John Kenneth Galbraith (1908-2006)

A famous author; a coiner of phrases that have become common currency among educated Americans; a shaper of the way those educated Americans viewed society, including the economy, for at least a generation; in charge of setting prices throughout the United States during World War II; a major contributer to the United States Strategic Bombing Survey; an inspiration for Kennedy/Johnson anti-poverty schemes; an Ambassador to India; a president of the American Economic Association; a president of the American Academy of Arts and Letters; a Harvard professor with an endowed chair; a recipient of many honorary degrees - Galbraith overtowered almost any other economist in the United States in the last fifty years.

In directing his countrymen and women's attention to - or persuading them of - the coexistence of private affluence and public squalor, Galbraith attempted to both describe an aspect of the world and to improve matters. This coexistence has something to do with such distinctions as between goods tending to be invididually consumed and those collectively consumed, between those goods which are easily sold on markets and those which are not. Here is a well-known passage from Galbraith's pen:

"The family which takes its mauve and cerise, air-conditioned, power-steered, and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, blighted buildings, billboards, and posts for wires that should long since have been put underground. They pass on into a countryside that has been rendered largely invisible by commercial art. (The goods which the latter advertise have an absolute priority in our value system. Such aesthetic considerations as a view of the countryside accordingly come second. On such matters we are consistent.) They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals. Just before dozing off on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings. Is this, indeed, the American genius?" -- John Kenneth Galbraith (1958). The Affluent Society

This problem of social balance fits into a larger Galbraithian thesis. Galbraith argued that certain habits of thought were adapted to a period when goods were primary necessities, when the importance of production was in the output. Nowdays in, say, the United States, he argued, production is of importance more for providing employment, the income to purchase goods, feelings of self-worth of the producers, etc. When he propounded this thesis, and perhaps even today, conventional wisdom still reflects the former situation.

Galbraith's concept of the "Conventional wisdom" parallels, in some sense, Gramsci's concept of hegemony. Galbraith looked at whose needs economists serve:

"The most commonplace features of neo-classical and neo-Keynesian economics are the assumptions by which power, and therewith political content, is removed from the subject. The business firm is subordinate to the instruction of the market and, thereby, to the individual or household. The state is subordinate to the instruction of the citizen...

The decisive weakness in neoclassical and neo-Keynesian economics is not the error in the assumptions by which it elides the problem of power. The capacity for erroneous belief is very great, especially where it coincides with convenience. Rather, in eliding power - in making economics a nonpolitical subject - neoclassical theory by the same process destroys its relation with the real world...In consequence neoclassical and neo-Keynesian economics is relegating its players to the social sidelines where they either call no plays or urge the wrong ones...

This is what economics now does. It tells the young and susceptible and the old and vulnerable that economic life has no content of power and politics...Such an economics is not neutral. It is the influential and invaluable ally of those whose exercise of power depends on an acquiescent public. If the state is the executive committee of the great corporation and the planning system, it is partly because neoclassical economics is its instrument for neutralizing the suspicion that this is so. I have spoken of the emancipation of the state from economic interest. For the economist there can be no doubt as to where this task begins. It is with the emancipation of economic belief." -- J. K. Galbraith (1973). "Power and the Useful Economist", American Economic Review. V. LXIII, 1, (March).

In studying corporate power, Galbraith built on the work of a diverse set of economists, including Gardiner and Means, Michel Kalecki, John Maynard Keynes, Robin Marris, Edith Penrose, and Thorstein Veblen. One can see in Galbraith theories of dual markets and administered prices, theories that correspond to the realities of modern industrial economies.

Some of Galbraith's work, like Veblen's, is important to Feminist Economics.

Learning More About Capital-Reversing

David Skarbek asks me:

I can't find a good explanation of what capital reversing is and why it matters. The link in your last post is typical: "neoclassical thinking is wrong because of XXXXXXXX and it's a shame they don't get it right". What is XXXXX? The post mentions aggregate production function, what does that have to do with the microeconomics of a firms hiring practices? Why would they pay people more than their productivity?

I'm genuinely interested in this concept. Would you mind explaining it?

Nobody is claiming in this argument that workers are paid more than the value of "their [marginal] productivity".

Reswitching, capital reversing, and price Wicksell effects can be used to critique aggregate production functions, the explanation of wages and employment by the supply and demand of labor, and much more. But I cited Mathew Forstater not for his second paragraph, but his third. I find it a non-sequitur to reject a demonstration of the logical invalidity of an argument on empirical grounds. Furthermore, by looking at the thread on which Forstater is commenting, one can see a range of views.

I think of capital-reversing as a matter of correctly applying arithmetic. I recognize many teachers of economics in the United States train their students in outdated and exploded intuition.

One way to learn about capital reversing is to consider Sections 1, 2, and 6 in my draft paper, Creating Two-Good Reswitching Examples. Consider wages in Figures 1 and 2 around the switch point at the higher rate of profits (also known, at least for introductory explanations, as the rate of interest). Suppose net output (after replacing used-up means of production) for each technique under consideration consists of one unit of the first commodity. How much labor is required as an input to each technique? Which technique is adopted at a higher wage around this switch point? If you can figure out the answer to these questions, you will be well on your way.

The examples mentioned above consist of a choice between two techniques. Garegnani published an example in 1970 of the analysis of the choice among an uncountably infinite number of techniques.

Or you can take a look at this textbook (Garegnani's example is Exercise 5.8.23):

• Kurz, H. D. and Salvadori, N. (1995). Theory of Production: A Long-Period Analysis, Cambridge University Press
  

Economists Behaving Badly

I think this Oscar Wilde parody funny.

