Geoffrey Hodgson Defines Neoclassical Economics

I think he offers definitions in other works, too.

"Let us attempt to identify the key characteristics of neoclassical economics; the type of economices that has dominated the twentieth century. One of its exponents, Gary Becker (1967a, p. 5) identified its essence when he described 'the combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly.' Accordingly, neoclassical economics may be conveniently defined as an approach which:

• (1) assumes rational, maximizing behaviour by agents with given and stable preference functions,
• (2) focuses on attained, or movements towards, equilibrium states, and
• (3) is marked by an absence of chronic information problems.

Point (3) requires some brief elaboration. In neoclassical economics, even if information is imperfect, information problems are typically overcome by using the concept of probabilistic risk. Excluded are phenomena such as severe ignorance and divergent perceptions by different individuals of a given reality. It is typically assumed that all individuals will interpret the same information in the same way, ignoring possible variations in the cognitive frameworks that are necessary to make sense of all data. Also excluded is uncertainty, of the radical type explored by Frank Knight (1921) and John Maynard Keynes (1936).

Notably, these three attributes are interconnected. For instance, the attainment of a stable optimum under (1) suggests an equilibrium (2); and rationality under (1) connotes the absence of severe information problems alluded to in (3). It can be freely admitted that some recent developments in modern economic theory - such as in game theory - reach to or even lie outside the boundaries of this definitions. Their precise placement will depend on inspection and refinement of the boundary conditions in the above clauses. But that does not undermine the usefulness of this rough and ready definition.

Although neoclassical economics has dominated the twentieth century, it has changed radically in tone and presentation, as well as in content. Until the 1930s, much neoclassical analysis was in Marshallian, partial equilibrium mode. The following years saw the revival of Walrasian general equilibrium analysis, an approach originally developed in the 1870s. Another transformation during this century has been the increasing use of mathematics, as noted in the preceding chapter. Neoclassical assumptions have proved attractive because of their apparent tractability. To the mathematically inclined economist the assumption that agents are maximizing an exogeneously given and well defined preference function seems preferable to any alternative or more complex model of human behaviour. In its reductionist assumptions, neoclassical economics has contained within itself from its inception an overly formalistic potential, even if this took some time to become fully realized and dominant. Gradually, less and less reliance has been placed on the empirical or other grounding of basic assumptions, and more on the process of deduction from premises that are there simply because they are assumed.

Nevertheless, characteristics (1) to (3) above have remained prominent in mainstream economics from the 1870s to the 1980s. They define an approach that still remains ubiquitous in the economics textbooks and is taught to economics undergraduates throughout the world." -- Geoffrey M. Hodgson (1999). "False Antagonisms and Doomed Reconcilations", Chapter 2 in Evolution and Institutions: On Evolutionary Economics and the Evolution of Economics, Edward Elgar

Journalistic Comments On Economics

• David Warsh has a piece on János Kornai's challenges in pursuing a career in economics in communist Hungary. (I don't know if David Warsh reads me. If I interested him, he later did more research for his piece, from which I am grateful to learn.)
• Chris Hayes has a piece in the Nation on the last American Economic Association meeting. He writes about the unwillingness of mainstream economists to acknowledge heterodox economic ideas. Other bloggers and journalists have already commented on this article. I have yet to see anybody else in these and other discussions reference Fred Lee
• Many other bloggers have already commented on a Robert Solow review, in The New Republic, of a recent biography of Joseph Schumpeter. I might as well acknowledge I wrote the first draft of the Wikipedia entry on Schumpeter.

Update: Added some links, including reference to Fred Lee.

Greg Mankiw: Incompetent or Dishonest?

Some have assured me that mainstream economics is valid because this is not valid neoclassical economics (and mainstream economists know the invalidity of these claims):

"The neoclassical theory of distribution teaches us that a person's earnings depend on his or her productivity." -- Greg Mankiw, "How to Become Rich"

Of course, I am aware of mainstream economists who don't believe what Mankiw says:

"All optima imply marginal conditions in some form. These conditions are part of an overall solution. Neither they nor the quantities involved in them are prior to the overall solution. It reflects badly on economists and their keenness of intellect that this was not always obvious to everyone." -- Christopher Bliss, "Introduction, The Theory of Capital: A Personal Overview", in Capital Theory (edited by C. Bliss, A. Cohen, and G. C. Harcourt), Edward Elgar

"Why Do People Hate Economists?"

Ezra Klein has a series of posts on the topic. Some of the commentators seem to me to know what they are talking about. The discussion gets into the question of whether issues of efficiency can be separated from issues of equity, of whether efficiency can be discussed in a value-neutral way. (Short answer: No.)

Klein also talks about how "econ-speak" privileges attempts to raise Gross Domestic Product over attempts to pursue other goals. He illustrates this claim by discussion of vacation time. (I realize that, at the level of high theory, Klein's claim is false. I think that this objection elides questions of how economists participate in public discourse.)

