Hyman Minsky On-Line

The Saint Louis Fed provides the following document:

• Hyman P. Minsky "Financial Instability Revisited: The Economics of Disaster"

I have commented on Minsky before. Those interested in Minsky's ideas might want to at literature available at the Levy Economics Institute.

Of Minsky's book, as I recall, I found John Maynard Keynes of most interest. I found Stabilizing an Unstable Economy dryer. That was more than a decade ago and maybe I would find it of greater interest now.

The Con Left In Economics?

The Spring 2010 issue of the Journal of Economic Perspectives has a debate among some mainstream economists on changes in economics since Edward Leamer's 1983 American Economic Review paper, "Let's Take the Con Out of Econometrics". Developments since then include more reliance on sensitivity analysis; randomized experiment designs, both in laboratories and in the field; natural experiments; and Instrumental Variables (IVs). Contributors to this symposium consist of Joshua D. Angrist & Jön-Steffen Pischke, Edward E. Leamer, Michael P. Keane, Christopher A. Sims, Aviv Nevo & Michael D. Whinston, and James H. Stock.

Correlation Between Increased Government Size And Equality

The Organization for Economic Cooperation and Development (OECD) has made some data available to everybody. So I thought I would replicate some of my previous analysis. In particular, income inequality is negatively correlated with the size of government (Figure 1). Income is measured by the Gini coefficient, and the size of government is expressed as a percentage of Gross Domestic Product (GDP).

Figure 1: Inequality Versus Government Size

The Gini coefficient is a measure of inequality, with a higher Gini coefficient denoting a more unequal distribution of income. It is defined as follows: sort the population in order of increasing income. Plot the percentage of income received by those poorer than each value of income against the percentage of the population with less than that value of income. This is the Lorenz curve, and it will fall below a line with a slope of 45 degrees going through the origin. The Gini coefficient is the ratio of the area between the 45 degree line and the Lorenz curve to the area under the 45 degree line. A Gini coefficient of zero indicates perfect equality, while a Gini coefficient of unity arises when one person receives all income and everybody else gets nothing. Consequently, the Gini coefficient lies between zero and one.

I take the data as given from the OECD. I'm not worrying about whether income is found per family, household, or individual. Nor am I worrying about whether government expenditures include transfer payments and include both state and Federal spending. I took data from the year 2000 because that seems to be the most recent year with data for both dimensions and in which the Gini coefficient is given for a definite year. The OECD lacks 2000 data in one or another dimension for Iceland, South Korea, Mexico, the Slovak Republic, and Turkey. The plotted points consist of data from Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

Among advanced capitalist nations, countries with bigger governments tend to have a more equal distribution of income.

Formalism in Economics

I think many mainstream economics equate formalism with use of equations. But analytical categories that are not easily set out as the value of a variable in a numerical equation can provide a kind of formalism. And, if you want mathematics, one could, I suppose, set out an ontology, using model theory, for such categories. (I'm not sure what would be the point of that.) To illustrate my claim, I point to two sets of triples that some economists have developed.

Structure, Organization, and Agency need to be analyzed if one wants to understand the provisioning process in capitalist economies. The interindustry dependencies shown in Input-Output tables, macroeconomic income flows, and money flows show some structures important for understanding capitalist economies. Business enterprises, government and quasi-government bureaus, and families are important organizations in such economies. Agency occurs, that is, decisions are made by individuals, in a context provided by such structures and organizations (Lee 2009).

Oligopoly involves a small number of firms maintaining special privileges in a market environment where other firms might enter (Rothschild 1993). Ever since the work of Joe Bain and Paolo Sylos Labini (Modigliani 1958), economists have analyzed oligopoly on the basis of Structure, Conduct, and Performance. The structure of a market is more or less stable in time, observable, and influences the conduct of market participants. Conduct includes the choice of which commodities to buy, the prices to post, decisions about advertisement, etc. Performance is a matter of comparing market results with some sort of ideally efficient results (Schmalensee 1987).

