Japanese Institutionalist Post-Keynesians Revisited: Inheritance from Marx, Keynes and Institutionalism 9811986878, 9789811986871

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Evolutionary Economics and Social Complexity Science 29

Hiroyasu Uemura

Japanese Institutionalist Post-Keynesians Revisited Inheritance from Marx, Keynes and Institutionalism

Evolutionary Economics and Social Complexity Science Volume 29

Editors-in-Chief Takahiro Fujimoto, Waseda University, Tokyo, Japan Yuji Aruka, Institute of Economic Research, Chuo University, Hachioji-shi, Japan

Hiroyasu Uemura

Japanese Institutionalist Post-Keynesians Revisited Inheritance from Marx, Keynes and Institutionalism

Hiroyasu Uemura Graduate School of International Social Sciences Yokohama National University Yokohama City, Kanagawa, Japan

ISSN 2198-4204 ISSN 2198-4212 (electronic) Evolutionary Economics and Social Complexity Science ISBN 978-981-19-8687-1 ISBN 978-981-19-8688-8 (eBook) https://doi.org/10.1007/978-981-19-8688-8 © Springer Nature Singapore Pte Ltd. 2023 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

This book elucidates the academic contribution made by Japanese institutionalist post-Keynesians in the historical context of contemporary capitalism in the second half of the twentieth century and discusses the possible development of institutional economics in the twenty-first century. Eiichi Sugimoto, who coined the term, “Modern Economics (Kindai keizaigaku)” in Japanese, lists three types of the history of economics in his book, The History of Modern Economics, (Iwanami Zensho, Iwanami-shoten, 1953). The first is the history of economics as a culmination of the study of academic materials related to economic theories, and it provides chronological explanations for each school. The second is the self-developing history of economic theory, which considers the history of economics to develop a more appropriate economic theory. The third is the history of economics as a reflection of the historical development of capitalism. It is believed that various economic theories are produced in specific historical contexts. Sugimoto argues, “The history of economics in its original sense requires the study of the first type as a preparatory step and the appropriate integration of the second and third types” (Sugimoto 1953, p 12). Furthermore, he explains: In such a history of economics, for the first time, one can judge whether all the economic theories, including the major theories representing each stage of economic and social development, understand the movement of the economy and society correctly or incorrectly, whether it is merely a partial perception of the economy and society as a whole, or it reaches the level of a total perception, and whether the theory is progressing or retrogressing in the proper history of the development of economics. (Sugimoto 1953, p. 12)

Various economic theories developed in postwar Japan, but we need to investigate their theoretical validity by asking whether they were based on the realities of postwar contemporary capitalism. Various policy proposals were also made, but it is necessary to verify whether they really responded to the needs proposed by people in the economy and society. This type of reflexive thinking is important in the study of the history of economics. There has been a great progress in economic theories and their analytical tools, but unfortunately, there has also been a serious

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retrogression in the field of economics in the historical context of the transformation of capitalism since the 1980s. Based on this recognition of the trend, we learn from the academic contribution of Japanese economists in the second half of the twentieth century. The economists we examine here inherited from Marx, Keynes, and Institutionalism and analyzed the institutional structures of postwar contemporary capitalism. For this reason, they can be called “Japanese institutionalist post-Keynesians.” They did not form a school of economics but developed productive academic communication with their “creative rivalry” (Sugimoto). In Chap. 1, we explain this book’s perspective and aim. In particular, we explain “institutionalism in the broad sense” (Tsuru) as the fundamental point of view in this book. In Chap. 2, we reaffirm the importance of “modern economics” and “creative rivalry” among different schools proposed by Eiichi Sugimoto, in contrast to the stagnation of economics caused by the dominance of “the Walrasian paradigm” after the 1980s. In Chap. 3, we remember Shigeto Tsuru, Yoshihiro Takasuka, and Shigenobu Kishimoto, who conducted a political-economic analysis of the institutional structures and dynamics of postwar cotemporary capitalism, particularly focusing on the issues of environmental disruption, inflation, and social welfare. Chap. 4 introduces Yoshikazu Miyazaki and Mitsuhara Itoh, who studied Keynes’s The General Theory as well as the historical development of modern economics after Keynes and analyzed the institutional structures and dynamics of postwar contemporary capitalism and the Japanese economy. Furthermore, in Chap. 5, we learn from Hirofumi Uzawa, who developed macroeconomic dynamics based on the institutionalist analysis of capitalism and proposed the idea of “social common capital.” We also study Tsuneo Ishikawa’s theoretical research on the macrodynamics of the capitalist economy and his analysis of income and wealth in Japan. In Chap. 6, we discuss Samuel Bowles’s social thought of “the moral economy” and Robert Boyer’s régulation theory, focusing on social preference and civil society. Samuel Bowles had productive academic communication with Uzawa and Ishikawa, and Robert Boyer has influenced Japanese institutional economics since the 1990s. In Chap. 7, while learning a great deal from studies of Japanese institutionalist post-Keynesians and identifying the recent development of research conducted by Post-Keynesian and Post-Marxian economists, we consider the possible development of institutional economics in the twenty-first century. Economic globalization has progressed extensively in the twenty-first century. In particular, international finance and production networks are developing rapidly worldwide, influencing the patterns of regional economic integration in the EU and East Asia. Moreover, socio-economic disparities tend to widen in every country, and environmental problems become more serious. Therefore, the importance of social welfare and the global environment has been recognized in the study of economics. Institutional economics in the twenty-first century must develop in theory and practice to solve these real-world problems. We remember Joan Robinson issued the warning, “The Second Crisis of Economic Theory,” which was a response to socio-economic instability and stagflation in the 1970s. The current situation in economics could be called “The Third Crisis of Economic Theory,” and

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the situation in the real world is even worse due to imbalances in international economic relations, increasing social inequality, the spread of the pandemic, and global environmental disruption and climate change. These problems cannot be analyzed sufficiently by the economics with rational agents and the equilibrium framework. The challenges for the political economy of evolution and institutions based on civil society and social common capital have become much greater since the Covid-19 crisis in the twenty-first century. Since the 1980s, we have studied Post-Keynesian theories and the régulation theory and analyzed the diversity and transformations of contemporary capitalism. We have held many international conferences and developed academic communication with international scholars. The Japan Association for Evolutionary Economics was established in 1997 and has been a solid platform for academic communication and collaboration. On many occasions, including international conferences in Paris, Cambridge, Massachusetts, Grenoble, Rome, and many cities in Japan, I have received useful comments and helpful suggestions from prominent scholars. Above all, I am very grateful to Robert Boyer (École des Hautes Études en Sciences Sociales), Robert Rowthorn (The University of Cambridge), Samuel Bowles (Santa Fe Institute), and Marc Lavoie (The University of Ottawa). Furthermore, I am truly grateful for the support I received in my academic study and economics research from the following professors: Yoshihiro Takasuka (Hitotsubashi University), Shigenobu Kishimoto (Yokohama National University), and Yoshikazu Miyazaki (Kyoto University). I would also like to thank my colleagues who have contributed to our collaborative research on the régulation and post-Keynesian theories and the evolving diversity and interdependence of capitalisms in the EU and East Asia: Toshio Yamada, Tatsuhiko Aoki, Fumitaka Wakamori, Mitsuharu Miyamoto, Akinori Isogai, Hiroyuki Uni, Hironori Tohyama, Lei Song, Yuji Harada, Kazuhiro Okuma, Hiroshi Nishi, Kengo Uchihashi, and Shinji Tahara. I wish this book would serve as the starting point for new international collaborative research. I would also like to thank the editorial board of Evolutionary Economics and Social Complexity Science, especially Yoshinori Shiozawa, Kiichiro Yagi, and Yuji Aruka, as well as the project managers of Springer, Yutaka Hirachi, Kavitha Jayakumar, and RekhaKumar Jayakumar. Tokyo, Japan October 10, 2022

Hiroyasu Uemura

Contents

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Introduction: Inheritance from Marx, Keynes, and Institutionalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Perspective and Aim of the Book . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Institutionalism in the Broad Sense . . . . . . . . . . . . . . . . . . . . . . . 1.3 Main Contents of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eiichi Sugimoto’s Creative Rivalry in “Modern Economics” and the Present State of Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Sugimoto’s Research Plan and Academic Development by Creative Rivalry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Sugimoto’s “Modern Economics” in the History of Economic Thought . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Marshall’s Economic Theory with Multi-layered Time and Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Marx, Keynes, and Institutionalism in Sugimoto . . . . . . . . 2.2.4 Sugimoto’s Concept of “Creative Rivalry” . . . . . . . . . . . . 2.3 The Stagnation of Economic Theory Caused by the Dominance of the Walrasian Paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 The Theoretically Closed Nature of the Walrasian Paradigm and the Development of Microeconomics . . . . . . 2.3.2 The Isolation of Economy from Politics and Society, or Political-Economic Analysis? . . . . . . . . . . . . . . . . . . . . 2.3.3 Theoretical Characteristics of the Walrasian Paradigm . . . . 2.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Shigeto Tsuru’s “Institutionalism in the Broad Sense” and Theories of Contemporary Capitalism Constructed by Yoshihiro Takasuka and Shigenobu Kishimoto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Shigeto Tsuru’s Study on Contemporary Capitalism with Institutionalism in the Broader Sense . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Tsuru’s Question: “Has Capitalism Changed?” . . . . . . . . . 3.2.2 The Political Economy of Environmental Disruption . . . . . 3.2.3 The Political Economy of System Reform . . . . . . . . . . . . . 3.2.4 Institutional Economics Revisited . . . . . . . . . . . . . . . . . . . 3.3 Yoshihiro Takasuka’s Theory of Contemporary Capitalism: A Structural Analysis of Inflation and Capital Accumulation . . . . . 3.3.1 Takasuka’s Prelude to the Theory of the Contemporary Price System and Productivity Differential Inflation . . . . . . 3.3.2 Takasuka’s Analysis of Stagflation in the 1970s . . . . . . . . . 3.4 Shigenobu Kishimoto’s The Theory of the Capitalist Economic System and Analyses of the Japanese Economy and Society . . . . . . 3.4.1 Kishimoto’s The Theory of the Capitalist Economic System as Citizens’ Economics . . . . . . . . . . . . . . . . . . . . . 3.4.2 Kishimoto Criticized “The 100 Million All in the Middle Class” as an Illusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yoshikazu Miyazaki and Mitsuharu Itoh: Research on Keynes and Contemporary Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Miyazaki and Itoh on Keynes and Miyazaki’s The Historical Development of Modern Economics . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 Comprehensive Understanding of Keynes’s Theory in Commentary: Keynes, The General Theory . . . . . . . . . . . . 4.2.2 Miyazaki: The Historical Development of Modern Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Analyses of Contemporary Capitalism by Miyazaki and Itoh . . . . . 4.3.1 Itoh’s Study of Modern Price Theories . . . . . . . . . . . . . . . 4.3.2 Itoh’s Institutional Analysis of Contemporary Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.3 Miyazaki’s Study of Contemporary Capitalism: Company Groups, High Economic Growth, and Multinational Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 The Japanese Economy in “the Complex Depression” and “Transnational Civil Society” . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Hirofumi Uzawa and Tsuneo Ishikawa: Institutionalism, Macroeconomic Analysis, and Social Common Capital . . . . . . . . . . . 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Hirofumi Uzawa’s Macroeconomic Dynamics and “Social Common Capital” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1 Uzawa’s Turning Point, The Re-examination of Modern Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 Uzawa’s Theory of Disequilibrium Dynamics . . . . . . . . . . 5.2.3 The Economic Thought of “Social Common Capital” and Institutionalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.4 Market Imbalance and Social Imbalance: The Macroeconomic Effect of Social Common Capital . . . . . . . 5.3 Tsuneo Ishikawa’s “Economics of Distribution” and Dynamic Analysis of Contemporary Capitalism . . . . . . . . . . . . . . . . . . . . . 5.3.1 Basic Types of Dynamics in Contemporary Capitalism . . . . 5.3.2 Income and Wealth in the Japanese Economy . . . . . . . . . . 5.3.3 The Dual Labor Market in Japan . . . . . . . . . . . . . . . . . . . . 5.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social Preference and Civil Society in the Institutional Analysis of Capitalisms: Integrating Samuel Bowles’ The Moral Economy and Robert Boyer’s Régulation Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Bowles’ The Moral Economy and Civic Social Preference . . . . . . . 6.2.1 Bowles’ Economic Thought: Social Preferences and the Moral Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.2 The Inseparability of Incentives and Social Preferences Based on Behavioral Sciences . . . . . . . . . . . . . . . . . . . . . 6.2.3 Civic Social Preferences in “Liberal Society”: “Crowding in” or “Crowding out” . . . . . . . . . . . . . . . . . . 6.2.4 The Labor Market Theory Based on Incomplete Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.5 The Role of Legislators: Promoting Legislation and Civic Mentality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Boyer’s “Civil Society” and Civic Social Democracy . . . . . . . . . . 6.3.1 Domains of Coordination: Market, Firm, State, Community, and Civil Society . . . . . . . . . . . . . . . . . . . . . 6.3.2 Dynamic Interactions between the Economic and Political Domains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.3 “Economic Policy Regime” in the Régulation Theory: The Growth Regime and the Compromise of Social Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.4 Boyer’s “Civil Society (societé civile)” and New Social Democracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Perspectives of “Citizen” and “Civil society” in Bowles and Boyer: How to Integrate their Social Thought . . . . . . . . . . . . . 6.4.1 Common Perspectives of Bowles and Boyer . . . . . . . . . . . 6.4.2 Different Perspectives between Bowles and Boyer . . . . . . . 6.4.3 Integrating the Moral Economy and the Régulation Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4

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Institutional Economics in the Twenty-First Century Based on the Creative Rivalry among Post-Keynesian and Post-Marxian Theories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Post-Keynesian Economics and the Régulation Theory in Japan . . . 7.2.1 Post-Keynesian Economics in Japan . . . . . . . . . . . . . . . . . 7.2.2 Régulation Approach in Japan . . . . . . . . . . . . . . . . . . . . . 7.3 Perspectives for a New Political Economy: Beyond Marx and Keynes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.1 The Significance and Insufficiency of Marx: Toward Post-Marxian Political Economy . . . . . . . . . . . . . . . . . . . . 7.3.2 The Significance and Insufficiency of Keynes: Toward Post-Keynesian Political Economy . . . . . . . . . . . . . . . . . . 7.4 Methodological Foundations for a New Collaboration of PostKeynesian, Post-Marxian, and Institutional Economics in the Broad Sense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.1 The Analysis of the Interactions between the System and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.2 Multi-Layered Régulation in Time and Space Orienting the Evolutionary Course and Cumulative Causation . . . . . . 7.4.3 The Analysis of the Dynamic Interaction between the Money and Financial System and Wage–Labor Nexus to Promote Socio-Economic Management and Planning . . . . . 7.4.4 The Institutional Analysis of the Evolving Diversity of Capitalisms from Empirical and Normative Aspects . . . . . . 7.5 Theoretical Foundations for the Analysis of Contemporary Capitalism from the Perspective of Institutionalist and PostKeynesian Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5.1 The Institutional Analysis of the Multi-Layered Coordination Mechanisms of Large Firm Organizations and Industrial Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5.2 The Institutional Analysis of the Multi-Layered Coordination Mechanisms of Price-Cost Dynamics and Income-Demand Flow . . . . . . . . . . . . . . . . . . . . . . . .

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7.5.3

The Institutional Analysis of Multi-Layered Coordination Mechanisms of Wage Determination and Income Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5.4 Mutual Determination between the Dynamics of the Money and Financial System and the Wage–Labor Nexus in Growth Regimes: The Important Implications of the Régulation Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5.5 The International Production System and the Trade of Intermediate Goods: The Restoration of the Classical Trade Theory of Prices and Incomes . . . . . . . . . . . . . . . . . 7.6 Conclusion: Toward a New Institutional Political Economy in the Twenty-First Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6.1 Reconstructing a Creative Rivalry among Various Schools of Economics, Particularly Based on the Intellectual Legacy of Marx, Keynes, and Institutionalism . . . . . . . . . . . . . . . . 7.6.2 Creating a New Theoretical Framework Based on the Empirical Analysis of the Evolving Diversity of Contemporary Capitalisms . . . . . . . . . . . . . . . . . . . . . . . . 7.6.3 Constructing Theoretical Foundations of the Political Economy of Institutions and Evolution . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 1

Introduction: Inheritance from Marx, Keynes, and Institutionalism

Abstract In the second half of the twentieth century, institutionalist post-Keynesian economists developed their theories in Japan, inheriting from Marx, Keynes, and Institutionalism. Accordingly, we can learn a great deal from their intellectual heritage in the twenty-first century. Among these economists are Shigeto Tsuru and Hirofumi Uzawa, who are very famous in international academic society. These economists can be referred to as “institutionalist post-Keynesians” in the broad sense. All of them studied Marx, Keynes, and Institutionalism in various ways, and most of them studied major origins of Post-Keynesian economics, such as Michał Kalecki, Joan Robinson, and Nicolas Kaldor distinctively. Needless to say, some economists were more Marxian-oriented, while others were more Keynesianoriented. However, their theories encompassed creative communication and “creative rivalry” (Sugimoto) among various schools of modern economics. Today, economic inequality and social divide are increasing worldwide owing to economic globalization. Under these circumstances, it is important to explore and develop the intellectual heritage of institutionalist post-Keynesian economists in Japan to further analyze the reality of capitalism in the twenty-first century and to propose effective economic policies. This book elucidates how Japanese institutionalist postKeynesians inherited from Marx, Keynes, and Institutionalism and developed distinct economic theories from the institutionalist perspective. Keywords Japanese institutionalist post-Keynesians · Institutionalism in the broad sense · Creative rivalry · Marx · Keynes · Contemporary capitalism

1.1

Perspective and Aim of the Book

In the second half of the twentieth century, institutionalist post-Keynesian economists successfully developed their theories in Japan, inheriting from Marx, Keynes, and Institutionalism. Accordingly, we can learn a great deal from their intellectual heritage in the twenty-first century. Among these economists are Shigeto Tsuru and Hirofumi Uzawa, who are very famous in international academic society. Although they did not establish a school, they developed constructive academic © Springer Nature Singapore Pte Ltd. 2023 H. Uemura, Japanese Institutionalist Post-Keynesians Revisited, Evolutionary Economics and Social Complexity Science 29, https://doi.org/10.1007/978-981-19-8688-8_1

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Introduction: Inheritance from Marx, Keynes, and Institutionalism

communication among Japanese modern political economists on a common academic ground. These economists can be referred to as “institutionalist post-Keynesians” in the broad sense. All of them studied Marx, Keynes, and Institutionalism in various ways, and most of them studied major origins of Post-Keynesian economics, such as Michał Kalecki, Joan Robinson, and Nicolas Kaldor distinctively. Remarkably, Japanese institutionalist post-Keynesians developed their institutionalism in the light and shadow of Marx in the Japanese academic atmosphere. Needless to say, some economists were more Marxian-oriented, while others were more Keynesianoriented. However, their theories encompassed creative communication and “creative rivalry” among various schools of modern economics (Sugimoto 1950). Today, economic inequality and social divide are increasing worldwide owing to economic globalization. Under these circumstances, it is important to explore and develop the intellectual heritage of institutionalist post-Keynesian economists in Japan to further analyze the reality of capitalism in the twenty-first century and to propose effective economic policies. This book elucidates how Japanese institutionalist post-Keynesians inherited from Marx, Keynes, and Institutionalism and developed distinct economic theories from the institutionalist perspective. We also highlight “the total image of the economy” (Miyazaki 1967a) which each economist had in the original research in the context of the historical development of contemporary capitalism in the twentieth century. Moreover, learning a great deal from the intellectual heritage of Japanese institutionalist post-Keynesians and political economists, we try to construct the theoretical foundations of institutional economics in the twenty-first century.

1.2

Institutionalism in the Broad Sense

We intentionally use the term, “institutionalism in the broad sense” in this book. This perspective was proposed by Shigeto Tsuru, a representative institutional economist in Japan, in his book, Institutional Economics Revisited (Tsuru 1993).1 Tsuru includes not only American institutional economists such as Thorstein Veblen, John R. Commons, and John K. Galbraith but also Karl Marx, John M. Keynes, Joseph Schumpeter, Gunner Myrdal, and William K. Kapp in “institutionalism in the broad sense.” In his book, Tsuru points out four common characteristics of institutional economists in the broad sense:

1

Tsuru’s academic works and social activities in postwar Japan are introduced in Chap. 3. Tsuru was engaged in economic planning and policy-making in postwar Japan, and taught many graduate students at Hitotsubashi University (Tsuru 1959). He also organized an international collaborative research on environmental problems, inviting William Kapp and Wassily Leontief to Japan (Tsuru 1970).

1.2

Institutionalism in the Broad Sense

3

A. the emphasis on the open-system character of production and consumption, thus a broader view of the scope of economics; B. an interest in the evolutionary course along which the industrial economies are moving, with emphasis on the dynamic process of technological change and circular cumulative causation; C. awareness of a growing need for guidance that can be supplied only through some form of overall social management, or planning; D. recognition that economics must become a normative science, positively formulating social goals and objectives (Tsuru 1993, p. 101).

In this regard, Tsuru argues that Marxian political economy, which analyzes the institutional characteristics and historical development of the capitalist economy with technological change and cumulative causation, can be regarded as “institutionalism in the broad sense.” This understanding is commonly shared by Japanese institutionalist post-Keynesians as well as contemporary political economists who develop their research based on Post-Keynesian and Post-Marxian theories of institutions and evolution in contemporary capitalism.2 Specifically, it is remarkable that in the twentieth century, the Japanese institutional economists studied, interpreted, and expanded the intellectual heritage of Marx, Keynes, and institutional economists such as Veblen, Galbraith, and Myrdal in various academic ways. They also developed the idea of “cumulative causation” process in the capitalist economy with the open-system character in line with Veblen, Kaldor, and Myrdal. This book elucidates the significant research of Japanese institutionalist postKeynesians in the broader sense, including some prominent political economists, in the second half of the twentieth century and the early twenty-first century, and examines their original economic visions and theoretical frameworks to analyze contemporary capitalism.3 Japanese institutionalism in the broad sense has a long history over 80 years after the 1940s. The long academic history is summarized with significant publications and remarkable events in Table 1.1.4 2

Hiroyasu Uemura, Akinori Isogai, and Akira Ebizuka published the book, The Institutional Analysis of Socio-economic Systems: Beyond Marx and Keynes (Uemura et al. 1998, 2007) from the same perspective as Tsuru’s (Tsuru 1993) and Shizawa’s (Shiozawa 1983). In this book, following Aoki’s institutional analysis (Aoki 1973, 2001), the basic theories of institutional analysis were constructed by examining the possible development of Post-Marxian and Post-Keynesian theories. 3 As we see in Chap. 7, Post-Keynesian economics and the régulation theory can be regarded as “institutionalism in the broad sense” and the political economy of institutions and evolution in the twenty-first century (Isogai 2022; Isogai and Uemura 2022). As for the régulation theory, see (Boyer, and Yamada 2000: Boyer et al. 2012, 2018). 4 In the history of Japanese institutionalism, one of the important academic events was the establishment of Japan Association for Evolutionary Economics in 1997. The second and third generations of Japanese institutional economists have been brought up in this academic atmosphere, inheriting from the first generation of Japanese institutionalism that is explained in this book. In the academic atmosphere of Japan Association for Evolutionary Economics, Uemura, Isogai, and Ebizuka, The Institutional Analysis of Socio-economic Systems: Beyond Marx and Keynes (Uemura et al. 1998) and the results of international collaborative research based to the régulation theory (Boyer and Yamada 2000; Boyer et al. 2012, 2018) were published. Furthermore, Shiozawa, Morioka and Taniguchi, Microfoundaitons of Evolutionary Economics (Shiozawa et al. 2019) was published as a construction of theoretical foundations of evolutionary economics with the research on international value theory and quantity adjustment analysis.

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Introduction: Inheritance from Marx, Keynes, and Institutionalism

Table 1.1 History of Japanese institutionalism in the broad sense Year 1942 1950 1950 1953 1959 1961 1964 1965 1965 1967 1967 1968 1970 1972 1973 1975 1977 1982 1983 1986 1988 1993 1997 1998 1999 2000 2001 2005 2012 2018 2019

Publication and Event Tsuru, S. came back from the US to Japan Tsuru White Paper was published Sugimoto, E. The Elucidation of Modern Economics Sugimoto, E. The History of Modern Economics Tsuru, S. The Re-examination of Contemporary Capitalism Uzawa, H. ‘On a Two-Sector Model of Economic Growth’ RES Miyazaki, Y. and Itoh, M. Commentary: Keynes, The General Theory Takasuka, Y. Prelude to the Theory of the Contemporary Price System Itoh, M. The Structures of Modern Price Theories Uchida, Y. Intellectual Portrait of Japanese Capitalism Miyazaki, Y. The Historical Development of Modern Economics Uzawa, H. came back from the US to Japan and started to teach at Tokyo University Tsuru, S. invited Uzawa, H. to International Symposium on Environmental Disruption Tsuru, S. The Political Economy of Environmental Disruption Aoki, M. ed. Radical Economics with Marglin, S. and Bowles, S. Kishimoto, S. The Theory of Capitalist Economic System Uzawa, H. The Re-examination of Modern Economics Miyazaki, Y. Contemporary Capitalism and Multinational Corporation Shiozawa, Y. The Reflection of Modern Economics Uzawa, H. The Theory of Economic Dynamics Aoki, M. Information, Incentives, and Bargaining in the Japanese Economy Tsuru, S. Institutional Economics Revisited Japan Association for Evolutionary Economics was established, aiming at promoting evolutionary and institutional economics Uemura, H., Isogai, A. and Ebizuka, A. The Institutional Analysis of Socio-economic Systems: Beyond Marx and Keynes Ishikawa, T. Economics of Distribution Boyer, R. and Yamada, T. eds. Japanese Capitalism in Crisis: A Regulationist Interpretation Aoki, M. Towards Comparative Institutional Analysis Uzawa, H. Economic Analysis of Social Common Capital Boyer, R., Uemura, H. and Isogai A. eds. Diversity and Transformations of Asian Capitalisms Boyer, R., Uemura, H., Yamada, T. and Song, L. eds. Evolving Diversity and Interdependence of Capitalisms: Transformations of Regional Integration in EU and Asia Shiozawa, Y., Morioka, M. and Taniguchi, K. Microfoundations of Evolutionary Economics

Source: Author

This book examines the intellectual heritage of Japanese institutionalist postKeynesians and the possible future development in three ways. First, it examines “the total image of the economy” (Miyazaki 1967a, 1967b) and the original perception that they had inherited from Marx, Keynes, and Institutionalism, and the

1.3

Main Contents of the Book

5

theoretical systems of postwar contemporary capitalism that they built from their own perspectives. Second, this book examines the policy proposals that were made by those economists for both the Japanese economy and the world economy using an in-depth analysis of the historical and institutional characteristics of contemporary capitalism in the second half of the twentieth century. Third, learning a great deal from the intellectual heritage of Japanese institutionalist post-Keynesians and political economists, we try to construct the theoretical foundations of “a new political economy of institutions and evolution,” focusing on institutions and agents, multilayered coordination mechanisms, growth and distribution, the international interdependence of growth regimes, and the significant role of civil society in the twenty-first century.

1.3

Main Contents of the Book

The main contents are organized as a general view of the theme and methodological foundations of the institutionalist analysis, the reconsideration of each Japanese institutionalist post-Keynesian who inherited from Marx, Keynes, and Institutionalism, and the synthetic analysis of previous and present studies to establish new institutionalist theories and social thought in future. The themes of this book are summarized from a synoptic view in Fig. 1.1. In Chap. 2, we reconsider Eiichi Sugimoto—who proposed the term kindai keizaigaku (modern economics in the Japanese context) and emphasized the significance of “the creative rivalry” among various schools of modern economics—as a representative Japanese political economist during the postwar period. We reaffirm the importance of Sugimoto’s understanding of the methodology of the history of economic theories in The Elucidation of Modern Economics (Sugimoto 1950) and The History of Modern Economics (Sugimoto 1953). Referring to Alfred Marshall, Sugimoto also emphasized the multi-layered structures of time and space in the capitalist economy in his theoretical study. Furthermore, following Sugimoto’s perspective of modern economics and his idea, “creative rivalry” in mind, we point out the serious theoretical problems of “the Walrasian paradigm” (Bowles 2004)—which has dominated academic economics and has eliminated other economic thoughts since the 1980s—and its application to macroeconomics, especially, Neo-classical macroeconomics. The “creative rivalry” claimed by Sugimoto has been completely lost in the recent study of economics. Economics was further isolated from other social sciences as Samuel Bowles critically pointed out. This resulted in the stagnation of economic study. In this situation, there is a need to return economics to political economy and develop it through “the creative rivalry” among various schools of modern economics. In Chap. 3, we discuss Shigeto Tsuru, who studied Marx and Keynes with Joseph Schumpeter at Harvard University in the 1930s and when faced with the postwar high economic growth in advanced countries, raised the question, “Has capitalism changed?” in the late 1950s (Tsuru 1959). We investigate several studies of

6 Fig. 1.1 The themes of the present book: a synoptic view. Source: Author

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Introduction: Inheritance from Marx, Keynes, and Institutionalism

Methodology of Japanese Institutionalism: Modern Economics and the Creative Rivalry, and the Present Situation of Economics Chapter 1, Chapter 2

Japanese Institutionalist Post-Kenesians: Inheritance from Marx, Keynes, and Institutionalism Chapter 3 Chapter 4 Chapter 5

Present and Future of Institutional Economics and Social Thought Chapters 6, Chapter 7

contemporary capitalism that began with this question and remember his research projects for a new political economy, the research of environmental issues (Tsuru 1972), and the subsequent rediscovery of institutional economists in the board sense such as Marx, Keynes, Veblen, Myrdal, Kapp, and Galbraith in the 1990s (Tsuru 1993). We also consider some Japanese political economists, for example, Yoshihiro Takasuka (Takasuka 1965) and Shigenobu Kishimoto (Kishimoto 1975), who developed the theories of contemporary capitalism based on not only Marx but also Kalecki, Sraffa, and Sylos-Labini, following Tsuru’s research orientation about contemporary capitalism in the 1960s and 1970s. Yoshihiro Takasuka developed the theory of “productivity differential inflation” as relative price changes in contemporary capitalism. Shigenobu Kishimoto theorized the structures and dynamics of contemporary capitalism, focusing on the division of labor, the market, and firm organization as well as the dual roles of wages. In Chap. 4, we consider the intellectual heirs of Sugimoto and Tsuru, Yoshikazu Miyazaki and Mitsuharu Itoh, and their studies of Keynes’s The General Theory of Employment, Interest and Money and contemporary capitalism—such as Commentary: Keynes, The General Theory (Miyazaki and Itoh 1964), Keynes: The Birth of New Economics (Itoh 1962), and The Historical Development of Modern Economics

1.3

Main Contents of the Book

7

(Miyazaki 1967a). Miyazaki and Itoh developed their original understanding of J. M. Keynes, focusing on the three-class theory and the stock-flow analysis. They also examined the founders of Post-Keynesian economics such as Michał Kalecki, Joan Robinson, and Nicolas Kaldor as well as modern institutional economists such as John Kenneth Galbraith and Gunnar Myrdal. Furthermore, we investigate their analysis of postwar capitalism from the viewpoint of theoretical analysis and economic thought; their policy ideas also emphasize the role of big corporations, civil society, the welfare state, and multinational corporations (Miyazaki 1967b; Itoh 1973). These Japanese institutionalist Keynesian economists developed their theoretical and empirical research based on the institutional analysis of postwar capitalism and the Japanese economy, and proposed economics policies based on civil society. In Chap. 5, we consider the world-renowned institutionalist post-Keynesian economists in Japan, Hirofumi Uzawa and Tsuneo Ishikawa. After studying the Neo-classical two-sector growth model at Stanford University in the United States in the early 1960s and returning to Japan in the late 1960s, Uzawa published The Reexamination of Modern Economics (Uzawa 1977), which discussed the theoretical problems of mainstream modern economics, particularly, Neo-classical economics and emphasized the importance of Keynes’s perspective of economic theory with multi-layered time and disequilibrium. Uzawa further formulated Keynesian macroeconomic dynamics with inventory adjustment and the non-malleable capital stocks and employment. Furthermore, based on his concept of institutionalism inherited from Veblen, he developed the theory of “social common capital,” which emphasizes citizenship and the right to live, and pointed out that the enhancement of social common capital contributes to macroeconomic stability (Uzawa 1986, 2005). Tsuneo Ishikawa—having inherited Uzawa’s economic thought—integrated microlevel institutional analysis with macroeconomic analysis. Ishikawa developed a dynamic analysis of different growth patterns in contemporary capitalism based on post-Keynesian theories (Ishikawa 1977) and his institutional analysis of income and wealth in the Japanese economy (Ishikawa 1999). Particularly, analyzing Japanese corporate savings and corporate assets as well as the dual labor market structure in Japan, Ishikawa suggested the possibility of establishing a “professional labor market as social common capital” to enhance the autonomy of workers as citizens in Japan. To bridge between the previous studies by Japanese institutionalist postKeynesians, who inherited from Marx, Keynes, and institutionalism, and the present studies by Post-Keynesian and Post-Marxian researchers, we consider synthetically Samuel Bowles’ social thought, Robert Boyer’s régulation theory, and the theoretical foundations of institutionalist post-Keynesian economics from the perspective of “institutionalism in the broad sense.” In Chap. 6, we examine the recent theoretical development of “civil society” and “social preference.” Specifically, Samuel Bowles’ “civic social preference” in The Moral Economy (Bowles 2016) and Robert Boyer’s “civil society” in the régulation theory (Boyer 2015) show a comprehensive understanding of modern society and capitalism. The difference between their theories and possible complementary

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Introduction: Inheritance from Marx, Keynes, and Institutionalism

relationships are considered. It is necessary to understand the formation of civic social preferences with multi-layered institutions and actors both inside and outside the market economy. Citizens’ social preferences can potentially develop in a manner that complements the market economy, supported by the rule of law and liberal institutions, as suggested by Bowles, as well as “civil society” in the régulation theory. Furthermore, it is necessary to develop complementary analyses of the formation of citizens’ preferences at the micro and macro levels. In Bowles’ theory, the rule of law and civic institutions promote the development of civic social preferences by reducing market risks. Moreover, market risks and income distribution are determined by macroeconomic dynamics, as suggested by the régulation theory. Therefore, it is necessary to analyze democratic political processes between legislators and citizens that are determined by the dynamic feedback of the political and economic domains. In conclusion, in Chap. 7, based on the research of Japanese institutionalist postKeynesians, we discuss a possible future of “institutionalism in the board sense” (Tsuru 1993) in the twenty-first century based on “the creative rivalry” (Sugimoto 1950) among Post-Keynesian and Post-Marxian theories. Particularly, we consider how political-economic analysis can be developed theoretically and empirically from the institutional perspective of contemporary capitalism, especially referring to the recent theoretical studies by various political economists who use and develop Post-Keynesian theories (Lavoie 2014) and the régulation theory (Boyer 2015). In this regard, Japanese institutionalist Keynesians’ research has important implications for a new development of political economy in the twenty-first century. Particularly, based on the complementary development of the Post-Keynesian economics and the régulation theory, we seek the new development of political economy, introducing the aspects of “institutions and evolution” and “multi-layered coordination with heterogeneous social preferences.” Particularly, the analysis focuses on the price system and quantity dynamics, wages and income distribution based on institutional coordinations, the interaction of financial and real factors, especially, the stock-flow relations in the process of economic growth. Furthermore, we propose a framework to analyze international production and trade with price determination and quantity adjustment in the interdependence of growth regimes in contemporary capitalism.

References Aoki, Masahiko, ed. 1973. Radikaru Ekonomikusu (Radical economics). Chūōkōronsha. ———. 2001. Towards comparative institutional analysis. Cambridge MA: The MIT Press. Bowles, Samuel. 2004. Microeconomics: behavior, institutions and evolution. Princeton: Princeton University Press. ———. 2016. The moral economy: why good incentives are no substitute for good citizens. New Haven: Yale University Press. Boyer, Robert, Hiroyasu Uemura, and Akinori Isogai, eds. 2012. Diversity and transformation of Asian capitalisms. Routledge.

References

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Boyer, Robert, Hiroyasu Uemura, Toshio Yamada, and Lei Song, eds. 2018. Evolving diversity and interdependence of capitalisms: transformations of regional integration in EU and Asia. Springer. Boyer, Robert, and Yamada Toshio, eds. 2000. Japanese capitalism in crisis: a regulationist interpretation. Routledge. Boyer, Robert. 2015. Economie politique des capitalismes: Théorie de la régulation et des crises. Paris: La Découverte. Ishikawa, Tsuneo. 1977. Gendaishihonshugi Keizai no Kihonteki Dōtai Ruikei (The basic types of dynamics of the contemporary capitalist economy). Keizaigakuronshū (The Journal of Economics) 43 (1). ———. 1999. Bunpai no Keizaigaku (Economics of distribution). Tokyo: The University of Tokyo Press. Isogai, Akinori. 2022. Shinka Keizaigaku niokeru Seido no Mondai (The issue of institutions in evolutionary economics). In eds. Akinori Isogai and Hiroyasu Uemura. Isogai, Akinori, and Hiroyasu Uemura, eds. 2022. Seido to Shinka no Seijikeizaigaku: Chōsei no Jūsōsei to Tayōsei (The political economy of institutions and evolution: multi-layered régulation and diversity). Tokyo: Nihon Keizai Hyōronsha. Itoh, Mitsuharu. 1962. Keynes: Atarashii Keizaigaku no Tanjō (Keynes: the birth of new economics). Tokyo: Iwanami-shoten. ———. 1973. Gendai Keizai wo Kangaeru (Considering the contemporary economy). Tokyo: Iwanami-shoten. Kishimoto, Shigenobu. 1975. Shihonsei Keizai no Riron (The theory of the capitalist economic system). Tokyo: Nihonhyōronsha. Lavoie, Marc. 2014. Post-Keynesian economics: new foundations. Edward Elgar Publishing Limited. Miyazaki, Yoshikazu. 1967a. Kindaikeizaigaku no Shitekitenkai (The historical development of modern economics). Tokyo: Yūhikaku. ———. 1967b. Gendai no Shihonshugi (Contemporary capitalism). Tokyo: Iwanami-shoten. Miyazaki, Yoshikazu, and Mitsuharu Itoh. 1964. Konmentāru: Keynes Ippan Riron (Commentary: Keynes, The general theory). Tokyo: Nihon Hyōronsha. Shiozawa, Yoshinori. 1983. Kindaikeizaigaku no Hansei (The reflection of modern economics). Tokyo: Nihonkeizai Shinbunsha. Shiozawa, Yoshinori, Masahi Morioka, and Kazuhisa Taniguchi. 2019. Microfoundations of evolutionary economics. Tokyo: Springer. Sugimoto, Eiichi. 1950. Kindaikeizaigaku no Kaimei (The elucidation of modern economics). Tokyo: Riron-sha. Iwanami Bunko Edition, Vol. 1, 2. Tokyo: Iwanami-shoten, 1981. ———. 1953. Kindaikeizaigakushi (The history of modern economics). Tokyo: Iwanami-shoten. Takasuka, Yoshihiro. 1965. Gendai Kakaku Taikeiron Josetsu (Prelude to the theory of the contemporary price system). Tokyo: Iwanami-shoten. Tsuru, Shigeto, ed. 1970. Proceedings of international symposium on environmental disruption: A challenge to social scientists. International Social Science Council. Tsuru, Sigeto. 1959. Gendaishihonshugi no Saikentō (The re-examination of contemporary capitalism). Tokyo: Iwanami-shoten. ———. 1972. Kōgai no Seijikeizaigaku (The political economy of environmental disruption). Tokyo: Iwanami-shoten. ———. 1993. Institutional economics revisited. Cambridge: Cambridge University Press. Uemura, Hiroyasu, Akinori Isogai, and Akira Ebizuka. 1998. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: beyond Marx and Keynes). Nagoya: Nagoya University Press.

