Thursday, September 21, 2006

Break In Blogging

I will be on travel for a week or more starting, I guess, Saturday. And I don't expect to blog in that time.

I feel I am tardy in acknowledging comments. Given this tardiness, I'm more than happy when commenters are discussing topics among themselves.

Wednesday, September 20, 2006

Does Studying Mainstream Economics Make You A Bad Person?

(I had the title and the next three paragraphs written before Radek's comments today.)

Experimental evidence on the topic suggests a disquieting affirmative answer. Specifically, I refer to "Does Studying Economics Inhibit Cooperation", by Robert H. Frank, Thomas Gilovich, and Dennis T. Regan (Journal of Economic Perspectives, V. 7, N. 2 (Spring 1993): 159-171)

I believe that more up-to-date work exists in this vein. I was able to quickly locate a reference to "Does Studying Economics Discourage Cooperation? Watch What We Do Not What We Say or How We Play", by Yetzer, Goldfarb, and Poppen (Journal of Economic Perspectives, V. 10, N. 1 (1996): 177-186). (I haven't read this.)

But look at the URL for that copy of the Frank, Gilovich, and Regan paper. Why should Richard Stallman want more people to know of their findings? What does this have to do with open-source and free (as in "freedom") software?

Perhaps if I browsed around the proceedings of one of the Wizard of OS conferences, I would see some connection between advocating open source and being anti-mainstream economics. Given the interests of at least one of my readers, I want to note that Lawrence Lessig is the keynote speaker for this year's conference, which just ended.

Monday, September 18, 2006

At SSRN And Mankiw's Blog

I have finally completed the first draft of my paper Some Fallacies of Austrian Economics. I wonder if the historical documentation is too extensive for it to be accepted by some journal somewhere. On the other hand, I suppose some Austrians might like some text between equations.

I have been amused by watching commentators on Greg Mankiw's blog be unable to register that some might doubt that minimum wages above the (?) market-clearing wage cause unemployment.

Where Do Correct Ideas Come From? Do They Drop From The Skies?

Have the ideas that mainstream economists teach and apply won out against alternatives in intellectual debate? Perhaps modern economics has been shaped by interventions with a non-cognitive basis.

Academics have one well-established method for writing books. They can try out chapters as articles, thereby seeing what reviewers find convincing and where reviewers think the argument needs strengthening. Maybe Fred Lee is working on a book about the sort of interventions mentioned above and counter-hegemonic movements within academic economics:
  • Lee, Frederick S. (2000a). "Conference of Socialist Economists and the Emergence of Heterodox Economics in Post-War Britain", Capital and Class, V. 75: 15-39
  • Lee, Frederick S. (2000b) "The Organizational History of Post Keynesian Economics in America, 1971-1995", Journal of Post Keynesian Economics, V. 23, N. 1 (Fall): 141-162
  • Lee, Frederick S. (2002). "Mutual Aid and the Making of Heterodox Economics in Postwar America: a Post Keynesian View", History of Economics Review: 45-62
  • Lee, Frederick S. (2004a). "History and Identity: The Case of Radical Economics and Radical Economists, 1945-70", Review of Radical Political Economics, V. 36, N. 2 (Sprong): 177-195
  • Lee, Frederick S. (2004b). "To Be a Heterodox Economist: The Contested Landscape of American Economics, 1960s and 1970s", Journal of Economic Issues, V. XXXVIII, N. 3 (September): 747-763
  • Lee, Frederick S. and Sandra Harley (1998). "Peer Review, the Research Assessment Exercise and the Demise of Non-Mainstream Economics", Capital and Class: 23-51
  • Mata, Tiago and Frederick S. Lee (2006). "Making Visible What is Hidden: The Role of Life Histories in Writing the History of Heterodox Economics", 19th Annual Conference of the History of Economic Thought Society of Australia, Ballarat, Victoria (4-7 July)
  • Tymoigne, Eric and Frederick S. Lee (2003-4). "Post Keynesian Economics Since 1936: A History of a Promise that Bounced?", Journal of Post Keynesian Economics, V. 26, N. 2 (Winter): 273-287

Saturday, September 16, 2006

Contradiction In Arrow-Debreu Model Of Intertemporal Equilibrium?