References

• Frederic Lee (2009) A History of Heterodox Economics: Challenging the Mainstream in the Twentieth Century, Routledge
• Franco Modigliani (1958) "New Developments on the Oligopoly Front", Journal of Political Economy, V. 66, N. 3 (June): pp. 215-232.
• Kurt W. Rothschild (1993) "Oligopoly: Walking the Sylos-Path", in Markets and Institutions in Economic Development: Essays in Honour of Paolo Sylos Labini (Edited by S. Biasco, A. Roncaglia, and M. Salvati), St. Martin's Press
• Richard Schmalensee (1987) "Industrial Organization", in The New Palgrave: A Dictionary of Economics (Edited by J. Eatwell, M. Milgate, and P. Newman), MAcmillan

Wittgenstein Online

According to this news story, the University of Bergen is providing online access, for anybody, to their archives of Wittgenstein's notes. The semantic web is made use of in their presentation.

I think I'll stick to dead tree editions of Tractatus Logico-Philosophicus, "Some Remarks on Logical Form", Philosophical Investigations, The Blue and Brown Books, Remarks on the Foundations of Mathematics, Philosophical Grammar, Philosophical Remarks, On Certainty, Culture and Value. And, I guess, there are even more posthumous works. But now, from your computer, you can check the work of G. E. M. Anscombe, Raymond Hargreaves, Anthony Kenny, B. F. McGuiness, D. F. Pears, Rush Rhees, Roger White, Peter Winch, and G. H. von Wright.

Lear Without The King

I have presented several models of a more or less capitalist economy smoothly reproducing.

Some have objected (for example, Jan Kregel (1985)) about the lack of money in these sort of models. Paul Cockshott and his colleagues provide a more recent example:

"For example, prices in neo-Ricardian models are also exchange ratios determined by solutions to static, simultaneous constraints. Similarly, historical time is absent, so there is no causal explanation of how or why a particular configuration of the economy arose. Money only plays a nominal not a causal role... neo-Ricardian theories tend to ignore ... actor-to-actor relations mediated by money, which unfold in historical time, and result in dynamic, not static, equilibria." -- Cockshott et al (2009)

I don't see why money cannot be included, in some sense, in a description of the transactions that must occur for the economy to reproduce. I think, for example, of Marx's account, in Chapter VI of Part I of Theories of Surplus Value, of Quesnay's Tableau.

Including money in the story, however, is not enough. Money and finance has to make a difference for the theory. Hahn points out an analogous problem with neoclassical general equilibrium. The way I view these models of reproduction, introducing money and finance should identify additional areas in which a capitalist economy can fail to reproduce smoothly.

I think some progress has been made to meet this criteria. Sraffa, in an aside, recognized the importance of monetary institutions:

...And when the wage is to be regarded as 'given' in a more or less abstract standard, and does not acquire a definite meaning until the prices of commodities are dtermined, the position is reversed. The rate of profits, as a ratio, has a significance which is independent of prices, and can well be 'given' before the prices are fixed. It is accordingly susceptible of being determined from outside the system of production, in particular by the level of money rates of interest. -- Piero Sraffa (1960), paragraph 44

I think a conflict theory of inflation can be developed to explain the United States in the 1970s. Suppose both the general level of wages and the rate of profits are given in Sraffa's system. Then the system is overdetermined. Inflation is a means by which certain incompatibilities can be resolved. Since the level of output is consistent with unemployment ruling, here is a possible theory of stagflation.

Given the importance in the current crisis of finance going wrong, I don't think I've identified an adequate theory of money for Sraffa's system. Apparently, the most full development of Sraffa's remark is Pivetti's, which I haven't read. If I recall correctly, Rogers (1989) is more a destructive critique of the Wicksellian foundations of mainstream macroeconomics. Moore (1988), like Hyman Minsky's work, is more Post Keynesian than Sraffian economics. I could also stand to learn more about the circuitists, as well as recent being done at the University of Missouri at Kansas City.