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———. 2007. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: beyond Marx and Keynes). New Edition. Nagoya: Nagoya University Press. Uzawa, Hirofumi. 1977. Kindaikeizaigaku no Saikentō: Hihanteki Tenbō (The re-examination of modern economics: a critical view). Tokyo: Iwanami-shoten. ———. 1986. Kindaikeizaigaku no Tenkan (The transformation of modern economics). Tokyo: Iwanami-shoten. ———. 2005. Economic analysis of social common capital. New York: Cambridge University Press.

Chapter 2

Eiichi Sugimoto’s Creative Rivalry in “Modern Economics” and the Present State of Economics

Abstract We reconsider Eiichi Sugimoto—who proposed the term kindai keizaigaku (modern economics in the Japanese context) and emphasized the significance of “the creative rivalry” among various schools of modern economics—as a representative Japanese political economist during the postwar period. We reaffirm the importance of Sugimoto’s understanding of the methodology of the history of economic theories in his books, The Elucidation of Modern Economics (Iwanamishoten, 1950) and The History of Modern Economics (Iwanami-shoten, 1953). Referring to Alfred Marshall, Sugimoto also emphasized the multi-layered structures of time and space in the capitalist economy in his theoretical study. Furthermore, following Sugimoto’s perspective of modern economics and his idea, “creative rivalry” in mind, we point out the serious theoretical problems of “the Walrasian paradigm” (Bowles) which has dominated academic economics and has eliminated other economic thoughts since the 1980s. The “creative rivalry” claimed by Sugimoto has been completely lost in the recent study of economics. Economics was further isolated from other social sciences as Samuel Bowles critically pointed out. This resulted in the stagnation of economic study. In this situation, there is a need to return economics to political economy and develop it through “the creative rivalry” among various schools of modern economics. Keywords Eiichi Sugimoto · Modern economics · Creative rivalry · Multi-layered time and space · Samuel Bowles · The Warlasian Paradigm

2.1

Introduction

When considering the reconstruction of economics in Japan, it is important to reconsider the academic background of the term, kindai keizaigaku (modern economics in the Japanese context), coined by Eiichi Sugimoto, a professor at The Tokyo University of Commerce (now Hitotsubashi University) after World War II. Sugimoto studied different schools in the history of economic thought in the context of the historical development of capitalism and considered all the schools of economics established after the dismantling of Classical economics school in the © Springer Nature Singapore Pte Ltd. 2023 H. Uemura, Japanese Institutionalist Post-Keynesians Revisited, Evolutionary Economics and Social Complexity Science 29, https://doi.org/10.1007/978-981-19-8688-8_2

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2 Eiichi Sugimoto’s Creative Rivalry in “Modern Economics” and the Present. . .

second half of the nineteenth century—including Neo-classical economics, Marxian economics, and Keynesian economics—as “modern economics.” Interestingly, Sugimoto intentionally categorized Marxian economics as one of the important schools of “modern economics.” Sugimoto further emphasized the importance of “creative rivalry” among different schools of economics to develop modern economics. In this chapter, from this perspective, we critically consider the present state of economics in the United States, Japan, and other countries, which is dominated by “the Walrasian paradigm” (Bowles 2004) of Neo-classical economics after the 1980s.

2.2 2.2.1

Sugimoto’s Research Plan and Academic Development by Creative Rivalry Sugimoto’s “Modern Economics” in the History of Economic Thought

Sugimoto posed the question, “What is modern economics?” and answered: “The 1860s and 1870s were a significant turning point in the history of economics, the schools of modern economics such as the Austrian school (die Österreichische Schule), the Lausanne school (l’école de Lausanne), the Cambridge school, and the Marxian school, were born in this period almost at the same time” (Sugimoto 1950, Iwanami Bunko edition Vol. 1. p. 39). Further, in the twentieth century, Keynesian economics was added to the schools of “modern economics.” The consideration of these schools should not be a simple collection of their theories but should rather be accompanied by a methodological deepening and evolution of the theories. Furthermore, Sugimoto also referred to American institutionalism as “modern economics” that was founded by Thorstein Veblen and explained: “He is a scholar who is strongly influenced by Darwin’s evolutionary theory like Marshall” (Sugimoto 1950, Iwanami Bunko Edition Vol. 1, p. 75).

2.2.2

Marshall’s Economic Theory with Multi-layered Time and Space

Sugimoto acknowledged the founder of British Neo-classical economics, Alfred Marshall, in his research. This is particularly important when considering Sugimoto’s study of the history of economic thought. Especially, Sugimoto explained the importance of Marshall’s concept of “organic growth” which is influenced by Darwin’s evolutionary theory. Furthermore, Sugimoto said, “In Marshall, historical space is historical time at the same time, and they cannot be

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Sugimoto’s Research Plan and Academic Development by Creative Rivalry

13

separated into absolute time and absolute space with their confrontation, unlike the Lausanne school. The unified time-space is recognized, which has three-dimensional multi-layered structures in time and space” (Sugimoto 1953, p. 151). Thus, Sugimoto pointed out the fundamental theoretical problem of Walras’s general equilibrium theory from the viewpoint of its concept of time and space in the theory. This point is extremely suggestive from the perspective of evolutionary economics in the twenty-first century, which focuses on the “complexity” of time-space structures in the economy (Shiozawa 1997). In Japan, Sugimoto had already developed his theoretical criticism against Walras’s general equilibrium theory, based on his understanding of the “complexity” of the economic system in the middle of the twentieth century.1

2.2.3

Marx, Keynes, and Institutionalism in Sugimoto

From the perspective of multi-layered time and space in Alfred Marshall in the Cambridge School, Sugimoto also understood the essence of Keynes’s macroanalysis in The General Theory (Keynes 1936) is beyond the microanalysis comprising individual economic agents, while he criticized the reductionism in Walras’s general equilibrium theory (Sugimoto 1950, Iwanami Bunko Edition Vol. 2, p. 149). Furthermore, Sugimoto explained Keynes’s theoretical framework inherited from the short-period and long-period framework of Marshall and characterized Keynes’s theory as that of the shifting equilibrium of investment and saving with changing long-period expectations for the marginal efficiency of capital. In this regard, Sugimoto understood The General Theory from the viewpoint of Marshall’s tradition in the Cambridge school. Regarding the Keynesian policy, Sugimoto pointed out that the government should control the money stock, while extending the framework for the activities of individual economic agents, from the standpoint of civil society as a whole (Sugimoto 1950, Iwanami Bunko Edition Vol. 2, p. 95). Sugimoto also referred to the Institutional school in the United States, and pointed out the character of Thorstein Veblen’s theory with the perspective of evolution and institutions as follows: “He is a scholar who is strongly influenced by Darwin’s theory of evolution like Marshall” (Sugimoto 1950, Iwanami Bunko Edition Vol. 1, p. 75). Sugimoto recognized the evolutionary ideas in Marshall and Veblen. Sugimoto also explained the characteristics American institutional economists such as T. Veblen, W. C. Mitchell, and J. R. Commons. “They noticed that fact that various social institutions with their own rules of activities, such as family, jointstock company, trade union, and the state etc., governed individuals’ activities 1

In the 1990s, Yoshinori Shiozawa introduced the idea of the complex system with loosely connected components into economics, criticizing the Walrasian general equilibrium theory without the complexity of time and space (Shiozawa 1997). Akinori Isogai and Hiroyasu Uemura also developed the aspect of multi-layered time and space in evolutionary and institutional economics, referring to Sugimoto’s original idea (Isogai and Uemura 2022).

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Eiichi Sugimoto’s Creative Rivalry in “Modern Economics” and the Present. . .

collectively, and understood the economic phenomena as part of the cumulative development of such social institutions” (ibid. p. 75). He also explained Keynes’s theory and policies were accepted smoothly based on American institutionalism to support the New Deal policies in the United States in the late 1930s. Furthermore, Sugimoto tried to enrich the Marxian economic theory by introducing competition, disequilibria, and cyclical crises in multi-layered dynamic processes in the capitalist economy. As Sugimoto read Marshall, emphasizing competition and multi-layered structures in economic dynamics, his understanding of Marx’s economic theory also focused on competition and disequilibrium processes in cyclical crises. He explained “The research on the logic of selfdevelopment of the contradiction of capitalism―the theory of cyclical crises is, of course, beyond the subject of Capital, so we must develop our theory step by step, following the attitude of description taken by Marx in Capital” (Sugimoto 1953, p. 313). Unfortunately, Sugimoto’s original research plan to study disequilibrium dynamics in cyclical crises was not completed owing to his early death.2

2.2.4

Sugimoto’s Concept of “Creative Rivalry”

We further explore the significance of “creative rivalry” among various schools in modern economics. Sugimoto asked, in his book, The Elucidation of Modern Economics (Sugimoto 1950), “Is the Marxian school the modern economics?,” and intentionally included the Marxian school into the modern economics. Then he argued, “Academic progress is achieved by a creative rivalry among different schools on a common basis” (ibid, p. 58). According to Eiichi Asano, who studied with Professor Sugimoto at Tokyo University of Commerce, Sugimoto’s The Elucidation of Modern Economics (Sugimoto 1950) and The History of Modern Economics (Sugimoto 1953) proposed that modern theoretical economics (as Sugimoto refers to Neo-classical economics and Keynesian economics) and Marxian economics would seek theoretical progress together, avoid a state of isolation, and utilize each school’s theoretical strength on a common basis of “creative rivalry” (Asano 1978). Based on this point, Asano explained, “As Professor Sugimoto said, all great economists such as Smith, Marx, and Marshall were working on a wide range of research. In particular, we should pay attention to the fact that they seriously read the literature not only belonging to their own school but also that of their opponents and the fact that even a serious researcher sometimes makes his study biased because he

2

Sugimoto’s theoretical project in his book, The Elucidation of Modern Economics (1950) was not completed due to his early death. He intended to establish a theory of capitalist competition and disequilibrium dynamics in cyclical crises in the capitalist economy, intentionally integrating Marx and Marshall in his own economic theory.

2.3

The Stagnation of Economic Theory Caused by the Dominance of the. . .

15

simply lacks a wide range of views unintentionally, while we are looking at the current state of economic research” (Asano 1978, p. 331). Sugimoto passed away early in 1952 before establishing his full-fledged theory of modern economics that would be based on “creative rivalry.” However, since Sugimoto’s death, his intellectual tradition has been carried forward by several Japanese liberal economists and institutionalist Keynesian economists—including Yoshikazu Miyazaki and Mitsuharu Itoh. The essential perspective that Sugimoto posed after World War II was the creation of economic development through the diversity of economics schools and their creative rivalry in both theoretical and empirical studies. However, mainstream economics, especially, Neo-classical economics betrayed Sugimoto’s academic orientation after the 1980s.

2.3 2.3.1

The Stagnation of Economic Theory Caused by the Dominance of the Walrasian Paradigm The Theoretically Closed Nature of the Walrasian Paradigm and the Development of Microeconomics

After the 1980s, Neo-classical economics became the dominant school of economics—its Walrasian paradigm assumes rational individuals and market equilibrium. However, it does not consider the theories of other schools of economics, hence hindering the development of academics through the creative rivalry among the schools of economics and causing stagnation in economic theory. Particularly, the Walrasian theory considers the market as an extremely simplified space, assuming rational individuals and perfect price adjustment. Moreover, in the field of macroeconomics since the late 1980s, the so-called “Neo-classicalization of macroeconomics” (Yoshikawa 2000) became extremely dominant in the United States, causing the stagnation of macroeconomic theory. Criticizing the dominance of neo-classical macroeconomics in recent years, Paul Krugman refers to the dominance of the so-called Neo-classical macroeconomics as a “Dark Age of Economics” (Krugman 2012). According to the rational expectations formation hypothesis, the real business cycle theory, and the dynamic optimization of a representative consumer, which is often used in Neo-classical macroeconomics, the institutional research resulting from Keynesian economics—such as oligopolistic pricing theory, effective demand theory, liquidity preference theory, corporate growth theory, and the theory of income distribution and economic growth—has been wiped out in macroeconomics (Boyer 2021).3 In the field of macroeconomics, New Keynesian economics was later Robert Boyer emphasized the importance of “reflexivity” in economics as a historical social science when he observed the recent situation of economics dominated by Neo-classical economics (Boyer 2021). 3

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Eiichi Sugimoto’s Creative Rivalry in “Modern Economics” and the Present. . .

formulated in the United States by Joseph Stiglitz, Gregory Mankiw, and other economists in the 1980s. It has a Keynesian economic policy orientation with the micro-foundation of macroeconomics. Moreover, its understanding of the equilibrium concept based on rational economic agents is significantly influenced by the Neo-classical macroeconomics. The current situation is far from Sugimoto’s idea of the diversity of economic theories and their development through “creative rivalry.” In this current scenario, Marxian economics and Keynesian economics have been considered outdated economics since the 1980s and hence have been rejected. As the diversity of economic thought must be the source of theoretical development, it is natural that economic theory is stagnating. Contrarily, research about microeconomics has developed a deep understanding of microeconomic organizations and institutions. The development of institutional economics based on incomplete contract theory and asymmetric information theory, incentive theory, game theory, mechanism design theory, and behavioral economics has been remarkable in these 30 years. Following the introduction of incomplete contracts, microeconomics has gradually diverted from the Walrasian paradigm— which assumes complete competitive markets—and various non-market areas such as organizations and economic institutions have been studied theoretically. It is worth noting that there are still opportunities to develop economics with creative rivalry among different schools of economics. For example, Samuel Bowles, a famous American political economist, also acknowledges Alfred Marshall and develops his perspective on evolutionary social science, which is based on the incomplete contract theory and the game theory (Bowles 2004). Bowles systematically theorizes the market from the perspective of incomplete contracts and emphasizes the importance of social norms and power in the market economy. More recently, he emphasized the moral elements and social preferences, together with self-interest, embedded in the market economy (Bowles 2016).

2.3.2

The Isolation of Economy from Politics and Society, or Political-Economic Analysis?

Another major problem with the Walrasian paradigm is that it separates the economy from politics and society, hence isolating the subject space of economics from other areas of social science. In contemporary economics, the closed nature of economic theory is a serious issue—Samuel Bowles attempts to address this and innovate microeconomics based on the incomplete contract theory and the game theory.4 Bowles quotes a British

4

Samuel Bowles was introduced to Japanese academic society by Masahiko Aoki with his edited book, Radical Economics (Aoki 1973) and by Hirofumi Uzawa with his translation of the book,

2.3

The Stagnation of Economic Theory Caused by the Dominance of the. . .

17

economist, Abba Lerner: “An economic transaction is a solved political problem . . . . Economics has gained the title Queen of the Social Sciences by choosing solved political problems as its domain” (Lerner 1972). Regarding this, Bowles states that “[A] transaction is a resolved political problem. It is ‘resolved’ by device of complete contracts, so that everything of interests to all parties to a transaction can be enforced by the courts. With all the terms of a transaction contractually specified, nothing is left for the exercise of power to be about. For the same reason, norms are redundant: . . . Relaxing the complete contracting assumption thus not only explains why many markets do not clear, it also reveals an important economic role for power and norms, bringing the theory closer to the way observers and participants view real world exchanges” (Bowles 2004, p. 10). In economics, this situation is referred to as an incomplete contract. From this perspective, an image of the market economy that differs from the Walrasian paradigm is evident. Following incomplete contracts, power and social norms (especially, fairness and sympathy) play a crucial role in economic transactions. This understanding is applied to the credit (lender-borrower) and labor (employeremployee) markets and is a central idea in Bowles’ theoretical framework, which analyzes the asymmetric relationship among agents and the role of social norms (Bowles 2004, 2016). Moreover, as the market contains incomplete contracts, it must be complemented by the state and communities. Here, the term community refers to a social relationship supported by trust and solidarity, based on liberal civic relationships and traditional communities (Bowles 2016). An analysis by Jeffrey Frieden—an international political scientist who studies the political process of international finance and financial crises—further develops the perspective of the interactions of economy and politics that Bowles emphasizes in his theoretical framework (Frieden 2013). Frieden considers the asymmetric relationship between lenders and borrowers in the financial market, focusing on the fact that lenders exercise economic power over borrowers in a business relationship, similar to that in Bowles’ theory. The borrower, he notes, may also exercise power against the lender through a political process. For example, if the loan amount is too large and eventually renders the borrower bankrupt, the lender is also involved in the financial crisis. Therefore, the borrower can pose a threat to the lender in a political process, demonstrating Frieden’s analysis of the linkage between economics and political science.

Schooling in Capitalist America: Education Reform and the Contradictions of Economic Life (Bowles and Gintis 1976). Bowles synthesized his theoretical studies in Microeconomics: Behavior, Institutions and Evolution (Bowles 2004) and The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens (Bowles 2016). Toshio Yamada’s book review situated Bowles’ The Moral Economy in the Japanese academic context (Yamada 2019).

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2.3.3

2

Eiichi Sugimoto’s Creative Rivalry in “Modern Economics” and the Present. . .

Theoretical Characteristics of the Walrasian Paradigm

The Walrasian paradigm’s theoretical features and assumptions—including economic agents and the equilibrium concept—should be understood based on its theoretical characteristics with its total image of the economy (Miyazaki 1967). Bowles explains the Walrasian paradigm: “By Walrasian, I mean that an approach to economics that assumes that individuals choose actions based on the far-sighted evaluation of their consequences based on preferences that are self-regarding and exogenously determined, that social interactions take the exclusive form of contractual exchanges, and that increasing return to scale can be ignored in most applications” (Bowles 2004, p. 8). Specifically, Bowles compares the characteristics of the Walrasian paradigm with evolutionary social science to develop his research. The Walrasian theory assumes a self-regarding and forward-looking individual based on reductionism, methodological individualism, and exogenous and selfish preferences. Evolutionary social science assumes an other-regarding and backward-looking individual with bounded rationality who learns from past experiences, hence not depending on methodological individualism. It also emphasizes co-evolutionary relationships between preferences and institutions. The Walrasian theory asserts that social interaction is achieved with complete contracts, while evolutionary social science emphasizes the importance of incomplete contracts and non-contractual relationships in a much broader social context. The Walrasian model assumes that a unique and stable equilibrium is established, while evolutionary social science focuses on stationary and evolutionary processes involving multiple equilibria and non-stationary lowerlevel entities. Bowles’ evolutionary social science is his research program in the process of being completed.5 However, the characteristics of the Walrasian paradigm are accurate. The timeless space of the market economy with rational economic agents in the Walrasian paradigm has a very peculiar theoretical character as a social science. It is a hypothetical and virtual time and space far apart from the everyday world in which each firm acts and citizen lives in multi-layered time and space. However, we cannot overlook the fact that a very strong system encompassing the entire market system was built in the general equilibrium theory. Therefore, it is necessary to establish a systematic theory based on a different economic vision for the entire socio-economic system when constructing an alternative theory to the Walrasian paradigm with general equilibrium concept.6 In summary, the

Akinori Isogai explained the significant perspective of Bowles’ “evolutionary social sciences” in his discussion on the institution issue in evolutionary economics (Isogai and Uemura 2022). 6 Yoshinori Shiozawa pointed out serious problems in the general equilibrium concept and emphasized the importance of process analysis in his book, The Reflection of Modern Economics (Shiozawa 1983). Shiozawa intentionally used the term, “modern economics” in his theoretical discussion, inheriting the original meaning from Eiichi Sugimoto. 5

2.4

Conclusion

19

Table 2.1 Sugimoto, the Walrasian paradigm, and Bowles What economics? Different schools Theoretical core

Sugimoto Modern economics: Marx, Walras, Marshall, Keynes, and Institutional economics Creative rivalry among different schools, including Marx

Walrasian paradigm Neo-classical economics with rational agents and equilibrium Marx and Keynes are excluded

Multi-layered time and space and competition dynamics suggested by Marshall

The general equilibrium theory with reductionism

Bowles Evolutionary social science and institutionalism Inheritance from Marx and Marshall The co-evolution of institutions and preferences

Source: Author

methodologies and theoretical characteristics of Eiichi Sugimoto, the Walrasian paradigm, and Samuel Bowles are compared in Table 2.1. Accordingly, keeping in mind “the creative rivalry” among various schools of modern economics suggested by Eiichi Sugimoto, this book examines the intellectual heritage of Japanese political economists, and particularly, focuses on the institutionalist post-Keynesian economists who developed their original theories, inheriting from Marx, Keynes, and Institutionalism in various ways, and analyzed postwar contemporary capitalism.

2.4

Conclusion

In Japan, the academic term, “kindai keizaigaku (modern economics)” was created by Eiichi Sugimoto in the postwar period. Sugimoto’s “modern economics” included the Austrian, Lausanne, Cambridge, Marxian, Keynesian, and American institutionalism schools after the mid-nineteenth century. Sugimoto emphasized the significance of “creative rivalry” among these various schools of modern economics to develop a new political economy, appreciating the multi-layered structures of time and space in Marshall’s theory and the concept of competition and crisis in Marx’s theory. After the 1980s, however, economics became dominated by Neo-classical economics, especially the Walrasian paradigm, and Marxian economics and Keynesian economics were almost excluded from academic study in the United States, Japan, and other counties. The “creative rivalry” claimed by Sugimoto has been completely lost in the recent study of economics. In this situation, economics was further isolated from other social sciences as Samuel Bowles critically pointed out. This resulted in the stagnation of economic study. In this situation, there is a need to return economics to political economy and develop it through “the creative rivalry” among various schools of modern economics. Above all, we should create a new political economy, developing the aspect of multi-layered structures of time and space in the economy and the interactions

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between the economy and society, particularly the co-evolution of economic agents and institutions, from the perspective of institutionalism.

References Asano, Eiichi. 1978. Sugimoto Riron ni Tsuite―Kinkei to Marukei no Tōgō wo Mezashite (On Sugimoto’s theory: Toward the synthesis of modern economics and Marxian economics). In Keizai Seminā Zōkan-Marx Keizaigaku no Subete (Economic seminar supplement: All of Marxian economics). Nihon: Hyōronsha. Aoki, Masahiko, ed. 1973. Radikaru Ekonomikusu (Radical economics). Tokyo: Chūōkōronsha. Bowles, Samuel. 2004. Microeconomics: Behavior, institutions and evolution. Princeton: Princeton University Press. ———. 2016. The moral economy: Why good incentives are no substitute for good citizens. New Haven: Yale University Press. Bowles, Samuel, and Herbert Gintis. 1976. Schooling in capitalist America: Educational reform and the contradictions of economic life. New York: Basic Books Inc. Boyer, Robert. 2021. Une discipline sans réflexivité peut-elle être une science?: Épstémologie de l’economie. Paris: Édition de la Sorbone. Frieden, Jeffry A. 2013. Comment (ne pas) perdre une décennnie. Revue Études internationales 44 (4). Isogai, Akinori, and Hiroyasu Uemura, eds. 2022. Seido to Shinka no Seijikeizaigaku: Chōsei no Jūsōsei to Tayōsei (The political economy of institutions and evolution: multi-layered régulation and diversity). Tokyo: Nihon Keizai Hyōronsha. Krugman, Paul. 2012. End this depression now. New York: W. W. Norton & Co. Inc. Lerner, Abba P. 1972. The economics and politics of consumer sovereignty. American Economic Review 62, May. Miyazaki, Yoshikazu. 1967. Kindaikeizaigaku no Shitekitenkai (The historical development of modern economics). Tokyo: Yūhikaku. Shiozawa, Yoshinori. 1983. Kindaikeizaigaku no Hansei (The reflection of modern economics). Tokyo: Nihonkeizai-shinbunsha. ———. 1997. Fukuzatsukei Keizaigaku Nyūmon (Introduction to the economics of complex system). Tokyo: Seisansei-shuppan. Sugimoto, Eiichi. 1950. Kindaikeizaigaku no Kaimei (The elucidation of modern economics). Riron-sha. Iwanami Bunko Edition, Vol. 1, 2. Tokyo: Iwanami-shoten, 1981. ———. 1953. Kindaikeizaigakushi (The history of modern economics). Tokyo: Iwanami-shoten. Yamada, Toshio. 2019. Book review: The moral economy by Samuel Bowles. Evolutionary and Institutional Economics Review 16 (2). Yoshikawa, Hiroshi. 2000. Gendai Makuro Keizaigaku (Contemporary macroeconomics). Tokyo: Sōbunsha.

Chapter 3

Shigeto Tsuru’s “Institutionalism in the Broad Sense” and Theories of Contemporary Capitalism Constructed by Yoshihiro Takasuka and Shigenobu Kishimoto Abstract We discuss Shigeto Tsuru, who studied Marx and Keynes with Joseph Schumpeter at Harvard University in the 1930s and when faced with the post-war high economic growth in advanced countries, raised the question, “Has capitalism changed?” in the late 1950s. We investigate several studies of contemporary capitalism that began with this question and remember his research projects for a new political economy, the research of environmental issues, and the subsequent rediscovery of institutional economists in the broad sense such as Marx, Keynes, Veblen, Myrdal, Kapp, and Galbraith in the 1990s in his book, Institutional Economics Revisited, Cambridge UP, 1993. We also consider some Japanese political economists, for example, Yoshihiro Takasuka and Shigenobu Kishimoto, who developed the theories of contemporary capitalism based on not only Marx but also Kalecki, Sraffa, and Sylos-Labini, following Tsuru’s research orientation about contemporary capitalism in the 1960s and 1970s. Yoshihiro Takasuka developed the theory of “productivity differential inflation” as relative price changes and “stagflation” in contemporary capitalism. Shigenobu Kishimoto theorized the structures and dynamics of contemporary capitalism, focusing on the division of labor, the market system, and firm organization as well as the dual roles of wages in capital accumulation. Keywords Shigeto Tsuru · Political economy of environmental disruption · Institutionalism in the broad sense · Yoshihiro Takasuka · Productivity differential inflation · Shigenobu Kishimoto · The theory of capitalist economic system

3.1

Introduction

After World War II, Marxian economics developed significantly in the liberal atmosphere of Japan. Inherited from Marx but not bound by orthodox Marxian economics, institutionalist political economy gradually developed in Japan. Shigeto Tsuru was the first to lead this academic development. Remarkably, Tsuru developed his institutionalism in the light and shadow of Marx. Observing postwar capitalism in the late 1950s, Tsuru asked, “Has capitalism changed?.” This was © Springer Nature Singapore Pte Ltd. 2023 H. Uemura, Japanese Institutionalist Post-Keynesians Revisited, Evolutionary Economics and Social Complexity Science 29, https://doi.org/10.1007/978-981-19-8688-8_3

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the beginning of research on contemporary capitalism in Japan. After that, Tsuru developed collaborative research with the message “Seeking a new political economy,” while studying environmental problems and welfare policies. In this atmosphere, the next generation of Marxian economists developed their theories of contemporary capitalism by utilizing the theories of the original founders of PostKeynesian economics, such as Michał Kalecki, Joan Robinson, Piero Sraffa, and Paolo Sylos-Labini. In particular, we want to refer to Yoshihiro Takasuka’s Prelude to the Theory of the Contemporary Price System (Takasuka 1965), which formalized “productivity differential inflation” based on oligopolistic pricing suggested by Sylos-Labini, and Shigenobu Kishimoto’s The Theory of the Capitalist Economic System (Kishimoto 1975), which emphasized Sraffa’s logic of production prices with surplus and Kalecki’s logic of wages and demand formation, based on the institutional analysis of the capitalist economic system. In Japan’s postwar economics, Marxian and other modern schools of economics, especially Keynesian economics and Neo-classical economics, were on different sides and did not hold active discussions. However, new theories of political economy were created by some political economists who understood these rival schools. Shigeto Tsuru was a pioneer who established this development path of political economy, and his idea of “seeking a new political economy” from the perspective of “institutionalism in the broad sense” is important in the twenty-first century.

3.2 3.2.1

Shigeto Tsuru’s Study on Contemporary Capitalism with Institutionalism in the Broader Sense Tsuru’s Question: “Has Capitalism Changed?”

As a liberal political economist in Japan in the postwar period, Shigeto Tsuru’s contribution is indispensable. Tsuru studied Marx and Keynes, participating in Joseph Schumpeter’s seminar at Harvard University in the 1930s, and had active research communication with Paul Sweezy, Paul Samuelson, Wassily Leontief, and John Kenneth Galbraith. Tsuru created his own foundations of political economy by studying in the best academic environment at Harvard.1 Then, he returned to Japan during World War II. As a result of his research in the United Sates, Tsuru published his article, “On Reproduction Schemes” in Paul Sweezy ed. The Theory of Capitalist Development (Tsuru 1942). Later, Tsuru also published the result of his study on 1 In the 1930s, Tsuru studied Karl Marx as a student at the 8th High School (now Nagoya University) and protested against Japan’ imperialist invasion into China together with other students. Escaping from Japan’s imperialist regime in the prewar period, Tsuru decided to study in the United States. In 1940, he obtained PhD at Harvard University with his PhD thesis, “Development of capitalism and business cycles in Japan, 1868–1897” (Tsuru 1940). Tsuru studied modern economics at Harvard University, while he was reading Karl Marx (Tsuru 1942, 1951).

3.2

Shigeto Tsuru’s Study on Contemporary Capitalism with Institutionalism. . .

23

Marx and Keynes, as “Marx versus Keynes: Methodology of Aggregates,” in Kenneth K. Kurihara ed. Post-Keynesian Economics (Tsuru 1954). In the postwar period, Tsuru became the vice president of the Economic Stabilization Board (Keizai Antei Honbu) of the Katayama Cabinet in Japan during the occupation by the General Headquarters (GHQ), and published the first Economic White Paper in Japan—the so-called “Tsuru White Paper”—suggesting the reconstruction and reform of the Japanese economy to pursue the fair market system of prices and wages, eliminating monopolistic profits and attributing the work results to workers. Tsuru emphasized that this perspective must be the basis for the reform of the Japanese economic system. Unfortunately, Tsuru left the Economic Stabilization Board, faced with a change in the policies of the GHQ and a shift in the Japanese political situation. After Tsuru started to conduct research as a professor at Hitotsubashi University, observing the new reality of postwar capitalism at the end of the 1950s, he asked a controversial question, “Has capitalism changed?,” in a book he edited, The Reexamination of Contemporary Capitalism (Tsuru 1959). John Strachey, Paul Sweezy, Maurice Dobb, and John K. Galbraith contributed to this book. Tsuru pointed out the features of the new reality of postwar contemporary capitalism— the dramatic increase in the scale of technological innovation as “the scienceindustrial revolution,” the goal of maintaining full employment in economic policy, the evolution of economic institutions such as income redistribution policies, and the role of oligopolistic companies and trade unions. Acknowledging the importance of this new reality, Tsuru’s next question was whether the essence of capitalism had changed. He argued that the essence of capitalism was the fact that “surplus” took the form of profit in its broad sense. He wrote, “The nature of capitalism has not changed at all, and even under certain conditions it can continue to be a plateau economy, but it will eventually suffer from a major recession. Inevitably, the means of trying to overcome the recession itself will cause a recession in other ways, or it will be in resistance like a wall and will not be effective” (Tsuru 1959, p. 50). Thus, he concluded that the nature of capitalism that pursues profits as the form of economic surplus had not changed, even in postwar capitalism. Then, Tsuru raised the question “How can capitalism be changed?,” based on these new institutional features of postwar capitalism. The institutional characteristics of contemporary capitalism that Tsuru emphasized as a premise of evolution are as follows. Tsuru referred to the income redistribution function of the welfare state as “the socialization of flows”—where modern welfare states effectively socialize a part of the national income flow through income redistribution policies and welfare policies. Further, he highlighted the importance of a civil minimum (citizens’ basic needs) as the basic principle of the welfare state.

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Shigeto Tsuru’s “Institutionalism in the Broad Sense” and Theories. . .

Table 3.1 Material aspect and system aspect System aspect Material aspect

Tsuru Capitalist system with social relations, behaviors of firms Technological conditions, natural environment

Marx Value and capital-labor relation Use value, productive forces

Source: The author draws this table, based on Tsuru (1972)

3.2.2

The Political Economy of Environmental Disruption

After the 1960s, rather than directly proposing system reform of Japanese capitalism, Shigeto Tsuru conducted concrete research and delivered active policy proposals on the social issues of Japanese capitalism. In particular, his pioneering and practical research on environmental problems was outstanding. Environmental disruption was called “kogai” (public nuisance) in Japanese because Japanese people recognized it as a public problem caused by large companies in the process of high economic growth. Tsuru published his book, The Political Economy of Environmental Disruption (Tsuru 1972) and established the understanding that environmental problems should be grasped from both the material and system aspects of the economy (Tsuru 1972). His understanding of the material aspect with technological conditions and the system aspect with social relations, as well as their historical interactions, was inherited from Karl Marx.2 He developed this idea further, taking into account the institutional characteristics of contemporary capitalism. Tsuru became a founder of environmental economics with his comprehensive analysis in Japan. The material aspect and the system aspect can be summarized in Table 3.1. In order to solve the environmental disruption problem, Tsuru proposed three policies to reform the capitalist economic system: the socialization of flow, the promotion of public land ownership, and the social management of science and technology. These policies should be pursued while taking account of the “social costs” of business activities (Kapp 1950). “The socialization of flow” is a key concept in Tsuru’s reform strategy for contemporary capitalism. This means the social governance of economic surplus that satisfies the basic needs of people and promotes the socialization of the finance for investment and tax reform to protect the environment. “The promotion of public land ownership” means that local governments own key lands to prevent environmental disruption. “The social management of science and technology” is a strategy to change from the inclusion of science and technology by large private corporations to social management.3

2

In Tsuru’s book published in 1982 (Tsuru et al. 1982), he explained how he inherited this significant aspect of capitalism from Karl Marx. Tsuru also had great sympathy with John K. Galbraith in his institutional analysis of contemporary capitalism (Galbraith 1958, 1967, 1973). 3 Shigeto Tsuru organized International Symposium on Environmental Disruption: A Challenge to Social Scientists, Tokyo: International Social Science Council in 1970, and he invited Hirofumi

3.2

Shigeto Tsuru’s Study on Contemporary Capitalism with Institutionalism. . .

25

He also proposed realistic policies for system reform to protect the environment and develop the social security system in Japan. In the 1970s, many economists gathered under Tsuru’s initiatives with the slogan “Seeking a new political economy.”

3.2.3

The Political Economy of System Reform

In the early 1980s, Tsuru answered his original question, “How can capitalism be changed?” in his book, The Political Economy of System Reform (Tsuru 1983). In this book, Tsuru introduced his own perspective on the system reform of contemporary capitalism. Tsuru first clarified his own foundations for the analysis of economic systems: “the distinction and synthesis of the material aspect and the system aspect” and “the form of economic surplus as the Merkmal to identify the economic system.” Tsuru’s perspective on the material and system aspects originated in his study of environmental disruptions in the 1960s and 1970s. The perspective of profits as the form of economic surplus was proposed early in the controversy over contemporary capitalism in the late 1950s. Observing the institutional characteristics of contemporary capitalism, Tsuru argued that Marx’s idea of the law of impoverishment and class struggle should be modified in contemporary capitalism with large corporations and the public sector. He defined contemporary capitalism as “the mixed economy.” He explained the main characteristics of the mixed economy as follows: the weakening of the barometer function of profit by large firms’ internalization of the benefits of science and technology, the insertion of the planning principle into the economic system, qualitative changes in the work process and wages in the factory automation system, the principle of “distribution according to needs,” and the redistribution of incomes in the welfare state. Tsuru also said this system can be called “social capitalism.” The principles of the structural reform for social capitalism that Tsuru proposed are as follows. First, emancipation from alienation in the workplace is realized through the promotion of personal capability; that is, from “labor” to “work.” Second, surplus is governed commonly as “social surplus,” and profit as the form of surplus is modified. Third, clothing, housing, food, education, and medical care are provided to people under the principle of “distribution according to needs” as a “civil minimum.” Then, the main strategies for the transition were proposed, as follows. The reform of surplus as “social surplus” is proceeded by “the socialization of flow” with taxation and price control as well as a social welfare system. The socialization of stocks may be introduced gradually. The socialist system of the future will have the principle of “respecting purpose rather than means”

Uzawa to the symposium (Tsuru 1970). This was the starting point of Uzawa’s study on the environmental problem.

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3 Shigeto Tsuru’s “Institutionalism in the Broad Sense” and Theories. . .

(J. M. Keynes). In order to support these strategies, Tsuru argued that social norms and consensus should be established on the “civil minimum” and “consciously responding to external effects.” He conveyed his own vision: “As these trends obtain social consensus, wedges are driven one after another. Then, the movement toward the birth of a new society will eventually come to fruition” (Tsuru 1983, p. 164). In the mid-1980s, Tsuru referred to Michał Kalecki and Joan Robinson as important political economists when he pursued the reform of contemporary capitalism. He emphasized that Kalecki considered the factors of class relations and institutions in his macroeconomic analysis, and that Joan Robinson went beyond Keynes’s short period theory and established the theory of capital accumulation while referring to political and ethical factors (Tsuru, 1985).

3.2.4

Institutional Economics Revisited

Tsuru became interested in Marx and Keynes as well as American institutionalism when he studied at Harvard University. He also developed his understanding of comparative economic systems as an institutional analysis in the 1960s. After the 1980s, he emphasized the importance of various institutional economics in analyzing contemporary capitalism. The product of his study, Institutional Economics Revisited (Tsuru 1993), reflected his in-depth understanding of such great economists as Marx, Keynes, Schumpeter, Veblen, Myrdal, Galbraith, and Kapp belonging to “institutionalism in the broad sense.” In this book, Tsuru explains the essence of institutionalism in the broad sense, quoting Allan Gruchy on those who “inquired into problems such as the impact of technological change on the structure and functioning of the economic system, the power relations among economic interest groups, the logic of the process of industrialization, and the determination of national goals and priorities” (Gruchy 1977, p. 11). In this conceptualization, Marx, Keynes, and Schumpeter are listed as institutional economists in the broad sense. First, Tsuru reassesses Karl Marx as an institutionalist in the broad sense. In particular, Tsuru points out the importance of Marx’s distinction and integration of the real and value aspects of the social production process. While referring to Joan Robinson in the capital controversy, he emphasizes that “capital” is a concept in terms of value. Tsuru explained that “The valuable lesson we can still draw from Marx is his emphasis on the efficacy of institutional factors upon what we call ‘economic phenomena.’ Thus, Marx may be said to be an institutionalist par excellence” (Tsuru 1993, p. 16). Next, Tsuru examines the difference between Keynes and Marx in their macroeconomic frameworks, especially the methodology of aggregates. Keynes created aggregates in macroeconomics, paying careful attention to monetary terms and employment in The General Theory, while Marx formulated the reproduction scheme, which distinguished investment goods and consumption goods. Keynes focused on the net national product, analyzing the multiplier effect of investment, while Marx analyzed the interaction between the production goods sector and the consumption goods sector. Tsuru also examined the

3.2

Shigeto Tsuru’s Study on Contemporary Capitalism with Institutionalism. . .