This post looks at just one problem with the Arrow-Debreu model.

The data of the Arrow-Debreu model of intertemporal equilibrium include the initial quantities, that is, the endowments of all commodities. This specification includes the distribution of these endowments, a statement of who owns what. Some of these endowments are unproduced natural resources which yield services over future time periods in the model. Other endowments can be conceptualized as capital goods, as produced means of production.

In the model, markets clear once, at the beginning of time. The commodities traded in markets include promises to deliver specified commodities at specified dates in the future, perhaps contingent on the state of the world. In the full model, one can purchase now a contract to have delivered any specificied commodity at any date in the future. So market-clearing in this model implies that plans are pre-coordinated. No room exists for expectations about the future to be disappointed.

Where do the capital goods in existence at the beginning of time in the Arrow-Debreu model come from? Presumably, they were manufactured in a prior time period not formally modeled. Some entrepreneurs, with plans and expectations held before the start of time, were directing production toward the time in the model. The initial capital goods embody those plans and expectations. But, in the model, the relative quantities of those goods is arbitrary. For example, an endowment can be in excess supply, with an equilibrium price of zero. This arbitrariness seems to imply that those unmodeled past expectations and plans can be mistaken.

So the Arrow-Debreu model describes a world in which agents have made mistakes in the past and some plans made in the past have been toppled. But the plans and the expectations made now will be found correct forever in the future. It is a model in which agents must both have correct expectations and in which they can have mistaken expectations.

You can find in the literature comments on Joan Robinson's puzzlement at being given the Arrow-Debreu of intertemporal equilibrium as the answer to her question about what is the general neoclassical theory of value. She complained that she wanted to have a model that she could make stand up before she knocked it down. And she would ask, if the economy was not in equilibrium yesterday, why would you expect it to be in equilibrium tomorrow?

Suppose one models the economy as starting with an arbitrary set of capital goods, that is, with a short run model. Perhaps part of the data should then be the expectations, some of which are being disappointed, with which those capital goods were manufactured.
  • Gerard Debreu, Theory of Value: An Axiomatic Analysis of Economic Equilibrium, Yale University Press, 1959.

Friday, September 15, 2006

Sraffa or Marx?

I think I'll demonstrate that a range of views exists on the relation of the ideas of Sraffa and the Sraffians to the ideas of Marx. I think Ben Fine is expressing a fairly traditional Marxist view:
"Volume III of Capital addresses the distribution of surplus value but not in the simple sense of who gets how much. Note, however, that even this superficial interpretation presupposes, correctly in line with Marx's method, that the surplus value has to be produced before it is distributed. If, though, the distribution is simply interpreted as a cake-division exercise, as in the (neo-)Ricardian (or Sraffian) interpretations, then the concepts of surplus value and profit collapse and the former simply servers as a superfluous accounting exercise. In contrast, Marx deals with distribution of surplus value as a refinement of value. The results of the previous Volumes are brought together and used to develop more complex and concrete categories in terms of the economic processes by which production and exchange are integrated." -- Ben Fine (2001)
I am amused by Alan Freeman (who is the co-inventor of a new mathematical economics interpretation of Marx):
"Variant b of step 7: the Value System is primary
We know values are primary because of all Marx's qualitative arguments concerning the nature of exchange, because of a wealth of empirical evidence, and because of many philosophical and socio-political arguments on the role of human labour. Let us therefore take the 'primary causal' role of value as an axiom. Let us postulate that, against substantial evidence from the texts, Marx unconditionally asserted that the value of every commodity is determined without the mediation of money.

