The Evolution of Production

1
The
Evolution of Production Its Organization Plant
Economy Ownership/Control
Purpose/End Scope Handicraft (hand
tools) Money Proprietor/Partner
Production for use Regional Factory
(machines) Money gt Credit P/P Manager
gt joint stock Production for sale Regional/Natio
nal Industrial (Machine Process) Credit
Stockholder/ Capital gains
National/International
Absentee Owner
Managerial Technological
Credit Stock -- Absentee
Owner Asset Value Manipulation
Anational (Elect. Mach Pro) Securities
Managerial Elite
2

• Model of firm and degrees of separation
• Going Concern is a joint expectation of
  beneficial transactions kept together by working
  rules and control of the changeable strategic or
  limiting factors ? expected to be controlled by
  others
• When such expectations cease the Going Concern
  stops, as does production

3
Financial Sector Firms
Product Sector Firms

• Transactions
• Bargaining
• Managerial
• Rationing

Purchase Sale Finance
Machine Process Engineering
Purchase Sale Finance
Machine Process Financial Instruments
Industrial Employments
Pecuniary Employments
Pecuniary Employments
Technical Pecuniary Employments
Technological Efficiency
Financial Efficacy
Financial Reputation
Distributional Management
Make Money Producers Vendibility
Make Goods Consumers Serviceability
Make Money Producers Vendibility
Invent/Refine Financial Instruments No Consumers
4
Degrees of Separation

• Means Ends -- Not counter parts of a dual
  process, but parts of an ongoing continuing
  process
• Production (means) ? Consumption (end) ?
  Consumption (means) ? Production (end)
  ----------
• Production for use as means to and end ?
  consumption
• Production for sale as means to profits ? not
  necessarily for consumer utility and therefore a
  separation of means and ends, once removed
• 1st degree of separation is here in real
  sector still must make products will some degree
  of serviceability
• Can not be wholly vendible i.e., have no direct
  consumable use
• How to resolve this separation
• Institutional adjustments of many types
• Anti-trust and regulation laws
• Truth in advertising
• Consumer protection laws and regulations
• Many more
• Production for capital gains
• In Financial sector no significant consumable
  product
• Stocks, bonds, debentures, and their derivatives
  have no end user they are bought to be resold
  not consumed
• Increasing influence of Financial Sector on Goods
  Sector leads to
• More integration of and combination of Financial
  and Goods sector becomes increasingly oriented
  toward stockholder value , i.e., capital gains

5
Degrees of Separation

• 2nd degree of separation is here in impact of
  financial sector on real sector real sector
  still must make products will some degree of
  serviceability , but
• The end to which the producer or firm is
  oriented is capital gains policies, plans and
  production are increasingly a means to capital
  gain -- making money becomes an end in itself
• Production (means) ? sale of goods (1st degree) ?
  (means) ? capital gains (2nd degree) (end) ?(
  consumption (end)
• Much activity in Financial sector has no end
  consumer, but goods sector still can not be
  wholly vendible i.e., have no direct consumable
  use, yet the growing influence of pecuniary ends
  overwhelms serviceable ones
• How to resolve this separation
• Institutional adjustments of many types
• Financial regulation restricting domain and
  scope of financial sector
• Federal Reserve, FDIC, FSLIC, SEC
• Laws restricting financial integration
• Interstate or branch banking
• Glass-Steagall separating commercial from
  investment in banking
• Truth in Lending
• Many more
• Role of Theory and Ideology
• Neo-classical, neo-liberal, neo-conservative--
  self-adjusting market
• Repeal of laws and regulations
• Washington Consensus
• Federal Reserve -- Greenspan as free market
  ideologue
• US Treasury -- Robert Rubin as wall street
  vested interest

6
Financial and Industrial Instability

• Leads to other problems institutionalization of
  intangible property strengthens instability of
  financial systems offsetting in part some of the
  gains of previous institutional changes.
• A look at instability
• Q Theory Ratio of Market value to Book value
  (quotient or ratio) MV/BV
• Keynes Tobin
• If MV gt BV then Q gt 1, increased investment ,
  i.e., stability
• If MV lt BV then Q lt 1, then decreased
  investment, instability-unemployment
• Veblens Q
• If MV gt BV then speculation, instability
• Q gt 1, means higher intangible value,
  especially a problem in financial sector
• If MV lt BV then liquidation and consolidation
  mostly via MA
• Q lt 1, means loss of confidence and goodwill,
  which is mostly psychological and make believe

7

• Financial Instability
• Stability breeds instability Stability leads to
  comfort and belief that risk is less or is
  controlled by a bedrock asset (example US housing
  market 1975- 1995
• US Recessions Between 1873 and 1941
• 1873 - 1878
• 1882 - 1885
• 1887 - 1888
• 1890 - 1891
• 1892 - 1894
• 1895 - 1896
• 1899 - 1900
• 1903 - 1904
• 1907 - 1908
• 1910 - 1911
• 1913 - 1914
• 1929 - 1933
• 1937 - 1941

8
Business Fluctuations - Theories

• Production Cycles
• Marx simple underconsumption
• Schumpeter innovation and increased investment
• End of investment opportunities
• Lack of creative destruction due to growing firm
  size and inflexibility
• Monetary Credit Cycles
• Keynes -- Both production and Monetary complex
  underconsumption
• Veblen -- to be described later
• Minsky financial instability hypothesis will
  not go into this-- similar to Veblen in some
  significant ways

9

• Keynes Theory of Employment Money - and
  Institutional theory
• Fluctuations in economy due to Aggregates not
  individuals
• Under investment underconsumption theory of
  the trade cycle
• Long term involuntary unemployment
• Solutions
• Government Borrow and Spend
• Consequences
• Deficit finance functional finance
• Balanced budget becomes part of mythology
• Saving is function of income not interest rate
• Changes the concept of necessity to raise
  interest rate and other incentives to save
• Capital (physical) accumulation theory of
  classical theory obsolete (savings centered
  theory)
• Replaced by knowledge and resource based theory
• Resources are a function of knowledge and Become
  . . . Not are
• Scarcity is social transcends scarcity as natural

10
Financial Economic Instability continued

• After the lessons of Keynes the post-war
  period is more stable

• But not so much

• US recessions since end of WW II
• 1948 - 1950
• 1954 - 1955
• 1958 - 1960
• 1975 - 1976
• 1970 - 1973
• 1981 - 1983
• 1987 - 1988
• 1991 - 1993
• 2000 - 2002
• 2007-