27

difference between Marx and Schumpeter in business cycles. Schumpeter focuses on the role of innovation with credit creation in connecting business cycles with capitalism, while Marx analyzed business cycles as conditioned by the institutional characteristic of capitalism (Schumpeter 1926; Keynes 1936). Of course, Shigeto Tsuru also refers to Thorstein Veblen, a representative institutional economist in the United States. In particular, Tsuru notes the distinction and conflict between “industry” and “business” in The Theory of Business Enterprise (Veblen 1904). Here, “industry” is concerned with making things, and “business” is related to making money. Veblen saw the conflict between the two in the evolutionary process of capitalism. He saw industrial engineers as a progressive factor in modern capitalism. Furthermore, Tsuru points out that Veblen recognized the increasing waste from the viewpoint of “industry” in modern capitalism, and develops this idea in his own theory of “the institutionalization of waste.” Tsuru also explains the pioneering works of modern institutionalism in the broader sense, such as those by Gunnar Myrdal, John Kenneth Galbraith, and William K. Kapp. Tsuru argues, “All three economists echoed the warning that conventional mainstream economics was no longer able to meet the requirement for an effective tool of analysis for the problems with which modern society is confronted” (Tsuru 1993, p. 73). Tsuru appreciates Myrdal’s theory of “circular causation with cumulative effects” and his conviction of economics as moral science as a typical institutionalist approach. Tsuru also refers to Galbraith as an institutional economist in America, as he integrated aspects of institutionalism and Keynes’s macroeconomic analysis to propose effective economic policies. Galbraith’s works had four characteristics of institutionalism: “countervailing power” and “dependence effect” with the character of an open system, the role of technology in the evolutionary process of contemporary capitalism, planning the economy as a whole and “social imbalance,” and the “equilibrium of poverty” in circular causation. Tsuru explains that Kapp was also an institutional economist with his concept of “social costs” that proposed a normative viewpoint on environmental problems (Kapp, 1950, 1976). Finally, Tsuru argues the four common characteristics of institutional economics: “A. the emphasis on the open-system character of production and consumption, thus a broader view of the scope of economics; B. an interest in the evolutionary course along which the industrial economies are moving, with emphasis on the dynamic process of technological change and circular cumulative causation; C. awareness of a growing need for guidance that can be supplied only through some form of overall social management, or planning; D. recognition that economics must become a normative science, positively formulating social goals and objectives” (Tsuru, 1993, p. 101). He also emphasizes the importance of a perspective beyond GDP just as a sum of economic activities in a contemporary mixed economy with an opensystem character, and provides an insightful perspective on the future of the mixed economic system that considers the cumulative causation between technological innovation and the evolution of institutional frameworks.

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3.3

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Shigeto Tsuru’s “Institutionalism in the Broad Sense” and Theories. . .

Yoshihiro Takasuka’s Theory of Contemporary Capitalism: A Structural Analysis of Inflation and Capital Accumulation

After the 1960s, the realities of postwar modern capitalism gradually began to be understood by political economists, and theories of contemporary capitalism were developed. From Marxian economics, the explanations and criticisms of the theory of state monopoly capitalism were posed to explain the realities of the post-war period (Ouchi 1970; Nagasu 1970). At the same time, the analysis of the institutional structures of contemporary capitalism was developed by institutionalist Keynesian economists (Miyazaki, 1967; Itoh, 1965, 1973). Under these circumstances, an attempt to theorize the structure and dynamics of contemporary capitalism emerged in the Japanese political economy. It was based on the Marxian economic framework to some extent, but also accepted the founding economists of Post-Keynesian economics—namely, Michał Kalecki, Piero Sraffa, Joan Robinson, and Paolo Sylos-Labini—who were the leading political economists of the twentieth century.

3.3.1

Takasuka’s Prelude to the Theory of the Contemporary Price System and Productivity Differential Inflation

The Tsuru research group was prominent in theoretically elucidating contemporary capitalism and seeking a new political economy from the 1960s to the 1970s. In this research environment, Yoshihiro Takasuka created the productivity differential inflation theory as a theoretical attempt to analyze the price dynamics in postwar Japanese capitalism in his Prelude to the Theory of the Contemporary Price System (Takasuka 1965).4 1. Inflation during Japan’s High-growth Period and the Theoretical Analysis of Prices In 1956, Japan began its high-economic-growth period, but in the midst of this remarkable development, the problem of inflation—the so-called price problem—became a serious policy issue (Takasuka 1972). The Japanese economy experienced a unique pattern of inflation during its high economic growth— consumer prices rose continuously, while wholesale prices were relatively stable.

4 Yoshihiro Takasuka studied with Shigeto Tsuru at Hitotsubashi University. Furthermore, Takasuka also learned Marxian political economy from Kōzō Uno, a Professor of The University of Tokyo. Professor Uno taught political economy at Hitotsubashi University after Eiichi Sugimoto passed away (Uno 1953). This research environment influenced Takasuka’s original style of Marxian political economy. In his macroeconomic analysis, Takasuka utilized Kalecki’s theory of income distribution and economic dynamics (Kalecki 1935, 1954).

3.3

Yoshihiro Takasuka’s Theory of Contemporary Capitalism: A. . .

29

Japanese economists at that time could not fully understand why this uneven price change occurred. The price movement itself was pointed out by modern economists, although without clear theorization. However, Takasuka’s Prelude to the Theory of the Contemporary Price System rigorously formalized price dynamics from the theoretical perspective of the Marxian economic theory of production prices and monopoly prices (Takasuka 1965). He conducted a comparative analysis of the movement of the price system both in the industrial capitalism stage and in the monopoly capitalism stage from the viewpoint of the price system theory. Moreover, a very dynamic structural theory was established by actively introducing the viewpoint of competition with productivity growth among firms in the analysis. In his analysis of the price system of monopoly capitalism, Takasuka’s theoretical research was truly pioneering, and his analysis of the price system movement explained inflation in Japan during the period of high economic growth. The Japanese economy in the first half of the high-economic-growth period in the late 1950s had a typical dual structure consisting of a large-firm sector and a small and medium-sized firm sector. This dual structure transformed over the course of the high economic growth, remarkable for the unequal dynamics of labor productivity growth. In fact, a large increase in labor productivity was realized in the large-firm sector in the manufacturing industry, but an increase in labor productivity in the small and medium-sized firm sector was limited. This differential in productivity growth between large firms and small and mediumsized firms is a remarkable characteristic of the Japanese economy during its high-economic-growth period. Furthermore, the transformation of the labor market accompanied by high economic growth played an important role in wage dynamics. In the late 1950s, domestic labor migration from rural areas to urban areas was prominent. Around 1960, the Japanese economy reached the Lewis turning point—labor shortages gradually occurred, especially among young workers in urban areas. This shift became the precondition for the occurrence of productivity differential inflation in the Japanese economy. In other words, together with the high productivity growth rate in the large-firm sector, an overall wage increase occurred not only in the large-firm sector but also in the small and medium-sized firm sectors. 2. The Mechanism of Productivity Differential Inflation Strictly speaking, the productivity differential inflation that was formalized by Takasuka should be called “productivity-change-rate differential inflation” (Takasuka 1965, p. 224). It is a mechanism to adjust the price system that is caused by the difference in productivity growth rates among different sectors, and actually occurs as follows. The large-firm sector is an oligopoly sector, and its price formation is oligopoly pricing with the mark-up principle. In this regard, Takasuka referred to SylosLabini, an Italian economist, who formalized a mechanism for determining the oligopoly price. This explains why oligopolistic large firms set the highest price that can still prevent a potential competitor from entering the market (Sylos-

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Table 3.2 Productivity differential inflation Productivity growth Price change Wages

Large firm sector High Stable Increase

Small and medium-sized firm sector Low Increase Increase

Source: The author draw this table, based on Takasuka (1965)

Labini 1962). Of course, this is higher than the competitive price level, which results in higher value-added and revenue for large firms. Next, the wage level in large firms rises as demand increases in the labor market. In large firms with high productivity growth, the wage increase is absorbed by a productivity increase, and large firms’ prices remain stable. During the high-economic-growth period, a labor shortage occurred, and wages rose throughout the economy through a wage leveling mechanism. This wage increase extended to the small and medium-sized firm sectors. However, small and medium-sized firms with low productivity growth had to pass on product price increases to consumers. Thus, the wholesale prices specified by the large-firm sector were stable, but the consumer price—which is strongly influenced by the small and medium-sized firm sector—steadily increased. The mechanism of productivity differential inflation is summarized in Table 3.2. Takasuka’s pioneering theory of productivity differential inflation analyzed the structural dynamics of the price system—and while his theory focused on the price problem in the Japanese economy, its theoretical framework is universal. For example, the Balassa-Samuelson effect (Balassa 1964; Samuelson 1964), which theorizes the adjustment of the price system in the open economic system, was proposed in 1964, but Takasuka had already proposed a similar idea in the early 1960s. Similarly, the Italian post-Keynesian economist Luigi Pasinetti’s theoretical study—which systematically theorized structural changes in the economy and the adjustment of the price system—was published as Structural Change and Economic Growth in 1981 (Pasinetti 1981). Therefore, the productivity differential inflation theory is a theoretical study that economists should refer to as a general theory of the dynamic adjustment of productivity growth differentials, wages, and the price system.5

5 In the second half of the 1960s, Takasuka also studied Marx’ reproduction scheme, and published The Reproduction Scheme Analysis (Takasuka 1968). Takasuka developed his theory of reproduction and economic surplus in the Marxian value-production price system in Marxian Economics Research (Takasuka 1979), and published his systematic book, Capitalism with Iron and Wheat (Takasuka 1991), which is the two sector model consisting of production goods and consumption goods sectors with economic surplus. Takasuka theorized capitalism in the theories of valueproduction price and business cycle. The “surplus approach” was developed by Shigeto Tsuru and Yoshihiro Takasuka in the framework of Marxian economics. The surplus approach can be applied to not only the analysis of capitalism as a reproduction system but also the analysis of inequality in income distribution in capitalist society (Uemura 2007).

3.3

Yoshihiro Takasuka’s Theory of Contemporary Capitalism: A. . .

31

In the late 1970s, the Japanese economy recovered from stagflation much earlier than other advanced economies. However, the differential structure that produced the productivity differential inflation continued to exist between large manufacturing firms in the tradable goods sector and small and medium-sized firms in the non-tradable goods sector due to their uneven development in the 1980s and 1990s. In this sense, Takasuka’s theory of productivity differential inflation is still a basic theory for explaining price changes between sectors in the Japanese economy.

3.3.2

Takasuka’s Analysis of Stagflation in the 1970s

In the 1970s and early 1980s, Yoshihiro Takasuka developed his theory of inflation to explain “stagflation”—that is, the co-existence of stagnation and inflation—which was present in advanced capitalist economies in the first half of the 1970s. He published the book Contemporary Capitalism and Inflation (Takasuka 1981). In his fully fledged analysis of inflation, he develops his ideas of “the absolute overproduction of capital” and “the paradox of full employment.” Takasuka proposes a structural approach to inflation, strongly criticizing the quantity theory of money and its contemporary version, Monetarism, which was represented by Milton Friedman. Rejecting the simple monetary approach, Takasuka focuses more on economic structures such as productivity, wages, price setting, and the effect of full employment in advanced capitalist economies. Takasuka argues, “The Keynesian policies collapsed due to their success rather than failure” (Takasuka 1981, p. 205). This means that Keynesian policies are effective in bringing the economy to full employment, but the full employment economy is essentially unstable. Takasuka calls this “the paradox of full employment.” The instability of full employment in the capitalist economy was originally emphasized by Michał Kalecki (Kalecki, 1943). Takasuka develops his theory as an application of Marx’s theory of “the absolute overproduction of capital,” focusing more on rising wages, falling profit rates, and accelerating inflation in the situation of full employment and overaccumulation. Takasuka explains that unstable shifts happened between the following two structural relations of prices and wages in the full employment situation with changing wage determination conditions. (i) Marx’s original case with the absolute overproduction of capital: (the growth rate of wages) > (the growth rate of consumer goods prices) > (the growth rate of production goods prices) (ii) The Keynesian case in a managed currency system with an inflation barrier: (the growth rate of wages) < (the growth rate of consumer goods prices) < (the growth rate of production goods prices) In order to solve this dilemma, Takasuka explains, the co-existence of unemployment and inflation is necessary in advanced capitalist economies.

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Furthermore, as for the process of accelerating inflation during full employment, Takasuka refers to Robert Rowthorn’s “conflict theory of inflation” (Rowthorn, 1980). In this situation, workers claim higher wages with labor militancy, and capitalists claim higher prices with monopolistic pricing to realize their required profits, which inevitably leads to accelerating inflation. Thus, Takasuka developed Marx’s theory in a modern way, based on the institutional reality of contemporary capitalism after Keynes, and built his structural theory of capital accumulation and price-wage dynamics.

3.4

3.4.1

Shigenobu Kishimoto’s The Theory of the Capitalist Economic System and Analyses of the Japanese Economy and Society Kishimoto’s The Theory of the Capitalist Economic System as Citizens’ Economics

Around 1970, the high economic growth in Japan came to an end. In this period, the understanding of postwar capitalism deepened in Japan (Nagasu 1970), and the study of civil society—which was also the ideological basis for critically understanding Japanese capitalism—developed along with it (Uchida 1967; Hirata 1969). At the same time, the Prague Spring in Czechoslovakia (now the Czech Republic) occurred in 1968—and the distrust of Soviet-style socialism increased accordingly. In these circumstances, Shigenobu Kishimoto’s The Theory of the Capitalist Economic System—which attempted to synthesize research on civil society, the comparative economic system, and contemporary capitalism—aimed at constructing the Post-Marxian theory of contemporary capitalism as citizens’ economics (Kishimoto 1975). Moreover, when Japan was described as a society with “100 million all in the middle class,” Kishimoto criticized this argument as an illusion, referring the true situation of civic life, and he published The Illusion of the Middle Class (Kishimoto 1980). Kishimoto’s The Theory of the Capitalist Economic System was based on the results of his collaborative research with Seiji Mochizuki and Kiriro Morita on Marx’s Grundrisse and a wide range of research about contemporary capitalism and comparative economic systems. His book, which aims to establish citizens’ economics, covers the basic structures of social production, the market system, capital structures, reproduction, and capital accumulation. First, in the analysis of the basic structures of social production, production is understood from a social point of view with the logic of the development of the division of labor. Here, the results of the joint research with Mochizuki and Morita about the division of labor and civil society are developed theoretically. In Kishimoto’s theory of the division of labor based on the results of comparative economic system research, the factors determining the boundary between the intra-

3.4

Shigenobu Kishimoto’s The Theory of the Capitalist Economic System. . .

33

firm division of labor and the social division of labor are not the boundary of ownership but the logic of the governing productivity increase that produces the surplus of the economic system; that is, the logic of the need to control production processes totally at the firm level and the whole economy level to produce “economic surplus.”6 His theoretical framework is unique, unlike the theory of the boundary between the market and hierarchical organization in the new institutional economics, such as Oliver Williamson’s “transaction cost theory.” The dynamics of social production and the division of labor are explained as follows: “The part that is created by the division can have autonomy albeit within the framework of being a part. This can be said so as the will of the person who professionally shares the work can affect the progress of the work. Therefore, to combine these parts to form the whole, the regulation for the behaviors of the parts and the coordination of relationships among the parts are necessary. If we refer to both as control, we need control” (Kishimoto 1975, p. 42). The conceptual formulation shown here is almost the same as that of the régulation theory that was born in France in the mid-1970s (Aglietta 1976)—this was a very interesting contemporaneous theoretical development in political economy in Europe and Japan in the 1970s. Kishimoto’s economic theory also has its own understanding of the market system as an institution. The clear expression of his idea is “truly free competition”—“the acts of autonomous agents mutually taking on contractual relationships based on their free decisions” (Kishimoto 1975, p. 186)—and he argued that this should be realized under appropriate rules and systems. He developed this idea with the following theory of the market system. In a commodity exchange in the market system, the exchanging agents are equal and, in principle, the exchange has its own norm of equivalence in value. In an autonomous transaction in the market, a price distributes the income to a seller, which Kishimoto calls “the income-attribution function of prices.”7 However, the price accompanied by the equivalence of the exchanging agents is still local equivalence—which, through multi-layered coordination processes with a time dimension, creates global equivalence that is defined by the working of the whole system. This is the system of prices that guarantees the reproduction of the whole economic system, which corresponds to Sraffa’s production price system (Sraffa 1960).8 Moreover, in contemporary

Kishimoto’s “surplus approach” is influenced by Maurice Dobb, Theories of Value and Distribution since Adam Smith: Ideology and Economic Theory (Dobb 1973), which Kishimoto translated into Japanese. Maurice Dobb argues that surplus and income distribution are determined prior to the determination of the price system, based on Sraffa’s Production of Commodities by Means of Commodities (Sraffa 1960). 7 Kishimoto explained that price has triple functions: bolometer function reflecting the conditions of production, parameter function coordinating demand and supply, and income-attribution function (Kishimoto 1975). 8 In the early 1970s, Kishimoto started to study Sraffa’s price theory and to compare it with the price system in the socialist economy (Kishimoto 1971, 1972). In Japan, Sraffa’s Production of Commodities by Means of Commodities (Sraffa 1960) was translated by Izumi Hishiyamam, and Sraffa’s 6

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Table 3.3 Market system and capitalist firm system Capitalist firm system Market system

Division of labor Intra-firm division of labor Social division of labor

Labor power Capitalization of labor power under the control of capital Labor power with self-ownership as a commodity

Source: The author draws this table, based on Kishimoto (1975)

oligopolistic markets, the price control by large firms with their mark-up requirement often governs the price system. At the same time, responding to demand, multi-level quantity adjustment (inventory adjustment–capacity utilization adjustment–capital stock adjustment) proceeds in multi-layered time structures. Kishimoto asked how the market system can be established to create a global price structure that can be seen as fair from the viewpoint of individual citizens committing local equivalence with sympathy, even though a market exchange inevitably produces unsatisfied potential demand and unrealized potential supply at the local level. Here, the basic principle of a fair market that is controlled by each citizen is shown, but the concrete market organization and the style of control and coordination that could realize this idea are issues that remain unsolved. Kishimoto’s theory of the labor market also has an original idea. The commodification of the labor power—that is, the self-ownership of the labor power—is emphasized as a fundamental principle of modern civil society. The labor power is essentially the workers’ own, and it is important that this right be socially recognized.9 The essence of the problem with capitalism is that workers play their role within the corporate organization under the control of capital, losing a part of their autonomy, which Kishimoto calls “the capitalization of the labor power.” In short, the fundamental problem of the capitalist economy is not the commodification of the labor power but the capitalization of the labor power. Kishimoto’s understanding of the market system and the capitalist firm system can be summarized in Table 3.3. From this aspect, Kishimoto suggests that we should find both a corporate organization and a labor market that keeps the proper institutions and rules so that workers do not lose their autonomy, and proposed that the corporate ownership structure should be changed to a worker ownership and management structure, given the development of corporate ownership in contemporary capitalism.

price system had a great influence on Japanese post-Keynesian political economists. Yoshinori Shiozawa explained that Sraffa’s price system with “stationary process” is the best alternative to the Walrasian price system (Shiozawa 1983). Shiozawa emphasized Sraffa’s idea that price determination is independent of demand patterns. Furthermore, Hishiyama elucidated the significance of Sraffa’s theory from the viewpoint of the Cambridge tradition (Hishiyama 1993). Hishiyama also explained the importance of Sraffa’s theory that criticized the notion of price determination by demand and supply. 9 Kishimoto’s understanding of labor power in modern civil society from the positive aspect of workers’ freedom and self-ownership inherited from Kazuo Ōkōchi and Yoshihiko Uchida (Uchida 1967). In Japanese society, workers’ autonomy has been suppressed by the hierarchical structures of the corporate system (Isogai et al. 2000).

3.4

Shigenobu Kishimoto’s The Theory of the Capitalist Economic System. . .

35

Kishimoto was a pioneer in the macroeconomic theory of income distribution and effective demand as well. Taking the perspective of Michał Kalecki, he explained, “Wages are costs to companies, but they are the income of workers and a source of consumption demand” (Kishimoto 1975). This aspect of Kalecki’s theory of income distribution and effective demand was later formalized more strictly with the idea of “the paradox of costs” by Robert Rowthorn, a British political economist (Rowthorn 1982), but Kishimoto had already suggested that the buyer’s cost is the seller’s income to create demand in Japan in 1975. This is also the macroeconomic logic that creates wage-led growth, often proposed by Robert Boyer, a leader of the French régulation school (Boyer 1988) as well as Kaleckian economists (Lavoie 2014). Furthermore, Kishimoto posed the problem of understanding the dual aspect of wages as both cost and demand sources, and effectively controlling and coordinating them. Moreover, controlling not only wage levels, but also income redistribution and spending on welfare services in the social security system, play an important role in coordinating cost and demand sources.10

3.4.2

Kishimoto Criticized “The 100 Million All in the Middle Class” as an Illusion

The National Life White Paper 1977 argued that more than 90% of Japanese people were middle class, and a controversy began with Yasusuke Murakami’s article “The Reality of the New Middle Class,” Asahi Newspaper, May 20, 1977 (Murakami 1977), which described a huge, emerging middle class with a uniform lifestyle and consciousness. In response, Kenichi Tominaga published his article “The Current State of Social Stratification Structures,” Asahi Newspaper, June 27, 1977 (Tominaga 1977), which argued that the key characteristic of Japanese society’s stratification structure was social status inconsistency. Responding to Murakami in his article “Is the New Middle Class Possible?,” Asahi Newspaper, June 9, 1977 (Kishimoto 1977), Kishimoto noted that the Japanese middle class—while having a middleclass consciousness—was not a true, stable middle class because the capitalization of the labor force and the loss of corporate employees’ autonomy created insecurity about the insufficient social security system. Kishimoto suggested citizens and workers should develop substantial cooperativeness in Japanese society by securing the minimum level of citizen security and widening their choices. He suggested, “Let’s become community members rather than just a middle class.” Later,

10

In Kishimoto’s theory of capitalist economic system, the surplus approach and the Kaleckian logic of distribution and demand formation are not fully integrated, which requires our further study to develop the theoretical foundations of Post-Marxian and Post-Keynesian theories in the twentyfirst century (Uemura et al. 1998, 2007). This research should be also developed in the political economy of institutions and evolution (Isogai and Uemura 2022).

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3 Shigeto Tsuru’s “Institutionalism in the Broad Sense” and Theories. . .

Kishimoto published The Illusion of the Middle Class (Kishimoto 1980) to summarize his position. Kishimoto’s 1970s argument in the new middle class controversy was reconfirmed by Toshiaki Tachibanaki’s books, Economic Disparity in Japan (Tachibanaki 1998) and Disparate Society (Tachibanaki 2006), which precipitated the social disparity controversy in Japan in the late 1990 and 2000s. Thus, 30 years after Kishimoto pointed out the illusion of the Japanese middle class, the ongoing existence of disparity and inequality in the Japanese economy and society was reconfirmed by Tachibanaki and others, even after the Japanese economy experienced a bubble boom in the late 1980s and its collapse in 1990. This academic history showed the seriousness of the problem of disparity and inequality in Japanese society over 40 years. Since the 1980s, Shigenobu Kishimoto has been a critical analyst of the Japanese economy, continuing to raise issues from the viewpoint of citizens regarding living standards, the conditions for affluence, and problems in the aging society (Kishimoto 1988). In the Japanese financial big bang at the end of the 1990s, he published Financial Big Bang: What Will Happen to the Japanese Economy? What Will Middle-class Citizens Do? (Kishimoto 1998), and developed a critical discussion of the Japanese financial big bang from the citizens’ point of view. There, he advocates the new construction of a financial system and economic policies based on the principles of “Firm, Friendly, and Glocal (global-local)” in order to protect the lives of citizens in Japan.

3.5

Conclusion

As Tsuru argued in his book Institutional Economics Revisited (Tsuru 1993), Marx can be regarded as an institutional economist in the broad sense. Therefore, it is reasonable that Japanese political economists who were deeply influenced by Marx and applied the theories of Kalecki, Keynes, Sraffa, and Sylos-Labini to their own analyses of political economy fruitfully. Tsuru studied at Harvard University and corresponded with academics such as Joseph Schumpeter, Paul Sweezy, Wassily Leontief, John Kenneth Galbraith, and Joan Robinson to formulate his own political economy for postwar contemporary capitalism. Until his later years, Tsuru analyzed the institutional characteristics of contemporary capitalism and the environmental disruption problem with his message of “Marxian political economy as institutionalism in the broader sense.” Takasuka and Kishimoto also developed their theories of contemporary capitalism by applying the theories of Kalecki, Sraffa, and Sylos-Labini, while adhering to the viewpoint of Marxian economics. We can summarize the major points made by such research as follows. First, Tsuru, Takasuka, and Kishimoto analyzed the capitalist economic system from the perspective of the surplus of the socio-economic system. This idea was based on “the surplus approach” that developed from Classical economics to Karl

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Marx. Such an approach is now inherited by various Post-Keynesians with Sraffa’s price theory as Maurice Dobb pointed out. We need a further development of this approach, taking into account the coordination mechanisms of income distribution and the social control of economic surplus and reproduction in the historical development and institutional reform of the markets and firms in contemporary capitalism. Second, the systematic analyses of contemporary capitalism after Keynes should be conducted from the institutional perspective. Although the effectiveness of the Keynesian effective demand policy is acknowledged, its limitations and the importance of coordinating income distribution can be pointed out. In this regard, the instability of full employment, as pointed out by Kalecki, is particularly important, and the analysis of the relationship between income distribution and demand formation needs to be further developed by taking account of price-wage coordination and income redistribution policies, that is, “the socialization of flow” (Tsuru) in the welfare state from the institutionalist perspective. Third, it is important to analyze contemporary capitalism from a broader social perspective. Regarding environmental disruptions and the inflation/deflation problem in contemporary capitalism, we should analyze their “social costs” from a political economic point of view. Furthermore, it is necessary to understand the current situation of citizens’ lives and welfare and to make improvements in contemporary capitalism. To this end, it is necessary to formulate effective structural reform policies from the viewpoint of citizens. As Shigeto Tsuru emphasized, it is important to formulate a broader perspective beyond GDP just as a sum of economic activities in contemporary capitalism with an open-system character, and to provide a significant perspective on the future of contemporary capitalism as the mixed economic system that considers the cumulative causation between technological and social innovation and the evolution of socio-economic institutions. This must be an insightful message for political economists in the twenty-first century.

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Rowthorn, Robert. 1980. Capitalism, conflict and inflation. London: Lawrence and Wishart. ———. 1982. Demand, real wages and economic growth. Studi Economici 18. Schumpeter, Joseph A. 1926. Theorie der wirtschaftlichen Entwicklung (Revised 2nd ed.). Berlin: Duncker & Humblot. Samuelson, Paul A. 1964. Theoretical notes on trade problems. Review of Economic and Statistics 46. Shiozawa, Yoshinori. 1983. Kindaikeizaigaku no Hansei (The reflection of modern economics). Tokyo: Nihonkeizai-shinbunsha. Sraffa, Piero. 1960. Production of commodities by means of commodities: Prelude to a critique of economic theory. Cambridge: Cambridge University Press. Sylos-Labini, Paolo. 1962. Oligopoly and technical progress. Harvard University Press. Tachibanaki, Toshiaki. 1998. Nihon no Keizai Kakusa (Economic disparity in Japan). Tokyo: Iwanami-shoten. ———. 2006. Kakusa Shakai (Disparate society). Tokyo: Iwanami-shoten. Takasuka, Yoshihiro. 1965. Gendai Kakaku Taikeiron Josetsu (Prelude to the theory of the contemporary price system). Tokyo: Iwanami-shoten. ———. 1968. Saiseisan Hyōshiki Bunseki (The reproduction scheme analysis). Tokyo: Shinhyōron. ———. 1972. Gendai Nihon no Bukkamondnai (The price problem in Japan today). Tokyo: Shinhyōron. ———. 1979. Marx Keizaigaku Kenkyū (Marxian economics research). Tokyo: Shinhyōron. ———. 1981. Gendaishihonshugi to Infurēshon (Contemporary capitalism and inflation). Tokyo: Iwanami-shoten. ———. 1991. Tetsu to Komugi no Shihonshugi (Capitalism with iron and wheat). Tokyo: Sekaishoin. Tominaga, Ken-ichi. 1977. Shakai Kaisō Kōzō no Genjō (The current state of social stratification structures). Asahi Newspaper, June 27. Tsuru, Shigeto. 1940. Development of capitalism and business cycles in Japan,1868–1897. PhD Thesis at Harvard University. ———. 1942. On reproduction schemes. In The theory of capitalist development, ed. Paul Sweezy. Oxford University Press. ———. 1951. ‘Marx’s theory of the falling tendency of the rate of profit. The Economic Review. ———. 1954. Marx versus Keynes: Methodology of aggregates. In Post-Keynesian economics, ed. Kenneth K. Kurihara. Rutgers University Press. ———. 1959. Gendaishihonshugi no Saikentō (The re-examination of contemporary capitalism). Tokyo: Iwanami-shoten. ———, ed. 1970. Proceedings of international symposium on environmental disruption: A challenge to social scientists. Tokyo: International Social Science Council. ———. 1972. Kōgai no Seijikeizaigaku (The political economy of environmental disruption). Tokyo: Iwanami-shoten. ———. 1983. Taisei Henkaku no Seijikeizaigaku (The political economy of system reform). Tokyo: Shinhyōron. ———. 1985. Gendaikeizaigaku no Gunzō (The ensemble of contemporary economics). Tokyo: Iwanami-shoten. ———. 1993. Institutional economics revisited. Cambridge: Cambridge University Press. Tsuru, Shigeto, Kinzaburō Sato, Yoshihiro Takasuka, and Toshio Shimada. 1982. Jinruino Chiteki Isan 50: Marx (The intellectual heritage for humankind 50: Marx). Tokyo: Kōdainsha. Uchida, Yoshihiko. 1967. Nihon Shihonshugi no Shisō-zō (Intellectual portrait of Japanese capitalism). Tokyo: Iwanami-shoten. Uemura, Hiroyasu. 2007. Shakai-keizai system no Saiseisan to Shotoku Bunpai no Fubyōdō—Jōyo approach niyoru Bunseki (The reproduction of socio-economic system and the inequality of income distribution: An analysis by the surplus approach). Political Economy Quarterly 43 (4).

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Shigeto Tsuru’s “Institutionalism in the Broad Sense” and Theories. . .

Uemura, Hiroyasu, Akinori Isogai, and Akira Ebizuka. 1998. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: Beyond Marx and Keynes). Nagoya: Nagoya University Press. ———. 2007. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: Beyond Marx and Keynes). New Edition. Nagoya: Nagoya University Press. Uno, Kōzō. 1953. Kyōkōron (The theory of crisis). Tokyo: Iwanami-shoten. Veblen, Thorstein B. 1904. The theory of business enterprise. New York: Mentor Books.

Chapter 4

Yoshikazu Miyazaki and Mitsuharu Itoh: Research on Keynes and Contemporary Capitalism

Abstract We study about the intellectual heirs of Sugimoto and Tsuru, Yoshikazu Miyazaki and Mitsuharu Itoh, and their studied of Keynes’ The General Theory of Employment, Interest and Money and contemporary capitalism—such as Miyazaki and Itoh, Commentary: Keynes, The General Theory (Nihon Hyōronsha, 1964), Itoh, Keynes: The Birth of New Economics (Iwanami-shoten, 1962), and Miyazaki, The Historical Development of Modern Economics (Yuhikaku, 1967a). Miyazaki and Itoh developed their original understanding of J. M. Keynes, focusing on the three-class theory and the stock-flow analysis. They also examined the founders of post-Keynesian economics such as Michał Kalecki, Joan Robinson, and Nicolas Kaldor as well as modern institutional economists such as John Kenneth Galbraith and Gunnar Myrdal. Furthermore, we investigate their analysis of postwar capitalism from the viewpoint of theoretical analysis and economic thought; their policy ideas also emphasize the role of big corporations, civil society, the welfare state, and multinational corporations (Miyazaki, Contemporary Capitalism, Iwanami-shoten, 1967b; Itoh, Considering the Contemporary Economy, Iwanami-shoten, 1973). These Japanese institutionalist post-Keynesian economists developed their theoretical and empirical research based on the institutional analysis of postwar capitalism and the Japanese economy, and proposed economics policies based on civil society. Keywords Yoshikazu Miyazaki · Mitsuharu Itoh · Keynes · Modern economics · Post-Keynesian · Contemporary capitalism

4.1

Introduction

Keynesian economics made great progress during the period of high economic growth in Japan. At the end of the 1950s, Keynes’s economic theory became popular in Japan. In particular, The General Theory of Employment, Interest, and Money (Keynes 1936) came to be read by many Japanese researchers. Reviewing the development of Keynesian economics during that period, the implications of his economic theory as a whole—and especially “the total image of the economy” (Miyazaki 1967a)—were focused on with the careful investigation of theoretical © Springer Nature Singapore Pte Ltd. 2023 H. Uemura, Japanese Institutionalist Post-Keynesians Revisited, Evolutionary Economics and Social Complexity Science 29, https://doi.org/10.1007/978-981-19-8688-8_4

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systems and analytical tools. In particular, Yoshikazu Miyazaki and Mitsuharu Itoh extensively developed the study of The General Theory and modern economics after Keynes. Both Miyazaki and Itoh began to study Marshall, Marx, and Keynes with Professor Eiichi Sugimoto at Tokyo University of Commerce (now Hitotsubashi University) in the 1940s and inherited Sugimoto’s perspective of “creative rivalry” among various schools of modern economics, including the Cambridge school, the Marxian school, and the Keynesian school.1 They then joined Shigeto Tsuru’s research group to study contemporary capitalism with “institutionalism in the broad sense” (Tsuru 1993, p. 3) at Hitotsubashi University after the 1950s. The Japanese Keynesian economists introduced here also developed their research in line with the founders of Post-Keynesian economics, such as Joan Robinson and Nicholas Kaldor. Remarkably, in the Japanese case, their Keynesian economics can be characterized as “institutionalism in the board sense.” The Japanese institutionalist Keynesians developed theoretical and empirical studies based on their analyses of features of postwar contemporary capitalism such as high economic growth, oligopolistic pricing, multinational corporations, and financial instability in Japan and the world economy.

4.2 4.2.1

Miyazaki and Itoh on Keynes and Miyazaki’s The Historical Development of Modern Economics Comprehensive Understanding of Keynes’s Theory in Commentary: Keynes, The General Theory

Miyazaki and Itoh’s book, Commentary: Keynes, The General Theory (Miyazaki and Itoh, 1964), was the first full-fledged study of Keynes’s The General Theory in Japan. The authors state the book’s intention thus: “The primary reason for naming this book ‘commentary’ is that it expresses our desire to read and understand as accurately as possible even one line of The General Theory.” They add, “It is not just an interpretation for interpretation, but at the same time, trying to accurately portray the total picture of the system and to clarify its limitations” (ibid. p. 2). Here we can systematically understand Keynes’s total image of the economy, both theoretically and philosophically. The contents of the book are presented in Table 4.1.

Eiichi Sugimoto studied the history of economic theories, creating a word, the “creative rivalry” of various modern economic schools (Sugimoto 1950, 1953). As for Sugimoto’s theoretical research, see Chap. 2. Shigeto Tsuru developed his theory of contemporary capitalism based on Marx, Keynes, and Institutionalism (Tsuru 1959, 1993). “Institutionalism in the broad sense” is Tsuru’s significant theoretical perspective. As for Tsuru’s theoretical and empirical research on contemporary capitalism, see Chap. 3.

1

4.2

Miyazaki and Itoh on Keynes and Miyazaki’s The Historical. . .

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Table 4.1 Contents of Commentary: Keynes, The General Theory Lecture 1 Focus on Understanding Keynes Lecture 2 The Postulates of the Classical Employment Theory Lecture 3 The Criticism of the Classical Postulates Lecture 4 The Principle of Effective Demand Lecture 5 Labor Unit and Money Unit Lecture 6 The Definition of Income, Saving, and Investment Lecture 7 Investment-Saving Equality and Multiplier Lecture 8 The Instability of the Marginal Efficiency of Capital Lecture 9 Liquidity Preference and Interest Rate Lecture 10 The Essence of Capital, Interest, and Money Lecture 11 The Core of the Keynesian Revolution Lecture 12 Keynes’s Social Philosophy Lecture 13 Significance and Limitations of Keynes’s Theory Source: Miyazaki and Itoh (1964)

In their book, Miyazaki and Itoh proceed their lectures step by step, following the organization of Keynes’s The General Theory. First, Miyazaki and Itoh understand the system of Keynes’s The General Theory as a three-class theory consisting of rentiers, entrepreneurs, and workers. Of course, Keynes himself, in the position of an entrepreneur, is looking for a union of managers and workers and pursuing the famous “euthanasia of rentiers.” Second, it is important that the structure of Keynes’s theoretical system is “stock-flow analysis,” and this understanding is the specific characteristic of the interpretation of The General Theory by Miyazaki and Itoh.2 In other words, it has a logical structure in which transactions in financial asset stock determine the level of the interest rate, which is the price of financial stock, with “liquidity preference,” and this affects investment decisions together with the marginal efficiency of capital. Then, in the area of flow, investment determines the level of national income through the multiplier effect, creating involuntary unemployment. Furthermore, Miyazaki and Itoh emphasize that Keynes is developing a theory of the “self-interest rate” of capital assets and goods as a development of stock-flow analysis. Third, Keynes’ economic policy calls for “the socialization of investment” to mitigate the impact of speculation in the financial market on investment to protect industrial activities. In addition, Miyazaki and Itoh point out that there are two possible types of Keynesian policies in advanced capitalist countries. One is big business-oriented Keynesian economic policy—a state intervention policy to support the activities of big corporations—and the other is a policy based on social democracy to support the welfare system with income redistribution and effective demand management.

2

Tatsuhiko Aoki studied with Yoshikazu Miyazaki and Shigeto Tsuru, and considered how Keynes’s stock-flow analysis was developed in Post-Keynesian economic theories (Aoki 1993; Itoh 1993). Aoki introduced Hyman Minsky’s “financial instability hypothesis” into Japanese academic society.

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Miyazaki and Itoh emphasize that Keynesian policies have both these aspects (Miyazaki and Itoh, 1964, p. 310). Coinciding with the publication of this book, Itoh introduced the essence of the Keynesian revolution in his book, Keynes: The Birth of New Economics (1962). This introduction was based not only on Keynes’ economic theory but also on his social thoughts in the context of British academic society and became the starting point for many Japanese economists and students in understanding Keynes’s economics. Itoh has since written many books on Keynes (Itoh 1983), and 40 years after his first book, recently published a comprehensive book on Keynes based on recent research into Keynes, Keynes Lives Today: Economic Theory as Moral Science (Itoh 2006). Itoh explains that Keynes understood economics as a moral science. Ito also criticizes homo economicus (or economic man with the quality of selfishness without sympathy), stating “Keynes’s system is a study as a means of realizing it (economics) based on ethics and moral philosophy, like Aristotle’s” (Itoh 2006, p. 223). Thus, Miyazaki and Itoh sought to elucidate the total picture of Keynes’ economic theory and moral science, referring to the institutional structures of contemporary capitalism over 50 years.

4.2.2

Miyazaki: The Historical Development of Modern Economics

Extending Miyazaki and Itoh’s studies on Keynes’s The General Theory in the early 1960s, Miyazaki’s The Historical Development of Modern Economics (Miyazaki 1967a) dramatically developed research into the history of modern economics after the Keynesian revolution. The Contents of the book is introduced in Table 4.2. Miyazaki studied the history of economic theories in terms of analytical tools and “the total image of the economy,” explaining the importance of the latter in precipitating a vision of a particular economics: “Obviously, the work of extracting a vision involves the concept of ‘the total image of the economy’ in the middle of the process that proceeds in the direction of an economic theory as a system of tools → the total image of the economy → the vision. . . . The image of the economy changes historically. This is because the image of the economy begins to develop under the influence of historical reality. This shows that the image of the economy is at least verifiable by facts” (Miyazaki 1967a, p. 7). Thus, the historical transformations of the total image of the economy can be set as the subject of research. Miyazaki adds, “It is the task of this book to investigate such transformations of the total image of the economy in close relation to structural changes in contemporary capitalism, and to verify whether the current dominant theories faithfully answer the contemporary challenges in the economy” (ibid. p.13). Miyazaki pursues the historical development of modern economics in the twentieth century from the perspective of the transformations of modern economics in the image of the economy. First, the book examines the exact nature of the Keynesian

4.2

Miyazaki and Itoh on Keynes and Miyazaki’s The Historical. . .