This leads to a veritable garden of forking paths. We can discern at least the following variants

Variant 7b.I: philosophico-mystical
The determination of price by value takes place behind our backs. It is part of the internal workings of the capitalist system which are ever so mysterious and can only be understood by reciting das Kapital six times before breakfast and joining my group. There is no such thing as the transformation problem and it doesn't matter that the figures don't add up, but you wouldn't understand that because you are a bourgeois revisionist.

Variant 7b.II: pseudo-dialectical
The determination of prices takes place as the Sraffians describe it, and the determination of values takes place as Marx describes it. This can only be understood by reciting das Kapital twelve times before breakfast and joining my study circle. It is true that the figures don't add up, but that is because capital is inherently contradictory, and you should learn to live with it. You can't understand that because you haven't read Hegel.

Variant 7b.III: fake materialist
As Marx explains, the forces of production determine everything. This as Plekhanov explains is the basis of historical materialism. What Marx meant by the determination of value by labour time was the determination of value by technology as you will realize if you read Sraffa and buy my newspaper. The figures do add up. You do not understand this because you are not a worker." -- Alan Freeman (1996)
This is one Sraffian view:
"Therefore, to grasp the essence of the Sraffian revolution it is necessary to define more clearly Sraffa's position in regard to the classical and Marxian approach. The point is that a 'classical-Marxian approach' does not exist, if it is true that Marx considered himself to be a critic of Ricardo and Smith. In other words, was Sraffa a 'neo-Ricardian', as some orthodox Marxists and some orthodox neoclassical economists have argued? Or was he a Marxist, as many of his followers maintained?

The level of abstraction of Sraffa's model is defined, albeit with the usual cryptic conciseness, by Sraffa himself, in the subtitle of his book: Prelude to a Critique of Economic Theory. It is the same as the first chapter of Capital, which is entitled 'The commodity', and which is the real prelude to the Critique of Political Economy. In that chapter, Marx tackled the analysis of the commodity and its value, and laid down the theoretical bases of all his successive work; he attacked the 'vulgar economists', whom he accused of looking for the explanation of the value of goods in exchange relations; and he linked himself explicitly to Ricardo in looking for it, instead in the production sphere.

However, even though Marx had clearly pointed out that value is a social phenomenon, Ricardo's influence induced him to determine the value of goods by ignoring the capitalist form in which they are produced. Value, according to the theory set out in the chapter on 'Commodities', depends solely on the quantity of labour employed in its production, its social determination being reduced to the way in which society allocates working activity among the various industries. In other words, value is not influenced by the way in which production is socially structured, nor by the way in which the social classes face each other in the production sphere. Thus, for example, the value of the social product does not depend on the way in which the product is distributed - a clear reminder of the Ricardian claim to measure value by making it independent from the variations in distribution. It is obvious that, in order to reach such a result, Marx had to rely on a high level of abstraction, and it is almost paradoxical that a book on 'capital' opens with a chapter in which capital is ignored. Now, it is almost as if Sraffa had rewritten that chapter, trying to reach the maximum level of abstraction, from returns to scale, growth, disequilibrium adjustments, even from the specific institutional structure to which the type of capitalist set-up may conform historically - exactly as in the chapter on 'Commodities'. However, he made it clear once and for all that the only thing which it is impossible to ignore in determining the value of commodities produced in a capitalist economy, is the fact that they are produced in capitalist conditions: that it is meaningless to abstract from the wage, as Marx did in that chapter. In other words, Sraffa took Marx seriously in his treatment of value as a social phenomenon - so seriously that he distanced himself from Ricardo more than Marx did himself.