References

• Basil J. Moore (1988) Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Pres
• W. Paul Cockshott, Allin F. Cottrell Gregory J. Michaelson, Ian P. Wright, and Victor M. Yakovenko (2009) Classical Econophysics, Routledge
• Frank Hahn (1965) "On Some Problems of Proving the Existence of an Equilibrium in a Monetary Economy" in Theory of Interest Rates (ed. by Hahn and Brechling)
• J. A. Kregel (1985) "Hamlet without the Prince: Cambridge Macroeconomics without Money", American Economic Review, V. 75, N. 2 (May): pp. 133-139
• Marguerite Kuczynski and Ronald Meek (1972) Quesnay's Tableau Economique
• Karl Marx Theories of Surplus Value
• M. Pivetti (1985) "On the Monetary Explanation of Distribution", Political Economy: Studies in the Surplus Approach, 1(2): pp. 73-103 [I haven't read this]
• M. Pivetti (1991) An Essay on Money and Distribution, Macmillan [I haven't read this]
• Colin Rogers (1989) Money, Interest and Capital: A Study in the Foundations of Monetary Theory, Cambridge University Press
• Piero Sraffa (1960) Production of Commodities by Means of Commodities, Cambridge University Press

Kurz And Salvadori Peeved With Mark Blaug?

Usually when Heinz Kurz and Neri Salvadori want to explain some economist is mistaken, they confine themselves to saying something along the lines of certain propositions "cannot be sustained". Recently, I stumbled upon a 2010 paper in which they answer Mark Blaug. I find their tone sometimes striking:

"A careful scrutiny of [Blaug (2009)] shows that Blaug reiterates once again his previous criticisms, adds a few new ones, but does not enter into a serious discussion of the replies to his earlier efforts... Answering him in detail would necessitate repeating again our counter-arguments. We spare the readers this and ask them to consult our earlier replies to Blaug."

"Blaug has already been given the opportunity in this journal to answer his critics; see Blaug (2002). Apparently, he feels that his rejoinder was not effective. This is hardly surprising because Blaug did not attempt to counter the objections of his critics.

Scrutiny of his new effort reveals that the situation has not changed. Once again Blaug merely reiterates his previous criticisms, adds a few new ones, but neglects to answer his critics. He seems to feel that repeating his story often will render it credible."

"If Blaug was concerned with an historical reconstruction of the case under consideration, he needs to spend some time in Trinity College Library, Cambridge (UK), as we did, in order to study Sraffa's papers and library and find out when Sraffa had arrived at which results, and why. He would then see that his above speculation as well as many other statements he put forward concerning Sraffa's contributions are without foundation; they are pure fiction. Historians of economic thought ought to be aware of the usefulness of archival work."

"In order to give credibility to his (in itself rather strange) complaint that 'Sraffians' have not contributed to certain themes or fields in economics, Blaug re-labels some authors: in case X has/has not contributed to field Y, he or she is not/is a 'Sraffian'."

"In the context of a discussion of the problem of the gravitation of market prices to their 'natural' or normal levels, he contends that while Kurz and Salvadori point out 'that little is known about the dynamic behaviour of even simple linear production models; nevertheless, they express the hope that the problem will be "settled in the foreseeable future" (Kurz and Salvadori 1998[a], 20)' (229 n.20). The reader who checks the source mentioned will not find this statement. Has Blaug got the page wrong? No, in the entire book the reader won't find the statement quoted. Has Blaug perhaps confounded some of our books? Yes, he has, but things are worse still. The only passage we are aware of having written that can be related to Blaug's criticism is contained in a book published in 1995. After having pointed out the extreme complexity of the issue at hand ('gravitation') and the dependence of the results obtained on the specific conditions assumed, we conclude: 'It should then be clear that there is no fear that the issue of gravitation will be settled in the foreseeable future' (Kurz and Salvadori 1995, 20; emphasis added). Hence we say exactly the opposite of what Blaug contends we are saying. This is not only annoying but also raises doubts about the seriousness of the entire enterprise. What is the relevance of a critique that lacks the elementary rigor of not misrepresenting (let alone reversing) the view of the people criticised? Misconstruction is an error surely worse even than historically unfaithful reconstruction?"

"None of Blaug's criticisms stands up to close examination. He attributes views to us (and to other authors) we (they) never advocated. He contends that 'Sraffian' authors have not written about certain problems, while referring to writings which show precisely the opposite. He commits a number of elementary blunders and mistakes the mathematical form of an argument for its content. He variously contradicts himself in the paper. He puts forward bold statements that are contradicted by the facts."