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Table 4.2 Contents of The Historical Development of Modern Economics Introduction: Theme, Approach, and Periodization I The Economic Image of Capitalism before and after “the Keynesian Revolution”: From the Great Crisis to the Recession in 1937 Chapter 1 The Influence of the Great Crisis on Economics —Introduced economists: Marshall, Sraffa, Robinson, Chamberlin, Kaldor, Triffin Chapter 2 The Fundamental Character of So-called “Keynesian Revolution” —Introduced economists: Keynes, Kaldor, Robinson, Dobb Supplement: The Simultaneous Discovery of “The General Theory” by Harrod and Kalecki Chapter 3 The Significance of Oxford Economic Survey —Introduced economists: Kalecki, Harrod, Dunlop, Hall and Hitch, Sweezy II The Morphological Change of Postwar Capitalism and the Economic Image: From Around World War II to the 1960s Chapter 4 Theories of Long-term Stagnation and the Perspectives of Monopoly —Introduced economists: Hansen, Harrod, Schumpeter, Steindl Chapter 5 The Structures of “Contemporary Capitalism” —Introduced economists: Hansen, Galbraith, Kuznets, Strachey Chapter 6 Request for a New Image of World Capitalism —Introduced economists: Myrdal, Haberler, Robinson Source: Based on Miyazaki (1967a), the author adds “introduced economists”

revolution and, in particular, examines Keynes’s total image of the economy as expressed in The General Theory. Keynes breaks away from the atomic view of society and comprehends economic society as consisting of three main classes— rentiers, entrepreneurs, and workers—noting that the principles of action of economic agents and their constraints are not the same for all agents. Above all, workers cannot maximize their own utility under involuntary unemployment. In addition, rentiers play a unique role in Keynes’s system: the rentiers who own financial assets drive the economy through interest rates. The liquidity preference theory mediates this relationship as the financial assets market sometimes becomes unstable, manipulated by the speculative behaviors of rentiers. To overcome this, Keynes proposes the socialization of investment and the euthanasia of rentiers. With regard to a full employment policy, Miyazaki pointed out that Keynes was thinking about the creation of effective demand through income redistribution from high-income earners to low-income earners, as well as the role of public spending by the state as a huge consumer. Besides Keynes, Miyazaki also introduced Michał Kalecki, who was another discoverer of the principle of effective demand and analyzed economic dynamics with a focus on profits and investment in the capitalist economy (Kalecki 1935, 1954). Second, Miyazaki’s research seeks to understand the concrete mechanisms of contemporary capitalism. He introduces the Oxford Economic Survey, an interview survey for business owners that was conducted in 1935 by the Business Cycle Research Group at the University of Oxford with the support of the Rockefeller Foundation. The survey looked at the full-cost principle as a pricing principle in

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contemporary capitalism and found that the majority of business owners did not measure demand elasticity or marginal costs but set their prices by adding a certain markup to the prime and overhead costs per unit. Of course, this is different from the pricing principle based on the marginal principle that is adopted in Keynes’s The General Theory. The Oxford Economic Survey also looked at the impact of interest rates on investment and concluded that short-term interest rates have no direct effect on inventory investment and fixed capital investments. Long-term interest rates have no direct effect on capital expenditures and have indirect effects through changes in stock prices. Therefore, according to this finding, Keynes’s theory that changes in interest rates lead to investment shifts is limited as a theory of investment. Third, Miyazaki investigates the changes in the form of capitalism before and after World War II and the corresponding changes in the image of the economy as postwar advanced capitalist countries experienced high and stable economic growth—Galbraith’s so-called “affluent society” (Galbraith 1958). In particular, Miyazaki considers the decline of the theories of long-term stagnation and the emergence of theories of contemporary capitalism. He explains the long-term stagnation theories of Hansen, Schumpeter, and Steindl. The reasons for the prolonged stagnation include Hansen’s declining private investment opportunities, Schumpeter’s government intervention, which restrains corporate profits, and Steindl’s emphasis on the deterioration of competition due to the growth of monopolies. In particular, Steindl’s theory of economic stagnation was based on the longterm recession in the United States in the 1930s, and it was understood that economic stagnation was due to excess production capacity created by the growth of the monopoly industry (Steindl 1952). As for the new phase of postwar contemporary capitalism, Miyazaki also refers to Tsuru’s epoch-making question “Has capitalism changed?” (Tsuru 1959), with an investigation of the effects of technological innovation, the oligopolistic industry, income equalization, and full employment policies. Miyazaki introduces the Keynesian policy idea in Japan not only to save capitalism, but also to fundamentally reform it by steadily implementing the policies. In this context, Miyazaki also introduces the British writer Lytton Strachey’s political position, which pursued Keynesian socialism with welfare policies after the Keynesian revolution (Strachey 1956). Furthermore, from an international perspective, Miyazaki stresses the need for economic research about multinational corporations to understand the new phase of postwar global capitalism.

4.3

Analyses of Contemporary Capitalism by Miyazaki and Itoh

Yoshikazu Miyazaki and Mitsuharu Itoh analyzed the new reality presented by the transformations of postwar contemporary capitalism and Japanese capitalism— along with concepts such as company corporate groups, oligopolistic pricings,

4.3

Analyses of Contemporary Capitalism by Miyazaki and Itoh

47

Keynesian policies, mass consumption, the era of technological revolution, and multinational corporations—and published many books on postwar contemporary capitalism after the mid 1960s.

4.3.1

Itoh’s Study of Modern Price Theories

Itoh examined modern price theories in the twentieth century while studying the theoretical essence of Keynes’s The General Theory. In his book, The Structure of Modern Price Theories: Competition, Oligopoly, Monopoly (Itoh 1965), Itoh investigates modern price theories in the context of the shift in market structures to the oligopolistic market, and the transformation of contemporary capitalism with macroeconomic policies after Keynes. The contents of the book is introduced in Table 4.3. Itoh introduces modern price theories based on the historical transformation of capitalism with the demise of liberalist image of the economy. Referring to oligopolistic corporations and Keynesian policies in contemporary capitalism, he examines, the modern piece theories in a systematic manner: the theory of imperfect competition (J. Robinson), the theory of monopolistic competition (E. H. Chamberlin), the kinked demand curve theory (P. Sweezy), the entrypreventing price theory (P. Sylos-Labini; J. S. Bain), the dependence effect (J. K. Galbraith), and the sales maximization hypothesis (W. J. Baumol) (Robinson 1933; Sweezy 1939; Galbraith 1958; Sylos-Labini 1962). In particular, Itoh explains the dynamic relationship between the kinked demand curve with price rigidity and the full-cost principle that is faced by changes in production costs, including that in wages. The price setting with the kinked demand curve is independent of shifts in demand. On the contrary, the increase in production costs over an industry as a whole often leads to an increase in prices caused by the co-operative behaviors of oligopolistic firms. Itoh intentionally tries to construct the theoretical foundations of oligopolistic firms’ price setting as the basis of Keynesian macroeconomic analysis in contemporary capitalism, which goes beyond the application of Keynes’s The General Theory.3 Furthermore, in his book, Itoh explains that there are two major components in contemporary capitalism: the oligopoly economy and Keynesian policies. Under these conditions, structural inflation is caused by the price setting of oligopolistic firms and the wage requirements of organized trade unions in combination with a Keynesian demand management policy of the government. Furthermore, referring to Michał Kalecki’s suggestion, Itoh points out that the profits decrease, faced by rising

3 Itoh’s analysis of the mutual independence of price determination and demand, referring to their indirect relationships with costs conditions, is a very pioneering study as this is one of the important theoretical foundations of Post-Keynesian economics (Lavoie 1992, 2014). This aspect was also developed in a Kaleckian macroeconomic theory in (Uemura et al. 1998, 2007).

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Table 4.3 Contents of The Structures of Modern Price Theories I Introduction Chapter 1 The Economic Image in the Era of Liberalism II Competitive Market and Modern Price Theories Chapter 2 The Analysis of the Goods Market Chapter 3 The Analysis of the Labor Market Chapter 4 The Analysis of the Financial Market Supplement: The Market of Imperfect Competition —Introduced economists: Robinson, Chamberlin, Sraffa III Theories of Contemporary Market Chapter 5 The Upset of the Liberalist Image of the Economy —Introduced economists: Keynes, Dobb Chapter 6 Changes in Market Structures —Introduced economists: Marx, Berle and Meanse, Hirferding, Sweezy IV Theories of Oligopolistic Prices Chapter 7 Theories of Price Determination in the Co-operative Oligopolistic Market —Introduced economists: Sweezy, Hall and Hitch, Kalecki, Sylos-Labini, Bain Supplement: The Theory of Non-price Competition —Introduced economists: Galbraith Chapter 8 Theories of Competitive Oligopoly —Introduced economists: Baumol Chapter 9 Problems Remained: Concluding Remarks —Introduced economists: Keynes, Galbraith Source: Based on Itoh (1965), the author adds “introduced economists”

wages, even following the full-cost principle. Furthermore, Itoh argues that price setting by the full-cost principle can be maintained firmly in the oligopolistic market when it is supported by Keynesian demand-creation policies of the government. In this situation, he points out, countervailing powers, such as consumer associations and trade unions (Galbraith, 1952), play an important role in the face of dominant oligopolistic firms. He observes, “Here, there is a reason why the perspective to think about contemporary capitalism must shift from the stage of economics to that of political and social economy” (Itoh 1965, p. 221).4

4 Itoh developed the perspective, “from economics to political and social economy,” based on Keynesian theories until his later years (Itoh 1985, 2006). The similar idea of political economy as a moral science was also developed, referring to Samuel Bowles’ the moral economy, in (Isogai and Uemura 2022). Itoh also made policy proposals for the Japanese economy (Itoh 1985, 2014).

4.3

Analyses of Contemporary Capitalism by Miyazaki and Itoh

4.3.2

49

Itoh’s Institutional Analysis of Contemporary Capitalism

In the 1970s, Itoh published Considering the Contemporary Economy (Itoh 1973)— which gave a total analysis of the institutional characteristics of contemporary economy—and mainly focused on domestic institutional changes and policy problems. Beginning with the chapter “Rethinking Contemporary Capitalism,” Itoh notes Tsuru’s question, “Has capitalism changed?” (Tsuru 1959). In particular, Itoh addresses the oligopolistic domination of the mega-corporations and the separation of capital ownership and management. Itoh explains, “Once a corporation was somebody’s property. However, in contemporary capitalism, it is not just a property but starts to move as an independent organization” (Itoh 1973, p.13). In his institutional analysis of contemporary capitalism, he sees big corporations as autonomous organizations with their own ongoing concerns. Itoh also explains his perspective of civil society in contemporary capitalism. While responding to Kiyoaki Hirata’s theory of civil society and socialism (Hirata 1969) and Keiichi Matsushita’s theory of civil minimum (Matsushita 1971)—both of which had a great influence on Japanese academic discussion in the early 1970s—, Itoh explains the importance of civil society and its transformation into a mass society in postwar contemporary capitalism. He states, “The contradiction and complementarity between civil elements and capitalist elements—these dual relations come to have diverse forms in and out of the oligopolistic economy” (ibid. p. 31). Furthermore, he offers his own perspective on the diversity of contemporary capitalisms: “Contemporary capitalism operates in a network that consists of two vertical lines and two horizontal lines. The two vertical lines are the transformation of capitalism and the characteristics of each society, and the two horizontal lines are the entanglement between the capitalist system and civil society, which can be captured by neither de-system thinking nor mono-system thinking” (ibid. p. 51). In the early 1970s, Itoh proposed his methodology of analyzing varieties of capitalism. From this perspective, Itoh considers the private ownership of technological innovation, pollution problems, and the welfare state in postwar contemporary capitalism. In particular, in the case of pollution problem in the postwar Japanese economy, he points out that company-based unions often cooperate with large corporations, so that a civil movement is very important to overcome this serious problem. Public policies should take into account the social costs of industrial activities. Furthermore, he emphasizes the importance of an income redistribution policy and the civil minimum idea, which supports the basic life of citizens as a means of realizing welfare development. In this context, Itoh offers an impressive message about the welfare state: “The welfare state is a society that secures and raises such a civil minimum standard with the consent of the citizens. In some cases, what has been a part of the market mechanism may be reduced and regulated, in contrast to an economy that accepts the dominance of the market economy” (ibid. p. 175).

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In this way, Itoh analyzed the structural problems of contemporary capitalism one by one and proposed policy solutions based on an institutional analysis of the oligopolistic market, firm organization, trade unions, the welfare state, and Keynesian policies. In his later years, Itoh published another book, Galbraith (Itoh 2016), which explained John Kenneth Galbraith’s economics and life. Itoh characterized Galbraith as a leading institutional economist in the United States in the postwar period (Galbraith 1952, 1958, 1967, 1973). Itoh’s economics and social thought have much in common with Galbraith’s. Itoh says in his book, “Galbraith put a scalpel into the analysis of interrelationships between the economy and politics. It was ‘the revival of political economy’ that had been forgotten” (ibid. p. 215).

4.3.3

Miyazaki’s Study of Contemporary Capitalism: Company Groups, High Economic Growth, and Multinational Corporations

Yoshikazu Miyazaki actively studied the new realities of postwar capitalism and the Japanese economy. From the 1960s to the 1970s, Miyazaki’s research developed two main areas: the study of high economic growth in the Japanese economy and Japanese company groups underlying the economic miracle, and the study of the contemporary world economy and multinational corporations. In Miyazaki’s research on the Japanese economy from the 1960s to 1970s, he analyzed the “excess competition” created by the so-called “one-set principle” that each of six Japanese company groups commonly had a wide range of businesses. This kind of excessive competition dynamics was financially supported by indirect finance and affiliated loans through main banks and led to very active capital accumulation, which was often called “Investment calls for investment.” This is exactly the mechanism that realized high economic growth in Japan (Miyazaki 1966). Miyazaki consistently pursued a method of elucidating macroeconomic dynamics based on an analysis of institutional structures and behaviors in the Japanese economy. His book Structures and Behaviors in the Japanese Economy (Miyazaki 1985) is a synthetic collection of his studies on the dynamics and structural changes of the Japanese economy from the postwar period to the 1970s. Miyazaki’s first systematic achievement of the analysis of the contemporary world economy was Contemporary Capitalism (Miyazaki 1967b). This responded to the need for a new overall image of world capitalism—which he had suggested in The Historical Development of Modern Economics (1967a). In the research, he conducted a pioneering analysis of the multinational corporations that had become leading actors in the world economy. In this way, Miyazaki analyzed the new reality of postwar contemporary capitalism from a world economic perspective. Furthermore, in Contemporary Capitalism, Miyazaki relativizes the welfare state in advanced countries by taking a wider perspective that includes developing countries. In particular, referring to Gunnar Myrdal and Joan Robinson (Myrdal

4.4

The Japanese Economy in “the Complex Depression” and “Transnational. . .

51

1960; Robinson 1962), Miyazaki points out that the welfare state of the wealthiest Western nations is often protectionist and nationalist, hampering the resolution of international problems. He emphasizes that the North-South problem governs the patterns of world development and that this is one of the most important issues in postwar contemporary capitalism. Miyazaki also points out that Keynesian policies—if not well-coordinated with international cooperation—may have a negative impact on the balance of payments in both advanced and developing countries. Miyazaki emphasizes the need to analyze multinational corporations—which are powerful economic actors in contemporary world economy—noting that “Capital crosses national borders” (Miyazaki 1967b, p. 73). He had previously posed this theme in the last chapter of The Historical Development of Modern Economics (Miyazaki 1967a), and it became his consistent research theme until the 1980s. He later analyzed “the new price revolution” in the world economy due to the oil price shock in 1973 (Miyazaki 1975), and his research into multinational corporations was fully fledged in Contemporary Capitalism and Multinational Corporations (Miyazaki 1982). Noting that multinational corporations expand their businesses to other countries, Miyazaki argues for “the net corporate surplus hypothesis,” according to which the surplus inside big corporate organizations becomes the source of the overseas activities of multinational corporations in the world economy. Furthermore, referring to Steven Hymer’s research (Hymer and Rowthorn 1970; Hymer 1976, 1979), he notes the “extra profits” that are created by the control of multinational corporations based on the increasing net corporate surplus. Miyazaki also discusses the changing nature of “imperialism” in the face of the increasing power of multinational corporations in the world economy, identifying three possible types—“US super-imperialism,” “imperial rivalry,” and “ultra-imperialism”—on the basis of Robert Rowthorn’s analysis of multinational corporations and imperialism (Rowthorn 1971). In the 1980s, Miyazaki analyzed the world-wide circulation mechanism of so-called “oil dollars,” which were created in the two oil price shocks and circulated through the United States, Europe, the Middle East, and Latin America, mediated by the world-wide activities of multinational banks. He also analyzed their major impact on structural changes in the world economy in his book, How to See the World Economy (Miyazaki 1986).

4.4

The Japanese Economy in “the Complex Depression” and “Transnational Civil Society”

Let us consider the research of Miyazaki and Itoh in their later years. In the latter half of the 1980s, the Japanese economy formed a bubble due to the Bank of Japan’s monetary easing policy to respond to the rapid appreciation of the yen after the Plaza Accord in 1985. Stock and land prices rose very sharply in the bubble economy. The bubble collapsed in 1990, and this brought about a long depression in the

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Japanese economy in the 1990s. Miyazaki called this depression a “complex depression” and had soon analyzed it, announcing the research results in Complex Depression: In Search of a Post-Bubble Prescription (Miyazaki 1992). The term “complex depression” was coined by Miyazaki, explained in his book thus: “A common feature of the immediate depression in advanced economies is that, as a result of financial liberalization, the process of adjusting financial assets (stock) has taken the lead, which has triggered negative growth in real GDP (flow). It can be said that it is a combined stock-flow depression in which the long-term adjustment of the bubble, that is, bad assets (stock), and the short-term inventory adjustment of the flow proceed in tandem” (Miyazaki 1992, p. iii). In fact, the longlasting depression of the 1990s was greatly affected by the bubble in the late 1980s and its bursting in 1990. It should be emphasized that such an analysis of the “complex depression” is an extension of Miyazaki’s theoretical study of Keynes’s The General Theory, which was developed after the 1950s. As we saw earlier, Miyazaki understood The General Theory from the perspective of a stock-flow structure and emphasized the existence of the market for financial asset stocks behind the flow of effective demand. This “stock-flow analysis” perspective is also applied to “the complex depression,” and an empirical analysis of the Japanese economy is conducted from a perspective in which fluctuations in prices of financial asset stocks are linked to income flow dynamics through balance sheet adjustments of Japanese companies. In his later years, Miyazaki always looked at both Japan and the world, providing not only an objective analysis of the activities of multinational corporations in the world economy and the destabilizing international financial market, but also a framework for the international political economy that regulates the world economy. In particular, Miyazaki developed an understanding of the world economy, influenced by G. Myrdal in the 1960s, and proposed the perspective of “transnational civil society.” In the 1990s in particular, Miyazaki began to provide not only an objective analysis of multinational corporations in the world economy but also an international political framework that could regulate multinational corporations’ activities. In his discussion of “transnational civil society,” he explained that the framework of the contemporary world economy was shifting from international to transnational, and thus it was important to harmonize egoism and altruism (or sympathy-based morals) at the transnational level. He suggests the need for rules and mechanisms to maintain this harmonization, observing that the transnational activities of multinational corporations are expanding, on the one hand, while, there is absolute poverty in developing countries, on the other. He argues that “The scope of ‘sympathy’ among society members should not remain within one nation or one ethnic group but should expand its reach globally” and “The establishment of a new social science for ‘transnational civil society’ must be our urgent task” (Miyazaki 1990, p. 288). The Japanese economy, which experienced “the complex depression” in the 1990s, did not show sufficient recovery even in the 2000s. This economic situation was often called “Lost 20 years.” Japan’s economic disparity increased rapidly due to the widening profit gap between large firms and small and medium-sized firms as

4.5

Conclusion

53

well as an increase in non-regular workers (Tachibanaki 2006). The Japanese government of the Liberal Democratic Party in the early 2000s implemented neoliberalist policies such as the Japanese financial big bang and the privatization of Japan Post Office. After that, the government of the Democratic Party came to exist in 2009, but it could not continue. From 2012, the Abe Cabinet of the Liberal Democratic Party proposed an economic policy called “Abenomics.” The main policy pillars were monetary easing, active fiscal policy, and growth strategy, but these were not able to lead to a sufficient economic recovery. The rise in stock prices and the depreciation of the yen increased the profits of large firms and financial asset owners, but did not bring about an increase in Japanese people’s incomes. In this situation, Itoh published Criticism of Abenomics: Breaking Four Arrows (Itoh 2014), arguing that Abenomic was not effective as an economic policy. He also pointed out that Abe administration’s political ideas would destroy postwar democracy in Japan. Furthermore, Itoh explained the feature of liberal social thought in Japan: “Above all, the ideal of postwar Japan was the rejection of repeating a war, and the idea of intention for welfare society seeking affluence” (ibid. p. 155). This is in common with Keynes’s social idea. Itoh concluded as follows: “What Keynes, a scholar of economics, sought were economic efficiency, social justice, and personal freedom that was tolerant for others” (ibid. p. 155).

4.5

Conclusion

Yoshikazu Miyazaki and Mitsuharu Itoh produced full-fledged Keynesian research in postwar Japan. Under the influence of Eiichi Sugimoto and Shigeto Tsuru, they developed their theoretical and empirical analyses of contemporary capitalism from institutional and historical perspectives. Thus, behind their Keynesian economics, there was “Marx as institutionalism in the broad sense,” which Tsuru emphasized in a later book, Institutional Economics Revisited (Tsuru 1993). In this regard, they developed theoretical and empirical analyses of the capitalist economy, always keeping in mind the historical stage of postwar contemporary capitalism. In particular, the following characteristics of their prominent studies can be clearly identified. First, Miyazaki and Itoh’s work on Keynes’s The General Theory and modern economics after Keynes can be characterized as understanding The General Theory and other modern theories from the perspective of “the total image of the economy,” as well as their theoretical systems. In particular, Keynes’s theory is formulated as a three-class theory that is critically against methodological individualism and comprises a stock-flow macroeconomic theory that captures the macroeconomic dynamics of money and employment. As for the development of modern economics after Keynes, they actively introduced the founders of Post-Keynesian economics, such as Michał Kalecki, Joseph Steindl, Joan Robinson, Nicolas Kaldor, and John Kenneth Galbraith, referring to their importance in the context of the transformations to contemporary capitalism and policy orientation in the postwar period.

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Second, Itoh’s research on Keynes and contemporary capitalism had the following characteristics as social science. Itoh understood Keynes’s The General Theory from the perspective of social thought, and in particular he emphasized its aspect of a “moral science.” Correspondingly, Itoh’s analysis of contemporary capitalism was not limited to the economic analysis of the oligopolistic economy and macroeconomic dynamics but includes a wider analysis of the interaction between the economy and politics, referring to J. K. Galbraith as a leading institutional economist in the postwar period. He also emphasized the transforming interrelationship between contemporary capitalism and civil society in the postwar period. Third, Miyazaki’s research ranged from The Historical Development of Modern Economics to the empirical analysis of contemporary capitalism and the Japanese economy. Miyazaki’s The Historical Development of Modern Economics inherited Eiichi Sugimoto’s understanding of the history of modern economics, and he extensively studied the development of modern economics after Keynes. What is characteristic of Miyazaki’s research is its method of analyzing the institutional structures of contemporary capitalism and the Japanese economy to explain the dynamics of the macro economy and the global economy. This method was consistently retained through the analysis of the Japanese economy from the high economic growth of the 1960s to “the complex depression” as a stock-flow recession in the early 1990s, as well as in the analysis of multinational corporations in the world economy over the 40 years. In this way, Miyazaki and Itoh developed their theoretical and empirical research on the institutional structures and dynamics of contemporary capitalism and the Japanese economy, based on their theoretical study on Keynes and modern economics after Keynes, especially the theories of Post-Keynesian economics. In this regard, they can be called the original “institutionalist post-Keynesians” in Japan. Moreover, they always proposed their effective policies to countervail the instability of the contemporary capitalist economy in Japan and globally while referring to the significance of civil society.

References Aoki, Tatsuhiko. 1993. Post-Keynesian niokeru Keynes no Keishō to Hatten (The inheritance and development of Keynes in Post-Keynesians). In Keynes [Keynes], Mitsuharu Itoh, ed. Kōdansha. Galbraith, John K. 1952. American capitalism: The concept of countervailing power. Boston: Houghton Mifflin Harcourt. ———. 1958. The affluent society. Boston: Houghton Mifflin. ———. 1967. The new industrial state. Boston: Houghton Mifflin. ———. 1973. Economics and the public purpose. Boston: Houghton Mifflin. Hirata, Kiyoaki. 1969. Shiminshakai to Shakaishugi (Civil society and socialism). Tokyo: Iwanamishoten. Hymer, Steven. 1976. The International operations of national firms: A study of direct foreign investment. Cambridge: MIT Press. ———. 1979. The multinational corporation: A radical approach. Cambridge: Cambridge University Press.

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Hymer, Steven and Rowthorn, Robert. 1970. Multinational corporations and International oligopoly: The non-American challenge. In The international corporation, C. Kindleberger, ed. The MIT Press. Isogai, Akinori, and Hiroyasu Uemura, eds. 2022. Seido to Shinka no Seijikeizaigaku: Chōsei no Jūsōsei to Tayōsei (The political economy of institutions and evolution: multi-layered régulation and diversity). Tokyo: Nihon Keizai Hyōronsha. Itoh, Mitsuharu. 1962. Keynes: Atarashii Keizaigaku no Tanjō (Keynes: The birth of new economics). Tokyo: Iwanami-shoten. ———. 1965. Kindai Kakakuriron no Kōzō (The structures of modern price theories). Tokyo: Shinhyoron. ———. 1973. Gendai Keizai wo Kangaeru (Considering the contemporary economy). Tokyo: Iwanami-shoten. ———. 1983. Jinrui no Chiteki Isan: Keynes (Intellectual heritage of human-being: Keynes). Tokyo: Kodansha. ———. 1985. Keizaigaku wa Genjitsu ni Kotaeuruka (Can economics respond to the reality?). Tokyo: Iwanami-shoten. ———, ed. 1993. Keynes (Keynes). Tokyo: Kōdansha. ———. 2006. Gendai ni Ikiru Keynes: Moral science toshiteno Keizairiron (Keynes lives today: Economic theory as moral science). Tokyo: Iwanami-shoten. ———. 2014. Abenomics Hihan: Yon Hon no Ya wo Oru (Criticism of Abenomics: Breaking four arrows). Tokyo: Iwanamishoten. ———. 2016. Galbraith: America Sihonshugi tono Kakutō (Galbraith: Fighting with American capitalism). Tokyo: Iwanami-shoten. Kalecki, Michał. 1935. A macroeconomic theory of business cycles. Econometrica 3. ———. 1954. Theory of economic dynamics: An essay on cyclical and long-run changes in capitalist economy. George Allen and Unwin. Keynes, John M. 1936. The general theory of employment, interest and money. Macmillan. Lavoie, Marc. 1992. Foundations of post-Keynesian economic analysis. Aldershot: Edward Elgar. ———. 2014. Post-Keynesian economics: New foundations. Cheltenham: Edward Elgar. Matsushita, Keiich. 1971. Civil minimum no Shisō (The idea of civil minimum). Tokyo: Iwanamishoten. Miyazaki, Yoshikazu. 1966. Sengo Nihon no Keizai Kikō (The economic organization of postwar Japan). Tokyo: Shinhyōron. ———. 1967a. Kindaikeizaigaku no Shitekitenkai: “Keynes Kakumei” Igo no Gendaishihonshugi Zō (The historical development of modern economics: The image of contemporary capitalism after “the Keynes revolution”). Tokyo: Yūhikaku. ———. 1967b. Gendai no Shihonshugi (Contemporary capitalism). Tokyo: Iwanami-shoten. ———. 1975. Atarashii Kakaku Kakumei (New price revolution). Tokyo: Iwanami-shoten. ———. 1982. Gendaishihonshugi to Takokuseki Kigyo (Contemporary capitalism and multinational corporation). Tokyo: Iwanami-shoten. ———. 1985. Nihonkeizai no Kōzō to Kōdō (Structures and behaviors in the Japanese economy). Tokyo: Chikuma-shobō. ———. 1986. Sekaikeizai wo Dō Miruka (How to see the world economy). Tokyo: Iwanamishoten. ———. 1990. Kawariyuku Sekaikeiza: Transnational civil society eno Michi (The changing world economy: The way to transnational civil society). Tokyo: Iwanami-shoten. ———. 1992. Fukugō Fukyō: Posuto Baburu no Shohōsen wo Motomete (Complex depression: In search of a post-bubble prescription). Tokyo: Chūkō-shinsho. Miyazaki, Yoshikazu, and Mitsuharu Itoh. 1964. Konmentāru: Keynes Ippan Riron (Commentary: Keynes, The general theory). Nihon Hyōronsha. Myrdal, Gunnar. 1960. Beyond the welfare state: economic planning in the welfare states and the International implication. Yale University Press. Robinson, Joan. 1933. The economics of imperfect competition. London: Macmillan.

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Robinson, Joan. 1962. Economic philosophy. C.A. Watts. Rowthorn, Robert. 1971. Imperialism in the 1970s: unity or rivalry? New Left Review 69. Sylos-Labini, Paolo. 1962. Oligopoly and technical progress. Harvard University Press. Steindl, Joseph. 1952. Maturity and stagnation in American capitalism. Oxford: Oxford University Press. Strachey, John. 1956. Contemporary capitalism. New York: Random House. Sugimoto, Eiichi. 1950. Kindaikeizaigaku no Kaimei (The elucidation of modern economics). Tokyo: Rironsha. Iwanami Bunko Edition, Vol. 1, 2. Iwanami-shoten, 1981. ———. 1953. Kindaikeizaigakushi (The history of modern economics). Tokyo: Iwanami-shoten. Sweezy, Paul. 1939. Demand under conditions of oligopoly. Journal of Political Economy 47. Tachibanaki, Toshiaki. 2006. Kakusa Shakai (Disparate society). Tokyo: Iwanami-shoten. Tsuru, Sigeto. 1959. Gendaishihonshugi no Saikentō (The re-examination of contemporary capitalism). Tokyo: Iwanami-shoten. ———. 1993. Institutional economics revisited. Cambridge: Cambridge University Press. Uemura, Hiroyasu, Akinori Isogai, and Akira Ebizuka. 1998. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: beyond Marx and Keynes). Nagoya: Nagoya University Press. ———. 2007. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: beyond Marx and Keynes). New Edition. Nagoya: Nagoya University Press.

Chapter 5

Hirofumi Uzawa and Tsuneo Ishikawa: Institutionalism, Macroeconomic Analysis, and Social Common Capital

Abstract We consider Hirofumi Uzawa and Tsuneo Ishikawa, the world-renowned institutionalist post-Keynesian economists in Japan. After studying the Neo-classical two-sector growth model at Stanford University and The University of Chicago in the United States in the 1960s and returning to Japan in the late 1960s, Uzawa published The Re-examination of Modern Economics (Iwanami-shoten, 1977), which discussed the theoretical problems of mainstream modern economics, particularly, Neo-classical economics and emphasized the importance of Keynes’s perspective of economic theory with disequilibrium. He further formulated the Keynesian macroeconomic dynamics with inventory adjustment and non-malleable capital stocks and employment in The Theory of Economic Dynamics (The University of Tokyo Press, 1986). Based on his concept of institutionalism influenced by Veblen, he developed the theory of “social common capital,” which emphasizes citizenship and the right to live, pointing out that the enhancement of social common capital contributed to macroeconomic stability in The Transformation of Modern Economics (Iwanami-shoten, 1986); Economic Analysis of Social Common Capital (Cambridge University Press, 2005). Tsuneo Ishikawa, having inherited Uzawa’s economic thought, integrated micro-level institutional analysis with macroeconomic analysis. He developed a dynamic analysis of different growth patterns in contemporary capitalism based on Post-Keynesian theories (Ishikawa, T., The basic types of dynamics of contemporary capitalism, The Journal of Economics, The University of Tokyo, 1977) and his institutional analysis of income and wealth in the Japanese economy in his book, The Economics of Distribution, (The University of Tokyo Press, 1999). Particularly analyzing Japanese corporate savings and assets, as well as the dual labor market structure in Japan, Ishikawa suggested the possibility of establishing a “professional labor market as social common capital” to enhance the autonomy of workers as citizens in Japanese society. Keywords Hirofumi Uzawa · Tsuneo Ishikawa · Disequilibrium dynamics · Social common capital · The types of dynamics · Labor institution as social common capital

© Springer Nature Singapore Pte Ltd. 2023 H. Uemura, Japanese Institutionalist Post-Keynesians Revisited, Evolutionary Economics and Social Complexity Science 29, https://doi.org/10.1007/978-981-19-8688-8_5

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5.1

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Hirofumi Uzawa and Tsuneo Ishikawa: Institutionalism,. . .

Introduction

We consider the world-renowned institutionalist post-Keynesian economists in Japan, Hirofumi Uzawa and Tsuneo Ishikawa. After formalizing the Neo-classical two-sector growth model at Stanford University and The University of Chicago in the United States in the 1960s (Uzawa 1961, 1963), Uzawa returned to Japan and started teaching economics at The University of Tokyo in the late 1960s. In the 1970s, Uzawa published The Re-examination of Modern Economics (Uzawa 1977), which discussed the theoretical problems of mainstream modern economics, particularly, Neo-classical economics and emphasized the importance of Keynes’s perspective of economic theory with multi-layered time and disequilibrium. Uzawa further formulated the Keynesian macroeconomic dynamics with inventory adjustment and non-malleable capital stocks and employment. Furthermore, based on his concept of institutionalism influenced by Veblen, he developed the theory of “social common capital,” which emphasizes citizenship and the right to live, and pointed out that the enhancement of social common capital contributes to macroeconomic stability (Uzawa 1986a, b, 2005).1 Tsuneo Ishikawa, having inherited Uzawa’s economic thought, integrated microlevel institutional analysis with macroeconomic analysis. Ishikawa developed a dynamic analysis of different growth patterns in contemporary capitalism based on Post-Keynesian theories (Ishikawa 1977) and institutional analysis of income and wealth in the Japanese economy (Ishikawa 1999). Particularly analyzing Japanese corporate savings and corporate assets, as well as the dual labor market structure in Japan, Ishikawa suggested the possibility of establishing a “professional labor market as social common capital” to enhance the autonomy of workers as citizens in Japanese society.

5.2

Hirofumi Uzawa’s Macroeconomic Dynamics and “Social Common Capital”

We discuss the economic theory and economic philosophy of Hirofumi Uzawa, one of the most famous Japanese institutionalists and Keynesian economists. What originally made Uzawa known globally, as a great mathematical economist, was his study of the Neo-classical two-sector growth model, when he studied at Stanford University in the early 1960s (Uzawa 1961, 1963). However, prior to this academic work, Uzawa had studied Karl Marx and other political economists, as well as his original major, mathematics, as a student of The University of Tokyo 1 Uzawa used “social overhead capital” and “social common capital” in the same context in different books. He mainly used “social common capital” in his later years (Uzawa 2005). Therefore, we use “social common capital” in this book. Yōsuke Mamiya explains Uzawa’s social thought of “social common capital,” referring to his positive attitude to the term (Mamiya 2015).

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(Sasaki 2019).2 In fact, the two-sector framework of economic growth distinguishing between capital goods and consumption goods sectors was created by Uzawa, implicitly based on his original understanding of Marx’s reproduction scheme.3 Uzawa returned from the United States and started teaching at The University of Tokyo in 1967. Sigeto Tsuru, a professor of Hitotsubashi University, highly appreciated Uzawa and invited him to the International Symposium on Environmental Disruption: A Challenge to Social Scientists, Tokyo: International Social Science Council, in 1970 (Tsuru 1970).4 This was the starting point of Uzawa’s study of environmental problems. Thereafter, drawing from his background and his academic communication with Joan Robinson, he started criticizing the theoretical problems of modern economics, particularly, Neo-classical economics, and created his own theory of Keynesian disequilibrium dynamics and his original social idea of “social common capital” (Uzawa 1977, 1984, 1986a). The idea of “social common capital” is based on Uzawa’s institutionalism. He explains his own thought of “social common capital” as follows: “social common capital provides members of a society with those services and institutional arrangements that are crucial in maintaining human and cultural life” (Uzawa 2005, p. vii). Here, we focus on the significant aspects related to his economic thought as well as the theoretical framework of macroeconomic dynamics.

5.2.1

Uzawa’s Turning Point, The Re-examination of Modern Economics

Hirofumi Uzawa is a well-known theoretical macroeconomist in the world. Uzawa gradually developed his own economic theory and economic philosophy during his early study of the Neo-classical two-sector growth model at Stanford University in the United States in the early 1960s (Uzawa 1961, 1963). He returned to Japan and started teaching at The University of Tokyo in 1967. Since then, Uzawa began shifting to the Keynesian theory of macroeconomic dynamics, criticizing the 2 When Hirofumi Uzawa was a student at The First High School (now, The University of Tokyo), he studied Karl Marx intensively with other students, and this academic experience fostered his in-depth social thought (Sasaki 2019). Hiroyuki Kojima who was a Uzawa’s student also explained that Uzawa had retained his original idea about “poverty” and “capital” in capitalism since he was a student of The First High School (Kojima 2018). Furthermore, Uzawa recognized the nature of firm organization in his models of economic growth with the Penrose effect (Uzawa 1968, 1969). After the late 1970s, Uzawa shifted his macroeconomics research to Keynesian economics, reinterpreting Keynes’s The General Theory (Keynes 1936; Uzawa 1984). 3 The stability condition for the Neo-classical two-sector growth model is that capital intensity in the consumption good sector is higher than that in the capital goods sector. Otherwise, the growth process becomes unstable (Kojima 2018). 4 For Shigeto Tsuru’s academic contribution to the analysis of contemporary capitalism and environmental problems, see Chap. 3 of this book. Tsuru proposed the perspective of “institutionalism in the broad sense” (Tsuru 1993).

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Table 5.1 Contents of The Re-examination of Modern Economics Preface Introduction Chapter 1 The Contour of Neo-classical Theory: Warlas’s General Equilibrium Model Chapter 2 The Basic Framework of Neo-classical Theory Chapter 3 The Development of Keynes Theory Chapter 4 The Concept of Dynamic Disequilibrium Theory Chapter 5 The Theory of Social Common Capital 1: Basic Rights of Citizens Chapter 6 The Theory of Social Common Capital 2: Social Stability Conclusion Source: Uzawa (1977)

theoretical assumptions of Neo-classical economics. During the period of his theoretical turning point in the 1970s, he published The Re-examination of Modern Economics: A Critical Perspective (Uzawa 1977).5 The contents of the book are seen in Table 5.1. The main arguments in this book are as follows. Uzawa indicates serious problems in Walras’s general equilibrium theory as the theoretical core of Neo-classical economics. The first serious problem is its concept of “time,” i.e., its “timelessness,” wherein the continuous time process of production and the time course of transactions in the market are ignored. Moreover, the book states that “It is only individuals who maintain temporal continuity, and a company is not an organization that has the same identity over time but a mere illusion which changes its form from moment to moment, like a cloud floating in the sky, in pursuit of profits” (Uzawa 1977, p. 63). The second theoretical problem in the general equilibrium theory is the assumption of “the malleability of production factors,” which is often represented by the substitution of production factors in a production function. It is assumed that the production factors are not fixed to a particular application and can be diverted from one application to another without costs. However, in the real economy, fixed production factors such as machinery are not malleable once they are set in a production process. Moreover, he indicates the problem of “the private system of production,” which Neo-classical economics exclusively assumes, while he emphasizes the importance of “social common capital” that is owned by public organizations in the real world.6 5

In the late 1970s, Uzawa also translated Samuel Bowles and Herbert Gintis’ Schooling in Capitalist America: Educational Reform and the Contradictions of Economic Life (Bowles and Gintis 1976), maintaining a friendly relationship with Samuel Bowles forged in the United States in the 1960s. 6 The history of modern economics in the 1980s betrayed Uzawa’s criticism against the basic assumptions of Neo-classical Economics and his positive proposal. As we see Chap. 1 in this book, macroeconomics came to be dominated by Neo-classical economics in the United States in the 1980s. As for the domination of Neo-classical economics in macroeconomics, refer to Yoshikawa (2000) and Krugman (2012).

