Sunday, January 04, 2009

Debauched By Economics

The following is a letter Sraffa sent to Robinson in 1936:
King's College, Cambridge

Dear Joan

Many thanks for your letter – it is a valuable addition to my museum and I shall hang it next to an extract from Sidgwick where, after lecturing Ricardo on how meaningless it is to talk of a quantity of labour, goes on cheerfully himself to talk of quantities of utility.

If one measures labour and land by heads or acres the result has a definite meaning, subject to a margin of error: the margin is wide, but it is a question of degree. On the other hand if you measure capital in tons the result is purely and simply nonsense. How many tons is, e.g., a railway tunnel?

If you are not convinced, try it on someone who has not been debauched by economics. Tell your gardener that a farmer employs 10 men – will he not have a pretty accurate idea of the quantities of land and labour? Now tell him that he employs 500 tons of capital, and he will think you are dotty – (not more so, however, than Sidgwick or Marshall).



Blissex said...

Almost made me cry with frustration. That's SEVENTY years old, and for all this time most economists have been preaching metaphysical, wishful entities like "factors of production" with a cardinal metric, and so on.

YouNotSneaky! said...

But it's a bad analogy. If you told someone that a farmer employs ten tractors (units of capital) they'd have little problem understanding you. Capital like labor is often fairly industry specific so the measurement problem isn't so much at the industry level. It's adding up across diverse industries that's messy. But this is true as much for labor as it is capital. How do you add up neurosurgeons to rodeo clowns and obtain a meaningful metric? If I don't get to write down "K", then you don't get to write down "L".

Anonymous said...

Well, how meaningful a metric is depends on the application, obviously. If one were evacuating a hospital, then a head count of the number of employees is probably more than adequate, unless some utilitarian argument is to be made about the need to make sure that the neurosurgeon gets out. However, since we are talking about economic theory, aggregation theory supports your general and labour aggregates are formally only possible under fairly restrictive conditions. What continues to depress me is how few economists seem to fully appreciate the ad hoc nature of factor aggregates as theoretical constructs. Much applied work hinges out what is essentially a collective article of faith.


Robert Vienneau said...

I'm pretty much with Blissex. Sraffa's letter shows that even as early as 1936, Sraffa's concerns were potentially an influence on his Cambridge colleagues. What I take from Sraffa's work: so much for explaining quantities and prices by the interaction of well-behaved supply and demand curves. My favorite argument does not depend on the assumption of homogeneous labor. Most of the teaching of orthodox economics remains, at best, incorrect.