"Despite the neoclassicals admitting that the Post-Keynesians were right, why has the impact of heterogeneous capital on an economy left out of the macro models?"It will not surprise me if he or she receives no coherent answer. I recently had a chance to skim the transcripts of David Colander's interviews with graduate students at the "best" economics departments in the United States. These are in his book The Making of an Economist Redux. The following phrases seem no connote nothing to such students: "Cambridge Capital Controversy", "Neoclassical Economics", and "Post Keynesian Economics". One student responded to a question about Joan Robinson by asking, "Who's that?" The best students seem to realize that they will have to get an education by themselves in their "spare" time after they receive their doctorate.
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12 years ago
19 comments:
Hello Robert.
I've been following your blog for quite some time now and I must admit I've begun to build a certain interest in the areas that you seem to focus on continuously. For example the problems arising from the discussions during the famous Cambridge Capital Controversies. For example the issues of reswitching and capital reversing, which I must admit I haven't fully grasped myself at all.
I'm a Danish economics student myself studying at a university in a small(by American standards at least)city called Aarhus.
I must emphasize that it's not a university known for offering courses in either post-keynesian let alone any neo-ricardian litterature. It's an all out neoclassical and new-Keynesian school.
But I came across some of the literature on the Capital Controversies at the university of Aalborg from where I received my B.A. degree.
I got somewhat fascinated by the time about what the discussions actually amounted to and how it doesn't seem to have influenced the remaining "profession" during the last 40 years.
The area caught my attention after the recommendations from a lecturer I had at Aalborg University called Stefano Zambelli, who I believe that you've actually cited somewhere.
At the time he also had a phd student who was looking into the research and analysis of aggregation of production functions in general. Apparently a whole literature also exists on this research area. For example some work by someone called Franklin M.Fisher, Jesus Felipe At the time he gave me some references to literature on aggregation in general. I remember I especially had a fun time reading Anwar Shaikh's "The humbug production function".
But unfortunately I put it all aside for a few years hoping that I would at some point in time get time and renewed interest in figuring out what problems these controversies actually introduced into economics. The fact that I've now been at this more or less "neo-classical" inspired/founded university, I feel, has finally whetted appetite for knowing more about the more formal derivations and logical(hopefully) discussions underlying the controversies.
I was hoping that you could maybe help me finding literature (even some of the things that you've written yourself) that could get me started on the CC especially.
I remember being recommended in Aalborg to start with Geoff Harcourt's 1972 book or Luigi Pasinetti's 1977 book. But if there's any "better" literature out there I would really appreciate if you could lead me in the "right" direction.
With regards
Peter Mortensen
The problem I still see with the CCC results is that I would not know how to tackle real world economic problems at all. Every kind of economic model is flawed by aggregation problems, even the post keynesian ones, and when you try to allow for disaggregation, everything soon gets so complicated that it's not solvable anymore after. Which kind of *macro*economic model would exist that is actually useful for real world economics *and* consistent?
There is the problem of hiding in narrow specialization, normally quant-ish, within the economics profession, particularly in the US. This helps to contribute to a breakdown in the vitality of broad theory discussion.
But taking a broader look even again, where were the economists when the last two asset bubbles and flawed financial models almost brought the US financial system to the brink of collapse? A few spoke out, but for the most part the rest were silent, acquiescent, even dismissive of serious objections to what turned out to be 'voodoo economics.'
A 'famous' professor of economic history who should know better dismissed (and censored) my comments about the growing housing bubble in 2004 with the comment "Alan Greenspan NEVER made a policy decision with which I did not agree."
Is it groupthink? Hopes to go along to get along? A complete lack of character, confidence in their own theory?
There seems to be a general lack of rigor in the US intellectual community. Can we trace this back to the academy?
Yes the broad public is open to sweeping generalizations from the right. And so ‘All that is necessary for the triumph of evil is that good men do nothing.'
Most academics prefer to hide in narrow and highly specialized arguments, because this is their area of comfort. Perhaps this is because of a self-selecting adversity to perceived risk.
I'd certainly be interested to read anything relating heterogeneity (of capital stocks or individuals) to the recent crisis, and to policy recommendations in response to the crisis.