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Table 5.2 Contents of The Theory of Economic Dynamics Preface Chapter 1 Prelude to Disequilibrium Dynamics Chapter 2 Inventory Adjustment and the Stability of Inflation Chapter 3 A Study on the Theory of Macrodynamics Chapter 4 A Critical Overview of Neo-classical Growth Theory Chapter 5 The Dynamic Stability of Economic Growth Chapter 6 The Theoretical Analysis of Social Common Capital Chapter 7 Social Instability and Social Common Capital Source: Uzawa (1986a)

Next, Uzawa explains the possible development of Keynesian economics. According to him, when we explicitly take into account fixed production factors to enrich the Keynesian macroeconomic theory, the condition of perfect competition in the market cannot be assumed. Fixed production factors are not malleable in nature. “In general, as the ratio of fixed production factors increases, the price elasticity of supply decreases and the market becomes less competitive” (ibid., p. 12). Therefore, Uzawa emphasizes the theoretical difference between “the marginal efficiency of investment” and “the marginal efficiency of capital.” Furthermore, emphasizing the importance of inventory adjustment under this condition, Uzawa proposes “the dynamic disequilibrium theory” based on his understanding of fixed factors of production, inventory adjustment, and fixed labor and employment. He explains, “In this way, actions on the regulation of production, sales, investment, and the labor employment of firms can be formulated according to the schedule of the marginal efficiency of investment, the marginal efficiency of labor and employment, and the imputed prices of the inventory” (ibid., p. 161).

5.2.2

Uzawa’s Theory of Disequilibrium Dynamics

It is in The Theory of Economic Dynamics (Uzawa 1986a) that Uzawa fully develops his own theory of disequilibrium dynamics. This book develops the essence of disequilibrium dynamics, using several full-fledged formal models with inventory adjustment and the rigidity of capital and labor. The contents of the book are seen in Table 5.2. At the beginning of this book, Uzawa explains the institutional characteristics of contemporary capitalism: a firm as an organization keeping its identity over time, the development of the financial asset market, and the rigidity of productive factors. In Uzawa’s theory of disequilibrium dynamics, the model is composed of the investment goods sector and the consumption goods sector. In particular, the model clearly distinguishes between capital goods and consumer goods, assuming that capital goods are produced according to the order by manufacturing firms, and consumer goods are produced by manufacturing firms mediated by the sales activities of

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intermediary businesses based on inventory adjustment An inventory adjustment process called “the Hartley-Kotani process” is introduced for the consumption goods market. Here, inventory changes in intermediary businesses are related to the longterm interest rate. Investment by a firm is decided with the “Penrose effect,” which explains the increasing overhead coordination costs of firm organization. In this framework, the relationship between long-term interest rates and changes in inventory stock is analyzed as a disequilibrium dynamic process. Furthermore, the dynamic process with inventory changes is investigated under the explicit assumption of fixed capital and labor, rather than capital and labor as malleable factors of production. The rigidity of fixed capital is caused by the non-malleable nature of productive capacity within a firm and by more institutional factors in contemporary capitalism, respectively. Based on this theoretical framework, it can be seen that inflation and unemployment are phenomena involved in this disequilibrium process, where the dynamics of inventory adjustment and employment adjustment play a crucial role.7

5.2.3

The Economic Thought of “Social Common Capital” and Institutionalism

The most representative concept of Uzawa Hirofumi’s economic thought is “social common capital,” which he proposed early in “The Economic Theory of Civil Minimum” (Uzawa 1973). This paper was written as a chapter in the Iwanami Lecture: Contemporary Urban Policies: Civil Minimum (Itoh et al. 1973), which was edited by Mitsuharu Itoh, Hajime Shinohara, Keiichi Matsushita, and Kenichi Miyamoto.8 Here, Uzawa considers resource allocation according to the market mechanism and the fairness and equality of income distribution. He argues that the market mechanism does not realize fair and equal income distribution, so progressive income tax and inheritance tax can be used as important tools to prevent the exacerbation of income inequality. He also indicates that Neo-classical economics, which emphasizes the efficiency of market mechanisms, is based on the theoretical premise of private scarce resources, the means of production with no friction, and the avoidance of value judgments on income distribution. Uzawa also states that Keynesian theories develop a thoughtful theoretical framework based on the thorough consideration of economic institutions in the real world, criticizing Neo-classical economics’ theoretical assumptions and mainly focusing on the non-friction of resource allocation and the smoothness of market processes. At the same time, Uzawa even indicates the limit of Keynesian economics and explains

7

In this model, money wage is exogenously given, but Uzawa suggests that the mechanism of determining money wage should be analyzed to elucidate the stagflation (Uzawa 1986a, p. 101). 8 For the social thought and economic theory of Mitsuharu Itoh, see Chap. 4 in this book.

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that “Keynesian economics assumed that the guarantee of the right to live would be provided by means of the protection of living standards. It was not a policy to increase the social stability of the market economy system” (ibid., p. 353). Uzawa emphasizes the importance of public policies based on the “civil minimum,” criticizing the current state of mainstream economics. Such public policies allow individuals to keep goods and services related to their basic life, as part of their basic rights as citizens. Specifically, among the goods and services related to the basic life of citizens, those with high necessity and low substitutability should be provided by public mechanisms. He then considers medical care, social security services, education, and transportation, and indicates the problem of “social costs of automobiles” in transportation in particular (Uzawa 1974). To fulfill these basic rights, it is necessary to internalize social costs, i.e., to consider social costs from a public point of view (Kapp 1950). These thoughts coupled with Uzawa’s own institutionalism, later led to his economics of “social common capital.” In the late 1980s, Uzawa came to refer to institutionalism created by Thorstein Veblen. Above all, Uzawa’s presidential address of The Japan Association of Economics and Econometrics in 1989 was impressive: “Thorstein Veblen and Contemporary Economics” (Uzawa 1990). In this address, he explains the essence of evolutionary economics founded by Veblen. He emphasizes that Veblen’s economics is an evolutionary science that explains the cumulative process with timedimension. In the evolutionary idea, the cumulative changes in economic institutions and human activities play a crucial role in the dynamics of the capitalist economy.9 In particular, Uzawa refers to Veblen’s The Theory of Business Enterprise (Veblen 1904) and explains the conflict between industry and business in modern capitalist institutions, which affects macroeconomic dynamics with non-malleable productive factors and the underutilization of capacity. In this regard, Uzawa emphasizes that Veblen was a pioneer to Keynes’s economic thought in analyzing the effect of the conflict between industry and business on macroeconomic dynamics in contemporary capitalism. To mitigate the effect of the conflict between industry and business in contemporary capitalism and to protect human dignity, Uzawa argues that we need economic institutions based on Veblen’s institutionalism, that is, “social common capital” (Uzawa 2000a, b). We can clarify the meaning of “social common capital” in Uzawa’s books— Social Common Capital (Uzawa 2000a) and Economic Analysis of Social Common Capital (Uzawa 2005). The first book presents the idea of “social common capital as the basis of institutionalist economic systems.” Uzawa asks, “Is there an ideal 9

In his presidential address, Uzawa argues that the evolutionary idea will occupy an important position in a new trend of economics, pointing out its essence as follows: “We extract the institutional factors of contemporary capitalism and analyze how each of them is related to the behavioral patterns of economic agents and affects the process of economic cycle. Further, we understand how institutional factors themselves change as a result of these economic behaviors” (Uzawa 1990, p. 14). Since this address, Uzawa has intensively studied Veblen’s social thought as institutionalism (Veblen 1899, 1904).

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economic system that guarantees maximum civil liberty, protects human dignity and professional ethics, and achieves stable and harmonious economic development?” (Uzawa 2000a, p. 20). “Institutionalist economic systems” fulfill this requirement. “Institutionalist economic systems are characterized by social common capital (social overhead capital) and social organizations that manage various social common capitals” (ibid., p. 21).10 “Social common capital in principle is not appropriated by individual members of the society, but rather, is held as common property resources to be managed by the commons in question, without, however, precluding private ownership arrangements” (Uzawa 2005, p. viii). In principle, the government’s role in institutionalist economic systems is to ensure citizens’ fundamental rights. Underlying Uzawa’s social philosophy in the concept of social common capital is the idea of “the right to live”: “From the viewpoint of the basic rights of citizens, the concept of freedom of residence and occupation, the freedom of thought and religion, and the enjoyment of civil liberty were further advanced, and the right to live became the dominant political thought” (Uzawa 2000a, p. 31). Further, “I believe that each citizen has the basic right of citizen to live a healthy and culturally minimal life” (ibid. p. 38). This leads to institutionalist economic systems, which are based on citizens’ social common capital. Social common capital is classified into “three categories: natural capital, social infrastructure, and institutional capital” (Uzawa 2005, p. vii). Based on this framework, Uzawa provides theoretical explanations of the urban environment, education, medical care, the global environment, and so on. Moreover, Uzawa analyzed the global warming problem, and published Economic Theory and Global Warming (Uzawa 2003) from the perspective of environment as social common capital and sustainable development. Further economic research is needed to theorize “social common capital” and to propose effective socio-economic policies for the sustainable development of our society.

5.2.4

Market Imbalance and Social Imbalance: The Macroeconomic Effect of Social Common Capital

In Uzawa’s economic perspective, how are disequilibrium macroeconomic dynamics and the theory of social common capital logically connected? Uzawa did not address this problem with a full-fledged theoretical model. However, suggestive sentences for this theoretical problem are found in The Transformation of Modern Economics (Uzawa 1986b). Uzawa distinguishes between two types of imbalances—“market imbalance” and “social imbalance”—and discusses their mutually determining dynamic process.

10 In this sentence in Uzawa (2000a), Uzawa used “social overhead capital,” which is a synonym of “social common capital” in his literature.

5.3

Tsuneo Ishikawa’s “Economics of Distribution” and Dynamic Analysis. . .

65

A “market imbalance,” that is, a “market disequilibrium,” is the divergence between the demand and supply for various goods and services in the market. Uzawa explains, “Social imbalance means the phenomena that the divergence between private capital and social common capital occurs in terms of their relative endowment and tends to expand spirally” (ibid., p. 344). In this regard, he also distinguishes between two types of “social common capital”: “production-based common capital” and “life-related common capital” and considers the imbalance between them. These two imbalances—“market imbalance” and “social imbalance”—are closely related to each other and are mutually determined in macroeconomic processes. Uzawa explains, “With the relative scarcity of social common capital, the price adjustment mechanism in the market tends to be more unstable. This is especially because private production factors become more rigid and the stabilizing effect of price adjustment becomes weakened, making more general the divergence between the market price and the real value in the financial asset market, that is, creating the bubble phenomenon. The market imbalance phenomenon has a biased influence on the government’s fiscal functions, leading to fiscal spending and public investment in a manner closely corresponding to the existing industrial structures, and making the tendency for the imbalance between the two types of social common capital to spirally expand” (ibid., p. 345). Therefore, the enrichment of social common capital in our society can contribute to macroeconomic stability by mitigating the social and economic imbalances. The perspective on social common capital and macroeconomic dynamics, based on the institutional analysis of capitalism presented by Uzawa, is exactly what we should learn from his research orientation. We should develop this idea more in both theoretical and empirical studies in the future.11

5.3

Tsuneo Ishikawa’s “Economics of Distribution” and Dynamic Analysis of Contemporary Capitalism

It is necessary to discuss the work of Tsuneo Ishikawa as he is an economist who was influenced by the theoretical ideas of Hirofumi Uzawa at The University of Tokyo and conducted in-depth theoretical and empirical research. Ishikawa also studied at

11

As for the stabilizing effect of social common capital on macroeconomic dynamics, Kazuhiro Okuma, a specialist of environmental economics, formulated a Kaleckian dynamic model of economic growth with social common capital and explained the role of social common capital to keep the resilience and sustainability in climate and health crises (Okuma 2022). Uzawa developed the study on Keynesian macroeconomic dynamics and social common capital, but he did not accomplish his work to connect social common capital and macroeconomics in a formal model during his lifetime. Therefore, Japanese post-Keynesians should do this promising work more in the future. Furthermore, as Hiroyuki Kojima pointed out, referring to Samuel Bowles’ The Moral Economy (Bowles 2016), “social common capital” can possibly promote the endogenous formation of citizens’ social preferences (Kojima 2018). This is an attractive research topic in institutional economics in the twenty-first century (Isogai and Uemura 2022).

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John’s Hopkins University and Harvard University in the United States in the late 1960s and early 1970s (Ishikawa 1972). Owing to the best intellectual climate of institutional analysis and Keynesian economics research in the 1960s and 1970s, Tsuneo Ishikawa developed his analysis on the dynamics of contemporary capitalism in the 1970s, and analyzed the distribution of income and wealth theoretically and empirically during the 1980s. Moreover, while conducting these analyses, he also actively collaborated with Stephen Marglin, Samuel Bowles, and Herbert Gintis, prominent political economists in the United States (Ishikawa and Gintis 1986, 1987).

5.3.1

Basic Types of Dynamics in Contemporary Capitalism

Tsuneo Ishikawa formulated his own macroeconomic theory based on his study on the theories of Michał Kalecki, Joan Robinson, and Stephen Marglin in the mid-1970s, and published “The Basic Types of Dynamics of the Contemporary Capitalist Economy: A Macro Analysis” (Ishikawa 1977). Based on Marglin’s theoretical framework (Marglin and Aoki 1973) that compares Marx, Keynes, and Neo-classical economics in the steady-state framework, Ishikawa further developed a comparative analysis of dynamic processes including fluctuations outside the steady state.12 In the dynamic model of contemporary capitalist economy, capitalists and workers are the main agents with different interests, but the difference between capitalists and entrepreneurs due to the separation of ownership and management is only implicitly assumed. Productive technologies are fixed in the short period but in the long period, technologies are determined and transformed by the influence of social relationships, especially class conflicts. Oligopolistic competition is assumed, prices are set by the mark-up principle, and wages are determined by the relative power relationship between capitalists and workers as well as the level of employment rate in the labor market (Kalecki 1954). Furthermore, investment is affected by the expected excess capacity. These assumptions are the results of Ishikawa’s analysis of institutions and coordinating mechanisms in contemporary capitalism. Ishikawa constructs a macroeconomic model on the premise of the institutional elements of contemporary capitalism, which produces three types of growth dynamics: “long-term stagnation,” “self-sustaining growth cycle,” and “inflation barrier.” “Long-term stagnation” is the result of a depressive mutual interaction between 12

In Marglin and Aoki (1973), the Marxian model, the Neo-classical model, and the Robinsonian model are compared with a steady-state framework. Marglin also constructed his theory of capitalist firm organization (Marglin 1974). His idea of macroeconomic dynamics in the capitalist economy was developed in a full-fledged model in (Marglin 1984a, b) with the synthesis of Marx and Keynes based on Joan Robinson’s idea (Robinson 1962). This study was extended by many PostKeynesian economists by introducing changes in capacity utilization conflict over income distribution (Marglin and Bhaduri 1990; Taylor 1991; Uemura 2000; Uemura et al. 1998, 2007).

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Tsuneo Ishikawa’s “Economics of Distribution” and Dynamic Analysis. . .

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Table 5.3 Basic types of dynamics of the contemporary capitalist economy 1. Long-term stagnation Conditions: Excess capacity leads to stagnant investment, or higher profit share leads to insufficient investment Dynamics: Stable or unstable stagnation dynamics Policy reaction: Expansionary fiscal policies, and monetary policies to lead to a decrease in the long-term interest rate 2. Growth cycle Conditions: Active investment with the sensitive fluctuation of wage share to the employment rate leads to a cyclical growth Dynamics: Structurally stable cyclical growth with the cyclical fluctuation of the employment rate and the wage share Policy reaction: Restrictive policies are introduced in a boom faced with rising wages, and expansionary policies are introduced in a recession period, leading to smaller fluctuations in a cycle: “Political business cycles” 3. Inflation barrier Conditions: Active investment with a milder increase in wage share leads to full employment, and this caused inflation Dynamics: Stable growth with inflation Policy reaction: Restrictive policies are introduced to prevent inflation from accelerating on the inflation barrier, and they stop when the profit share is recovered: “Political business cycle” Source: The author draws this table, based on Ishikawa (1977)

investment and overcapacity, as suggested by Joseph Steindl (Steindl 1952). In a “self-sustaining growth cycle,” investment is very active but a cycle of rising wages and declining profits is created in a situation where the economy reaches full employment. This is similar to the growth-cycle model built by Richard Goodwin (Goodwin 1967). The “inflation barrier” is a critical situation with a wage-price spiral that is indicated by Joan Robinson (Robinson 1956, 1962). If the employment rate exceeds its critical level, causing increasing wages while capitalists still try to maintain their power over investment demand, wage-price inflation occurs. In this way, Ishikawa’s model of the dynamics of contemporary capitalist economy fully utilizes Post-Keynesian theories. Furthermore, Ishikawa considers the policy reactions to different types of economic dynamics. In a “long-term stagnation,” expansionary fiscal policies and monetary policies leading to a decrease in the long-term interest rate are introduced. In a “growth cycle,” restrictive policies are introduced faced by rising wages in a boom, and expansionary policies are introduced in a recession, leading to smaller fluctuations in a “political business cycle.” In a “inflation barrier,” restrictive policies are introduced to prevent inflation from accelerating, and they are canceled when the profit share is recovered, leading to a “political business cycle.” The three types of dynamics in contemporary capitalism are summarized in Table 5.3.

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Income and Wealth in the Japanese Economy

Ishikawa’s subsequent research area is “the distribution of income and wealth” (Ishikawa 1991, 1994, 2000). In particular, the main subject of Ishikawa’s empirical analysis is corporate savings and assets, and the dual structure of the Japanese labor market. First, regarding corporate savings, “A Macro Analysis of Corporate Savings and the Financial Market” (Ishikawa 1981) discusses the existence of corporate savings. Neo-classical economics has neglected the importance of corporate savings for the performance of the economy, especially based on the Modigliani-Miller theorem. However, Japanese institutionalist post-Keynesian economists such as Yoshikazu Miyazaki, Mitsuharu Itoh, and Hirofumi Uzawa have emphasized corporate savings and assets as fundamental factors that support the growth of corporate organizations. Ishikawa also analyzed the form of wealth in the Japanese economy in the late 1980s in “Household Wealth and Corporate Wealth: On the Concentration of Wealth in Japan” (Ishikawa 1990), and concluded the following: First, the rise in land prices led to an increase in household land assets in the Japanese economy. Moreover, concerning the net financial assets held by different households, the gap between the rich and the poor widened remarkably. Most importantly, it is indicated that the private sector owned large amounts of wealth that did not belong to the household sector, and that part of large Japanese corporations’ assets were owned by other related corporations through cross-shareholdings. This ownership structure generated the autonomy and control of corporate organizations in Japan. Although financial stocks were widely scattered among households, if one examines the actual proportions, financial stocks were concentrated only in a few managers’ households. In this way, Ishikawa showed that in the Japanese economy, the distribution of wealth was exclusively concentrated in large corporations in the 1980s.

5.3.3

The Dual Labor Market in Japan

An elaborate analysis of the dual structure of the labor market was conducted using a “switch regression analysis” in “The Dual Structure of the Labor Market” (Ishikawa and Dejima 1993, 1994). The econometric analysis proceeds as follows: each worker (observation) is switched between different wage equations to determine whether there is a dual structure of wages among workers. The analysis conducted on individual data of Basic Survey on Wage Structure in the 1980s and 1990s shows the following conclusions: The Japanese labor market consists of two different labor markets with two different wage structures. In the primary sector, educational background and the number length of service years have a significant effect on the level of wages. Moreover, the dual structure of the labor market is closely related to the differences between large firms and small firms, with large firms having significant opportunities to employ workers from the primary sector of the labor market

5.4

Conclusion

69

due to their capital equipment and technology advantage. The secondary sector has a disadvantage in terms of wages, which do not substantially increase even with an increase in the duration of service. In addition, Ishikawa indicated that there are different groups within the secondary sector. In “The Wage Effect of the Manufacturing Subcontracting System” (Ishikawa and Lee 1996), he showed that the effects of subcontracting relationships on the wages of upper-level and lower-level subcontractors are different. Specifically, lower-level subcontractors are disadvantaged in the subcontracting relationships. Thus, Ishikawa comprehensively demonstrated the dual structure of the Japanese labor market. In this situation, how should the labor market be reformed in Japan? Ishikawa actively suggested the idea of the “professional labor market as social common capital” in a public conference with Hirofumi Uzawa (Uzawa et al. 1994). He stated, “What Japan needs in the future is to develop an independent and autonomous professional labor market as social common capital” (ibid., p. 63). To develop workers’ autonomy as free professional workers based on a fair assessment of their skills and expertise, Ishikawa argued that it is necessary to create a professional labor market supported through the standardization of assessment by public institutions and that it needs to be positioned as “new social common capital” (ibid., p. 69).

5.4

Conclusion

The economics of Hirofumi Uzawa and Tsuneo Ishikawa integrated the institutional analysis of economic systems and the analysis of macroeconomic dynamics in contemporary capitalism. These remarkable theoretical economists with their formal economic models stood out among Japanese institutionalist post-Keynesians in the 1970s and 1980s. Moreover, they understood the concept of economy and society more broadly from the perspective of “social common capital” with their own institutionalism. In the twenty-first century, we should keep in mind the academic contribution of each of them as follows: First, when Hirofumi Uzawa was a student at The University of Tokyo, he studied mathematics while reading Karl Marx simultaneously. This had a great influence on his economic thought. After developing the Neo-classical two-sector growth model in the United States and returning to Japan, the themes of Uzawa’s research concentrated on the re-examination of modern economics, the construction of the Keynesian disequilibrium dynamics theory with inventory adjustment, and the development of the idea of social common capital, all of which he integrated systematically based on his own institutionalism on capitalism. What connects the themes of the research is his understanding of a firm as an organization, the non-malleability of productive factors, both capital and labor, in contemporary capitalism, and the institutionalism and social idea inherited from Thorstein Veblen. Furthermore, integrating the social mode of citizens’ governance of “social common capital” with macroeconomic dynamics, based on the institutional analysis of

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contemporary capitalism, is an important research subject for us in the twenty-first century. Second, Tsuneo Ishikawa developed the theory of macroeconomic dynamics in contemporary capitalism with the Post-Keynesian ideas, and the theoretical and empirical analysis of income and wealth, being influenced by Uzawa’s social thought and developing academic communication with Stephen Marglin, Samuel Bowles, and Herbert Gintis. Particularly, he formulated Post-Keynesian macroeconomic dynamic models with different growth patterns based on the theories of Michał Kalecki, Joan Robinson, and Richard Goodwin in the 1970s. Furthermore, Ishikawa developed his institutional analysis of income and wealth, corporate savings, and the dual labor market theoretically and empirically with sophisticated economic models and econometric analysis. In Japan, faced by increasing inequality and unstable employment, constructing proper labor institutions as “social common capital” to promote the autonomy of workers in the labor market and firm organization is one of the most important topics of socio-economic policies in the twentyfirst century. Hirofumi Uzawa and Tsuneo Ishikawa are world-renowned economists who developed sophisticated mathematical economic models and econometric analysis while keeping a distance from Neo-classical economics after the 1970s. Their highquality research on institutional and macroeconomic analyses with the idea of “social common capital” is outstanding among Japanese institutional economists, and we should learn more from their research in the twenty-first century.

References Bowles, Samuel. 2016. The moral economy: Why good incentives are no substitute for good citizens. New Haven: Yale University Press. Bowles, Samuel, and Herbert Gintis. 1976. Schooling in capitalist America: Educational reform and the contradictions of economic life. New York: Basic Inc. Goodwin, Richard M. 1967. A growth cycle. In Socialism, capitalism and economic growth, ed. Charles H. Feinstein. Cambridge: Cambridge University Press. Ishikawa, Tsuneo. 1972. The dynamics of wealth accumulation and education under different family institutions as determinants of the size distribution of income. Ph.D.Thesis. Johns Hopkins University. ———. 1977. Gendaishihonshugi Keizai no Kihonteki Dōtai Ruikei (The basic types of dynamics of the contemporary capitalist economy). Keizaigakuronshū (The Journal of Economics). The University of Tokyo. ———. 1981. Dual labor market hypothesis and long-run income distribution. Journal of Development Economics 9 (1): 1–30. ———. 1990. Kakei no Tomi to Kigyō no Tomi: Nihon niokeru Tomi no Shūchū wo Megutte (Household wealth and corporate wealth: On the concentration of wealth in Japan). In Nihon no Kabuka/Chika: Kakakukeisei no Mekanizumu (Stock prices and land prices in Japan: The mechanism of Price formation), ed. Kiyohiko Nishimura and Yoshiro Miwa. Tokyo: The University of Tokyo Press. ———. 1991. Shotoku to Tomi (Income and wealth). Tokyo: Iwanami-Shoten.

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———, ed. 1994. Nihon no Shotoku to Tomi no Bunpai (The distribution of income and wealth in Japan). Tokyo: The University of Tokyo Press. ———. 1999. Bunpai no Keizaigaku (The economics of distribution). Tokyo: The University of Tokyo Press. ———. 2000. Income and wealth. Oxford: Oxford University Press. Ishikawa, Tsuneo, and Takahisa Dejima, 1993. Measuring the extent of duality in the Japanese labour market, University of Tokyo Discussion Paper, 93-F-10. ———. 1994. Rōdō Shijō no Nijūkōzō (Dual structure of the labor marker). In Nihon no shotoku to tomi no bunpai. ed. Tsuneo Ishikawa. Ishikawa, Tsuneo, and Harbert Gintis. 1986. Wages, work intensity and labor hoarding under uncertain demand: A state-contingent Recontracting model. University of Tokyo Discussion Paper, 86-F-6. ———. 1987. Wages, work intensity, and unemployment in competitive labor markers: A comparative analysis. Journal of Japanese and International Economies 1 (2): 195–228. Ishikawa, Tsuneo, and Seung-Lyeol Lee. 1996. Seizōgyō Shitaukesei no Chinginkōka (The wage effect of the manufacturing subcontracting system). Nihon Rōdōkenkyū Zasshi (The Japanese Journal of Labor Studies) 430. Isogai, Akinori, and Hiroyasu Uemura, eds. 2022. Seido to Shinka no Seijikeizaigaku: Chōsei no Jūsōsei to Tayōsei (The political economy of institutions and evolution: Multi-layered Régulation and diversity). Tokyo: Nihonkeizai Hyōronsha. Itoh, Mitsuharu, Hajime Shinohara, Keiichi Matsushita, and Kenichi Miyamoto, eds. 1973. Iwanami Kōza: Gendai Toshiseisaku: Shibiru Minimamu (Iwanami Lecture: Contemporary urban policies: Civil minimum). Tokyo: Iwanami-shoten. Kalecki, Michał. 1954. Theory of economic dynamics: An essay on cyclical and long-run changes in capitalist economy. George Allen and Unwin. Kapp, William K. 1950. The social costs of private enterprise. Cambridge: Harvard University Press. Keynes, John M. 1936. The General Theory of Employment, Interest and Money. Vol. 7. London: Macmillan. Kojima, Hiroyuki. 2018. Uzawa Hirofumi no Sūgaku (Hirofumi Uzawa’s mathematics). Tokyo: Seido-sha. Krugman, Paul. 2012. End this depression now. New York: W. W. Norton & Inc. Mamiya, Yōsuke. 2015. Shakaiteki Kyōtsū Shihon no Shisō (The thought of social commmon capital). Gendai Shisō 43 (4). Marglin, Stephen A. 1974. What do bosses do?: The origins and functions of hierarchy in capitalist production, part I. Review of Radical Political Economics 6 (2). ———. 1984a. Growth, distribution and inflation: A centennial synthesis. Cambridge Journal of Economics 8 (2). ———. 1984b. Growth, Distribution and Prices. Cambridge: Harvard University Press. Marglin, Stephen A., and Masahiko Aoki. 1973. Notes on three models of a capitalist economy. In Radikaru Ekonomikusu (Radical Economics), ed. Masahiko Aoki. Tokyo: Chūōkōronsha. Marglin, Stephen A., and Amit Bhaduri. 1990. Profit squeeze and Keynesian theory. In The Golden age of capitalism: Re -interpreting the postwar experience, ed. Stephen A. Marglin and Juliet B. Schor. Okuma, Kazuhiro. 2022. Kikō/Kenkō Kiki, Shakaiteki Kyōtsū Shihon oyobi Keizaiseichō (Climate and health crises, social common capital, and economic growth). In Seido to Shinka no Seijikeizaigaku: Chōsei no Jūsōsei to Tayōsei (The political economy of institutions and evolution: Multi-layered régulation and diversity), ed. Akinori Isogai and Hiroyasu Uemura. Tokyo: Nihon Keizai Hyōronsha. Robinson, Joan. 1956. The accumulation of capital. London: Macmillan. ———. 1962. Essays in the theory of economic growth. London: Macmillan.

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Sasaki, Minoru. 2019. Shihonshugi to Tatakatta Otoko: Uzawa Hirofumi to Keizaigaku no Sekai (A man who fought against capitalism: Hirofumi Uzawa and the world of economics). Tokyo: Kōdansha. Steindl, Joseph. 1952. Maturity and stagnation in American capitalism. Oxford: Basil Blackwell. Taylor, Lance. 1991. Income distribution, inflation, and growth: Lectures on Structuralist macroeconomic theory. The MIT Press. Tsuneo, and Shōretsu Li. 1996. Seizōgō Shitaukesei no Chingin Kōka (The wage effect of the manufacturing subcontracting system). Nihon Rōdō Kenkyū Zasshi 430. Tsuru, Shigeto, ed. 1970. Proceedings of international symposium on environmental disruption: A challenge to social scientists. International Social Science Council. ———. 1993. Institutional economics revisited. Cambridge: Cambridge University Press. Uemura, Hiroyasu. 2000. Demand, distribution and structural change: A neo-Marxian and Kaleckian dynamic model of accumulation, Economic Research Center Discussion Paper (Nagoya University), 125. Uemura, Hiroyasu, Akinori Isogai, and Akira Ebizuka. 1998. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: Beyond Marx and Keynes). Nagoya: Nagoya University Press. ———. 2007. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: Beyond Marx and Keynes)., New Edition. Nagoya: Nagoya University Press. Uzawa, Hirofumi. 1961. On a two-sector model of economic growth. Review of Economic Studies 29 (1): 40–47. ———. 1963. On a two-sector model of economic growth. II. Review of Economic Studies 30 (2): 105–118. ———. 1968. The Penrose effect and optimum growth. Economic Studies Quarterly 19: 1–14. ———. 1969. Time preference and the Penrose effect in a two-class model of economic growth. Journal of Political Economy 77: 628–652. ———. 1973. Shibiru Minimamu no Keizai Riron (the economic theory of civil minimum). In Iwanami Kōza: Gendai Toshiseisaku: Shibiru Minimamu (Iwanami lecture: Contemporary urban policies: Civil minimum), ed. Mitsuharu Itoh, Hajime Shinohara, Keiichi Matsushita, and Ken-ichi Miyamoto. Tokyo: Iwanami-shoten. ———. 1974. Jidōsha no Shakaiteki Hiyō (The social costs of automobile). Tokyo: Iwanamishoten. ———. 1977. Kindaikeizaigaku no Saikentō: Hihanteki Tenbō (The re-examination of modern economics: A critical view). Tokyo: Iwanami-shoten. ———. 1984. Keynes ‘Ippan Riron’ wo Yomu (Reading Keynes ‘The general theory’). Tokyo: Iwanami-shoten. ———. 1986a. Keizaidōgaku no Riron (The theory of economic dynamics). Tokyo: The University of Tokyo Press. ———. 1986b. Kindaikeizaigaku no Tenkan (The transformation of modern economic). Tokyo: Iwanami-shoten. ———. 1990. Thorstein Veblen to Gendai Keizaigaku (Thorstein Veblen and contemporary economics). The Economic Studies Quarterly 41 (1). ———. 2000a. Shakaiteki Kyōtsū Shihon (Social common capital). Tokyo: Iwnami-shoten. ———. 2000b. Veblen (Veblen). Iwanami-shoten. ———. 2003. Economic theory and global warming. New York: Cambridge University Press. ———. 2005. Economic analysis of social common capital. New York: Cambridge University Press. Uzawa, Hirofumi, Ken-ichi Miyamoto, Tsuneo Ishikawa, Katsuhito Uchihashi, and Takamitsu Sawa. 1994. Shakai no Genjitsu to Keizaigaku: 21 Seiki ni Mukete Kangaeru (The reality of society and economics: Thinking toward the 21st century). Tokyo: Iwanami-shoten. Veblen, Thorstein. 1899. The theory of leisure class. New York: Macmillan. ———. 1904. The theory of business Enterprise. New York: Charles Scribner’s Sons. Yoshikawa, Hiroshi. 2000. Gendai Makuro Keizaigaku (Contemporary macroeconomics). Tokyo: Sōbunsha.

Chapter 6

Social Preference and Civil Society in the Institutional Analysis of Capitalisms: Integrating Samuel Bowles’ The Moral Economy and Robert Boyer’s Régulation Theory Abstract Samuel Bowles’ “civic social preference” in The Moral Economy and Robert Boyer’s “civil society” in the régulation theory show an in-depth understanding of modern society and capitalism. The difference between their theories and possible complementary relationships are considered. First, it is necessary to understand the formation of civic social preferences with multi-layered institutions and actors both inside and outside the market economy. Citizens’ social preferences can potentially develop in a way that complements the market economy, supported by the rule of law and liberal institutions, as suggested by Bowles, as well as “civil society” in the régulation theory. This understanding is particularly important in the labor market with incomplete contracts. Second, it is necessary to develop complementary analyses of the formation of citizens’ preferences at the micro and macro levels. In Bowles’ framework, the rule of law and civic institutions promote the development of civic social preferences by reducing market risks, and market risks and income distribution are determined by macroeconomic dynamics, as suggested by the régulation theory. Third, it is necessary to analyze democratic processes between legislators and citizens that are determined by the dynamic feedback of the political and economic domains. In promoting policymakers’ preferences with the appreciation of citizenship and democracy, the political participation of citizens plays an important role, as suggested in Boyer’s “civic social democracy.” Keywords Social preference · Civil society · The moral economy · The régulation theory · Samuel Bowles · Robert Boyer

This chapter is a fully revised version of the original article, Hiroyasu Uemura “Social preference and civil society in the institutional analysis of capitalisms: an attempt to integrate Samuel Bowles” The Moral Economy and Robert Boyer’s Régulation Theory,’ Evolutionary and Institutional Economics Review, 16(2), 2019, with the permission of The Japan Association for Evolutionary Economics. © Springer Nature Singapore Pte Ltd. 2023 H. Uemura, Japanese Institutionalist Post-Keynesians Revisited, Evolutionary Economics and Social Complexity Science 29, https://doi.org/10.1007/978-981-19-8688-8_6

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6.1

6

Social Preference and Civil Society in the Institutional Analysis. . .

Introduction

In the field of modern political economy, and social sciences in general, how has the concept of “citizen” and “civil society” developed with the institutional analysis of capitalism? “Civil society” was one of the most important concepts in social sciences in postwar Japan. The idea of “civil society” provided a theoretical foundation for studying the varieties of capitalist society, particularly, Japanese and Western varieties (Uchida 1967; Hirata 1969; Uemura 2010; Yamada 2018, 2022).1 After the 1990s, the importance of the concept of “civil society” as the public sphere was emphasized in the research of social thought and political science (Habermas 1990; Walzer 1997). Correspondingly, political economists have also come to focus on “civil society” to understand contemporary capitalist society. In this context, we discuss the recent studies of Samuel Bowles and Robert Boyer, who have had a great influence on Japan’s political economy and social sciences. In Japan, Bowles is often introduced as a prominent American radical economist, and Boyer is introduced as a leader of the French régulation school.2 Furthermore, Bowles and Boyer have often been compared because their theoretical stance and understanding of modern capitalism have much in common. Moreover, it should be emphasized here that, as globalization leads democracy into a potential crisis, both Bowles and Boyer have developed their own understandings of “citizen” and “civil society,” based on the recent development of modern economics and contemporary political science in Europe and the United States. Boyer uses the term “société civile” (civil society) (Boyer 2015a, b), but Bowles uses the word “citizen” or “civic preference” without using the word “civil society.” Instead, Bowles uses the word “liberal society” in the book, The Moral Economy (Bowles 2016).3 In this chapter, we consider the meaning of Bowles’ “civic social preference” and Boyer’s “civil society,” and we also discuss the difference between their theories and their possible development of complementary relationships. Our analysis is based on a reading of their books: Bowles’ The Moral Economy (Bowles 2016) and Boyer’s Économie politique des capitalismes (Boyer 2015a).

1

Kunihiko Uemura, Kenta Onodera, Kiichiro Yagi, and ToshioYamada give us the thorough summary of “civil society” in postwar Japanese social sciences from different perspectives (Uemura 2010; Onodera 2015; Yagi 2017; Yamada 2018). In particular, as for Yoshihiko Uchida, a founder of the civil society thought in Japan, see Yamada (2022). Japanese institutionalist post-Keynesians, such as Shigeto Tsuru and Hirofumi Uzawa, also developed the ideas of civic human rights and civil society in their institutional analysis of contemporary capitalism (Tsuru 1993; Uzawa 2000). Shigenobu Kishimoto intentionally inherited the civil society thought in the analysis of in the market system and firm organizations in the contemporary capitalist economic system (Kishimoto 1975). 2 As for the original works of Samuel Bowles and Robert Boyer, see Bowles (1985, 1998, 2004, 2012); Bowles et al. (1983); Boyer (1986, 1988, 2004, 2005, 2011). 3 Bowles and Carlin (2020) used the term, “civil society,” as a domain of capitalist society in the same way as Robert Boyer’s concept.

6.2

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Bowles’ recent study has reconstructed the incomplete contract theory and game theory on the basis of endogenous preference in microeconomics (Bowles 2004; Bowles and Gintis 2006). Furthermore, based on the tradition of American democracy as well as the results of research in behavioral sciences and microeconomics, especially on incentives and social preferences, he has developed his theoretical framework of the market and “liberal civil culture” (Bowles 2016). On the other hand, based on the régulation theory, Boyer has analyzed the evolving diversity and interdependence of growth regimes in Europe and Asia (Boyer 2015a, 2018). Furthermore, while inheriting the tradition of French social democracy, he has developed his understanding of the interaction between polity and economy, proposing an idea of a new social democracy based on “civil society.” Bowles and Boyer collaborated on research in the late 1980s and early 1990s, and developed their macroeconomic theory based on the institutional analysis of employment (Bowles and Boyer 1988, 1990, 1995).4 In the decade of the 2000s, they were each independently engaged in their own research, but both started to consider “citizen” and “civil society” in the context of the recent development of institutionalist social sciences and the “civil society theory” (Habermas 1990), as well as the crisis of democracy with the concentration of power to few people all over the world (Crouch 2004). Therefore, it is important to consider what theoretical innovations they have in common, as well as what their differences are, in order to establish a new comprehensive understanding of civil society and democracy.