I have commented before on the specific Mark Blaug paper Kurz and Salvadori are rejecting; on the history of Blaug's incomprehension of Sraffianism; and even on the Institute of Economic Affairs, a right-wing think tank sponsoring some of Blaug's work.

References

• Mark Blaug (1975) The Cambridge Revolution: Sccess or Failure? A Critical Analysis of Cambridge Theories of Value and Distribution, Institute of Economic Affairs
• Mark Blaug (1985) Economic Theory in Retrospect, Fourth Edition, Cambridge University Press
• Mark Blaug (1988) Economics Through the Looking Glass: The Distorted Perspective of the New Palgrave Dictionary of Economics, Institute of Economic Affairs
• Mark Blaug (1999) "Misunderstanding Classical Economics: The Sraffian Interpretation of the Surplus Approach", History of Political Economy, V. 31, N. 2: pp. 213-236.
• Mark Blaug (2002a) "Kurz and Salvadori on the Sraffian Interpretation of the Surplus Approach", History of Political Economy, V. 34, N. 1: pp. 237-240.
• Mark Blaug (2002b) "Misunderstanding Classical Economics: The Sraffian Interpretation of the Surplus Approach", in Competing Economic Theories: Essays in Memory of Giovanni Caravale (Edited by S. Nisticò and D. Tosato), Routledge
• Mark Blaug (2009) "The Trade-Off Between Rigor and Relevance: Sraffian Economics as a Case in Point", History of Political Economy, V. 41, N. 2: pp. 219-247.
• Pierangelo Garegnani (1987) "Misunderstanding Classical Economics? A Reply to Mark Blaug", History of Political Economy, V. 34, N. 1: pp. 241-254.
• Heinz D. Kurz and Neri Salvadori (2002) "Mark Blaug on the 'Sraffian Interpretation of the Surplus Approach'", History of Political Economy, V. 34, N. 1: pp. 225-236.
• Heinz D. Kurz and Neri Salvadori (2010) "In Favor of Rigor and Relevance. A Reply to Mark Blaug" (4 Feb).
• Carlo Panico (2002) "Misunderstanding the Sraffian Reading of the Classical Theory of Value and Distribution: A Note", in Competing Economic Theories: Essays in Memory of Giovanni Caravale (Edited by S. Nisticò and D. Tosato), Routledge

Geoff Harcourt On YouTube

A 2007 interview with Geoff Harcourt at Cambridge can be found on YouTube (Part 1, Part 2). Presumably, he was writing The Structure of Post-Keynesian Economics at the time.

Prices Of Production And A Wheat Theory Of Value

1.0 Introduction
In this post, I describe a theory of prices that is an alternative to the neoclassical supply-and-demand theory of prices as scarcity indices. In this exposition, I consider the simple case in which the modeled economy does not produce a surplus. In this simple case, prices of production are in the ratios of labor values and of commodity values, for any specified commodity. This post illustrates this claim too.

I do not draw the conclusion from the equivalence illustrated here that labor values have no priority over commodity values. After all, the formal model illustrated here does not include a principal agent problem arising with labor.

2.0 Technology and Advanced Wages
Consider a simple economy in which only three commodities are produced, namely, wheat, iron, and pigs. Each commodity is produced by a specified process requiring (possibly zero) inputs of labor, wheat, iron, and pigs. Suppose these processes are observed to produce the quantities of outputs shown in Table 1 from the inputs shown there. In other words, these processes are observed to operate at the scale shown. No assumption about returns to scale is made here. In particular, it is not necessary for Constant Returns to Scale to prevail.

TABLE 1: Technique in Use

INPUTS	Wheat Industry	Iron Industry	Pig Industry
Labor	1 Person-Year	2 Person-Years	3 Person-Years
Wheat	230 Quarters	70 Quarters	90 Quarters
Iron	12 Tons	6 Tons	3 Tons
Pigs	12 Pigs		12 Pigs
OUTPUTS	450 Quarters	21 Tons	60 Pigs

Suppose wages are advanced at the start of the production period, and that these advanced wages consist of 10 quarters wheat and 6 pigs per person-year. Then one could specify the inputs to the production processes as consisting exclusively of wheat, iron, and pigs, with no labor input (as shown in Table 2). This is now the example from paragraph 2 of Sraffa's Production of Commodities by Means of Commodities. Notice that the outputs can just replace the inputs, including the advanced wages, with no commodity surplus being left over. Capitalists do not make an accounting profit in this economy.