Reese, Harcourt is the classic overview from the UK side. Pasinetti is always very good. The most comprehensive textbook is Kurz and Salvadori (1995), Theory of Production: A Long-Period Analysis. Another interesting textbook is Stephan A. Marglin (1984), Growth, Distribution, and Prices. I guess for something more recent, I'll mention J. E. King (2002) A History of Post Keynesian Economics Since 1936. I don't claim these references are better. I reference Stefano Zambelli here.
"The problem I still see with the CCC results is that I would not know how to tackle real world economic problems at all."
I was under the impression that the CCC was primarily a critique of neo-classical capital theory. It showed that it was illogical.
That neo-classical capital theory was unrealistic, unbelievable and borne no relation to reality was perfectly acceptable in neo-classical circles -- that critiques argued it was contradictory was serious!
And as Steve Keen notes in his excellent Debunking Economics, the neo-classical economists admitted the critique was correct -- and then went about their business as if nothing had happened....
Iain
An Anarchist FAQ
Hey Reese,
I am an danish ex-student who is also interested in post-keynesian economics.
I studied under Prof. Jesper Jespersen at Roskilde, who is a resident Keynesbuff in Denmark, but I havent really gotten around to going into detail on the CCC.
If you are interested we can exchange some litareture ect.
PS. I live in copenhagen.
Capital is heterogenoeus, period. Even for the old school of Marshall, Wicksel and Fisher, capital is an amount of value which change its forms in order to match final demand of commodities. Was the point of CCC? You could not asumme that a capitalist economy tends to full-employment, cause factor sustitution does not work! TheneEvery little pice of theory based on full-employment is flawed: the neutrality of money ("and finance as a veil"), international trade theory, growth theory, etc...
Not supring that mainstreem economist couldn´t predict the crisis.
cheers,
Gualra
Iain, please show me a dynamic macro theory that consistently handles capital goods and investment. Which alternative to neoclassical theory can you offer me? Does Steve Keen have such a theory?
"Which alternative to neoclassical theory can you offer me? Does Steve Keen have such a theory?"
Oh, right, so even though neo-classical economics has been proven to be logically wrong (and unrealistic), we need to keep using it because there is no alternative?
Sraffa said his work was a "Prelude to a Critique of Economic Theory". Perhaps if we dump neo-classical economics, people with more time than I (maybe economists?) would develop a realistic analysis of the economy?
Unfortunately, exposing the flaws of neo-classical economics takes a lot of time -- particularly, as the CCC shows, you can expose its failings and its supporters just go on as if nothing happened...
Iain
An Anarchist FAQ
John Quiggin wrote, "I'd certainly be interested to read anything relating heterogeneity (of capital stocks or individuals) to the recent crisis, and to policy recommendations in response to the crisis."
I'd think the question of how financial capital relates to physical capital stocks is of current interest. Likewise, defects of typical Dynamic Stochastic General Equilibrium models that make them unable to say anything trustworthy at all about actually existing capitalist economies are of interest. I don't know of any literature relating the CCC directly to the crisis of the former point. I think I am only echoing some of the comments above with the latter point.
An anonymous commentator writes, "Please show me a dynamic macro theory that consistently handles capital goods and investment. Which alternative to neoclassical theory can you offer me? Does Steve Keen have such a theory?"
I doubt this commentator cares whether he can find capital-theoretic issues in the approaches to economics of Wynne Godley, Nicky Kaldor, Hyman Minsky, Luigi Pasinetti, and Joan Robinson, for example. Steve Keen does, in fact, have a dynamic model building on Godley's consistent stock flow accounting and applied to circuitist questions. It would be nice if mainstream economists could discuss contributions to literatures building on the work of the above economists. Instead, they purge anybody trying to contribute to such alternatives.
"I doubt this commentator cares whether he can find capital-theoretic issues in the approaches to economics of Wynne Godley, Nicky Kaldor, Hyman Minsky, Luigi Pasinetti, and Joan Robinson, for example. Steve Keen does, in fact, have a dynamic model building on Godley's consistent stock flow accounting and applied to circuitist questions."
Well, for example I'd like to find models I can use for modelling the effects of exogenous resource price/supply changes. I'd certainly find models with heterogenous capital goods useful for that, but the only one I know does not come from the critic's corner: http://www.minneapolisfed.org/research/pub_display.cfm?id=503
I do not see where Godley's or Minsky's work would relate to what I am searching for, while I know too little of Kaldor and Robinson maybe. Pasinetti's and other peoples' production price models seem to cover long run equilibria, while I'm more interested in the short run.