6.2

Bowles’ The Moral Economy and Civic Social Preference

Bowles worked as a leading radical economist in the 1970s and 1980s. After he joined the Santa Fe Institute in the 2000s, he started to develop his own “evolutionary social science.” The results of his theoretical study were published in the book, Microeconomics: Behaviors, Institutions and Evolution (Bowles 2004), in which he analyzed the coevolution of institutions and preferences using the evolutionary game theory. Furthermore, Bowles considered social norms and social preferences in a liberal society in The Moral Economy (Bowles 2016).5

4

Bowles and Boyer formalized a Kaleckian macroeconomic model with the efficiency wage hypothesis and institutional consideration on work effort and wage determination (Bowles and Boyer 1988, 1990, 1995). This model provided the theoretical framework to the worldwide collaboration of political economists, including Stephen Marglin, Juliet Schor, Andrew Glyn, Robert Rowthorn, and Alain Lipietz, in World Institute of Development Economics Research (WIDR). 5 Bowles and Carlin (2020) used the term, “civil society,” as a domain of capitalist society in the same way as Robert Boyer’s concept. We should analyze the socio-economic interactions among the market/firm, the state and civil society.

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Social Preference and Civil Society in the Institutional Analysis. . .

Bowles’ Economic Thought: Social Preferences and the Moral Economy

Bowles summarized the results of his half-century of study of economic thought in the book, The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens (Bowles 2016). He proposed a concept called “evolutionary social science” (Bowles 2004), and his social thought in The Moral Economy complements his economic theory. However, it is not easy to understand Bowles’ economic thought in its entirety. For Bowles studied Karl Marx from his perspective as a radical economist, and since he joined the Santa Fe Institute, he has developed his own economic thought based on modern social sciences. Since Bowles moved to Santa Fe Institute, he has developed his own social sciences, and in particular, Bowles’ economic thought can be understood as a productive extension of American liberal thought. In the 1970s and 1980s, as a radical economist, he studied the relationship between democracy and capitalism (Bowles and Gintis 1987; Bowles et al. 1993), but even in this period, the idea of American democracy had an important influence on his social thought. In this sense, Marx is just one of many important ideological sources, and Bowles’ current economic thought should be understood as integrating the wisdom of contemporary economics and that of contemporary social sciences. For an in-depth understanding of Bowles’ social thought, the clue is in the word “liberal,” as it is an important concept in The Moral Economy. The concept of “liberal civic” means citizens who embody the ideas of fairness and common sense. Bowles’ social thought is underpinned by the study of liberal society, but there is more theoretical precision. The primary theoretical innovation of Bowles’ research is the full use of modern microeconomics, particularly the fruitful results of the incomplete contract theory and the mechanism design theory, as well as the results of experimental economics and behavioral sciences. They give a solid foundation as social science to his ideas. It is particularly noteworthy that Bowles analyzes the endogenous formation of civic social preferences with the rule of law and civic institutions.

6.2.2

The Inseparability of Incentives and Social Preferences Based on Behavioral Sciences

Bowles’ economic thought is characterized as the study of liberal society by referring to the research results of experimental economics and behavioral sciences. Bowles emphasizes the importance of Rousseau’s view of seeing “men as they are” rather than as a self-interested homo economicus. Based on the results of experimental economics and behavioral sciences, it is pointed out that even in a situation in which people are expected to make a self-interested and selfish decision, they frequently take an action that is ethically motivated. Moreover, in socio-economic

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relations, social preferences play an important role as a social foundation that enables mutually beneficial exchanges and sustainable social life. In this sense, social preferences are a spontaneous motivation to protect social norms together with ethical and reciprocal motives. In Bowles’ ideas of the market economy and incentives, incomplete contracts cause market failure, which means that efficient resource allocation is not realized in the market. In this situation, the “invisible hand” of the market requires the assistance of the “visible hand” of the government, so in economics the government is usually thought to give incentives to compensate for the price mechanism and to guide individuals to desirable social outcomes. Therefore, it has been said that designing this mechanism is necessary. This way of thinking is a core concept of the mechanism design theory, which attempts to design an incentive mechanism on the premise of self-interested motivation of individuals to realize more Pareto efficient outcomes. However, what Bowles points out is the fact that paradoxical effects exist in incentives. There are experimental results in behavioral sciences showing that incentives themselves crowd out social preferences when using incentives to make the world of incomplete contracts closer to the world of complete contracts. In other words, incentives and social preferences are inseparable. The paradox is that a legislature trying to govern knaves (selfish behavior) itself creates knaves (selfish behavior). Therefore, designing a public policy on the premise of self-interested individuals ranging from the “legislation for knaves” proposed by Machiavelli to the modern mechanism design theory cannot obtain the result intended by that idea. Why do incentives crowd out social preferences? The results of behavioral science experiments show that preferences are context-dependent and endogenous in the long run. Preferences determine how to respond to incentives, but their preferences themselves are also affected by incentives. Therefore, Bowles suggests the possibility of fostering social preferences depends on the design of co-evolving institutions, culture, and legislation, because preferences are context-dependent and endogenous. Experimental economics and behavioral sciences have made it clear that social preferences guarantee mutual benefit exchanges. However, if monetary incentives crowd out social preferences, a market society that depends on the widespread use of monetary incentives could erode social preferences and behaviors. Furthermore, it may create a vicious circle of the further use of incentives to compensate for missing ethical elements and others regarding preferences. However, in reality, such a vicious circle has not often emerged exclusively as a serious problem in any market-based society. There are corrosive effects that incentives have on social preferences, but such a vicious circle has often been offset by proper civic culture and social protection. Therefore, Bowles does not conclude merely by pointing out the problem of substitution between incentives and social preferences. If the message that the incentive conveys shows the context in which selfish behaviors are expected, we expect that crowding out will occur. Therefore, by changing the information conveyed by the incentive, “crowding out” is avoided; that is, the possibility of

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“crowding in” (complementarity between incentives and social preferences) is also created. Based on the results of the behavioral science experiments, Bowles traces Western social thought and rediscovers “Aristotle’s legislator,” who recognizes the “crowding in,” that is, the synergistic effect between morality and incentives, rather than the “crowding out” of social preferences by incentives.6

6.2.3

Civic Social Preferences in “Liberal Society”: “Crowding in” or “Crowding out”

The central theme of Bowles’ theory is the interrelation of the market economy, social preferences, and the rule of law and liberal institutions. In this context, Bowles refers to modern “liberal society.”7 This is one of the central concepts in Bowles’ social theory. Bowles himself has defined “liberal society” as follows: “By a ‘liberal society,’ I mean one characterized by extensive reliance on markets to allocate economic goods and services, formal equality of political rights, the rule of law, public tolerance, and few barriers to occupational and geographical mobility based on race, religion, or other accidents of birth” (Bowles 2016, p. 115). Occupational and geographical mobility alleviate the risks of citizens, and recently social insurance has also fulfilled this role. Such a society affects people’s preferences in the long run, but it does so in terms of the development of self-interested preferences in the market economy and the development of civic culture. The development of the market economy may develop self-regarding and self-interested preferences exclusively to destroy society, or otherwise, the development of the market economy and civic preferences may work complementarily, realizing civic virtue. Since contracts in the market imply “incomplete contracts,” whether such favorable results occur depends on the synergistic effect of the market and liberal institutions (such as the freedom of occupation and geographical movement, and the rule of law). If the synergy works effectively, “crowding in” is realized with civic virtues. In Bowles’ theoretical framework, there are several major social relations and modes of governance. In particular, there are “market,” “state” and “community” in society (Bowles 2004, 2016). Here, the qualitative dimension (anonymous or personal) and quantitative dimension (ephemeral or durable) of social relations are

6

Yamada (2022) also referred to Bowles’ inseparability of incentives and social preferences, and explained a “civilizing effect of incomplete contract” in the context of Japanese civil society thought. 7 “Liberal society” is close to what was often implied in the term “civil society” in Japan (Yamada 2018), but the concept of “civil society” itself has various meanings in different contexts. The reason Bowles does not use the word “civil society” is probably that the meaning of “civil society” is ambiguous, and in Europe and the United States, it often refers to social networks in the political sphere that is relatively independent of the market and the state. Furthermore, the word “civic” that Bowles often uses is more related to “the non-market aspect of liberal social orders” (Bowles 2016, p. 145), especially, the nature of “the liberal state.”

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important. The market is an anonymous and ephemeral social relationship, and community and family are personal and durable relationships (Bowles 2016, p. 176). Moreover, “personal trust” in communities and families and “generalized trust” in market society are different types of trust relationships. Modern bureaucracy in the state is anonymous and durable. There are also social relationships that are personality-dependent, such as the racially segmented market, as the last combination (personal and durable). The problem is what types of preferences are formed in different social relationships. Bowles argues that price mechanisms in the market may strengthen self-regarding and self-interested preferences and may cause “crowding out” other-regarding and social preferences, but that with appropriate social institutions and rules, there may be “crowding in.” What highlights this problem well is the concept of “the civilizing effects of the market,” which means the market fostering civic culture. Although Bowles understands this view well, he does not accept it unconditionally. Bowles suggests that the effect of the market in modern “liberal society” is ambivalent. Here, Bowles keeps a distance from both Marx, who gives a negative view of the effect of the market economy on society, and Smith, who praises the positive aspect of the market itself, based on his own understanding of the results of experimental economics. Furthermore, in his article (Bowles 2011) discussing this ambivalent effect of the market, he presents two types of causal effects of the market on the social ties in “liberal society.” One is “parasitic liberalism,” and the other is “liberal civic culture.” In the former, the markets and liberal institutions break down traditional institutions and weaken social ties and virtues, but in the latter, the markets and liberal institutions with proper legal rules enhance each other, creating civic virtues. Indeed, whether the market erodes society or fosters civic virtue is a crucial problem. Bowles’ answer to this problem is as follows. “I do not think Smith’s version of the doux commerce hypothesis (or any of its variants) adequately accounts for the civic-minded citizenry of many of the highly market-oriented societies. Instead, I think that the explanation has everything to do with non-market aspects of liberal social orders” (Bowles 2016, p. 145).8 What creates liberal civic mentality and culture is the following aspect of the liberal states: “Liberal states have neither the information nor the coercive reach to eliminate opportunism and malfeasance. However, they can and do protect citizens from worst-case outcomes such as personal injury, loss of property, and other calamities” (Bowles 2016, p. 145). The risk-reduction effect of the rule of law and liberal institutions acts in a way that

In Uchida (1967), we see a similar understanding to Bowles’ “crowding-in” of civic preferences that emphasizes the role of nonmarket aspects of liberal social orders, particularly, the rule of law and liberal institutions. Uchida also said, “Institutions matter” (Uchida 1967, p. 260), and “the functioning of self-interest—the direction of a behavior—differs, depending on the political organizations and the status in which one is situated” (ibid., p. 261). In the Japanese civil society thought, the “crowding-in” of civic mentality has been pursued in Japanese society after the postwar period (Yamada 2018, 2022). Following Bowles and Yamada, Yuji Harada conducted an comparative analysis of confidence on social and public institutions in varieties of capitalism and the diversity of institution-agent linkages (Harada 2022). 8

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6 Market and

Social Preference and Civil Society in the Institutional Analysis. . . Crowding out

monetary incentives Liberal institutions and the rule of law

Erosion of social preferences

Crowding in

Promotion of civic preferences

Fig. 6.1 Crowing-in and Crowding-out of Social Preferences. Source: The author draws this synthetic figure, taking account of figures in Bowles (2011, 2016)

complements the market economy, leading to “crowding-in.”9 The processes of “crowding in” and “crowding out” are summarized in Fig. 6.1. In short, Bowles’ understanding can be summarized as follows. The development of the markets either strengthens or weakens civic preferences. If complementary synergies are created between the markets and the rule of law with liberal institutions, civic preference will be strengthened by reducing the risk of citizens. This is the “crowding in” of social preferences in the liberal market economy.

6.2.4

The Labor Market Theory Based on Incomplete Contracts

As for the possibility of “crowding in” of social preference in incomplete contracts, the labor market and the credit market have their own specific nature. Bowles originally explained the nature of incomplete contracts in the labor market as “the contested exchange theory” in the late 1980s (Bowles 1985). His evolutionary social sciences developed the theory from more institutional perspective (Bowles 2004), and The Moral Economy shows further development regarding the social and moral dimension (Bowles 2016). In the labor market, there is an asymmetrical relationship between employers (principals) and employees (agents), and the contracts on working conditions and the level of work effort are incomplete in the sense that they cannot prescribe all of the conditions. In this relationship, not only monetary incentives such as wages are important but also fairness in work and wages, as well as legal systems to reduce the risks of workers. The social security system has also played an important role in advanced countries since the twentieth century. Moreover, in the labor market with incomplete contracts, the exercise of power and institutionalization determine the socio-economic dynamics. In “liberal society,” the freedom of occupation in the labor market is one of the most important components, but contracts in the labor market are so incomplete that

9 In this context of the risk-reduction effect of social institutions, Uzawa’s “social common capital” plays a crucial role to promote the “crowding-in” by reducing the risk of citizens in health care, education, and environment (Uzawa 2000, 2005). As for Uzawa’s thought of “social common capital,” see Chap. 5 in this book.

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the appropriate legal system to protect workers and the norm of fairness concerning work and wages play a complementary role to monetary incentives in the market economy. Therefore, the labor market is highly institutionalized in every country. In the credit market as well, contracts are incomplete in the process of loan and repayment, legal institutions guaranteeing repayment and reducing risk as well as trust relationships with borrowers play an important role. Furthermore, how the credit market functions depend on the ownership relations of financial assets. In this context, Bowles sometimes referred to the “egalitarian distribution of assets” to promote productive activities and work effort in his policy proposal in the 1990s, which makes the market economy bring more egalitarian results (Bowles and Gintis 1998; Bowles 2012).

6.2.5

The Role of Legislators: Promoting Legislation and Civic Mentality

In order to realize the “crowding in” of social preferences, proper legislation is also necessary. In this context, what kind of legislation is it? The paradigm of imposing effective legislation on selfish knaves, which was Machiavelli’s idea, is now developed as the mechanism design theory by Leonid Hurwicz and Eric Maskin (Bowles 2014). It is an attempt to identify the conditions under which a legislator can achieve a more efficient result by giving effective rules and incentives to selfish individuals, namely, something that cannot be achieved based solely on the market. However, what the research of the mechanism design theory has clarified thus far is the fact that we cannot satisfy three conditions simultaneously: Pareto efficiency, the neutrality of preference, and voluntary participation. Bowles calls this the “liberal trilemma.” The definition of “Pareto efficiency” is the same as that widely shared in economics, and the meaning of “the neutrality of preference” means that legislators do not intervene in individual preferences. Voluntary participation means that participation in socioeconomic relations is based on the voluntary choice of individuals and that legislators do not enforce the participation. With the “liberal trilemma,” a Pareto efficient state cannot be achieved if legislators pursue “the neutrality of preference” and “voluntary participation” based only on the assumption of self-regarding individuals and complete contracts. Therefore, the legislators should recognize the endogenous formation of social preferences by “men as they are” (Rousseau) and the effective role of citizens’ social preferences. This is exactly “why good incentives are no substitute for good citizens,” as the subtitle of Bowles’ The Moral Economy states. Legislators should recognize the role of civic social preferences. Bowles says, “Good policies and constitutions are those that support socially valued ends not only by harnessing selfinterest but also by evoking, cultivating, and empowering public–spirited motives” (Bowles 2016, p. 222). In this way, Bowles has developed his economic thought systematically, based on the interactions among the market economy, citizens’

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preferences, and the role of good legislation which may potentially cause “crowding in.” Although Bowles’ argument is very persuasive, it seems that there is still an area that needs a social scientific analysis of the way “legislators” appear in society. In particular, in what kind of democratic process are “legislators” elected? What interactions exist between legislative acts and citizens’ reactions to political processes? Legislators are in the field of politics outside the market and are engaged in legislation and policies on the market, but legislators may be monitored by “civil society” as a public sphere. Therefore, it is necessary to develop the political analysis of legislators in a democracy. In this regard, Bowles’ article, “The End of Liberalism” (Bowles 2017), is instructive. He looks back on the ambivalent history of “liberalism” for hundreds of years since the early days of modern “liberal society.” In the nineteenth century, economic liberalism was dominant. Then, in the twentieth century, the “democratization of liberalism” developed, and universal suffrage was achieved in advanced societies. However, with the globalization of the economy, liberalism has become liberalism for the strong, that is, neoliberalism. In reaction, nationalism and xenophobia have spread recently. Bowles argues that based on the origin of civic culture, emphasizing freedom and democracy, as well as the wide extension of suffrage in the twentieth century, including to the socially vulnerable, we should renew liberal values in our society.

6.3

Boyer’s “Civil Society” and Civic Social Democracy

Robert Boyer, a leader of the régulation theory, has developed his own concept of “civil society,” taking account of recent developments in social sciences. The régulation theory analyzes the dynamics of diverse forms of capitalism using the concept of “the mode of régulation” and “accumulation regime” (or “growth regime”) from the historical and institutional perspective. Furthermore, Boyer has developed his research on dynamic interactions between economy and polity recently (Boyer 2015a, 2018).10 In this context, it is noteworthy that Boyer has often used the concept of “civil society” and “société civile.”

10 As for the theoretical foundations of the régulation theory and the empirical research based on this theory in Japan, see Chap. 7 in this book.

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Modes of coordination and the distribution of power Horizontal

Wage-labor nexus

Firm

Association

Work organization

Labor market

Trade union Obligation

Motives of action

Interest

Market

Vertical

Network

Social security

Citizenship Civil society Community

system

State

Fig. 6.2 Various principles of coordination and wage-labor nexus. Source: Based on Robert Boyer’s argument, the author modifies Fig. 15 in Boyer (2015a)

6.3.1

Domains of Coordination: Market, Firm, State, Community, and Civil Society

In the framework of the régulation theory to which Boyer has contributed, the “mode of régulation” of each country is analyzed thoroughly.11 It is a mode in which the national economy as a whole is coordinated in a dynamic process of economy and polity within specific institutional settings, and in particular, it includes the areas and various principles of coordination. Based on the framework proposed in his most recent systematic study, Économie politique des capitalisms: Théorie de la régulation et des crises (Boyer 2015a), we can summarize the various domains of coordination that create régulation in the socio-economic system in Fig. 6.2. The vertical axis is the distinction between motivations for coordinating behavior, “interest” or “obligation,” and the horizontal axis is the distinction between modes of coordination and power distribution, “horizontal” or “vertical.” “Market” is a social construct with horizontal coordination in which the motive for actions is interesting.

11

As for the original framework of the régulation theory, see Boyer (1986). The growth regimes are formalized with the Kacleckian theory of growth and distribution and the Kaldorian theory of endogenous productivity increase in Boyer (1988), and the theoretical framework was also developed with the analysis of the financial market to apply to “the financial-led growth regime” in Boyer (2000, 2010, 2011). Furthermore, the results of international collaborative research was published as a series of books (Boyer and Yamada 2000; Boyer et al. 2012; Boyer et al. 2018; Boyer 2018).

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The motive for actions in a “firm” is also based on interest, but the coordination is vertical in its organization. In the community or civil society, actions are based on obligatory motives and are characterized by horizontal coordination. Of course, between the “community” and “civil society,” the nature of mandatory motivation is different; that is, communal norms or public values, and their spatial ranges are different. The state is an organization of vertical coordination based on obligatory motives. Furthermore, besides these four basic types of coordination, “association” and “network” can be referred to as having a complex motive of interest and obligation, and are located in the middle region between horizontal coordination and vertical coordination. In the analysis of each national economy, the régulation theory uses the theoretical framework of five “institutional forms”: “money form/regime,” “the form of competition,” “wage-labor nexus” (rapport salarial), “state form,” and “integration into the international system.” These are structurally related to the various principles of coordination as follows. The “market” is organized on the basis of “the form of competition” and “money form,” complemented by various institutional coordination, and affects “wage labor nexus” with employment contracts. “Associations” and “networks” are also important societal relations that influence various institutional forms with social norms and political conflict. “Integration into the international system” is defined by international competition and the international division of labor in the “market.” Of course, the “state” in the coordination domain corresponds to the “state form.” The “wage-labor nexus” in the régulation theory is a particularly important concept.12 It refers to a complex of various social relationships related to wages and employment, including work organizations, the labor market, lifestyles, the modes of reproduction of wage laborers, labor-management compromise, and the social security system. Boyer explains that the labor force is different from ordinary goods and emphasizes the importance of distinguishing the labor force from labor. Therefore, labor contracts essentially contain “strategic conflict” at their center, and norms and incentives for labor play an important role (Boyer 2015a, p. 29).13 Furthermore, the “wage-labor nexus” is conceptualized as a strongly institutionalized area by collective political compromise. Moreover, associations and networks are often included therein. The labor union is an important organization to establish a political compromise. In the “wage labor nexus,” it is particularly important that the universal nature of social policy based on “citizenship” (citoyenneté) determines the mode of régulation. Therefore, “civil society” is recognized as a field of horizontal coordination independent of the markets, firms, and the state, and it influences the markets and the wage-labor nexus. Therefore, Boyer says, “Do not forget the role of

12 As for the concept of “wage-labor nexus” (rapport salarial), see Boyer (1986, 2004, 2005, 2015a). 13 Boyer calls this “the new theories of the labor market (nouvelles théories du marché du travail),” which corresponds to “the incomplete contract theory” or “the contested exchange theory” developed by Bowles.

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communities and, more generally, of civil society in facilitating exchanges through the construction of trust” (Boyer 2015a, p. 201; translated by the author).14 In this regard, the specific combination of the markets, firms, the state, and civil society with various trust and social norms determines the varieties of capitalism. Regarding the areas of coordination covered by the “mode of régulation,” Boyer emphasizes the following two points (Boyer 2015a). First, the level of régulation is multi-layered. Namely, there are multiple levels of the “mode of régulation”: the national level (le national), the regional level (le régional), the supranational level (le supranational), and the global level (le mondial). This perspective is a new development in the régulation theory that can encompass not only national growth regimes but also international political economy. Indeed, multi-layered governance is formulated both within the European Union and outside it in various socioeconomic and immigration policies. Second, in such multi-level modes of régulation, there are interactions between economy (l’économique) and polity (le politique) that produce socio-economic dynamics in the world economy.

6.3.2

Dynamic Interactions between the Economic and Political Domains

At the national level of régulation, “when a nation is conceived as a community, and not as a collection of self-interested individuals, polity and economy become structurally intertwined” (Boyer 2014, p. 131). This means dynamic interactions between the political domain (le politique) and the economic domain (l’économique) in capitalism (Boyer 2015a, p. 174). The dynamic interactions are explained as follows. Efficiency is emphasized in the economic field, and the activities of economic actors in the economic field influence the bargaining power of various social groups. In this situation, the economic regime is constructed as a growth regime (régime d’accumulation), and the outcome influences the behaviors of various actors in the political domain, who respond to civic demands. This is then reflected in the election. As a result of the election, various possibilities for a coalition government are created, and the rules of the game in social actions and policy decision-making are formulated. Moreover, this process determines economic policies. A distinctive feature of Boyer’s interpretation of the process here is the fact that it emphasizes the highly dynamic feedback loop which exists between the economic and political domains. Moreover, Boyer says, “The interaction between the political area and the economic area explains both the evolution of modern society and the diversity of its socio-economic regime” (Boyer 2014, p. 132).

14

This Boyer’s argument about the role of trust in the market corresponds to Bowles’ emphasis on the role of trust and “social preferences” in the market economy.

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Social Preference and Civil Society in the Institutional Analysis. . .

“Economic Policy Regime” in the Régulation Theory: The Growth Regime and the Compromise of Social Groups

Boyer has extended the régulation theory to the analysis of “economic policy regime (regime de politique économique)” to further develop analysis on the interaction between the political domain and the economic domain (Boyer 2014, 2015a). The following sentence is given as a general explanation of “economic policy regime” in the régulation theory: “A specific economic policy regime can be associated at each stable development mode; however, structural crises indicate the limitations and counterproductive consequences of prolonging such a regime. This issue necessitates reform strategies to build a new institutional configuration” (Boyer 2014, p. 150). Here, it is important that the nature of “economic policy regime” differs between the period of stable growth and the period of structural crisis in the framework of the “growth regime.” “Growth regime” in the régulation theory is the macroeconomic regularity that is created by demand formation and productivity growth, and has a period of stable growth and a period of structural crisis. Such macroeconomic dynamics affect the preferences and behaviors of socio-economic agents. Furthermore, the “economic policy regime” stipulated by the dynamics of the economy is formed and stabilized by the compromise and coalition of social groups. However, during a period of structural crisis, it is often necessary to change a “policy regime” and reform political–economic institutions. Based on this basic understanding, the relationship between the dynamics of the “growth regime” and the “economic policy regime” is explained as follows. First, it is necessary to analyze the dynamics of the “growth regime” for the period of stable growth and the period of structural crisis. During a period of stable growth, the “economic policy regime” depends on the nature of the institutional hierarchy that institutional forms have in the national economy (i.e., which institutional forms are dominant) and the nature of democracy. On the other hand, in a period of structural crisis, reform strategies are created to cope with the dysfunction of régulation. For example, with economic institutionalization and Keynesian policies in the 1960s, the hegemony of workers was implied in the political compromise. At the time of the Fordist compromise of the 1960s, a compromise or coalition was established between the managers of large enterprises and trade unions. The financial world adapted to this social structure, and the international regime was coordinated in a complementary way. Therefore, during the period of stable growth, Keynesian stabilization policy, progressive taxation, and social welfare developed, and even in the structural crisis of the 1970s, the reform strategies were based on the extension of Keynesianism with further public intervention (income policy and industrial policy). By contrast, in the age of monetarism and neoliberalism in the 1980s, political hegemony shifted to the side of capital (or large firms), and a few dominant groups in a society controlled the power of the state. Therefore, during the period of stable growth, monetarist policies were adopted, and market-based incentives were

6.3

Boyer’s “Civil Society” and Civic Social Democracy

Fig. 6.3 Varieties of capitalism as the combination of four main principles of coordination. Source: Based on Robert Boyer’s framework, the author modifies Fig. 26 in Boyer (2015a)

87 The State Varieties of Capitalism

Market

Firm

Civil society

introduced. In the international competition-led regime of the 1980s, a compromise and coalition between large companies’ management and consumers was formed, and its aim was to gain profits from trade, strengthening international competitiveness. Accordingly, the compromise with workers was weakened, increasing the pressure to place workers in subordinate positions. Moreover, with the coalition between financial investors and managers of large enterprises in the 1990s, profits were shared between greatly expanding financial markets and large corporate managers. Then, in the period of structural crisis, further privatization, liberalization, and economic liberation in the competition of world markets were still pursued, causing more social inequality and conflict. In this situation, more risks were imposed on workers. As mentioned above, in Boyer’s theoretical framework, the “economic policy regime” is analyzed based on the dynamics of the “growth regime,” that is, stable growth and structural crisis. The dynamics is explained by collective compromise and coalition. In such dynamism of political compromise and policy formation, what role “civil society” plays is the next problem.

6.3.4

Boyer’s “Civil Society (societé civile)” and New Social Democracy

Boyer considers mutual interactions between economic and political domains, and also emphasizes that they are strongly influenced by the dynamics of the growth regime as a whole in a specific type of capitalism. Furthermore, he proposes the framework of “the analysis of varieties of capitalisms as expression of the combination of four grand principles of coordination” (Boyer 2015a, p. 202: translated by the author), and explains the varieties of capitalism are determined by the dynamic combination of the four principles: market (marché), firm ( firme), the state (état), and civil society (societé civile), as shown in Fig. 6.3.15

The framework of “market-firm-state-civil society” is an innovative theoretical development which was proposed to analyze the varieties of capitalism in Boyer (2015a).

15

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Considering the recent political situation after the neoliberal era, Boyer suggests that “civil society” plays an important role in the new social democracy. He points out that the political and economic changes currently occurring in developed countries must necessarily be diverse in accordance with the co-evolution of the economic regime and the political system in each country. In particular, he compares “liberal capitalism” as represented by the United States, “social democracy” in European countries, and “renewed social democracy” based on the active participation of citizens. “Renewed social democracy” is based not on traditional corporatist social compromise but on the premise of the active participation of citizens, in which “civil society” is the basis of such political participation. First of all, “liberal capitalism” is a political and economic system represented by the United States and others. There, the interests of business and finance in the economic field define the national policy. Moreover, in this type of capitalist state, the power of workers and citizens is weakened, leading to the erosion of democracy. On the other hand, in “new social democracy,” there are active citizens and workers who exercise power in civil society, and democracy develops firmly. Therefore, national economic policies are determined by a productive compromise between business and workers on the basis of solidarity in civil society, which is supported by the political participation of citizens. Boyer states: “It is initiated by small and densely networked communities that extended the related trust and procedures at the national state level” (2014, p. 171). Boyer calls this the “civic social democratic configuration” (Boyer 2008). Furthermore, in a paper discussing democracy and the competitive advantage of the Scandinavian model, he emphasizes the importance of “social democratic citizenship” supported by solidarity (Boyer 2015b). Of course, since the beginning of the 2010s, under the increasing pressure of globalization, especially in European countries, a prominent trend has been the transformation of social democracy and the rise of nationalism. In Europe, with the euro crisis, the immigration and refugee crisis, and Brexit, European integration, which has developed for more than half a century, is in danger. Moreover, European civil society and democracy are now in trouble. In this situation, the new social democracy based on civil society, as advocated by Boyer, is increasingly important.

6.4

Perspectives of “Citizen” and “Civil society” in Bowles and Boyer: How to Integrate their Social Thought

Finally, I will consider how to develop the perspectives of “citizen” and “civil society” that have been proposed by Samuel Bowles and Robert Boyer to understand contemporary society. To this end, I address where they agree and where they differ.

6.4

Perspectives of “Citizen” and “Civil society” in Bowles and Boyer: How. . .

6.4.1

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Common Perspectives of Bowles and Boyer

One perspective Bowles and Boyer have in common is that both emphasize that the economic domain and the political domain are mutually determined while presupposing the diversity of preferences and motivations of socio-economic actors. Bowles points out that self-interested preferences and social preferences coexist in socio-economic relations, and that power relations, along with social norms, are embedded in the capitalist market economy. Market contracts are incomplete contracts, so norms and power are inevitably involved, influencing the performance of the market economy. In particular, this characteristic is prominent in contracts in the labor market, in which social norms and institutionalization work effectively. Boyer also emphasizes that economic and political domains are mutually determined in a dynamic process. Moreover, in the main areas of coordination, not only selfish motives (self-interests) but also motivation based on obligation play important roles. In particular, “wage labor nexus” in the régulation theory is inseparably associated with the political sphere, and political compromise and institutionalization play an important role in various social norms. Therefore, both Bowles and Boyer have always considered the transforming relationship between capitalism and democracy, emphasizing the important role of citizenship in political dynamics and institutionalization.

6.4.2

Different Perspectives between Bowles and Boyer

Of course, between Bowles and Boyer, there are important differences in what to focus on and how to build logic. First, they look at the relationship between the capitalist market economy and civic social norms in different ways. Bowles emphasizes that not only self-interested preferences but also civic social preferences exist in the market economy, and that the market and civic social preferences can develop in a mutually promoting manner in the daily life of social actors in society. In this regard, institutional conditions and the legal system matter. In Bowles’ understanding, the market mechanism should be governed to work properly so that a fair and equal society may be realized. Rather than negatively referring to the function of the market, Bowles’ “moral economy” allows for the potential for the positive function of a market in which civic social norms and rules are embedded. Boyer, on the other hand, understands that the market and civil society are independent principles of coordination besides the state, often referring to Antonio Gramsci. Accordingly, Boyer’s “civil society” is a sphere where citizens and social groups act in a political process. As such, “civil society” is understood as what coordinates and controls the capitalist market economy with socio-economic policies. Second, there are differences in their views of the process of creating civic social preferences and the stable development of civil society: the micro level or the macro level. Bowles explains the endogenous formation of actors’ preferences in their daily

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life at the micro level and the interactions of agents, social norms, and institutional rules that guide them. Although he discusses the “emergent property” in the complex system theory to explain the outcome produced by the market economy, referring to Adam Smith, he does not analyze macroeconomic dynamics.16 For this reason, the endogenous formation of civic social preference is also a microanalysis, and the influence of macroeconomic dynamics on agents’ preferences is not discussed. On the other hand, Boyer discusses the development of civil society and the formation of an economic policy regime by referring to the dynamics of the “growth regime” in a historical process. In particular, actors’ ways of thinking and behaviors as well as social compromises in civil society are determined differently in the stable growth period and the structural crisis period. Third, their explanations of policy formation and implementation are different. Bowles emphasizes the importance of policymakers (legislators) in making appropriate legislative actions and policy-making to foster good citizens for socially favorable purposes as a process of endogenous preference formation in the “second best world.” However, the analysis of the feedback that citizens give policymakers in the political field has not been made explicitly. In contrast, Boyer analyzes the policy formation as the result of a compromise among social groups that implies the distribution of incomes and power among them. Furthermore, Boyer analyzes the effect of political ideas and policies on economic conditions and actors’ political behaviors. In other words, he explains the dynamics of interaction between the political domain and the economic domain.17

6.4.3

Integrating the Moral Economy and the Régulation Theory

By having examined the common and different perspectives of Bowles and Boyer, we can see how the strengths of their respective views might best be integrated. First of all, it is necessary to understand the fields that are to form civic social preferences as encompassing multi-layered spheres both inside and outside the market economy. Bowles emphasizes that citizens’ social preferences with “liberal

See Bowles’ statement in the preface to Japanese translation, “Smith was among the first to use the idea (not the language) of emergent properties to understand the workings of the economy. But Smith must have missed something important. Economic self-interest may have put the bread, the beer and the beef on the table, but it did not get the Boston firemen to stop calling in sick. Where did they go wrong? Neither Smith, nor the great nineteenth century economists who followed him made the mistake of thinking that people are in fact entirely selfish” (Bowles 2016, Japanese translation, p. v). 17 In this context, Boyer refers to Bowles’ endogenous preference formation, emphasizing the effect of the marker economy on the preferences of socioeconomic actors in the systemic and circular causality: economic discipline-policy formation-the economy-society (preferences)- actors’ representation (Boyer 2015a, p.188). 16

6.4

Perspectives of “Citizen” and “Civil society” in Bowles and Boyer: How. . .

91

civic culture” can potentially develop in a way complementing the market economy if they are supported by the rule of law and liberal institutions. For this reason, civic social preferences are formed to extend beyond the market domain (that is, the social and political spheres). Therefore, it is supported by the development of “civil society” as a sphere that is articulated to the market and the liberal state. Such an understanding is particularly important in the labor market with incomplete contracts and “wage labor nexus” in the régulation theory, in which the fair norms of citizens and the conflict among social groups play an important role in labor contracts.18 In this regard, further research is necessary on legal institutions and social rules that coordinate agents with different social preferences and norms regarding the employment system and the social security system. Second, it is necessary to develop a complementary analysis of the micro and macro levels on the formation of citizens’ preferences and economic policies. In Bowles’ framework, the rule of law and civic institutions promote the development of civic social preferences by reducing market risks for citizens. Moreover, market risks and income distribution are greatly influenced by the macroeconomic dynamics of a growth regime, as suggested by the régulation theory. In a period of stable growth, the risk faced by citizens may decrease, so civic social preferences are often enhanced, but in a period of structural crisis, the risk drastically increases, weakening social preferences. Then, self-interested preferences are likely to be strengthened for economic agents to protect themselves, affecting the economic policy regime. However, in this situation, if a new political compromise is established from a more social point of view, social solidarity may be strengthened among social groups, as suggested by the régulation theory. In this way, the preference formation of sociopolitical actors, particularly the development of civic social preferences, should be considered by analyzing the dynamic interaction between micro- and macroprocesses in the systematic framework as the “micro-macro loop” (Uemura et al. 2007).19 Third, it is necessary to analyze policymakers (legislators) in the dynamics of interaction between the political domain and the economic domain. If legislators nurture civic preferences in the “second best world” (Bowles), through what democratic process are they chosen, and elected, under the universal suffrage of a wide range of citizens? This must be determined by the dynamic and cumulative feedback of the political domain and the economic domain in society. In order for policymakers (legislators) to develop their own preferences appropriately from the viewpoints of citizenship and democracy and in order for policy implementation to

18 This political-economic perspective concerning “wage-labor nexus” with incomplete contracts and employment institutions is more promising than Habermas’s notion of “civil society (Zivilgesellschaft)” that means a public sphere with communication activities which is independent of the capitalist market economy. Yoshihiko Uchida original developed an idea of civil society relationships in the labor market and the employment system in Japan (Yamada 2022). 19 The framework of “micro-macro loop” is developed from the institutional perspective by Uemura et al. (2007). As for the further development of this idea, see Chap. 7 in this book.

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Table 6.1 Difference and complementarity between Bowles and Boyer Bowles Crowding-in of the market and social preferences with the rule of law and liberal institutions

Boyer Civil society coordinating the market and the state in the political process within a mode of régulation

Micro- and macroanalysis

Microanalysis of co-evolution of institutions and preferences (endogenous preferences)

Macroanalysis of conflict and compromise in the dynamics of growth regime (growth and structural crisis)

Legislation and policy making

Aristotle’s legislator empowers good citizens by policies to reduce citizens’ risks and to promote public motives

The dynamic interaction of polity and economy produces political coalition and socio-economic policies

Market and civil society

Integrating two approaches The formation of civic social preferences within and outside the market economy being influenced by civil society with various social norms Micro-macro loop approach to institutional changes and endogenous preference formation in the dynamics of growth regime The dynamic interaction of government policies and citizens’ political participation in the political and economic processes

Source: Author

promote civic mentality, the political participation of citizens with their daily life plays an important role in the feedback process, as suggested in Boyer’s “civic social democracy.” All the above arguments about the difference and complementarity between Bowles and Boyer suggested in this article are summarized in Table 6.1.

6.5

Conclusion

We have developed the idea of “civil society” in Japanese social sciences since the postwar period (Yamada 2018). In Japanese political economy, we have also learned a great deal from the theoretical arguments in Bowles and Boyer’s macroeconomic model based on the institutional and Kaleckian analysis of capitalism (Bowles and Boyer 1988, 1990, 1995). In the twenty-first century, under the strong pressure of globalization, civil society and democracy are in crisis in not only Japan but other countries, so we considered their theories again, particularly focusing on the meaning of Bowles’ “civic social preference” and Boyer’s “civil society,” and discussed the difference between their theories and the possible development of complementary relationships in institutional economics in the twenty-first century. The results of the theoretical consideration are summarized as follows. First, it is necessary to consider the formation of civic social preferences within multi-layered institutions and actors both inside and outside the market economy. Citizens’ social

References

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preferences can potentially develop in a way that complements the market economy, supported by “the rule of law and liberal institutions,” as suggested by Bowles, as well as the role of “civil society” in the régulation theory. This understanding is particularly important in the labor market with incomplete contracts with social norms and political power. Employment institutions play an important role in promoting civic social preferences. Second, it is necessary to develop complementary analyses of the formation of citizens’ preferences at the micro and macro levels. In Bowles’ framework, the rule of law and civic institutions promote the development of civic social preferences by reducing market risks for citizens, and market risks and income distribution are determined by macroeconomic dynamics, especially growth and crisis as suggested by the régulation theory. Third, it is necessary to analyze democratic processes between legislators and citizens that are determined by the dynamic feedback of the political and economic domains. In promoting policymakers’ preferences with the appreciation of citizenship and democracy, the political participation of citizens plays an important role, as suggested in Boyer’s “civic social democracy.” What we learn from Bowles and Boyer’s social thoughts on the “social preference” and “civil society” is fundamental in our social science, and it is the solid foundation of social thoughts and social sciences that are relevant in the institutional analysis of capitalist society in the twenty-first century.

