Of fat cats and fat tails: from the financial crisis to the 'new' probabilistic marxism

Wells, Julian (2013) Of fat cats and fat tails: from the financial crisis to the 'new' probabilistic marxism. In: Zarembka, Paul, (ed.) Contradictions: finance, greed, and labor unequally paid. Bingley, U.K. : Emerald Group Publishing Limited. pp. 197-228. (Research in Political Economy, no. 28) ISSN (print) 0161-7230 ISBN 9781781906705

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Popular understandings of the financial crisis tend to focus on the rents extracted by elite personnel in the financial sector. Professional discussions, however, have addressed the faulty assumptions underlying theory and practice - in particular, the assumption that returns to financial assets follow the Gaussian distribution, in the face of much empirical evidence that these have power-law distributions with far higher kurtosis. It turns out that the power-law tails of returns to financial assets are also a feature of the distribution of company rates of profit, a discovery that stems from proposals to 'dis-solve' the traditional transformation problem by abandoning the condition of a uniform rate of profit and instead considering its distribution. Marx himself was aware of the importance of considering the distributional properties of economic variables, based on his reading of Quetelet. In fact, heavy-tailed distributions characterise a wide range of variables in capitalist economies, the best-known probably being the Paretian tail component in distributions of income and wealth. Nor is this simply an empirical fact - such distributions emerge readily from a range of agent-based simulations. Capitalist economies are, in a particular technical sense, complex self-organising systems perpetually on the brink of crisis. This modern understanding is prefigured in Marx's discussion of how the compulsive character of social relations emerges from the atomistic exercise of human free will in commercial society. The developing literature of probabilistic marxism successfully applies these insights to the wider fields of econophysics and complexity, demonstrating the continuing relevance of Marx's thought.

Item Type: Book Section
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences (until 2017) > School of Economics, History and Politics (from November 2012)
Depositing User: Julian Wells
Date Deposited: 01 May 2013 11:24
Last Modified: 10 Jun 2013 08:26
DOI: https://doi.org/10.1108/S0161-7230(2013)0000028008
URI: http://eprints.kingston.ac.uk/id/eprint/24022

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