It seems possible to conclude that, while on the subject of the determination of profit, Sraffa's theory does not bring to light any basic analytical differences between Ricardo and Marx, on the subject of value his work can be read in only one way: the Prelude to a Critique of Economic Theory seems to us just like a first chapter of Capital which Marx would have written if he had been a little less Ricardian and a little more Marxist." -- Ernesto Screpanti and Stefano Zamagni (2005, p. 445-446)
  • Fine, Ben (2001). "The Continuing Imperative of Value Theory", Capital and Class, V. 75: 41-52
  • Freeman, Alan (1996). "The Psychopathology of Walrasian Marxism", in Marx and Non-Equilibrium Economics (Edited by Alan Freeman and Guglielmo Carchedi), Edward Elgar
  • Screpanti, Ernesto and Stefano Zamagni (2005). An Outline of the History of Economic Thought, Second Edition, Oxford University Press

Wednesday, September 13, 2006

Expertise Devalued At Wikipedia

I have some knowledge about how 20th century English-speaking mathematical economists have treated the labor theory of value. The transformation problem is a central focus of discussions of whether the theory is internally consistent.

I have previously mentioned my dissatisfaction with the evolution of the Wikipedia entry on the Labor Theory of Value. But consider the transformation problem.

At one point, (29 July 2005) the entry was mainly written by Mario Ferretti. Although he describes neither the New Interpretation nor the Temporal single system approach adequately for my taste, I have no doubt about his expertise on linear production models. He's written, for example, "The Neo-Ricardian Critique: An Anniversary Assessment", (University of Rome seminar, 26 October 2004). This is not the post for me to go into where I agree and disagree.

Look at the current entry on the transformation problem. Basically, Ferretti's work has been stripped out.

One could talk about the difficulties of including mathematics in work that will be read by a general audience. And some supposed Marxists are impatient with the transformation problem - I also find some just don't understand the topic. But, once again, the evolution of this article doesn't seem right to me.

I might as well mention an article I'm happier with. I have some disagreements with Radek on General Equilibrium. But overall I think the evolution of this article, primarily with his rewriting, has resulted in a better organized and better referenced article than my previous attempt.

I'm not a registered Wikipedia user. If I were, I would probably vote for Aaron Swartz.

Tuesday, September 12, 2006

An Ideal Of Discussion

“Socrates: I imagine, Gorgias, that you, too, have taken part in many discussions and have discovered in the course of them this peculiar situation arising: people do not find it easy by an exchange of views to arise at a mutually satisfactory definition for the subjects under discussion, and in this way bring the argument to an agreeable end. Rather, when they disagree on any point, and one declares the other to be guilty of incorrect or vague statements, they grow angry and imagine that everything that is said proceeds from ill will, not from any concern about the matters under discussion. Some of these arguments end most disgracefully, breaking up in mutual vituperation to such an extent that the bystanders are annoyed at themselves for having become auditors of such people. Now why do I say this? Because at the moment you seem to me to be making statements which do not follow from, and are not consistent with, what you first said about rhetoric. I hesitate, therefore, to embark on a refutation in the fear that you may imagine that I am speaking, not with a view to illuminating our subject, but to discredit you. Now if you are the sort of person I am, I shall gladly continue the questions and answers; if not I shall let them go. And what sort of person am I? One of those who are happy to be refuted if they make a false statement, happy also to refute anyone else who may do the same, yet not less happy to be refuted than to refute. For I think the former a greater benefit, in proportion it is of greater benefit to be oneself delivered from the greatest harm than to deliver another. No worse harm, it is true, can befall a man than to hold wrong opinions on the matters now under discussion between us. If, then, you declare yourself to be such a person as I am, let us continue the discussion; but if you think we ought to let it go, let us at once dismiss it and close the interview.” -- Plato, Gorgias (457-458)

