Presentation to the 2015 conference of the 'Simon Kuznets society for Development, 27 October 2015

1. Alea jacta est
Economic laws and human
action in a time of crisis
© GERET 2015
Alan Freeman

2. Ἑλληνιστὶ πρὸς τοὺς παρόντας ἐκβοήσας,
«Ἀνερρίφθω κύβος», [anerriphtho kybos] διεβίβαζε
τὸν στρατόν’
He declared in Greek with a loud voice
“let the die be cast”
And led the army across

3. Reconsidering Schumpeter
Freeman, C. 1997. Schumpeter’s ‘business
cycles’ revisited. http://goo.gl/BGpqEs
Freeman, A. 2014. ‘Schumpeter’s theory of self-
restoration: a casualty of Samuelson’s Whig
Historiography of science’. In Freeman, A., V.
Chick and S. Kayatekin (eds). CJE Vol. 38 (3)
pp663-669.
http://cje.oxfordjournals.org/content/38/3.toc
Freeman, A. 2016 (forthcoming). Introduction to
Chris Freeman’s “Schumpeter’s ‘Business Cycles’
revisited”. In European Journal of Economic and
Social Science (EJESS) special issue
(forthcoming)
http://ejess.revuesonline.com/accueil.jsp
Perez, C. 2016 (forthcoming) From long waves
to great surges: continuing in the direction of
Chris Freeman’s 1997 lecture on Schumpeter’s
business cycle. In EJESS op. cit.
Geopolitical Economy
www.geopoliticaleconomy.ca
https://goo.gl/heaYi9

4. “He [Marx] aptly says that ‘the superficiality of Political Economy
shows itself in the fact that it looks upon expansion and contraction
of credit, which is a mere symptom of the periodic changes of the
industrial cycle, as their cause.’
… We find practically all the elements that ever entered into any
serious analysis of business cycles, and on the whole very little error.
…Many economists who went before him had an inkling of it. In the
main, however, they focussed their attention on the spectacular
breakdowns that came to be referred to as ‘crises’.
And these crises they failed to see in their true light, that is today,
in the light of the cyclical processes of which they are mere
incidents”
(Schumpeter 1965:41; emphasis added).

5. The economic programme of the Communists
• Abolition of property in land and application of all rents of land to public
purposes.
• A heavy progressive or graduated income tax.
• Abolition of all rights of inheritance.
• Centralisation of credit in the hands of the state, by means of a national
bank with State capital and an exclusive monopoly.
• Centralisation of the means of communication and transport in the
hands of the State.
• Extension of factories and instruments of production owned by the
State; the bringing into cultivation of waste-lands, and the
improvement of the soil generally in accordance with a common plan.
• Free education for all children in public schools. Abolition of children’s
factory labour in its present form. Combination of education with
industrial production, &c, &c

6. -3
-2
-1
0
1
2
3
4
5
6
7
8
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
World Growth
Annual Growth, Constant $US
7 year average
The world economy has been slowing down since the mid 1960s.
This is a 55-year decline. It is the longest in history. It is a trend, not a cycle
It is not realistic to propose that such a system will fix itself

7. 15%
17%
19%
21%
23%
25%
27%
1970 1975 1980 1985 1990 1995 2000 2005 2010
Investment as share of GDP, advanced economies
The cause of the decline in growth is a long-term decline in investment

8. 0%
5%
10%
15%
20%
25%
30%
1870
1873
1876
1879
1882
1885
1888
1891
1894
1897
1900
1903
1906
1909
1912
1915
1918
1921
1924
1927
1930
1933
1936
1939
1942
US Accumulation as per cent of GDP
Source: BEA historical data, Simon Kuznets data series on US output and accumulation
In the US, this decline in accumulation is a very long historical trend as the data
from Simon Kuznets and the Bureau of Economic Affairs shows

9. 0%
2%
4%
6%
8%
10%
12%
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
Percentgrowthreal$US US growth Average Growth over
business cycle
10-year average growth
Source: BEA NIPA tables, BEA cycle dating committee
The US economy did recover and this produced a long boom which lasted until
about 1865. However the recovery does not date from the New Deal but from
the war.

10. 0%
10%
20%
30%
40%
50%
60%
1929 1934 1939 1944 1949 1954 1959
Investment and state spending in the USA
Private Investment Government
Source:BEA NIPA tables
The crisis was overcome because government spending rose massively, making up the
gap in private investment. This was done in the war. Also during the war, and after it,
America exported to its allies and also achieved a one-time productivity leap. It also
reorganised the world international order to its advantage by dissolving the German
and Japanese empires and turning Britain and France into subordinate or vassal states.
Its advantage was short however and by 1961 Germany and Japan had caught up with
it

11. Chart 2: UK profit rate made consistent by including
financial assets in capital
Chart 3: US profit rate made consistent by including
financial assets in capital
0%
5%
10%
15%
20%
25%
0%
20%
40%
60%
80%
100%
120%
1970
1975
1980
1985
1990
1995
2000
2005
Corporate Value Added/Corporate Capital Stock 'Denominator includes securities (right scale)
0%
2%
4%
6%
8%
10%
12%
14%
0%
5%
10%
15%
20%
25%
30%
35%
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
(Unadjusted) Operating Surplusof PrivateEnterprises/Fixed Assets of PrivateEnterprises [left
scale]
(Corrected) Operating Surplusof PrivateEnterprises/(Fixed Assets of PrivateEnterprises plus
MarketableFinancial Securities owned by US agencies and persons) [right scale]

12. Keynes on the long-run trend of
the profit rate
• “The demand for capital is strictly limited in the
sense that it would not be difficult to increase the
stock of capital up to a point where its marginal
efficiency had fallen to a very low figure… The
return from [new means of production] would have
to cover little more than their exhaustion by
wastage and obsolescence together with some
margin to cover risk and the exercise of skill and
judgment”

13. Non-substitutable labour
The new technology of human creativity

14. The strange non-disappearance of labour
30%
40%
50%
60%
70%
80%
90%
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
UK US Japan Germany
USA
UK
Japan
Germany
Share of employment 1948-2007
0%
5%
10%
15%
20%
25%
30%
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
Retail+Wholesale Information
Financial Activities Leisure and Hospitality
Government Health and Education
Business services
GovernmentRetail and Wholesale
Business Services Health and Education
Leisure and Hospitality
Financial Activities
Information
Share of employment in US services

15. • From 1997 to 2013, UK Creative Economy jobs
rose from 1.8 to 2.6 million - 2.3% per year,
four times the UK Economy as a whole.
• Creative Industries GVA was £76.9bn in 2013 -
5 per cent of UK output.
• Creative Industries GVA grew 10 per cent in
2012, the last year we have data for. This is
more than any other industrial sector.
• The value of services exported by the Creative
Industries was £17.3bn in 2012, 8.8 per cent of
total UK service exports
• In 2011, the last year we have data for, Creative
Industry service exports grew by 11.3%. This
compares with 2.8% for total UK service
exports.
0 1000 2000 3000 4000 5000
Health and Social…
Education
Manufacturing
Construction
Creative Industries
Transport and…
Financial and…
Real estate
Projected 2030 2013 jobs
Source: DCMS January 2015 estimates

16. Source: DCMS January 2015 estimates, figure 5 and table 6
The engine of
creation
The rise of creative employment