Anwar Shaikh (economist)

Shaikh has argued in various publications that neither neoclassical economics nor the great bulk of heterodox economics provides an adequate foundation for the analysis of developed capitalism. The former is based on a vision of a perfect capitalism which is claimed to optimally and efficiently serve the interests of all of its participants.

At the heart of this vision is the theory of perfect competition. Much of heterodox economics is in turn based on the theory of imperfect competition, i.e., on departures from perfect competition. But the theory of imperfect competition is intrinsically dependent on the theory of perfect competition. Shaikh argues that even neo-Ricardian economics, whose revival was sparked by Sraffa's classic work, relies heavily on the neoclassical concepts of perfect competition and of equilibrium as an attained-and-held state.

In place of these notions, Shaikh proposes the theory of real competition and the theory of turbulent regulation. Real competition is competition-as-war, with individual firms seeking to undermine each other by lowering costs and cutting prices. Turbulent regulation is the resulting process of perpetual overshooting and undershooting of actual economic variables (such as prices, wages and profit rates) around their ever-moving centers of gravity.

Shaikh has utilized this framework to develop alternate theories of industrial, financial and international competition (the latter rejecting the standard theory of comparative costs). The key element in all cases is the turbulent equalization of profit rates in various spheres of investment. He uses his theoretical structures to explain the actual patterns of industrial prices, profit rates, stock market prices, and exchange rates in the developed world.

The second strand of Shaikh's work concerns macrodynamics. Once again, the profit rate is the key variable. He argues that capitalist growth is driven by profitability, not by the requirements of full employment as in neoclassical theory, by exogenous demand as in Keynesian theory, or by the savings rate as in Harrodian theory.

In his earlier work, he used this notion to develop a theory of long waves and crises based on the Marxian concept of falling rate of profit. Subsequently, he showed that the link between growth and the profit rate can also provide an alternate theory of inflation, which he showed to work very well for the US in the postwar period.

In more recent work, he has developed a formal classical profit-driven model of growth and contrasted its structure and its policy implications to those of the standard models in the other traditions.

A third strand of his work is the relation between theoretical categories and empirical measures. His 1994 book Measuring the Wealth of Nations: The Political Economy of National Accounts, co-authored with Ahmet Tonak, developed a mapping between the national accounts corresponding to neoclassical and Keynesian concepts and those corresponding to classical and Marxian ones. It is now a classic reference on the subject.

More recently, he has argued that it is crucially important to distinguish between the average rate of profit on all capital invested, which includes old and new investments, and the rate of return on new investment alone. It is only the latter, he argues, which is turbulently equalized among alternative uses of capital. He showed that one can approximate the rate of return on new investment via the incremental rate of profit.

Using this, he demonstrated that, contrary to the "irrational exuberance" claim of Robert Shiller, the rate of return in the stock market does indeed oscillate around the incremental rate of return in the corporate sector. In more recent work, he demonstrates that the same turbulent equalization holds for manufacturing sectors within the US and even across OECD countries.

The final strand of his work is a critique of the neoclassical aggregate production function and its associated marginal-productivity theory of income distribution, dating back to his earliest work 'Laws of Production and Laws of Algebra: The Humbug Production Function' (1974).[4] This was a stinging critique of Robert Solow's famous article on the measurement of technical change,[5] following up on a similar criticism of cross-section production functions by Simon and Levy (1963).[6]

To combat the notion that production functions, if not theoretically sound, are at least empirically well-supported, Shaikh fitted a function to a set of data points that spell out "HUMBUG" when plotted, then showed that the result was a proper production function.

The Simon-Shaikh critique of production functions was taken up by Jesus Felipe, J. S. L. McCombie and others in a series of articles over the years. Further articles by Shaikh in this vein appeared in 1980, 1986, and 2005, the last being in a special journal issue devoted to the subject that included contributions by Felipe, McCombie, and Franklin M. Fisher. Expressing the importance of Shaikh's result, J. E. King remarked that "[i]f there was any justice in the world of economics," Shaikh should have gotten the Nobel Memorial Prize for the humbug production function.[7]

Shaikh's 2016 book Capitalism: Competition, Conflict, Crisis[8][9] is a graduate-level textbook that attempts to revitalize classical political economy, by deriving theoretical and empirical results from classical assumptions. It synthesizes much of his earlier work into a comprehensive theory of micro- and macroeconomics, while critiquing both mainstream neoclassical economics and post-Keynesian alternatives.