TABLE 2: Production of Commodities by Means of Commodities

INPUTS	Wheat Industry	Iron Industry	Pig Industry
Wheat	240 Quarters	90 Quarters	120 Quarters
Iron	12 Tons	6 Tons	3 Tons
Pigs	18 Pigs	12 Pigs	30 Pigs
OUTPUTS	450 Quarters	21 Tons	60 Pigs

3.0 Prices of Production
With the social division of labor in this economy, firms in each industry at the end of the production period have an inventory of a single commodity. To continue production, they must trade some of that commodity for the other commodities they need as inputs. Prices of (re)production are time-invariant prices that allow these trades to occur and the economy to be smoothly reproduced through the actions of the agents in the economy. For this simple example, prices of production must satisfy three equations:

240 p_w + 12 p_i + 18 p_p = 450 p_w

90 p_w + 6 p_i + 12 p_p = 21 p_i

120 p_w + 3 p_i + 30 p_p = 60 p_p

where:

• p_w is the price of a quarter of wheat,
• p_i is the price of a ton of iron, and
• p_p is the price of a pig.

These equations are linearly dependent. Any multiple of a solution set of prices is also a solution. I arbitrarily pick a quarter of wheat as the numeraire. The solution set of prices is then $1 per quarter wheat, $10 per ton iron, and $5 per pig.

4.0 Labor Values
One can work out a consistent accounting in which the amount of labor time embodied in each commodity is measured. Labor values are found as the solution to the following system of three linear inhomogeneous equations in three unknowns:

1 + 230 v_w + 12 v_i + 12 v_p = 450 v_w

2 + 70 v_w + 6 v_i = 21 v_i

3 + 90 v_w + 3 v_i + 12 v_p = 60 v_p

where:

• v_w is the person-years labor embodied in a quarter of wheat,
• v_i is the person-years labor embodied in a ton of iron, and
• v_p is the person-years labor embodied in a pig.

This system of equations has a unique solution. The labor values for the commodities are 1/40 person-years per quarter wheat, 1/4 person-years per ton iron, and 1/8 person-years per pig.

5.0 Wheat Values
One can also work out a consistent accounting system in which the amount of wheat embodied in each commodity is measured. Wheat values for iron and pigs are found as the solution to the following system of two linear inhomogeneous equations in two unknowns:

90 + 6 w_i + 12 w_p = 21 w_i

120 + 3 w_i + 30 w_p = 60 w_p

where:

• w_i is the quarters wheat embodied in a ton of iron and
• w_p is the quarters wheat embodied in a pig.

The wheat values of commodities are w_i = 10 quarters per ton and w_p = 5 quarters per pig.

Calculating iron values for wheat and pigs and calculating pig values for wheat and iron are left as an exercise to the reader.

6.0 Contrast and Comparison
For any set of values (prices of production, labor values, or commodity values), one can find quantities of each commodities that are valued as equal for that set. Table 3 illustrates by showing the values of specified quantities of each commodity. In this example, the following equation holds:

10 quarters wheat = 1 ton iron = 2 pigs,

whether commodities are valued in terms of dollars, embodied labor, or any commodity value (such as wheat). The equivalence of all these values is a special case. This equivalence works out from considering a pure circulating capital case in which an economic surplus not paid out in wages is not produced.

TABLE 3: Value of Specified Quantities of Commodities

Quantities	Value in
	Prices of Production	Person-Years of Embodied Labor	Quarters of Embodied Wheat
10 Quarters Wheat	$10	1/4 Person-Years	10 Quarters
1 Ton Iron	$10	1/4 Person-Years	10 Quarters
2 Pigs	$10	1/4 Person-Years	10 Quarters

No Mistakes In Marx's Analysis Of Social Classes

Marx puts forth an analysis of social class in Volume 3, Chapter 52 of Capital. He poses his problem in five paragraphs. I find no mistakes in his answer in the succeeding paragraphs.