Cambridge Capital Controversy Applied At The Level Of The Firm

For a number of decades, Arrigo Opocher and Ian Steedman have been developing arguments that apply the CCC to industries and even individual firms. They also draw on mainstream literature in microeconomics, from the 1960s and 1970s. Their 2015 book is a major statement of their position. Since their book's publication, they have continued research in this vein.

The CCC applies whenever you see a production function with capital measured in numeraire-units. This can be an aggregate production function for the economy as a whole, at the level of an individual industry, or even for an individual firm. Arguably, any model with such a component is incoherent. Opocher and Steedman, in their book, however emphasize a representation of technology in terms of cost functions. They consider cases with a rate of profits of zero and issues that arise even with disaggregated capital inputs or, even, no capital inputs.

I recently skimmed Steedman (2018). This looks at the incoherence of representing technology with capital-labor isoquants. Since constant returns to scale are assumed, the distinction between analysis at the firm and industry level is not definite. Many of Steedman's papers, with and without Opocher, present exercises for the reader. But I reacted to the following as if he was trolling me:

As was noted above for the general case, each k_j and each l_j is a known function of r; in the specific case of our example, (4), (5) and (7) permit the explicit calculation of k₁(r) and l₁(r). Since l₁(r) is always increasing, (d²k₁/dl₁²) has the same sign as [(dl₁/dr)(d²k₁/dr²) - (dk₁/dr)(d²l₁/dr²)] [Notation changed] ..., and some calculation leads to the conclusion stated in the text; unfortunately, the equations involved are rather long and tedious, so they are left for the amusement of the interested reader. In our example, it is possible to find k₁(l₁) explicitly but, again, the equation is not a pleasant one.

I suppose I may someday take up this challenge.

References

• Arrigo Opocher and Ian Steedman (2015). Full industry equilibrium: A theory of the industrial long run. Cambridge University Press
• Arrigo Opocher and Ian Steedman (2016). Recurrence: A neglected aspect of the Sraffian critique of marginalism. Metroeconomica 67(3): pp. 1-6.
• Ian Steedman (2018). Industry-level capital-labour isoquants. Metroeconomica: pp. 1-6.

Two Kinds Of Economists

Or, rather, I classify economists into two kinds on each of three dimensions (Table 1).

Table 1: Classifications For Economists

Emphasis on social reproduction	Emphasis on allocating scarce resources
Money non-neutral	Money as a veil
Economic issues arise under competitive model, with all agents in possession of all information actually existing	Economic issues to be explained as a result of deviation from an ideal, competitive model

I have written about the first dimension before. Classical political economy, and economists in related traditions, focus on what needs to hold such that society is reproduced. Neoclassical economics is defined, by many, as being about the allocation of scarce resources.

Post Keynesians and others describe money as having real effects. Many mainstream economists, on the other hand, model capitalist economies as, basically, barter economies. They hold money to be neutral, at least in the long run. It is not clear that such models can be extended to contain money.

My third dimension, above, relates to attitudes to two types of models. In one, an economy is described, at a high level of abstraction, as characterized by free competition, with no agent being able to influence market prices, and all agents having complete information about what can be known. In the other model, one introduces rigidities and stickiness in prices; oligopolies, monopolies, and monopsonies; information asymmetries; and so on. One group of economists thinks the former model can describe an economy that need not tend to an equilibrium with desirable properties. Many mainstream economists, however, think actually existing economies are to be described by deviations from perfect competition and that it is the goal of policy to try to make actual economies function like the ideal. (I was inspired to try to define this dimension by Palermo (2016).)

Theoretically, the above taxonomy yields eight kinds of economists. I do not know that one can find important economists at every node of the cube so defined. But, to see how this works out, consider Joseph Schumpeter. He emphasized scarcity, thought money and finance impact real variables, and saw issues with a perfectly competitive economies. For the latter, consider his argument - later taken up by John Kenneth Galbraith - that large corporations were needed for the research and development needed for growth in a mature economy.

John Maynard Keynes is another economist that emphasized the real effects of money and argued issues can arise in the ideal economy. He argued, in the General Theory, that a perfectly competitive economy would be violently unstable. Rigidities in wages are desirable, for they provide stability. I am not sure where I would put him on the first dimension, but followers at Cambridge, such as Kaldor and Robinson, developed models of warranted growth in the 1950s that lie in the upper left box in the figure.