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Bowles, Samuel, and Herbert Gintis. 1987. Democracy and capitalism: Property, community, and the contradictions of modern social thought. New York: Basic Books. ———. eds. 1998. Recasting egalitarianism: New rules for communities, states and market. Verso. ———. 2006. Can self-interest explain cooperation? Evolutionary and Institutional Economics Review 2 (1): 21–41. Bowles, Samuel, Herbert Gintis, and Bo Gustafsson, eds. 1993. Markets and democracy: Participation, accountability and efficiency. Cambridge: Cambridge University Press. Bowles, Samuel, David M. Gordon, and Thomas E. Weisskopf. 1983. Beyond the waste land: Democratic alternative to economic decline. New York: Anchor Press/Doubleday. Boyer, Robert. 1986. La théorie de la régulation: Une analyse critique. Paris: La Découverte. ———. 1988. Formalising growth regime. In Technical change and economics theory, London, ed. Giovanni Dosi, Christopher Freeman, Richard Nelson, Gerald Silverberg, and Luc Soete. Pinter Publishers. ———. 2000. Is a finance-led growth regime a viable alternative to fordism?: A preliminary analysis. Economy and Society 29 (1): 111–145. ———. 2004. Une théorie du capitalisme est-elle possible? Paris: Odile Jacob. ———. 2005. Coherence, diversity and evolution of capitalism: The institutional complementarity hypothesis. Evolutionary and Institutional Economics Review 2 (1): 43–80. ———. 2008. Democracy and social democracy facing contemporary capitalisms: A régulationist approach, PSE Working Paper, 2008-36. ———. 2010. The rise of CEO pay and the contemporary social structure of accumulation in the United States. In Contemporary capitalism and its crises: Social structures of accumulation theory for the 21st century, ed. Terrence McDonough et al. Cambridge: Cambridge University Press. ———. 2011. Les financiers détruiront-ils le capitalisme? Paris: Economica. ———. 2014. How do polity and economy interact within regulation theory?: Consequences for a policy regimes and reform strategy. In Economic crises and policy regimes: The dynamics of policy innovation and paradigmatic change, ed. Hideko Magara. Cheltenham and Northampton: Edward Elgar. ———. 2015a. Economie politique des capitalismes: Théorie de la régulation et des crises. Paris: La Découverte. ———. 2015b. How institutional competitiveness emerged from complementrities between nordic welfare and innovation systems. In Sources of National Institutional Competitiveness, ed. Susana Borras and Leonard Seebrooke. Oxford University Press. ———. 2018. Two dialectics between polity and economy: Asian and European integration compared. In Evolving diversity and interdependence of capitalisms, ed. Uemura Robert, Yamada, and Song, 17–64. Tokyo: Springer. Boyer, Robert, Hiroyasu Uemura, and Akinori Isogai, eds. 2012. Diversity and transformations of Asian capitalisms. Abingdon: Routledge. Boyer, Robert, Hiroyasu Uemura, Toshio Yamada, and Lei Song, eds. 2018. Evolving diversity and interdependence of capitalisms: Transformations of regional integration in EU and Asia. Tokyo: Springer. Boyer, Robert, and Toshio Yamada, eds. 2000. Japanese capitalism in crisis: A Regulationist interpretation. London and New York: Routledge. Crouch, Colin. 2004. Post-democracy. Cambridge: Polity Press. Habermas, Jürgen. 1990. Strukturwandel der Öffentlichkeit: Untersuchungen zu einer Kategorie der bürgerlichen Gesellchaft, 2. Aufl, Frankfurt am Main: Suhrkamp Verlag. Harada, Yuji. 2022. Seido to Shinrai: Shihonshugi no Ruikei ni Motozuku Hikaku Bunseki (Institutions and trust: Comparative analysis based on types of capitalism). In Seido to Shinka no Seijikeizaigaku: Chōsei no Jūsōsei to Tayōsei (The political economy of institutions and evolution: Multi-layered régulation and deversity), ed. Akinori Isogai and Hiroyasu Uemura. Tokyo: Nihon Keizai Hyōronsha.

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Hirata, Kiyoaki. 1969. Shiminshakai to Shakaishugi (Civil society and socialism). Tokyo: Iwanamishoten. Kishimoto, Shigenobu. 1975. Shihonsei Keizai no Riron (The theory of the capitalist economic system). Tokyo: Nihonhyōronsha. Onodera, Kenta. 2015. Sengo Nihon no Shakai Shisōshi: Kindaika to “Shiminshakai” no Hensen (The history of postwar Japanese social thoughts: Modernization and changes in “civil society”). Tokyo: Ibunsha. Tsuru, Shigeto. 1993. Institutional economics revisited. Cambridge: Cambridge University Press. Uchida, Yoshihiko. 1967. Nihon Shihonshugi no Shisōzō (Intelecural portrait of Japanese capitalism). Tokyo: Iwanami-shoten. Uemura, Kunihiko. 2010. Siminshakai toha Nanika: Kisogainen no Keifu (What is civil society?: The genealogy of basic concept). Tokyo: Heibonsha. Uemura, Hiroyasu, Akinori Isogai, and Ebizuka Akira. 2007. Shakai-keizai Sisutemu no Seido Bunseki: Marx to Keynes wo Koete (The institutional analysis of socio-economic systems: Beyond Marx and Keynes), New Edition. Nagoya: Nagoya University Press. Uzawa, Hirofumi. 2000. Shakaiteki Kyōtsū Shihon (Social common capital). Tokyo: Iwnamishoten. ———. 2005. Economic analysis of social common capital. New York: Cambridge University Press. Walzer, Micheal, ed. 1997. Toward a global civil society. Berghahn Books. Yagi, Kiichiro. 2017. Kokkyō wo Koeru Shiminshakai, Chiiki ni Nezasu Siminshakai (Civil society extending across national borders, civil society rooted in local regions). Sakurai-shoten. Yamada, Toshio. 2018. Contemporary capitalism and civil society: The Japanese experience. Singapore: Springer. ———. 2022. Civil society and social science in Yoshihiko Uchida. Springer.

Chapter 7

Institutional Economics in the Twenty-First Century Based on the Creative Rivalry among Post-Keynesian and Post-Marxian Theories

Abstract Based on the research of Japanese institutionalist post-Keynesians, we discuss a possible future of “institutionalism in the board sense” in the twenty-first century based on the “creative rivalry” (Sugimoto, Eiichi, The Elucidation of Modern Economics. Riron-sha, 1950) among Post-Keynesian and Post-Marxian theories. Particularly, we consider how political-economic analysis can be developed theoretically and empirically from the institutional perspective of contemporary capitalism, especially referring to the recent theoretical studies by various political economists who use and develop Post-Keynesian theories (Lavoie, Marc, Post-Keynesian Economics: New Foundation. Edward Elgar, 2014) and the régulation theory (Boyer, Robert, Economie politique des capitalismes: Théorie de la régulation et des crises. La Découverte, 2015). In this regard, Japanese institutionalist post-Keynesians’ research has important implications for a new development of political economy in the twenty-first century. Particularly, based on the complementary development of the Post-Keynesian economics and the régulation theory, we seek the new development of political economy, introducing the aspects of “institutions and evolution” and “multi-layered coordination with heterogeneous social preferences.” Particularly, the analysis focuses on the price system and quantity dynamics, wages and income distribution based on institutional coordinations, the interaction of financial and real factors, especially the stock–flow relations in the process of economic growth. Furthermore, we propose a framework to analyze international production and trade with price determination and quantity adjustment in the interdependence of growth regimes in contemporary capitalism. Keywords Institutional Economics in the twenty-first century · Post-Keynesian economics · Post-Marxian economics · The régulation theory · Institutions and evolution · Multi-layered coordination · Growth regimes

© Springer Nature Singapore Pte Ltd. 2023 H. Uemura, Japanese Institutionalist Post-Keynesians Revisited, Evolutionary Economics and Social Complexity Science 29, https://doi.org/10.1007/978-981-19-8688-8_7

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7.1

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Institutional Economics in the Twenty-First Century Based on the. . .

Introduction

Marxian economics and Keynesian economics developed significantly in Japan after World War II. These schools of economics actively analyzed contemporary capitalism in the postwar period. In Japan, some pioneering political economists influenced by Marx and Keynes, especially Shigeto Tsuru, Yoshikazu Miyazaki, Mitsuharu Itoh, and Hirofumi Uzawa, initiated the development of post-Keynesian economics from an institutional perspective.1 In the Japanese academic context, the light and shadow of Marx is a crucial factor behind their economic research. In this chapter, we develop further the research of institutional economists in Japan who were influenced by Marx and Keynes, and propose certain research ideas that might be developed in the next generation. For this, we first reconfirm the significance and limitations of Marx and Keynes, and then examine how these theories can be adopted and developed further based on the “creative rivalry” among PostKeynesian and Post-Marxian theories to analyze contemporary twenty-first century capitalism. Post-Keynesian economics and the régulation theory, a Post-Marxian theory based on institutionalism in a broader sense, are important theoretical foundations for the further development of the twenty-first century political economy. PostKeynesian economics is a system of macroeconomic theories based on Keynes, Marx, and Kalecki, and has a long historical tradition from Joan Robinson and Nicolas Kaldor. The Post-Keynesian school developed its own macroeconomic theories through the institutional analysis of contemporary capitalism, with a focus on the fluctuation in effective demand, interaction between financial and real factors, growth and income distribution, and stock–flow interactions (Lavoie 2014). On the other hand, the régulation theory represents a theoretical framework integrating the institutional and macroeconomic analyses of contemporary capitalism. Specifically, Robert Boyer, a leading theorist, developed his own macroeconomic theory based on the central concept of his analysis, “the growth regime.” Theoretically, Boyer’s macroeconomic model (Boyer 1988) is based on Marx, Keynes, Kalecki, and Kaldor. Furthermore, Boyer (2015) in recent years has developed both the comparative analysis of national growth regimes and the analysis of the international interdependence of growth regimes. In this chapter, we seek to further develop the political economy with “a new total image of the economy” (Miyazaki 1967) in the era of globalization, based on the complementary development of Post-Keynesian economics and the régulation theory. We introduce the viewpoints of “institution and evolution” and “multi-layered coordination,” which we have learned from Japanese institutionalist post-Keynesian economists. In particular, our analysis focuses on the price system and multi-level quantity dynamics, wages and income distribution, the interaction between financial

1 As for Shigeto Tsuru, Yoshikazu Miyasaki, Mitsuharu Itoh, and Hirofumi Uzawa, see Chap. 3, Chap. 4, and Chap.5 in this book.

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and real factors in growth regimes, and international trade with price determination and quantity adjustment.

7.2 7.2.1

Post-Keynesian Economics and the Régulation Theory in Japan Post-Keynesian Economics in Japan

Following the pioneering studies of Shigeto Tsuru, Yoshikazu Miyazaki, Mitsuharu Itoh, and Hirofumi Uzawa during the 1960s and 1970s, Post-Keynesian economics in the next generation developed considerably in various research fields from an institutionalist perspective. Particularly, inheriting the tradition of Japanese institutionalist post-Keynesians, the theoretical analysis based on Keynes, Marx, and the founders of Post-Keynesian economics such as Joan Robinson and Nicolas Kaldor, and the institutional analysis of contemporary capitalism progressed much after the 1970s. Post-Keynesian economics in Japan was particularly influenced by the founders of Post-Keynesian economics such Joan Robinson, Michał Kalecki, Nicolas Kaldor, Piero Sraffa, and Hyman Minsky, while also inheriting the original intellectual heritage of Keynes, Marx, and institutionalism. After she was introduced by Shigeto Tsuru, Yoshikazu Miyazaki, and Hirofumi Uzawa to Japanese researchers, Joan Robinson became famous for her discussion on “the second crisis of economic theory” in 1971. Her criticism of Neo-classical economics with the concept of “historical time” was shared by many Japanese post-Keynesian economists. Furthermore, the theories of capital accumulation and economic growth developed further in the next generation using the “the Cambridge equation” and the concept of “inflation barrier” in the Robinson’s framework. In particular, Tsuneo Ishikawa formalized the types of dynamics in the capitalist economy which included “inflation barrier” (Ishikawa 1977).2 In Japan, Piero Sraffa’s Production of Commodities by Means of Commodities (Sraffa 1960) was translated into Japanese by Izumi Hishiyama, and the theoretical framework was understood by many political economists with the guidance by Maurice Dobb’s Theories of Value and Distribution since Adam Smith (Dobb 1973).3 Especially, some Marxian economists in Japan studying the Marxian value 2

As for Ishikawa’s model of different types of macroeconomic dynamics of contemporary capitalism based on Kalecki, Robinson, and Goodwin, see Chap. 5 in this book. Ishikawa formulated this model when he studied with Stephen Marglin at Harvard University. The Marglin-Ishikawa approach is a promising one that integrates the Classical surplus approach and the Kaleckian distribution-demand approach. 3 Dobb’s Theories of Value and Distribution since Adam Smith (Dobb 1973) was translated by Sigenobu Kishimoto, who explained that the essence of Dobb’s message was the structurally determined distribution ratio between wages and profits preceding price determination. Dobb also

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theory could understand Sraffa’s theory of production prices in a complementary manner with the labor theory of value (Takasuka 1979).4 Furthermore, Yoshinori Shiozawa also emphasized the methodological superiority of Sraffa’s theory over the general equilibrium theory, and in particular, he pointed out the importance of the Sraffa’s price system that assumed “reproduction” and its “stationarity” (Shiozawa 1983). He also emphasized Sraffa’s price system was determined independently of a shift in demand, and extended it to the Ricardian international value theory (Shiozawa et al. 2019). Furthermore, Hiroyasu Uemura analyzed the changes in prices and capital values with technological innovation and the obsolescence of fixed capital equipment in Sraffia’s fixed capital model (Uemura 1985). In a general theoretical framework, Yuji Aruka analyzed the price system with the technological perturbation in Sraffia’s theory (Aruka 1998). Shiozawa also analyzed the technical change in the Sraffian price system (Shiozawa 2020). Michał Kalecki is known for theorizing “the principle of effective demand” in his theory of business cycles during the same period of John Maynard Keynes (Kalecki 1935, 1954). He was widely known to Japanese economists after the work of Yoshikazu Miyazaki and Mitsuharu Itoh (Itoh 1965; Miyazaki 1967). In the early 1980s, we found Joan Robinson, during her last years, appreciating Kalecki; she argued that Kalecki’s theory should be the basis for the development of political economy (Bhaduri and Robinson 1980). The Kaleckian theory of growth and distribution developed rapidly in the 1980s. Following Robert Rowthorn’s pioneering works on wages and economic growth formulating “the paradox of costs” (Rowthorn 1982), the Kaleckian theoretical studies such as Marglin and Bhaduri (1990), Taylor (1991), and Dutt (1990) were introduced to Japanese PostKeynesian economics. The theory of capital accumulation and income distribution, with a focus on the theoretical examination of “profit-led growth” and “wage-led growth,” was presented by Japanese researchers (Uemura 1990, 2000a, b). After the 1990s, studies on Kaleckian business cycle models have been conducted both theoretically and empirically in Japan (Nishi 2010, 2012a, b; Sasaki 2013). Furthermore, Toichiro Asada developed a non-liner dynamic model of business cycle with changing investment–saving relations originally formulated by Nicols Kaldor as a non-linear dynamic model (Asada 1997). Hiroshi Nishi integrated Keleckian and Kaldorian approaches into a dynamic model of income distribution, technical change, and economic growth (Nishi 2022). Meanwhile, Hyman Minsky was actively introduced to the Japanese PostKeynesians. In fact, Minsky’s, John Maynard Keynes (Minsky 1975) was translated into Japanese, making his “financial instability hypothesis” widely known among the Japanese Post-Keynesians. In particular, Tatsuhiko Aoki, one of the pioneering

emphasized that prices are determination independent of demand patterns. Izumi Hishiyama elucidated the implications of Sraffa’s theory from the viewpoint of the Cambridge tradition. (Hishiyama 1993). 4 Takasuka criticized Sraffa’s treatment of wages and wage goods, while appreciating his theory of production prices that is compatible with Marx’s labor theory of value (Takasuka 1979).

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Post-Keynesians in Japan, made an in-depth study of the significance of stock-flow analysis in Minsky’s theory (Aoki 1993, 2018). Furthermore, “the financial instability hypothesis” was applied to study the financial bubble in Japan in the late 1980s and its collapse in 1990. The mathematical models on Minskian dynamics were also constructed by Hiroshi Nishi (Nishi 2012a, b). The Keynesian theories’ stock-flow analysis has developed a long tradition in Japanese Post-Keynesian economics following the early research on Keynes’s The General Theory in the 1960s (Miyazaki and Itoh 1964).

7.2.2

Régulation Approach in Japan

The régulation theory is a new political economy created by Michel Aglietta and Robert Boyer in France during the mid-1970s, inheriting from Marx and Keynes. This theory has made great strides in both theoretical and empirical studies over time, trying to integrate Post-Marxian and Post-Keynesian theories from an institutionalist perspective (Aglietta 1976; Boyer 1986). The core idea of the régulation theory can be summarized as follows. Capitalism does not move naturally to an “equilibrium” state, but rather causes conflicts and contradictions between individual agents and groups, temporarily leading to stable growth over a certain period. In other words, if institutions and rules can effectively regulate conflicts and contradictions, capitalism would become stabilized, but if this cannot be done, it would lead to instability and crisis. Namely, what we need to achieve is “régulation” over conflicting forces. The dynamics of capitalism is based on “reproduction,” but this requires “régulation” through appropriate institutions and rules. Moreover, the traditional Keynesian policies of governments can be both an accelerator and a brake, with the engine of capital accumulation controlled by capitalist firms. “The mode of régulation” consists of multi-layered structures at the regional, national, and international levels, and involves not only economic factors but also social forces such as political struggles, coalitions, and compromises (Boyer 2015). Capitalism developed in a variety of ways in time and space. This historical perspective goes a step beyond Marx. It also represents a criticism against Neo-classical economics, which argues for strong self-regulation and equilibrium in a market economy. The perspective also differs from traditional Marxian economics which assumes that the non-regulating nature of capitalism cannot be overcome within capitalism. Moreover, unlike the Keynesian policies that require the government to coordinate capitalism, the régulation theory tries to coordinate capitalism through bottom-up governance in civil society. The régulation theory has some basic concepts. The first concept is “institutional form.” Each economy assumes the following five “institutional forms”: (1) wage– labor nexus, (2) money and financial forms, (3) competition, (4) the state forms, and (5) insertion into the international regime. In particular, “the wage-labor nexus” includes the labor market as well as production organizations and the social security

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system, which involve a wide range of institutions surrounding workers. Moreover, selfish economic motives as well as social norms, citizenship, and social group power play important roles in the nexus. Furthermore, in the globalization after the 1990s, “money and financial forms” and “insertion into the international regime” have a determining impact on the national economy. The second basic concept is “the growth regime,” the core of régulation theory. All the institutional forms affect the increase in productivity and demand formation in the macro economy. In this regard, the macro variable dynamics such as productivity, wages, profits, consumption, investment, and employment are determined in the “growth regime.” Thus, the pattern of long-term macro-linkages and capital accumulation established in particular capitalism is conceptualized as “the growth regime”; this theoretical framework is inherited from the Keynesian theory. The third basic concept is “the mode of régulation.” Reproduction in a capitalist economy must be socially coordinated. This is achieved through various institutions and rules and the social conflicts and compromises based on them. Income distribution is determined through institutional and political processes. All institutions in each country jointly constrain the behavior of individuals and create the expectation of socio-economic agents’ interactions, to result in specific norms for production and distribution. If the rules of a game in a capitalist economy are consistent with the growth regime, the capitalist economy will be stable, and otherwise the economy will be unstable. Research related to the régulation theory evolved in Japan as follows. Contemporary capitalism studies under the régulation theory during the 1970s mainly involved the analysis of “Fordism.” Fordism is a “growth regime” of mass production and mass consumption formulated in the American and other advanced capitalist economies after World War II. The régulation theory explains this regime in terms of a Taylorism-based productivity increase mechanism and sustainable wage increases based on a capital-labor compromise. In this way, the postwar “the Golden Age” was positioned as a new stage of capitalism. Fordism was at stake due to saturation of domestic demand, stagnant productivity, and rising wages in the early 1970s. This understanding was introduced to Japan by Toshio Yamada (Yamada 1991). Following this analysis of Fordism, the régulation theory led to a wide range of studies, to result in institutional changes after the collapse of Fordism as well as various “national trajectories” in Sweden, Japan, and other advanced countries. Since the 1990s, we find studies on the linkage between financial asset prices and demand formation in the United States “finance-led growth regime” (Boyer 2011). Moreover, since the beginning of the 2000s, we find active research on the institutional diversity of capitalisms (Amable 2003; Boyer 2015). In addition, studies have examined the Euro crisis and European integration as well as income distribution and inequality in the world economy (Boyer et al. 2018). Research based on the régulation theory that centered on Yamada has been rapidly developing since the latter half of the 1980s, elucidating the theory of “the company-ist régulation,” which forms the basis of the Japanese economy, and “the hierarchical market-firm nexus” structure, which consists of subcontracting relations and the segmented labor market (Yamada 1991; Boyer and Yamada 2000; Isogai et

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al. 2000). Correspondingly, in the area of macroeconomic analysis, while using Post-Keynesian theories, the export-led growth and the uneven development of the export goods manufacturing industry with deindustrialization in the Japanese economy were analyzed (Uni 1998; Uemura and Tahara 2014). Recent studies have shown remarkable development in analyzing the diversity of Asian capitalisms, with Hironori Tohyama and Yuji Harada dividing Asian capitalism into five groups and analyzing their modes of régulation and the growth regimes (Boyer et al. 2012; Harada and Tohyama 2012; Uemura et al. 2014, 2016). Furthermore, integrating the studies on East Asia and Europe, Japanese and European researchers study the evolving diversity and international interdependence of the growth regimes with diffrerent patterns of demand formation and productivity increase as well as the historical patterns of regional economic integration in the EU and East Asia (Boyer et al. 2018).

7.3 7.3.1

Perspectives for a New Political Economy: Beyond Marx and Keynes The Significance and Insufficiency of Marx: Toward Post-Marxian Political Economy

Karl Marx’s theoretical system represents a magnificent development in the criticism of political economy and analysis of capitalism based on the perception of society and history as “the materialistic understanding of history.” Therefore, the theoretical heritage and problems of the system are very large. Indeed, the history of the twentieth century cannot be narrated without considering the influence of Marx (Tsuru et al. 1982). The biggest question asked in social sciences today is, “Why did the socialism of the twentieth century collapse after a great historical experiment?” Moreover, after the collapse of the socialist system in the twentieth century, would it be possible to reconsider “Marx as life size,” that is, “Marx as a classical thought,” from the perspective of modern twenty-first century economics and social sciences? Here, we focus on the theoretical aspects of Marx and sort out the heritage and problems. We consider the following three points as Marx’s theoretical heritage. First, it is important that Marx has a deep understanding of the structures of the capitalist economy. This significant point is included in “the theory of reification,” which states that what seems to be a relationship between things represents the social relationship between people reflected in physical form. Furthermore, as an economic theory, the idea is formalized as “the reproduction scheme” analyzing the circular structures in which the capitalist economy is reproduced. In Marx’s social theory, individuals are positioned as “carriers” of structure rather than self-contained atoms. This theory is still considered to hold great value as an alternative to Neo-classical economics, which is based on methodological individualism.

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Second, the structural relationship between the market and a corporate organization and the exercise of power in corporate organizations are theoretically clarified. The capitalist economy consists of two domains: the market domain established by the contract relationships of free and equal economic agents, and the capitalist organization domain established with the power relationship over workers. The factor connecting these two domains is “labor force as a commodity,” and in this regard, Marx distinguished between “labor power” and “labor.” In other words, Marx considered the labor contract as an incomplete contract in modern economics terms (Bowles 2004). He thus revealed that a capitalist economy is not an economic system centralized by market contracts, but consists of two heterogeneous systems, and that the structural forces of these two systems create the dynamics of the capitalist economy. Third, Marx analyzes the dynamics of the capitalist economy from the perspective of the capital accumulation theory. Marx’s theory of capital accumulation does not assume proportional growth and optimal growth, but it assumes to include disequilibrium and crisis. This raises an important issue in economic analysis of elucidating the long-term dynamics of the capitalist economy and its historical transformation. However, Marx’s theory was formulated on nineteenth century capitalism and therefore has many problems from the viewpoint of people who experienced the history of the twentieth century and reality of the beginning of the twenty-first century. Naturally, the development of modern economics and other social sciences after the twentieth century was not in sight. First, the mutual relationships between systemic structures and the consciousness and behaviors of agents were not sufficiently analyzed. In Marx’s analysis of the capitalist economy, workers and capitalists emerge as “carriers” of the economic categories, with no in-depth analysis of their inner motives and behaviors. However, the big corporate organizations and mass consumer society make it very important to theoretically analyze how the motives and behaviors of various agents, usually both workers and citizens, are regulated through various systems and institutions, and how institutions are reproduced through individual behaviors. In this regard, we need to examine the mechanism of mediating between individuals and society. The questions of how the dynamics of systems influence the consciousness and behaviors of agents, and how the behaviors of agents reproduce the system, causing macro dynamics and structural changes, form the “micro-macro-loop” theory (Shiozawa 1999). This theory tries to explain institutional changes from the circular perspective of the relationship between the micro-subjective consciousness and behaviors and macro-total processes. Furthermore, the essential role of socio-economic institutions in the dynamics of this feedback loop has been analyzed theoretically (Uemura et al. 2007). In particular, recognizing the importance of institutions in socio-economic dynamics is common to the original ideas of Shigeto Tsutu and Hirofumi Uzawa. Recently, Bowles analyzed “the co-evolution of institutions and preferences” using the evolutionary game theory and multi-level selection model (Bowles 2004). The endogenous formation of preferences and the role of social norms are also involved in his analysis (Bowles 2016).

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Second, the theoretical effectiveness of the labor theory of value used by Marx as an analytical tool is quite limited. In Marx’s theoretical system, the labor theory of value is the assumption needed to analyze the “exploitation” in capitalism. Studies have shown that “value” can be calculated by using the same method applied to calculate “induced employment,” that is, the Leontief inverse matrix based on the input–output table (the Leontief system). The mathematical equivalence of the positive rate of profit and the positive rate of surplus value under certain conditions (“the Marx fundamental theorem”) was also proved, to become an important source of the “Marx Renaissance” (Okishio 1965; Morisima 1973; Takasuka 1979; Yoshihara 2008). Nevertheless, Marx’s notion of value has serious problems. First, the hypothesis of “exchange according to value” in the chapter of commodities in Marx’s Capital basically nullifies the multi-layered dynamics of the market as an institution and the problem of realizing the value of commodities. It also hinders one from fully understanding “the principle of effective demand,” which explains the interaction between the circulation of money and income and quantity adjustment. We need to note that the socio-economic system of capitalism and the labor force are reproduced through market transactions and monetary circuits in the price system. It is also necessary to analyze the distribution of “surplus” in the reproduction system from the perspective of interaction between the market and various institutions. Furthermore, as Marx’s “exploitation” theory is a theory that concerns income distribution and welfare in capitalism, it is necessary to analyze not only the macro distribution of incomes among wages, profits, and rents, but also the structures of the distribution of incomes and wealth among individuals. In particularly the advanced capitalist countries, because of the development of the new middle class and mass consumer society, the macro distribution among factors of production and micro distribution among individuals do not always have a one-to-one correspondence after the second half of the twentieth century. The construction of a full-fledged theory integrating the macro and micro distributions has become a major issue in political economy (Bowles and Gintis 2002; Uemura 2007; Yoshihara 2008; Bowles 2012; Piketty 2013). This might also address the issue of fairness standards in the distribution of income and wealth among individuals. The solution to this problem can be considered as follows. By recognizing that the capitalist economy consists of two subsystems, that is, reproduction of the production system and reproduction of the labor force, and emphasizing the viewpoint of the surplus approach to the reproduction system in Classical economics and Marx, we can analyze the mutual relationships between prices, intermediate goods costs, and wages in the reproduction process of the economy. We should analyze the distribution of income and wealth among individuals assuming the formation and attribution of income occurred from the coordination of economic variables in such a reproduction process (Uemura 2007).

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Third, the circuit of capital includes various institutions and develops with the support of institutions. A variety of institutions is embedded in the socio-economic system of capitalism, reproducing and transforming themselves (Yagi 2020). Unfortunately, Marx emphasized the “law of tendency,” and did not fully analyze this point. However, from the historical reality of the development of corporate organizations and the institutionalization of labor-management relations in the twentieth century, we can say that Marx did not sufficiently consider the relationship between capitalism and the various institutions. The capital–labor conflict occurs also under particular institutional conditions in contemporary capitalism (Rowthorn 1980; Boyer 1988).5 Moreover, the neglect of the institutional perspective in Marx dilutes the perception of historical and spatial diversity in the pattern of capital accumulation. However, after the rise and fall of the postwar high economic growth in the 1960s and 1970s (Tsuru 1959), the régulation theory and the social structures of accumulation (SSA) theory advanced their research on contemporary capitalism (Aglietta 1976; Bowles, Gordon, and Weisskopf 1983; Boyer 1988; Marglin and Schor 1990). Correspondingly, macroeconomic research also advanced on the diversity of business cycles and growth patterns, focusing on the relationship between economic growth and income distribution (Boyer 1988; Taylor 1991; Lavoie and Stockhammer 2013; Sasaki 2013; Strom and Naastepad 2012). Furthermore, research on “the diversity of capitalism” has been active in recent years, with the research developing not only in advanced but also Asian capitalism (Hall and Soskice 2001; Amable 2003; Yamada 2008; Harada and Tohyama 2012; Uemura et al. 2016). The varieties of capitalism are the meeting point for poliltical-economic research, with a focus on the relationship between corporate economic activities, employment systems, welfare states, the social norms in civil society, and international economic relations (Yamada 2018; Yokokawa et al. 2016).

7.3.2

The Significance and Insufficiency of Keynes: Toward Post-Keynesian Political Economy

John Maynard Keynes criticized Neo-classical Economics and created a new field of economics from the macro perspective. Moreover, Keynes influenced the economic analyses and macroeconomic policies of institutionalist liberal economists, especially in postwar Japan (Miyazaki and Itoh 1964). Here, we focus on the theoretical

5

In this theoretical context, we can understand why Shigeto Tsuru and Hirofumi Uzawa once studied Marx as a student and sifted to “institutionalism” after studying modern economics and analyzing contemporary capitalism in the light and shadow of Marx. See Chap. 3 and Chap. 5 in this book. Masahiko Aoki also studied Marxian theory and modern economics and shifted to the economics of comparative institutional analysis (Aoki 1973, 1978, 1979, 1996, 2001).

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aspects of Keynes and sort out his heritage and problems. The following three points can be considered as Keynes’s theoretical heritage. First, Keynes, who lived in the twentieth century, was aware of the reality of the joint-stock company system and the separation of ownership and management. Correspondingly, Keynes’s theory is a three-class model consisting of managers, workers, and shareholders (rentiers). This is the significance of the theory that establishes a macro perspective and goes beyond methodological individualism (Miyazaki 1967). The perspective of analyzing macroeconomic dynamics in large corporations is the starting point of Keynes’s economic theory. Second, Keynes’s theory importantly denied the dichotomy between money and real variables; this is a fundamental criticism at of “the neutrality of money” and “quantity theory of money” in Neo-classical economics (Davidson 1978). Such theoretical studies resulted in the understanding of capitalist economy as a monetary network, that is, “the monetary theory of production.” Third, criticizing “the Say’s Law” and establishing “the principle of effective demand” led to a great breakthrough in the history of economics. The demand for labor is determined by the demand in the goods market. This point of view rejects the premise of maximizing the utility of households (“the second postulate of Classical Economic”) and presents the theory of “involuntary unemployment.” Unemployment occurs in the labor market from the lack of demand. Effective demand policies addressing the unemployment problem have a great impact on postwar economic policies. In this regard, we need to consider Keynes as well as Kalecki’s theoretical contribution, which led to a macroeconomic theory based on the relationship between effective demand and income distribution (Sawyer 1985; Nabeshima 2001). However, as regards Keynes’s economic theory, the following problems must be pointed out based on Post-Keynesians’ theoretical contribution after Keynes. First, in Keynes’s theory, the integration of the aspect of the flow of money and that of the stock of money was incomplete. In this regard, the relationship between the money that finances investment (“financial motive”) and the money as stock for asset choice remained undeveloped in Keynes (Keynes 1936, 1937; Rochon 1999; Naito 2011). Keynes’s The General Theory presents “the liquidity preference theory” to explain the determination of the interest rate, treating money supply as an exogenous variable. In a paper after The General Theory, Keynes presents endogenous money supply virtually as “financial motive” (Keynes 1937; Naito 2011). However, in the modern credit monetary system, it is not appropriate to give money supply exogenously, so Post-Keynesians developed the theory of the endogenous money supply (Moore 1988). Therefore, we need to establish a framework for the unified analysis of the endogenous money supply and fluctuations in asset prices and to analyze the dynamics of the capitalist economy, developing Hyman Minsky’s “financial instability hypothesis.” This is an important issue that Post-Keynesians are currently exploring in various ways (Minsky 1975, 1982, 1986; Dymski and Pollin 1994; Aoki 1993, 2018; Naito 2011). Second, Keynes’s The General Theory accepts “the first postulate of Classical economics,” or the marginal productivity theory, which states that the demand for labor is determined by the level of equality between the marginal product of labor

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and real wage. However, this has a serious problem when analyzing income distribution explicitly, as criticized by Piero Sraffa and John Robinson in “the capital controversy” between Cambridge in England and Cambridge in the United States (Sraffa 1960; Harcourt 1972). In principle, “capital,” which is the basis of the real interest rate in the marginal productivity theory, is a monetary aggregate of heterogeneous physical capitals. Therefore, capital cannot be defined independently of income distribution and the price system. In view of this controversy, inheriting the tradition of Kalecki, Kaldor, and Robinson, it is necessary to deny “the first postulate of Classical economics,” and to refine the problem of income distribution in the theory of capital accumulation with “the Cambridge equation” (Kaldor 1985; Robinson 1962; Pasinetti 1962; Kalechi 1971; Pasinetti 1974). How to connect “the Cambridge equation” with “the classical surplus approach” is a big theoretical issue in this direction. More specifically, in Keynes’s The General Theory, the real wage rate is fully decided by the level of output under “the first postulate of Classical economics.” However, depending on the state of capital accumulation, there may be a case in which real wages can have a predominant decisive power, that is, an “inflation barrier” (Robinson 1962; Ishikawa 1977). In this regard, the interaction between capital accumulation and labor market conditions and the wage determination mechanisms needs to be analyzed (Rowthorn 1980; Marglin 1984). Moreover, norms and power have a decisive impact on income distribution because the labor market deals with incomplete contracts and social institutions. Furthermore, from the perspective of income redistribution policies based on the social security system, various institutions related to civil society and various political factors affect the effective demand and the dynamics of capital accumulation. Third, Keynes’s The General Theory is the short-period analysis with constant capital equipment, and “the long period expectation” regarding investment returns is also given in the theory. However, when analyzing the dynamics of capital accumulation, we should go beyond “the short period” framework and focus on both demand formation and non-malleable capacity construction caused by investment often together with technological changes (Uzawa 1986a). Keynes’s theory needs to be developed into the capital accumulation theory while considering the multiple effects of capital investment. In the history of economics, Roy Harrod and Joan Robinson challenged this task as the “generalization” of The General Theory and formulated “the warranted rate of growth” and “Cambridge equation” (Robinson 1956, 1962; Harrod 1973). Even now, we need to develop the business cycle analysis and long-term dynamics of capital accumulation based on Keynes’s theory. This research on cycle and growth theory should also analyze the diversity of growth patterns and the role of the government sector (Ishikawa 1977; Dutt 1990; Marglin and Bhaduri 1990; Taylor 1991; Lavoie 1992; Setterfield 2002; Lavoie and Stockhammer 2013). These studies are an attempt to revive Keynesian economics from an institutional point of view. A country-to-country comparative analysis of growth and distribution patterns is important in this area of study, which provides the basis for the analysis of growth regimes in the régulation theory (Boyer 1988).

Methodological Foundations for a New Collaboration of Post-Keynesian,. . .

7.4

7.4

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Methodological Foundations for a New Collaboration of Post-Keynesian, Post-Marxian, and Institutional Economics in the Broad Sense

We have examined the theoretical heritage and problems of Marx and Keynes from the viewpoint of institutionalism in the board sense (Tsuru 1993). Shigeto Tsuru points out four common characteristics of institutional economics in the broad sense: A. the emphasis on the open-system character of production and consumption, thus a broader view of the scope of economics; B. an interest in the evolutionary course along which the industrial economies are moving, with emphasis on the dynamic process of technological change and circular cumulative causation; C. awareness of a growing need for guidance that can be supplied only through some form of overall social management, or planning; D. recognition that economics must become a normative science, positively formulating social goals and objectives (Tsuru 1993, p.101).

In this regard, we need to develop the heritage of Marx and Keynes from the institutionalist perspective, especially considering the theoretical developments of Post-Marxian and Post-Keynesian theories. Particularly, we need to develop research on the open-system character of production and consumption conducted by socio-economic agents under particular institutional conditions, and the evolutionary course of the economy with the dynamic process of circular cumulative causation that is oriented by the multi-layered régulation in time and space. We also need to consider a growing need for guidance by social management and planning in the dynamic interaction between the financial system and the wage-labor nexus and the empirical and normative aspects of the evolving diversity of capitalisms with markets, firms, the state, and civil society as well as citizens’ governance of “social common capital” (Uzawa 2000). Such research would develop with the PostKeynesian theory and the régulation theory from an institutional and evolutionary perspective. We summarize the methodological foundations for such academic development below.

7.4.1

The Analysis of the Interactions between the System and Agents

The mutual prescriptive relationship between institutions and actors needs to be clarified and used as the basis for macroeconomic analysis of capitalism as an open system with various socio-economic institutions. The circular and mutual prescriptive relationship through which institutions determine the consciousness and behavior of socio-economic agents and agents’ behaviors reproduce the system and structures must be the theoretical focus of institutional analyses. Moreover, as agents are heterogeneous in society, the problem of institutional change has also to be analyzed, considering the different roles of agents. The analytical tools for this process are rapidly developing in behavioral economics, the evolutionary game

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theory, and agent-based models (Bowles 2004). In addition, the analysis of the dynamic relationship between such a system and agents is developing, with focus on how the circular coordinating relationship both affects and is affected by the macro dynamics of the economy as a whole. This point has been theorized as an “institutional micro-macro loop” (Uemuraet al. 1998, 2007; Isogai 2022; Uemura 2022). Furthermore, the risk-reduction effect of the rule of law and liberal institutions acts in a way that complements the market economy, leading to the “crowdingin” of citizens’ social preferences (Bowles 2016). The effects of various institutions “strengthening” or “weakening” one another are analyzed. The strengthening is called “institutional complementarity” (Aoki 2001; Amable 2003) and the weakening is called “institutional crowding-out” (Bowles 2004). However, on the premise of the heterogeneity of companies and the heterogeneity of workers’ and consumers’ preferences, we should develop a further analysis of long-term institutional changes in capitalism as an evolving open system (Boyer and Orléan 1991; Tsuru 1993: Bowles 2004). In this context, the construction of “social common capital” (Uzawa 2000) supported by various institutions contributes to the stability of macroeconomic dynamics as well as the development of citizens’ social preferences.

