14.1 – Introduction to The Surplus and the Price Level
Conflict and Prices
In late 1973, American drivers felt the harsh impact of a conflict taking place on the other side of the world. In October of that year, the Organization of Petroleum Exporting Countries (OPEC) instituted an oil embargo on the countries that had supported Israel in the Arab-Israeli War, including the United States. One way to interpret this history: prices–for example, the price of a gallon of gas–reflect, in part, conflict.
The previous chapter explained that heterodox macroeconomists understand prices in terms of the interconnections between different businesses, industries, and sectors, but also between workers and other groups as well. In this chapter you’ll learn in further detail about the nature of those interconnections and how conflict between the various groups that make up the economy can impact prices and the price level in general.
Learning Objectives
In this chapter you will learn about:
- The Size of the Surplus
- Intersectoral Struggles over the Surplus
- Class Struggles over the Surplus
- Trends in the Distribution of the Surplus
- Price Cyclicality, WW II – 1983
- Price Cyclicality, Post-1983
As the previous chapter demonstrated, the relative prices of the various goods and services the economy produces can be calculated wholly without reference to aggregate supply and demand curves or the orthodox assumptions that underlie them. As a matter of fact, the economist who developed the theories behind the model you’ve been learning about, Pierro Sraffa, also convincingly showed the logical inconsistency of the orthodox approach in this regard–but we won’t get into that debate here. Still, there are important questions we haven’t yet answered. In this chapter, we will look at two of these: what determines how big the surplus is? And how is the surplus distributed? Answering these questions will also give the background needed to understand the heterodox perspective on inflation and the business cycle, which you’ll see later in the chapter.