Obviously, this post should go on to explore more nodes in the cube I have outlined.

References

• John H. Finch and Robert McMaster (2018). History Matters: On the mystifying appeal of Bowles and Gintis. Cambridge Journal of Economics.
• Giulio Palermo (2016). Post-Walrasian Economics: A Marxist Critique. Science & Society 80(3): 346-378.

Normal Forms for Switch Point Patterns

My article with the post title is now available at the Review of Behavioral Economics. The abstract follows:

Abstract: The choice of technique can be analyzed, in a circulating-capital model of prices of production, by constructing the wage frontier. Switch points arise when more than one technique is cost-minimizing for a specified rate of profits. This article defines four normal forms for variations in the number and sequence of switch points with a perturbation of, for example, a coefficient of production. The 'perversity' of switch points that appear on and disappear from the wage frontier is analyzed. The conjecture is made that no other normal forms for local patterns of co-dimension one exist.

Elsewhere

• Maeve Cohen, the director of Rethinking Economics, notes the absurdism of undergraduate economics teaching, even after the Global Financial Crisis. In this one page article in Nature, she calls for greater pluralism in teaching. (This has led to the usual whining and silliness in the usual places.)
• The American Economic Association has a moderated discussion board. I suspect much of the discussion will be too focused on narrow questions for interest by non-economists.
• Thomas Piketty, Emmanuel Saez, and Gabriel Zucman have estimates for income in the United States, over time, for various percentiles. These can be called distributional national accounts.
• Yanis Varoufakis calls for an international movement to fight both a re-insurgent fascism and establishment globalists.
• Georgist single-taxers are not too my taste. I found this website for the New Physiocratic League colorful. I find intriguing the concept of certifying a political party's platform.

Theses For Debate In Reading Marx

I present four claims about Marx's Capital. I strive for topics more general than, for example, squabbles about the transformation problem. I suggest that some of these claims present a useful focus for reading Marx's book, even if part of your focus is arguing why the claim is wrong. If this were more than a blog post, I would need to cite various Marxists and scholars that inspired me.

Thesis I: Capital is organized around a model of a pure, two-class capitalist economy.

I think the above claim is helpful in making sense of the opening chapters of Volume 1 and of Volume 2. In Volume 2, I am thinking of the analysis of the analysis of various circuits, as well as the models of simple and expanded reproduction.

This claim separates out the historical material and the analysis more sharply than some commentators on Marx accept. I guess it is consistent with some of Marx's use of Blue Books filed by factory inspectors in Britain. Historical material that goes beyond a model of pure capitalism includes the analyses of primitive accumulation in pre-capitalist formations and of the development of machinery and manufacture. I think of the replacement of the putting-out system, handicraft, and domestic industry by factories.

Thesis II: Capital continues the tradition of classical political economy; it does not represent a sharp break with this tradition.

One can argue Marx saw William Petty, Francois Quesnay, Adam Smith, and David Ricardo, for example, as having applied a scientific method of abstraction to identify essences that lie behind the surface phenomena of market prices. Of course, Marx had many criticisms of his predecessors. He thought Smith had not sufficiently distinguished labor that was and was not productive of surplus value. Even Ricardo did not distinguish (abstract, social) labor from labor power. Marx argued his distinction between constant and variable capital was more fundamental, in some sense, that the classical political economy distinction between fixed and circulating capital. And the classical did not talk about surplus value in general, instead of manifestations in the form of profits, interest, and rent.

This claim of continuity can also be argued to be consistent with Marx's contrast of vulgar and scientific political economy. Not everybody in the time of the classics, including Adam Smith, were thoroughgoing in the application of their scientific method.

But some of what Marx has to say about illusions generated by competition is in tension with this claim of continuity. He was interested in what social conditions made possible the development of political economy. The classical political economists championed the rising bourgeois before the social question became sufficiently biting. And what about the sarcasm and irony in Capital.

Thesis III: The system of labor values is a reality behind the appearance of freedom in market transactions.

In some sense, labor values provide a sub-basement underlying a building more obvious to our sight.

A counter thesis would be based on a Wittgenstein-like reading of Capital. Nothing is hidden, but markets, like languages, are befuddling. Marx is presenting arrangements in a therapeutic treatment to dissolve confusions. This also gets into some readings of Sraffa's work.

Thesis IV: One can accept the analysis in Capital as a way of understanding the world, independently of a any position on the desirability of changing it, either through a revolution or otherwise.