13.1 – Introduction to Macroeconomic Viability and the Corn Model
13.1 – Introduction to Macroeconomic Viability and the Corn Model
Learning Objectives
In this chapter, you will learn about:
- The Economy as a Going Concern
- A Brief History of the Surplus Approach to Value and Distribution
- The Corn Model: Simple Reproduction
- The Corn Model: Production with a Surplus
- A Corn Model Example
The Economy as a Going Concern
You may recall Figure 2 from Chapter 1, reproduced below.
Here we have a most basic model of a capitalist economy, with firms and households engaging in two types of transactions: firms sell goods and services to households in exchange for money, while households sell labor (and other productive inputs) to firms, also in exchange for money. One of the big questions economists try to answer, then, is “how much money?” That is, for what price is this or that product sold, or how much does a particular worker get paid, and why?
Orthodox economists argue that the prices, wages, and so on associated with the flow of goods, services, labor, capital, and all the rest are determined by the interaction of supply and demand. In turn, technology and individual skills determine the supply of goods and services and the demand for inputs, while households’ preferences determine the demand for goods and services and the supply of inputs.
In contrast, heterodox economists focus on how prices, wages, and the like are determined systematically, according to the technological input requirements of production, as well as through power struggles between organized groups–corporations, cartels, labor unions, governments, and so on. In the modern American economy, it is the first of these groups, the corporations, that tend to have the most power in these struggles, and therefore the most control over the determination of prices, wages, and other values. Chapter “The Megacorp” covers many of the important topics of corporate power from a microeconomic perspective. In this chapter we look at the big picture.
The first thing to notice about the figure above is its circular nature. This suggests that we ought to treat the economy it depicts as a going concern. A going concern is an organization that operates without a predetermined endpoint. A football game, for instance, is not a going concern. Everyone understands at the beginning that the game will end after one hour (for NFL games). And, even though the actual run time of the game will be longer, as the clock is stopped for penalties, timeouts, halftime, and so many other reasons, the game will always eventually be over when the clock in the fourth quarter goes to zero. A football franchise like the Seattle Seahawks, however, is a going concern. Even though players and coaches retire and get replaced, the team itself continues to exist. And although it is possible that the franchise will one day be dissolved, that day is not known and no one on the team is making decisions based on this unknown final day.
The economy is like a football franchise in this respect. T