7.4.2

Multi-Layered Régulation in Time and Space Orienting the Evolutionary Course and Cumulative Causation

“The meso-level” in the analysis of the socio-economic system is a concept between micro-agents and macro-processes with the regularities of common rules and attributes. In particular, the mode of régulation in the régulation theory includes meso-level coordination mechanisms which produce an evolutionary course with cumulative causation. At the meso-level, there are various evolving institutions with multi-layered structures such as corporate organizations, markets, inter-firm relations, and heterogeneous industries. This domain also includes the various institutions, rules, and customs in the financial system and the wage-labor nexus as well as their mutually determining relationships. Intentionally taking account of the mesolevel means the rejection of reductionism. For example, Samuel Bowles says, “The approach adopted here represents individual preferences and group-level institutions as evolving, thereby not privileging either the lower- or higher-order entities” (Bowles 2004, p. 481). Moreover, the units at each level are loosely connected in the socio-economic system. The meso-level analysis must be developed to analyze “multi-layered régulation.” Régulation, or co-ordination, which is established through various institutions in the socio-economic system, has multi-layered structures in time and space.

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The multi-layered structures of time in régulation can be explained as follows. The market system involves price adjustments and multi-level quantity adjustments (inventory adjustment—capacity utilization adjustment—capital stock adjustment) and employment adjustments (linked to utilization rate adjustment and capital stock adjustment, and mediated by the institutional characteristics of corporate organization). These are adjusted sequentially in multi-layered time structures (Kishimoto 1975; Uemura et al. 2007). In particular, Hirofumi Uzawa emphasized that the adjustment of capital stocks is not malleable, but an economic process with time dimension (Uzawa 1977). Considering the multi-layered structures of time and space in heterogeneous coordination mechanisms with complexity means the rejection of the Walrasian paradigm with a homogeneous time-space structure, which assumes the accomplishment of all transactions simultaneously in the economy as a whole (Sugimoto 1953; Shiozawa 2014; Aruka and Kirman 2017).6 Moreover, this multilevel quantity adjustment mechanism works with demand fluctuations to create economic dynamics. The evolution of industrial structures driven by corporate organizations with their technological changes have created economic fluctuations and cumulative causation. Institutional coordination mechanisms in the areas related to the monetary/financial system and the wage-labor nexus have a decisive effect on macroeconomic dynamics. This recognition of meso-level analysis is shared by macroeconomists, for example, Hiroshi Yoshikawa emphasized the importance of “industrial sector” and industrial structures when analyzing macroeconomic dynamics (Yoshikawa 2000). Meso-level analysis should consider the multi-layered structures of space in régulation and coordination. In the spatial structures of régulation, spatial multilayering depends on various coordination domains. Robert Boyer has come to emphasize the spatial multi-layered structures of the mode of régulation: the national, the regional, the supra-national, and the global levels (Boyer 2015). The socio-economic system does not achieve adjustment and coordination simultaneously in the global space, such as the world, but local and partial coordinations are loosely connected and spread more globally. Moreover, various institutions emerge with historical time and path dependence at different spatial domain levels. Thus, multi-layered spatial structures are accompanied by multi-layered time structures, creating institutional diversity in capitalism. The multi-layered nature of time and space constitutes an important property of the varieties of capitalism. The different levels of coordination in the multi-layered time and space are summarized in Table 7.1.

6

As referred in Chap. 2 in this book, Eiichi Sugimoto originally studied the multi-layered structures of time and space in the capitalist economy (Sugimoto 1953). Yoshinori Shiozawa also emphasizes that the capitalist market system is a kind of the complex system in which parts are loosely connected to formulate the whole system (Shiozawa 2014).

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Table 7.1 Multi-layered régulation in time and space

Global

Regional

Short period International financial transaction, exchange rate fluctuations, international Keynesian multiplier process Exchange rate fluctuations and the common coordination

National

Fluctuations of financial stock prices, short-term expectation Monetary and fiscal policies

Local

Bilateral transaction, inventory adjustment Changes in the prices of agricultural products

Medium period/ Cyclical time Transformation of trade structures, foreign direct investment, transformation of global value chains Interdependence of growth regimes, regional value chains, international Leontief multiplier process Dynamics of growth regime Long-term expectations on investment, productivity dynamics, wages, and employment fluctuations Changes in capacity utilization, capital stock adjustment, Schumpeterian dynamics among firms

Long period/ Long-durational time Evolution of the international currency system, evolution of international division of labor, global environmental problem Regional economic integration, the common currency system, the common market Evolution of industrial structures, long-term shifts in employment, development of social welfare system Development of local infrastructures, local health care system, preservation of local environment

Source: Author

7.4.3

The Analysis of the Dynamic Interaction between the Money and Financial System and Wage–Labor Nexus to Promote Socio-Economic Management and Planning

Capitalism is a two-layered structure consisting of the money/financial system and the wage–labor nexus. The wage–labor nexus includes the labor market, production organizations, consumers’ life processes, and the social security system, with norms, institutions, and power playing an important role. The method of analyzing the process of capital accumulation and business cycles as the interaction between the money/financial system and wage-labor nexus was originally the theoretical method of Michał Kalecki and Post-Keynesians. Furthermore, the theorization of financial asset transactions in the international financial market has become a very important issue because they have a great influence on macroeconomic dynamics. In particular, the stock-flow analysis of Post-Keynesian economics should be used to analyze the dynamics of the financial system (Minsky 1986; Taylor and O'Connell 1985; Taylor 1991; Miyazaki 1992). In this context, we also need a guidance from socio-economic management and planning conducted by citizens and the government to stabilize the interaction between the financial system and the wage–labor nexus,

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coordinating financial transactions, industrial activities, income distribution, and social welfare.7 In recent years, the régulation theory has been actively analyzing the interaction between the monetary and financial system and the wage–labor nexus and its transformation from a historical perspective. In particular, Robert Boyer and Bruno Amable use the concept of “institutional hierarchy” to describe the shift in the long-term dynamics of capitalism (Amable 2003; Boyer 2004; Yamada 2008). According to them, if one system has a unilaterally strong determining relationship with another, there is an “institutional hierarchy.” More specifically, in the era of Fordism in the 1960s, the wage–labor nexus was positioned at the top of the hierarchy. However, after the 1990s, the hierarchy came to be reversed, and the financial system was positioned at the top of the hierarchy. The international financial market thus gained a strong determining power on the wage–labor nexus. In this regard, theorizing the change in growth regime under transformation of the “institutional hierarchy” by incorporating Post-Keynesian economics and its socioeconomic policies has become an important research subject (Nishi 2012a, b; Nishi et al. 2014).

7.4.4

The Institutional Analysis of the Evolving Diversity of Capitalisms from Empirical and Normative Aspects

Capitalism entails diversity in time and space, as seen particularly in the Japanese social sciences after World War II (Tsuru 1959; Itoh 1973; Yamada 2008). Current research on “Varieties of Capitalism” was developed by Peter Hall and David Soskice, Bruno Amable as well as by Japanese researchers based on the régulation theory. Hall and Soskice consider companies to be at the center of each country’s economic system, and in the four institutional areas (financial system and corporate governance, labor relations, education/training system, inter-company system) that make up the system. The issue is how coordination is carried out among stakeholders involved in corporate activities (Hall and Soskice 2001). Above all, they analyze two types of economies, “liberal market economies” and “coordinated market economies.” In addition, Amable (2003) used the concepts of institutional complementarity and institutional hierarchy and added political dimension analysis to refine the study. They classify capitalism into five types: market-based capitalism, social democratic capitalism, continental European capitalism, Mediterranean capitalism, and “Asian capitalism.” Following this research, Hironori Tohyama and Yuji Harada introduced the diversity of Asian capitalism in the form of “insular and semi-agrarian capitalism,” “trade-led industrializing capitalism,” “city capitalism,” “innovation-led capitalism,” and “continental mixed capitalism” (Boyer et al. 2012; Harada and In this regard, a new form of “the socialization of investment” (Keynes 1936) is needed in the globalized world in the twenty-first century.

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Tohyama 2012; Boyer et al. 2018). In this analysis of the diversity of capitalisms, the analysis should not end with a mere typology analysis, but proceed with empirical research on various institutions in each type of capitalism and develop a comparative analysis of “growth regimes” based on Post-Keynesian theories (Nishi et al. 2014). Comparative analysis should also examine how the distributional relationship between incomes and assets as well as inequality are formulated in each type of capitalism (Piketty 2019). From both empirical and normative aspects, a comparative analysis should further examine the relationship between the market/firm, the state, and civil society in the evolving diversity of contemporary capitalisms (Boyer 2015; Boyer et al. 2018; Bowles and Carlin 2020), as well as political orientations for citizens’ participation and governance of “social common capital” (Uzawa 2000) that is supported by citizens’ social preferences (Bowles 2016).8

7.5

Theoretical Foundations for the Analysis of Contemporary Capitalism from the Perspective of Institutionalist and Post-Keynesian Economics

To construct our economic theory with “a new total image of the economy” (Miyazaki 1967), we need to consider the institutional characteristics of contemporary capitalism in the twenty-first century. This historical and institutional approach is different from the Walrasian ahistorical method used to analyze the real economy by partially modifying the assumption of “perfectly competitive market” (Boyer 2021) The Walrasian methodological attitude and assumption of the dynamic optimization of rational economic agents have dominated the past 30 years, thereby weakening the institutional concepts of Keynesian economics. In this context, we need to reconstruct the institutional analysis of contemporary capitalism as the basis of Keynesian economic analysis, in other words, revitalize the tradition of institutionalist post-Keynesian economics.

8

As for the relationship between the market/firm, the state, and civil society, see in Chap. 6 in this book. As for Uzawa’s social thought of “social common capital” and the citizens’ governance, see Chap. 5 in this book. As for citizens’ “social preferences” in the moral economy (Bowles 2016), see Chap. 6 in this book. Both Uzawa and Bowles pursues the citizens’ governance of “social common capital” supported by citizens’ “social preferences.”

7.5

Theoretical Foundations for the Analysis of Contemporary Capitalism. . .

7.5.1

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The Institutional Analysis of the Multi-Layered Coordination Mechanisms of Large Firm Organizations and Industrial Dynamics

Initially, we need to analyze corporate organizations in contemporary capitalism. Marx and Keynes consider firms as “capital” with self-proliferating values, that is, activities of entrepreneurs seeking profits, organizing the production process. The concept of a firm as a balance sheet unit is fundamentally important, but firms in capitalism after late twentieth century are characterized as large multinational corporations with their complex organizations and internal division of labor (Miyazaki 1967, 1992; Itoh 1973; Uzawa 1977, 1990). Firms thus must be conceptualized as “capital” as well as an “organization.” Corporate organizations can be understood under two approaches in contemporary economics. The first is “the contractual approach”: this approach considers a company as “a bundle of contracts.” One of the theories sharing this understanding is the agency theory based on the incomplete contract theory and the transaction cost theory. The agency theory, also called the principal–agent theory, analyzes the relationship between a principal and an agent in the presence of imperfection and asymmetry of information. Therefore, the agency theory considers a corporate organization as a two-layered structure based on the principal–agent relationship: the shareholder-manager relationship and manager-worker relationship. However, the aspect of a corporate organization as an organization consisting of many members cannot be described well under the agency theory (Aoki 1996). The transaction cost theory, which was developed by the new institutional economics, considers corporate organizations as a mechanism of transactions that save transaction costs (Williamson 1975; North 1990a, b). Firms can save their transaction costs due to imperfect information and opportunistic behaviors in the market. With the concept of transaction costs, the institutional analysis of New institutional economics has grown dramatically. The second approach is “the capability theory approach”; this considers a firm organization as an autonomous entity with the division of labor and capability. The main purpose of a firm is to develop the organization’s competence and capability by pursuing learning and innovation, creating competitiveness in the domestic and international markets. In this sense, this approach implies an evolutionary idea for business firms (Veblen 1904; Nelson and Winter 1982). In Japan, Takahiro Fujimoto has developed his empirical research on evolving Japanese multinational firms, emphasizing the importance of “organizational capability” which is created beyond the sum of individual employees’ capabilities in the evolutionary framework (Fujimoto and Ikuine 2018). Large multinational corporations internationally extend their business activities and production activities based on their organizational capabilities. In this context, some researchers have attempted to integrate the contractual approach and capability approach as an on-going important research subject in the evolutionary and institutional economics of a firm (Langlois and Robertson 1995; Morroni 2006).

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Moreover, as regards the organizational capabilities of firms, the multi-layered structural dynamics of productivity growth across industries can be understood as follows. First, learning and innovation evolve continuously with productivity increases based on the organizational capabilities of a firm. Second, as the demand for an industry increases, firms that have achieved high productivity can increase their market share and thereby increase the productivity of the entire industry. Third, low-productivity firms gradually withdraw from the market. Thus, driven by the dynamics of firm organizations, the productivity of the economy increases with the international multi-layered structural dynamics. In addition, at the macro level, the cumulative demand and productivity growth, that is, the “cumulative causation,” proceeds with the industrial structural changes (Kaldor 1985; Boyer 1988; Tsuru 1993; Uni 1998; Uemura et al. 1998, 2007). This evolutionary process brings path dependence to the development of a national economy and the international interdependence of evolving national economies.

7.5.2

The Institutional Analysis of the Multi-Layered Coordination Mechanisms of Price-Cost Dynamics and Income-Demand Flow

The market system enables autonomous transactions between market agents. However, since the twentieth century, these transactions have evolved far away from fair exchange between equal economic agents which is a key component of modern civil society. In fact, in contemporary capitalism, many markets are dominated by oligopolistic large corporations, with the prices controlled by the managerial decisions of corporations. It was pointed out in the 1930s that the real market was different from the “perfectly competitive market,” and “imperfect competition” was analyzed by Joan Robinson (Robinson 1933). Most importantly, Hall-Hitch’s “Oxford Survey” generally confirmed the “full cost principle” of pricing (Hall and Hitch 1939; Itoh 1965; Miyazaki 1967; Shiozawa and Aruka 2014). This is a basic pricing principle in the manufacturing industries in the contemporary capitalist economy. Furthermore, the price rigidity in oligopolistic markets was theorized by Paul Sweezy as “the kinked demand curve” (Sweezy 1939). Later, research on “the kinked demand curve” was developed theoretically by Takashi Negishi (Negishi 1981). Thus, the full cost principle and kinked demand curve are still the basic theories for analyzing the pricing in oligopolistic markets (Lee 1998). Studies of oligopolistic prices have yielded a structural theory of pricing such as P. SylosLabini’s “entry preventing price” that an oligopolistic firm has a strategic pricing behavior to take account of potential entrants into the market (Sylos-Labini 1962). Basically, the essential aspect of the price system as explained by Piero Sraffa must be emphasized to understand the inter-industrial interdependence of prices and costs. He understood that the price of one industry reflects the cost of another industry, and that a price-cost interdependence exists between multiple sectors

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Price determination⎯⎯⎯⎯ Multi-layered quantity adjustment

Income attribution function

Demand formation Income distribution

Fig. 7.1 Price determination, quantity adjustment, and income-demand formation. Source: Author

(Sraffa 1926, 1960). The system of prices is determined independently of the pattern of demand. Moreover, under the fixed and interdependent price system, multilayered quantity adjustment mechanisms take place in the goods market (Shiozawa et al. 2019). The multi-layered mechanisms include the adjustments of inventory— capacity utilization—capital stock with multi-layered time structures. Furthermore, price determination implies the attribution of income to a seller. This makes the link between the price–quantity relation that can be explained as “the dual roles of costs” (Kalecki 1971; Kishimoto 1975; Rowthorn 1982). “Cost” is a factor to determine the price–cost interdependence in the price system, whereas “cost” generates income and expenditure and becomes a source of effective demand in the income-demand system, leading to a multi-layered quantity adjustment. This forms the basis of the Leontief-multiplier and Keynes-multiplier processes. The structures of price determination, quantity adjustment, and income-demand flows are summarized in Fig. 7.1. In addition, the innovation and evolution of firm organizations and the competition among firms in the market create the Schumpeterian dynamics, which determine the level of prices and adjust supply and demand at the industrial level (Dosi 1984). This also influenced the multi-layered quantity adjustment. All these factors constitute important meso-level coordination mechanisms of prices, costs, quantities and effective demand.

7.5.3

The Institutional Analysis of Multi-Layered Coordination Mechanisms of Wage Determination and Income Distribution

The labor force traded in the labor market is essentially the workers’ own property because it is inseparable from their mind and body. This property is called “selfownership of the labor force.” Moreover, one cannot determine at any moment of an employment contract the amount of labor expenditure in a firm organization. Therefore, Karl Marx distinguished “labor” from “labor power.” In other words, an employment contact in the labor market is essentially an incomplete contract (Bowles 2016; Yamada 2019) . Therefore, to achieve a stable contractual relationship with wages in the labor market, norms such as fairness and accountability,

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institutional factors, and even political power are involved in the employer– employee relation. Generally, wage determination is influenced by many factors, such as labor productivity, demand in the labor market, state of the industrial reserve army (unemployed workers), and the collective bargaining systems. Here, we consider some important theories of wage determination. First, when considering the institutional nature of the labor market and employment relationships, we need to consider the “labor market segmentation.” Large firms have an “internal labor market” that embraces workers within the organization, promote their skill formation, and determine their wages. This is inevitably accompanied by “labor market segmentation” (Gordon et al. 1982; Ishikawa and Dejima 1993). The labor market is usually divided into the primary labor market, where workers are employed as core employees of a large company, and secondary labor market, where workers are cut off from core employment. Labor market segmentation can be attributed to the need to form skills, to keep the flexibility of employment adjustment, and to exercise “the divide and concur” over workers. The primary and secondary labor markets have different wage determination and employment adjustment mechanisms. This has the effect of promoting productivity, reducing employment adjustment costs, and reducing total wages. Labor market segmentation is also linked to the inclusion and exclusion mechanism of workers in society. In this regard, the development of “social inclusion” is an important issue from a policy perspective. The mode of labor market segmentation depends on the nature of labor market institutionalization in each country. Second, while the labor market is an important institution guaranteeing the autonomy of workers, as an incomplete contract market, the labor market cannot determine the work intensity by only the employment contract. This raises the question as to how to extract labor from labor power. The modern theory of wage incentives is formalized as “the efficiency wage model,” which Carl Shapiro and Josef Stiglitz developed in the 1980s. Furthermore, this theory was modified as “the contested exchange theory” by Samuel Bowles and Herbert Gintis (Bowles and Gintis 1988; Bowles, Gintis and Gustafsson 1993). The essence of this theory can be summarized as follows. Employment relationships are inherently incomplete contracts; a worker’s work effort is induced by paying higher real wages than market wages together with the supervisor’s power over workers. Bowles and Gintis define the difference between the current real wage and the income in the case of dismissal (a function of the unemployment rate and unemployment insurance) as “employment rent,” and determine work effort as a function of employment rent and supervisory labor. Employment rents are sometimes called “job-loss costs” by American political economists because incomes are lost when workers become unemployed. Since “employment rent” implies both a labor incentive and a cost to a company, it is necessary to decide the most efficient real wage level that maximizes the work effort per real wage as a function of employment rent. This is called “the Sollow condition” as formulated by Robert Sollow. In this model, given the unemployment rate and the level of unemployment insurance benefits, the labor effort and the real wage level are determined. Therefore, “employment rent” (“job-loss cost”) is interpreted as an “industrial reserve army effect,” to use a Neo-Marxian term

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(Bowles, Gordon, and Weisskopf 1983). In recent years, Bowles emphasized the motivation for reciprocity and justice in determining work effort. The extent to which wages and “job-loss costs” work as labor incentives depends on the incentive mechanisms within the corporate organization, shared beliefs about fairness, and the institutionalization of wage negotiation. This is an important theme of social policy when considering how a fair and stable labor market can be established and what kind of institutions and policies are needed. The third is the mechanism of “productivity differential inflation.” This is a coordination mechanism for meso-level wage and price systems, focusing across industrial sectors. “Productivity differential inflation” is a theory of the price system that was proposed by Yoshihiro Takasuka to explain the relative price changes with constant wholesale prices and rising consumer prices in the Japanese economy in the 1960s (Takasuka 1965). Behind the changes in relative prices, a differential in productivity growth exists between the large firm sector and the small- and medium-sized firm sector. The large firm sector has price rigidity, and the wage leveling mechanism works between the two sectors. The rising pressure of wages drives the prices in the small and medium-sized firm sector upward. As regards this mechanism of relative price changes, Luigi Pasinetti also independently proposed a general theory of changes in the price system between industries with different productivity growth rates in a multi-sector model (Pasinetti 1981). Fourth, a conflict theory of inflation exists as a macro-level wage-price theory. This theory was formulated by Robert Rowthorn during the stagflation era of the 1970s as a theory explaining the accelerating inflation (Rowthorn 1980). Even when a growth in national income is not expected due to stagnant productivity and rising prices of imported raw materials, companies demand sufficient profit shares and try to set higher prices, while unions try to secure sufficient wage shares. Therefore, the sum of the required profit share and the required wage shares exceeds the actual national income. Rowthorn called this gap “the aspiration gap,” explaining that it is the factor accelerating inflation. This theory criticized Milton Friedman’s monetary theory of inflation; thus, many Post-Keynesians shared “the conflict theory of inflation” (Lavoie 1992; Taylor 1991; Strom and Naastepad 2012). Both “the productivity differential inflation theory” and “the conflict theory of inflation” criticize “the monetary theory of inflation” on account of the quantity theory of money. The former is for meso-level price adjustments, while the latter is for macrolevel price adjustments. This makes it necessary to complementarily integrate the two theories. Based on the above-mentioned wage and price determination mechanisms, the macroeconomic roles of wages are summarized, following Samuel Bowles and Robert Boyer, as “triple roles: a sources of consumption demand, a component of unit labor costs and hence a deduction from profits, and as an instrument in capital’s labor-disciplining strategies (and hence a determination of output per hour of labor employed) (Bowles and Boyer 1990, p. 188). Of course, how strongly these factors work through the price system and quantity adjustment depends on the macroeconomic dynamics of a “growth regime” in each country (Ishikawa 1977; Bowles and Boyer 1995; Strom and Naastepad 2012). These “triple roles” of wages are mediated

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by the meso-level coordination mechanisms of wages and prices, while income taxes, social security benefits, and unemployment benefits affect the circulation of income. These determine the macro-level income distribution and demand formation as a whole.

7.5.4

Mutual Determination between the Dynamics of the Money and Financial System and the Wage– Labor Nexus in Growth Regimes: The Important Implications of the Régulation Theory

The régulation theory has contributed significantly to the analysis of institutional coordination and growth regimes in contemporary capitalism since the 1970s (Aglietta 1976). This theory was influenced by Keynes and Marx, and has collaborated with Post-Keynesian economics since the 1980s. Here, the term “régulation” is a concept expressing the dynamics of various social elements that create contradiction and unity through conflict. In particular, the régulation theory refers to “institutional forms” such as “money/financial forms,” “forms of competition,” “wage-labor nexus,” “state forms” and “insertion into the international economy.” These institutional forms create a mode of régulation in capitalism in a particular historical time and geographical space as well as a macroeconomic regularity of “growth regime (accumulation regime)” according to the compatibility of institutional forms. The comparative growth regime analysis emphasizes “the varieties in time and space of economic and social dynamics” and “the macro foundation of micro behaviors” (Boyer 1986, 1988). In this regard, we should develop a comparative analysis of macroeconomic dynamics in a growth regime in collaboration with Kaleckian and Kaldorian economics and institutionalist post-Keynesian economics in general. An important factor in development of the régulation theory after the 1990s is the perspective of a shift in “institutional hierarchy” in a growth regime accompanied by globalization. In other words, in the 1960s era of Fordism, the wage–labor nexus was at the top of the hierarchy of determination, with the compromise on productivity and wage growth in Fordism having a strong regulatory power over economic dynamics in the mass production and consumption regime with wage-led growth (Boyer 1988). Since the 1970s, this hierarchy has been reversed, and the financial system, especially international finance, has been positioned at the top of the hierarchy with strong regulatory power over the wage–labor nexus. In this situation, “a financial-led accumulation regime” was established in the United States, the center of international finance, to eventually lead to the formation of a bubble and the world financial crisis in 2008 (Boyer 2011). Boyer, while referring to Hyman Minsky’s “financial instability hypothesis,” formulated the logic of “financial-led accumulation regime” with stock-flow dynamics as follows. Rising financial asset prices provide asset owners easier access to credit, resulting in rapid credit

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expansion. This increases the asset owners’ consumption, leading to an increase in production and employment. This must be a fruitful development of Keynesian stock-flow analysis. The world financial crisis, especially the Sub-prime Loan Crisis, is characterized by the specific financial crisis (= structural crisis) caused by the development of “the financial-led accumulation regime” in the United States. In particular, the role of prices as an information mediator, the dominance of the principle of maximizing shareholder value, and the expansion of financial instruments such as pension funds stalled domestic social compromises. The government then imposed effective financial regulations. From the crucial logic of the financial crisis, Boyer’s analysis of the Sub-prime Loan Crisis is an excellent political and economic analysis of US capitalism. Furthermore, Boyer expanded his research to analyze the Euro crisis, a further deepening of the world financial crisis (Boyer 2015). The single currency Euro was established through a political compromise between Germany, France, and other member countries without satisfying the condition of “optimal currency area.” However, after the Euro was established in 1999, the year of the expansion of global finance, a large amount of capital flowed into the southern European countries. This temporarily lowered the yields on government bonds in the southern European countries to the level almost to that of Germany, creating a property bubble in southern European countries. However, the single currency Euro revealed the imbalance in international competitiveness and rapidly amplified the trade imbalance between Germany and the southern European countries. After the world financial crisis in 2008, the international financial community began to withdraw capital from southern European countries, contracting their credit, and intensifying the national debt crisis. The Euro crisis was a complex and systemic one caused by the imbalance between heterogeneous growth regimes in the EU and instability in the international financial system. Furthermore, the Euro crisis accelerated the de-industrialization in southern European countries (Uemura and Tahara 2014). The expansion of international financial asset transactions increased the inequality in asset ownership by generating large amounts of income for a few financial asset owners in some advanced countries since the 1980s (Piketty 2013). Robert Boyer addressed the problem of different patterns of growing income inequality in the different growth regimes in the United States, the EU, Asia, and Latin America and their international interdependence. Boyer called this framework “the inequality regime” (Bowles 2012, 2016). Each region’s inequality is governed by its own mode of régulation and growth regime. By observing the expansion of international transactions of financial assets, many Post-Keynesians and political economists are trying to find a way to control this serious problem of global instability. Samuel Bowles also calls the possibility of improving both equity and efficiency through asset redistribution that corrects unequal concentration of assets, and he calls it “productivity-promoting redistribution” or “asset-based redistribution” (Bowles 2012). Furthermore, Tomas Piketty advocated a global progressive tax on assets and income to curb growing inequality as well as social and temporary property (Piketty 2013, 2019). All these relate to how citizens can exercise their control over the growing inequality in asset ownership in

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contemporary capitalism and protect and promote the growth of industrial activities and social welfare. The social infrastructures and social welfare system, including the education system, the medical system, and a good environment, must be the important elements in “social common capital” and should be governed commonly by citizens (Uzawa 2005). Even in the era of globalization in the twenty-first century, a country with well-organized social common capital can stabilize its economy, supported by social infrastructures and the social welfare system (Uzawa 1986b).

7.5.5

The International Production System and the Trade of Intermediate Goods: The Restoration of the Classical Trade Theory of Prices and Incomes

We consider international economic relations from the perspective of institutional economics. The Heckscher-Ohlin theory has been dominant in the field of international trade theory. Since the 1970s, however, the expanding business activities of multinational corporations have led to the rapid development of international division of labor and international production networks (Miyazaki 1982; Shiozawa et al. 2017). The reality in international trade is quite different from the assumption of the Heckscher-Ohlin theory that final goods are traded through perfect competition. The most remarkable reality in the international economy is the expansion of global value chains and intermediate goods trade mediated by the production activities of multinational corporations. This calls for the reconstruction of trade theory, including explicitly addressing the intermediate goods trade. Furthermore, as the intermediate goods trade expands, “value-added trade” has become an important research subject in international economics. In 2013, the OECD-WTO began to publish “value added trade statistics,” and the research on value-added trade has been developing rapidly. Taking account of these changes in the international economy, we summarize two studies that are important for institutional economics in Japan. First, “the restoration of international value theory” was developed by Yoshinori Shiozawa (Shiozawa 2014; Shiozawa and Aruka 2014; Shiozawa et al. 2017). Shiozawa explains that his theory of value is “primarily a theory that studies exchange value” (Shiozawa 2014, p. 6). Shiozawa’s research established the new Ricardian theory of international value in the framework of international trade, uniquely determines prices and wages in a multi-goods, multi-country, and multitechnology framework with the intermediate goods trade. Thus, by extending Sraffa’s theory of production prices (Sraffa 1960) to the international trade framework with multi-technologies, Shiozawa provided a rigorous foundation for Ricardian international trade theory based on comparative production costs to determine the international price system. In a broad sense, he extends “the minimum price theorem” to the determination of prices with the choice of technologies in each

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production process in each country in the international economy.9 He then criticizes the unrealistic nature of the Heckscher-Ohlin theory, which assumes the same production function with the smooth substitution of the factors of production in each country. For the reconstruction of international trade theory in the twenty-first century, Shiozawa’s restoration of the classical international value theory is of great significance. However, we believe that an essential aspect of Classical value theory is “the surplus approach” for understanding the capitalist economy in terms of reproduction and economic surplus (Tsuru 1959; Dobb 1973; Kishimoto 1975; Takasuka 1991) and that this is also valid in the international trade theory. From this perspective, it is not sufficient that Shiozawa’s price theory exogenously gives a markup rate to each industry in each country and treats wages as completely endogenous variables though there exists such international structural constraint on wages in each country. Markups and wages should be considered as variables determined by the coordination mechanism of the market and nonmarket institutions in each country together with the intermediate goods costs determined by international production linkages. It is necessary to understand the international reproduction system and develop an international trade theory based on such an international multi-layered coordination mechanism of price–cost relationships in the process of capital accumulation. Moreover, the dynamics of price–cost coordination mechanism has different institutional characteristics in each country. An empirical study has shown that different patterns of labor productivity, real labor costs, and exchange rate adjustments exist in East Asian and European countries (Uni 2014, 2018). Second, let us discuss demand formation and quantity adjustment in the international reproduction system with the expanding intermediate goods trade. Hiroyasu Uemura used an international input–output analysis to examine the induced effects associated with the import of intermediate goods (Uemura 2014). In terms of international comparative advantage at the industrial level, when imports of intermediate goods increase, the costs of intermediate inputs changes and modifies “the flying-geese pattern” of industrialization in East Asia. In fact, this has already happened within the compressed industrialization in China. An important theoretical implication is that the induced increase in production associated with the import of intermediate goods is a backward-linkage effect with fixed prices in the short run that is followed by a multi-layered quantity adjustment process. In this regard, this means rejecting the Heckscher-Ohlin theory, which assumes a substitution between factors of production in the short run. Furthermore, Uemura considered the international Leontief-multiplier process and the international Keynes-multiplier process in the international input–output analysis (Uemura 2022). An increase in final demand in each country is multiplied Shiozawa calls “the non-substitution theorem” “the minimum price theorem” as this determines a unique minimum price in each industry after the choice of technology (Shiozawa 1983; Shiozawa and Aruka 2014; Shiozawa et al. 2019). In Sraffa’s theory of prices (Sraffa 1960), the system of prices is determined independently of the pattern of demand. “The minimum price theorem” proves this proposition in a formal mathematical model.

9

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through these two channels. In the international Leontief-multiplier process, the causal chain of production—intermediate goods demand—production proceeds internationally caused by an increase in final demand. In contrast, in the international Keynes-multiplier process, the causal chain of income—consumption—production proceeds internationally. Moreover, these processes are mediated by different coordination mechanisms. The international Leontief-multiplier process is coordinated by production activities and intermediate goods trade in the international production networks. In contrast, the international Keynes-multiplier process is mediated by consumption behaviors and production activities in each country. Moreover, these two different multiplier processes proceed simultaneously with complex crosseffects in multi-layered time and space. We have summarized the two studies of international economic analysis from the perspective of institutions and evolution. Each covers one aspect of “the dual roles of costs” in the international economy. “The dual roles of costs” mean that, on one hand, costs are interpreted as production costs for a firm, while on the other, costs are the incomes and a source of effective demand. In the international economy, the production costs in the international production system determine the international price–cost system as well as the international expenditure–income spillover effect and quantity adjustments.

7.6

Conclusion: Toward a New Institutional Political Economy in the Twenty-First Century

In order to make a significant improvement in the current state of economics, we have reconsidered the development of institutionalist post-Keynesian economics in Japan and have examined important theoretical issues for the further development of institutional economics. In particular, we have pointed out the importance of the intellectual heritage of institutionalism in postwar Japan represented by the economic thoughts of Shigeto Tsuru and Hirofumi Uzawa. In postwar Japan, a wide range of economic theories have been developed through “creative rivalry” (Sugimoto 1950). In addition, various studies that advanced the institutional analysis of the Japanese economy have been created, and a search for a new political economy in Marxian economics and institutionalist post-Keynesian economics have significantly been developed while emphasizing the importance of civil society and democracy. In order to inherit the legacy of Japanese institutionalist postKeynesians and to develop institutional economics in the twenty-first century, we have summarized the major issues in our historical investigation and theoretical reconsideration (Isogai and Uemura 2022).

7.6

Conclusion: Toward a New Institutional Political Economy in. . .

7.6.1

125

Reconstructing a Creative Rivalry among Various Schools of Economics, Particularly Based on the Intellectual Legacy of Marx, Keynes, and Institutionalism

When we examine the exact meaning of Eiichi Sugimoto’s “modern economics,” which had a great influence on economic research in postwar Japan, we see that this term included the Cambridge school, the Lausanne school, the Austrian school, the Marxian school, and the Keynesian school, and we understand that it is important to develop economics through “creative rivalry” among these various schools. It is also important that Sugimoto stressed the multi-layered time-space structures of the economy while referring to Marshall’s theoretical framework. Since the 1980s, however, economics has been dominated by the Walrasian paradigm in Neo-classical economics, which relies on rational economic agents and the general equilibrium and hinders such creative rivalry among different schools of economics. In the twenty-first century, in creating a new political economy of institutions and evolution, we need to reconstruct a creative rivalry among various schools of economics, particularly based on the intellectual legacies of Marx, Keynes, and Institutionalism.

7.6.2

Creating a New Theoretical Framework Based on the Empirical Analysis of the Evolving Diversity of Contemporary Capitalisms

Research activities to understand postwar contemporary capitalism were actively carried out by institutionalist post-Keynesian economists such as Yoshikazu Miyazaki and Mitsuharu Itoh after Shigeto Tsuru raised the question, “Has capitalism changed?” (Tsuru 1959). They recognized postwar capitalism as a new stage of capitalist development and aimed to elucidate its structures and dynamics. Institutional structures such as the oligopolistic large corporate system, collective bargaining, the managed currency system, the Keynesian welfare state, and the global development of multinational corporations were studied, and macroeconomic dynamics was analyzed based on these institutional arrangements in postwar contemporary capitalism. In particular, oligopolistic price determination and the investment behaviors of multinational corporations have been extensively analyzed. Under these circumstances, Shigeto Tsuru actively developed international collaboration with a search for a “new political economy” while researching various socioeconomic problems of contemporary capitalism, the environmental problem in particular. In the 1960s and 1970s, research collaboration was formed among these researchers, fostering Keynesian economics’ research on the institutional structures of contemporary capitalism. The Japanese institutionalist post-Keynesians’ research

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analyzed institutional structures such as the ownership and control of large corporations, wage and price determination, and macroeconomic dynamics based on their original theoretical research. In particular, Yoshikazu Miyazaki studied the structure of corporate groups in the Japanese economy and investment behaviors in high economic growth in the 1960s. Moreover, as Marxian economics based on Post-Keynesian theories, we have referred to Yoshihiro Takasuka’s analysis of “productivity differential inflation” under the condition of dual structures of the Japanese economy in the high growth period and Shigenobu Kishimoto’s analysis of the contemporary capitalist economic system and the debate on a new middle class in Japan in the 1970s. The analysis of the Japanese economy in the 1960s and 1970s did not apply a general theory directly to the Japanese economy, but the structural dynamics were analyzed based on the specific institutional characteristics of the Japanese economy. After the 1970s, Tsuneo Ishikawa inherited this research approach in his study on economic theory and empirical analysis of corporate savings and assets and the dual structures of the labor market in the Japanese economy. These prominent achievements have been inherited by many studies on the Japanese and international economies as well as the evolving diversity and interdependence of capitalisms with international production linkages and financial activities that are based on the Post-Keynesian economics and the régulation theory in the twenty-first century.

7.6.3

Constructing Theoretical Foundations of the Political Economy of Institutions and Evolution

In Japan, the full-fledged introduction of Keynesian economics began with the theoretical elucidation of Keynes’s The General Theory, conducted by Yoshikazu Miyazaki and Mitsuharu Itoh. After the research of some institutionalist postKeynesian economists, the theoretical foundations then developed substantially, using advanced theoretical models such as Hirofumi Uzawa’s disequilibrium dynamics theory and Tsuneo Ishikawa’s basic types of dynamics in contemporary capitalism. The main theoretical themes are the flow-stock relationship in the macro economy, the non-malleability of capital equipment, the dynamics of inventory adjustment, price determination in oligopolistic markets, conflicts over income distribution, and various patterns of macroeconomic dynamics. This theoretical development based on Post-Keynesian economics is clearly different from the Walrasian paradigm in Neo-classical economics. The remarkable characteristics of the Japanese institutionalist post-Keynesians are their institutional analysis of contemporary capitalism based not only on Keynes but on the origins of the Post-Keynesian theories such as those by Joan Robinson, Kalecki, and Kaldor. Furthermore, Shigeto Tsuru systematically synthesized these economists’ social thoughts together with Veblen, Myrdal and Kapp from the perspective of “institutionalism in the broad sense,” emphasizing the open-system

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nature of the economy and cumulative institutional evolution with a guidance through social management. Hirofumi Uzawa developed Keynesian macroeconomic dynamics, and, based on Veblen’s institutionalism that stressed the conflict between industry and business and the cumulative evolution of economic institutions, created his original institutionalism of “social common capital” that appreciated people’s civil rights in society and global environment. In this way, Japanese institutionalist post-Keynesians emphasized the significance of institutional coordination and civil morality, and their policies were oriented toward social democracy and the welfare state based on civil society. Subsequently, such studies were inherited by the political economy of institutions and evolution in Japan after the 1990s, and the theoretical understanding has deepened on the multi-layered coordination in time and space with stock-flow dynamics, the formation of citizens’ social preferences, the transformation of growth regimes, and price determination and quantity adjustment with intermediate goods trade and income flows in the international economy. In order to reconstruct institutional economics in the twenty-first century, it is important to inherit the intellectual heritage of Japanese institutionalist postKeynesians in the twentieth century and to develop the theories and empirical analyses based on the reality of the current world economy. In the world economy, globalization is progressing in both real and financial terms, highlighting the existence of heterogeneous economic agents and groups, the institutional diversity of capitalisms, and the evolving diversity and international interdependence of growth regimes. Various socio-economic institutions are evolving, and multi-layered coordination mechanisms in time and space are developing to create cumulative economic dynamics. Further advancement of research on these institutional issues is needed. In this sense, the twenty-first century is truly the era of political economy of institutions and evolution.

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