Sraffian Triumphalism

This is from the sort of professional literature I read:
"Convincing conditions of sufficient generality which ensure a well-behaved technology have not been proposed. We therefore should not seek for those special assumptions under which neoclassical theory might work but for a different theory of distribution and employment altogether. Keynesian modifications of neoclassical full employment theory are still being discussed by the mainstream economists. I am reminded here of the Ptolemaic world system: if planets do not move in circles although circles are thought to describe their behaviour, epicycles are invented. Why do we not turn to the ellipses straightaway, as Kepler did, forgetting about the circles and the harmonies of spheres, which would mean in our context: why do we not turn to a theory of value which does not presuppose full employment as the natural state?" --Bertram Schefold (1990, p. 383)
"...since both groups of versions of marginalist equilibrium theory - the long-period versions and the neo-Walrasian versions - encounter what appear to be radical and insurmountable difficulties, one must conclude that at present there is no defensible neoclassical theory (in the sense of explanation) of prices and distribution. The onus is on the neoclassicals to show that this is not so. Unless and until they succeed, it seems reasonable to turn to different, non-neoclassical approaches to value and distribution (and employment and growth)." --Fabio Petri (1999, p. 55-56)
"A growing number of contemporary economists recognizes the need to overcome the cowardly protectionism through which the academy endeavors to defend itself from criticism deriving from the facts as well as from the innovations that originate from other social sciences." --Ernesto Screpanti and Stefano Zamagni (2005, p. 513)
"Sraffa ... provided a logically self-consistent solution to the problem of exchange values to which Ricardo - and, following him, Marx - had given an insufficient answer, constituting one of the causes that led to the abandonment of the classical framework and the rise of the marginalist approach; and he showed that to this problem the marginalist approach offered a solution that was only apparently more 'scientific', but that in reality was vitiated in its foundations in so far as the theory of value and distribution is concerned." --Alessandro Roncaglia (2006, p. 460)
  • Petri, Fabio (1999). "Professor Hahn on the 'neo-Ricardian' Criticism of Neoclassical Economics", in Value, Distribution and Capital: Esays in Honour of Pierangelo Garegnani (edited by Gary Mongiovi and Fabio Petri), Routledge
  • Roncaglia, Alessandro (2006). The Wealth of Ideas: A History of Economic Thought, Cambridge University Press
  • Schefold, Bertram (1990). "Joint Production, Intertemporal Preferences and Long-Period Equilibrium: A Comment on Bidard", Political Economy, Studies in the Surplus Approach, V. 6: pp. 139-163 (republished in Normal Prices, Technical Change and Accumulation, by Bertram Schefold, Macmillan)
  • Screpanti, Ernesto and Stefano Zamagni (2005). An Outline of the History of Economic Thought (Second Edition), Oxford University Press

Thursday, September 07, 2006

Disconnect Of Monetary And Price Theory In Neoclassical Economics

Friedrich Hayek, John Maynard Keynes, and Gunnar Myrdal found themselves in the 1930s addressing the same problem in price theory. I refer not to the practical difficulty in accounting for the Great Depression, but the lack of integration between monetary theory and the theory of value and distribution:

Here's Hayek:
"What I complain of is not only that this theory [Fisher's monetarism] in its various forms has unduly usurped the central place in monetary theory, but that the point of view from which it springs is a positive hindrance to further progress. Not the least harmful effect of this particular theory is the present isolation of the theory of money from the main body of general economic theory.

For so long as we use different methods for the explanation of values as they are supposed to exist irrespective of any influence of money, and for the influence of money on prices, it can never be otherwise." (Hayek 1935, p. 2-3)
Here's Keynes:
"So long as economists are concerned with what is called the Theory of Value, they have been accustomed to teach that prices are governed by the conditions of supply and demand; and, in particular, changes in marginal cost and the elasticity of short-period supply have played a prominent part. But when they pass in volume II, or more often in a separate treatise, to the Theory of Money and Prices, we hear no more of these homely but intelligible concepts and move into a world where prices are governed by the quantity of money, by its income-velocity, by the velocity of circulation relative to the volume of transactions, by hoarding, by forced saving, by inflation and deflation et hoc genus omne; and little or no attempt is made to relate these vague phrases to our former notions of the elasticities of supply and demand. If we reflect on what we are being taught and try to rationalize it, in the simpler discussions it seems that the elasticity of supply must have become zero and demand proportional to the quantity of money; whilst in the more sophisticated we are lost in a haze where nothing is clear and everything is possible. We have all of us become used to finding ourselves sometimes on the one side of the moon and sometimes on the other, without knowing what route or journey connects them, related, apparently, after the fashion of our waking and our dreaming lives.

