it is the best model out of the ones tested [-285.6 > AIC = -254.2 > -231.5]). The full model is available here and the USL20W model (both unstable and stabilized) is available here (the USL20W model can be stabilized by reducing growth rates).
Terms
US = United States, K = Capital Stock, Q = Production, I = Investment,
GINI = Gini Coefficient [0,1], L = Labor,T = Technology, N = Population,
O = Output, ECC = Error Correcting Controller
Neoliberal Accumulation Crisis = (GINI < K),
Marxist Accumulation Crisis = (GINI > K)
References
- Marx Collected Works
- Higgins Economic Development
- Slobodian (2020) Globalists: The End of Empire and the Birth of Neoliberalism