Silence... xD
Really, it´s a shame Sraffa stopped at the prelude, isn´t it?
That Minneapolis Fed link goes to an article by Atkeson and Kehoe. I've skimmed it, and it strikes me as ignorant and incompetent. It presents a model with an infinitely-lived representative agent. It does not have heterogenous capital for the same reason that Romer (1990) does not have heterogenous capital. Atkeson and Kehoe appear to know anything about price Wicksell effects.
Sraffa models land-like natural resources in the general framework of joint production. Oil-like natural resources are modeled in what Kurz and Salvadori call a model for Guano.
Well, I admit that I am a bit confused about the problem of how to do macro after the CCC. The starting point for my considerations would be a Victoria Chick quote:
"> Do you think it is possible to marry together the contributions of Keynes and Sraffa?
Well, in one respect no, but in other respects probably yes. For as long as [Sraffians] insist that the only thing that marks theory is a concern with long-run points of gravitations then there is no reconciliation, in my view, between them and the Post-Keynesians. Again, if I can go back to the Marshallian foundations stuff and the Marshallian market, short and long periods [...] there is only one aspect to long-period theorizing in the General Theory and that is the demand side of the investment equation, not the supply side. Whether or not it turns out in the long run to have been a good idea to make that investment or not is simply never discovered. It is not a question which ever comes up, and so the mechanism which would drive you in a surplus approach to an equalized profit equilibrium is simply not present; it is not there. And that is all that some Sraffians care about, arguing if you are not concerned with this long-run tendency you are not actually doing theory - I cannot accept that. If one is only concerned with long period one is wasting one's time. On this matter, the ground between us is enormous, so that bridging it would be very difficult. Of course there are other aspects of the Sraffa approach which are very congenial to Post-Keynesian economist - especially its valuable contribution of challenging a number of the presumptions of neoclassical economics. I think the task of merging the two is extremely difficult. Dutt and Amadeo tried in their book [1990], Keynes's Third Alternative? Those two are bright enough to pull the two approaches together if anybody can, so watch that space."
in: A modern guide to macroeconomics, 1994, p.404
I have not yet read Dutt/Amadeo. Maybe I should.
Also, people like Garegnani suggested that the classical theory should be supplemented with the principle of effective demand, instead of Say`s law...
Gualra
Hey Robert
First of all sorry for not having written back sooner.
Secondly, thank you very much for the references. I think i'll be sure to start on Kurz and Salvadori (1995) because I just reminded myself that Thomas Fredholm (the Phd student) actually recommended me to start with that one too.
Even though I'll soon be starting a new semester and therefore most surely be occupied with something completely different I'll be sure to set aside some time once in a while for "bedside" reading.
Fortunately I'm also going to be occupied with some keynesian and postkeynesian literature this semester since I'm taking a class with a professor called Peter Skott who has just returned for a year from University of Massachusetts. He will be presenting some literature from both Kalecki, Goodwin, Kirman, Akerloff etc. It's certain to be entertaining.
Thirdly. Hello to you too Thomas. It's a small world indeed. And yes I know of Jesper Jespersen from my time in Aalborg too. A very inspiring person who isn't shy to take on the economics department at Copenhagen University. There's has been a serious and entertaining debate going on these last few weeks at www.altandetlige.dk between him and some professors there on methodology and about what Keynes actually meant when he talked about uncertainty. I'm not sure if they have actually have picked up on what Jesper is trying to convey to them. That maybe Keynes didn't equate the idea of uncertainty with the more measurable or quantifiable term; risk.
Of course it could be interesting at some point to exchange literature. At first I'll just try and get started with what I have so to speak. You can just write me back if you want my e-mail address. And by the way, I live in Skanderborg (my home town)
Take care both of you.
I'd be grateful for a hint on how to model price change effects in the short run.
Oh, btw: The Brad de Long link (http://delong.typepad.com/sdj/2010/01/what-should-economists-study.html) is interesting because on the one hand he says we shouldn't care for heterogenous capital because it doesn't matter, on the other hand he teaches Solow growth a lot: http://delong.typepad.com/berkeley_econ_101b_spring/
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