One of the objects of the foregoing chapters has been to escape from this double life and to bring the theory of prices as a whole back to close contact with the theory of value. The division of Economics between the Theory of Value and Distribution on the one hand and the Theory of Money on the other hand is, I think, a false division..." (Keynes 1936, p. 292-293)
And here's Myrdal:
"It is a peculiarity of all systematic treatises on orthodox economic theory that there is no inner connexion and integration of monetary theory with the central theory of prices. Usually the monetary theory is only a rather loose appendix to the theory of price formation. The central economic problems - according to the classical theory, those of production, of barter-exchange and of distribution - are treated, without exception, as problems of exchange value, or, in other words as problems of relative prices. Obviously, by regarding the central economic problems in this way one entirely detaches their fundamental treatment from any monetary considerations." (Myrdal 1939, p. 10)

I put the above quotes into my latest iteration of this paper.

I think that, despite later work by, for example, Don Patinkin or Eugene Fama or with models of overlapping generations, mainstream economists still fail to satisfactorily integrate monetary and price theory. I an influenced in this view by a Frank Hahn paper and comments of various Post Keynesians, such as Paul Davidson.

  • Hahn, F. H. (1965). "On Some Problems of Proving the Existence of an Equilibrium in a Monetary Economy" in The Theory of Interest Rates (Ed. by F. H. Hahn and F. Brechling), Macmillan.
  • Hayek, F. A. (1935). Prices And Production, Second Edition, London: George Routledge and Sons.
  • Keynes, J. M. (1936). The General Theory of Employment Interest and Money, New York: Harcourt, Brace and Co.
  • Myrdal, G. (1939). Monetary Equilibrium, New York: Sentry Press.

Monday, September 04, 2006

Two Papers Just Published

Han and Schefold
When I listed some papers that I guess contain empirical or applied evidence of Sraffa effects, Han and Schefold's paper was only in draft form. It has now been published:
  • Han, Zonghie and Bertram Schefold (2006). "An Empirical Investigation of Paradoxes: Reswitching and Reverse Capital Deepening in Capital Theory", Cambridge Journal of Economics, V. 30: 737-765.

Walker Reviews Petri
Donald Walker reviews Petri's 2004 book. Walker finds Petri's criticisms of general equilibrium theory, including the Arrow-Debreu model of intertemporal equilibrium well-taken. But he is more skeptical about Petri's proposed solution, adopting a modern classical long period approach. Does anybody know of other reviews of this book?
  • Walker, Donald A. (2006). "A Review of General Equilibrium, Capital, and Macroeconomics: A Key to Recent Controversies in Equilibrium Theory, by Fabio Petri" History of Political Economy: 562-565.

Friday, September 01, 2006

Classic Cowles Commission Conference On Activity Analysis

Gabriel Mihalache notes that the Cowles Commission has made available for free downloading the 1951 proceedings of Activity Analysis of Production and Allocation. I have never read this before, but I have seen frequent references to this conference. All sorts of interesting people participated. For example, you can find contributions from Dantzig, Georgescu-Roegen, Samuelson, Arrow, Herbert Simon, and Morgenstern. I once had the privilege of working with a professor who, when an undergaduate at Columbia, learned linear algebra in a class taught by Koopmans.

I've previously downloaded various papers available from the Cowles Commission. They sponsored so much important work, I'm not even going to try to mention selections.

If you want to look at dead tree editions, another classic contribution from that milieu is Robert Dorfman, Paul A. Samuelson, and Robert M. Solow's Linear Programming and Economic Analysis.

Luigi L. Pasinetti's Lectures on the Theory of Production is a later and great textbook in the Sraffian tradition that contains something of a response to Dorfman, Samuelson, and Solow. (Amazon has mischaracterized it.)