Dr. Shock Therapy is justifiably not too happy with Shleifer:

"In 1997, one of my colleagues in the Harvard Economics Department, Professor Andrei Shleifer, was discovered by the U.S. government to be making personal investments in Russia at the same time that he was on a U.S. government contract to advise the Russian leader on privatization. This action, understandably, led to a public outcry. Having had no knowledge beforehand of Shleifer's activities, I rejected them then, and now, as unquestionably a breach of basic professional ethics. When the court eventually ruled on the matter in 2004, it found Shleifer guilty of defrauding the U.S. government. The court made clear that as an institution, Harvard had no way of knowing what Shleifer had been up to on his own account. I was annoyed, however, by Shleifer's behavior and by any implicit questioning of the integrity of those of us who had worked in Russia during the same period. Many of my colleagues on the Harvard faculty shared that feeling." -- Jeffrey D. Sach, (2005). The End of Poverty: Economic Possibilities for Our Time.

(Sach's book is well worth reading.)

I have no problem with the prosecution of Shleifer. But, without having looked into it, I have always assumed his actions were what George Washington Plunkitt called "honest graft".

Current Contributions Concerning Cambridge Capital Controversies

I think the vision underlying the neoclassical theory of value and distribution has been shown to be invalid. The Cambridge Capital Controversy and related matters provides one line of argument establishing this result. I think of Franklin Fisher's simulation results, Anwar Shaikh's humbug production function, Herbert Simon's "Nobel" prize acceptance speech, and so on as concerning one of these related matters.

Last summer, the Eastern Economic Journal (V. 31, N. 5, Summer) sponsored a symposium on this topic, consisting of the following papers:

• Pressman, Steven (2005). "What is Wrong with the Aggregate Production Function?": 422-425.
  
• Felipe, Jesus and F. Gerard Adams (2005). "'A Theory of Production': The Estimation of the Cobb-Douglas Function: A Retrospective View": 427-445.
  
• Shaikh, Anwar (2005). "Nonlinear Dynamics and Pseudo-Production Functions": 447-466.
  
• Felipe, Jesus and J. S. L. McCombie (2005). "How Sound Are The Foundations of the Aggregate Production Function?": 467-488.
  
• Fisher, Franklin M. (2005). "Aggregate Production Functions - A Pervasive, But Unpersuasive, Fairytale": 489-491.
  

Shaikh's contribution builds on the work of Richard Goodwin, an economist too great for Harvard to accept.

Fisher is amusing:

"In the hit play, Proof, there is a description of a rock band made up of mathematicians. They play a number called 'i' in which they just stand around the stage for some minutes doing nothing. That is because i is an imaginary number. In the same spirit, I am tempted to conclude any discussion of aggregate production functions now. Indeed, it is truly amazing that, after so many years, we should be having a symposium on aggregate production functions; for, perhaps even more than the square root of negative one, aggregate production functions are truly imaginary.

Nevertheless, economists go on behaving as if there were no problem here, and even some of those most firmly opposed to the existence of aggregate production functions (not the participants in this symposium), implicitly base their criticism of neoclassical economics on the violation of insights whose validity rests on the existence of aggregate production functions. Hence a symposium on this imaginary topic is not only required, but is all too likely to be ignored."

and:

"...I am informed (by Jesus Felipe) that attempts to explain the impossibility of using aggregate production functions in practice are often met with great hostility, even outright anger. To that I say (as I have before in a different area of debunking...), that the moral is: 'Don't interfere with fairytales if you want to live happily ever after.'"

Brouhahas

I might as well follow D-Squared and register blog posts where I am fighting battles. I argue about labor "markets", among other things, here and here.

Sraffa - An Interesting Guy

The previous post is an expansion on an Usenet post of mine. I received the following reply from "JimF":

Sraffa was, apparently, a rather interesting guy. Keep in mind that Wittgenstein picked him out for a special acknowlegement in his Philosophical Investigations as someone who impacted his own thinking. So Sraffa had close connections to at least two major 20th century thinkers. And since in addition to Sraffa, Wittgenstein had close ties to a number of other Marxists including Maurice Dobb, Christopher Hill, Maurice Cornforth etc., etc., it would be interesting to explore what effects these people might have had on Wittgenstein's later thought.

I hadn't know about Wittgenstein's ties to these other Marxists. I think Wittgenstein found communism attractive on something like aesthetic grounds. This attraction might be related to the impulse that led Wittgenstein to live in a hut in Norway and to later give all his money away.

Anyways, I had already looked for mp3s about Wittgenstein before reading JimF's post. I found a couple of songs, of which only one was somewhat to my taste, namely Kenneth Goldsmith Sings Wittgenstein.

How did Sraffa affect Wittgenstein? And how are these philosophical concerns related to Sraffa's economics? I think there is too little documentation to provide a convincing answer to these questions. But there is a literature. I suppose the most prominent recent article is:

Sen, Amartya (2003). "Sraffa, Wittgenstein, and Gramsci", Journal of Economic Literature, V. 41, N. 4 (Dec.): 1240-1255.

Maybe I'll sometime provide a reference list on this topic.

Lectures On Gramsci

Piero Sraffa is one of my favorite economists. I have been listening to a couple of mp3 files. Piero Sraffa appears in the stories these lecturers have to tell, and rightly so.

The lecturers don't bring it up, but apparently Sraffa did not make a big deal out of his heroic anti-fascist work. Nicky Kaldor, who knew Sraffa for decades, apparently didn't find out about the side of Sraffa's life mentioned in these lectures until after Sraffa's death.

My Space has an entry for Antonio Gramsci.