I think people "hate" economists, like Democrats "hate" President Bush, or the French "hate" Americans. That is, it is just something some people disconnected from reality tell themselves to discredit other points of view.

The Meaning(lessness) Of Rationality

After many analyses, some mainstream economists acknowledge that they may not have a coherent understanding for what it means for a person to be rational:

"When these assumptions [of equilibrium, competition, and the completeness of markets] fail, the very concept of rationality becomes threatened, because perceptions of others and, in particular, of their rationality become part of one’s own rationality. Even if there is a consistent meaning, it will involve computational and informational demands totally at variance with the traditional economic theorist’s view of the decentralized economy." -- Kenneth J. Arrow (1986). "Economic Theory and the Hypothesis of Rationality" Journal of Business, V. 59, N4, Pt. 2 (reprinted in The New Palgrave)

A lot of this attempt to conceptually clarify the meaning of "rationality" uses game theory. In parallel with this theoretical work, economists and others have performed a body of experiments. These experiments found many cases in which the predictions of neoclassical theory were falsified. Daniel Hausman, in a chapter in his The Inexact and Separate Science of Economics, treats the resulting work as a case study. He tries to understand why mainstream economists retain a theory with such a poor track record in controlled experimental settings.

I have blogged on experimental economics before. (A Mark Thoma post post inspired me to put this post up.)

Daniel Hausman On One Aspect Of The CCC

"Demand theorists know there are few Giffen goods. They know why there are Giffen goods. They can successfully predict that certain goods in certain economies (potatoes in Ireland, rice in China, or yams in New Guinea) are likely to be Giffen goods. Capital theorists, on the other hand, do not know whether capital reversing is common or rare. Until recently they possessed no theory which made sense of the phenomenon. The status of that fundamental theory remains, moreover, questionable. From the perspective of the Austrian theory or of Clark's theory, capital reversing is nothing but a disconfirmation. Capital theorists are also unable to predict when capital reversing will occur. They cannot point to some feature of an economy and say, 'Ah, we can see that this is one of the exceptional cases in which we should not expect our simpler capital theories to work.' There is no justification for the claim that capital reversing demands only minor qualifications in simplified capital theories." -- Daniel M. Hausman (1981). Capital, Profits, and Prices: An Essay in the Philosophy of Economics, Columbia University Press

Hausman makes a distinction in this book between Models and Theories. Those interested in how Hausman's draws his lines are probably better advised, though, to read his later The Inexact and Separate Science of Economics.

Surowiecki Popularizes My View

Like Dean Baker, I have said before that important issues in "free" trade agreements are matters of governance, not trade. James Surowiecki makes fairly closely the same point in his weekly New Yorker column, in the 14 May 2007 edition. I read this in the dead trees version before reading comments on this column from various bloggers.

Zizek and Others

Like D-Squared, I'm dubious about some responses to continential philosophy, cultural criticism as put forth by the Frankfort school, post-structuralism, deconstruction, and other doctrines to which Alan Sokal might object. I feel that there are many blog posts and blogs that show more understanding of this stuff than I can.

I generally get whatever understanding I have of anti-foundationalism from Wittgenstein, analytical philosophers like Goodman, Putnam, American pragmatism, and even Rorty. I am not at all sure that these views are needed to effect social change. Nor do I take them as tied in necessarily with any very radical views. This may because in my random reading, I have read a limited amount of Rorty.

I am amused that this latest go around concentrates on Zizek. I have quoted bits from Zizek here before. My general impression of Zizek is that he is amusing. I feel that I am following along when I read him, but I distrust my ability to summarize what he is saying. Except, strangely enough, I think I can give some impression of his views on Lenin, if I felt like it.

I realize that not all these "post-modern" writers are doing the same thing. I think I'd get more out of my copy of one of Baudrillard's books if I hollowed it out and used it to store valuables.

I don't think I got much out of the extremely limited amount of Derrida that I have read. (I also like some of the Austin and Searle I have read - in the case of Searle, I also attended a guest lecture where he expounded his well-practiced views on strong AI.) I think I'd like to understand Foucault better, even though he can write a long time on sex without it coming close to being a turn-on.

I am interested in the history of ideas. I see the point of telling a history forward. In this case, the participants in the story may both point at measures of what they take to be the outside world as an argument for contending views. I can see the point of bracketing out how we have come to understand the world in trying to understand what participants in the story found convincing. I take this to be the strong program.

And I also understand that divisions between academic subjects, genres, etc. are not given. How some of us might group texts today may be very different from how others elsewhere and elsewhen grouped the same texts. Furthermore, on what time-scale continuity and discontinuity occurs may vary with how you look at texts. I take this to be part of Foucault's point in talking about "discursive formations."

Selected References

• Jean Baudrillard (1994). Simulacra and Simulation (Trans. by Sheila Faria Glaser), University of Michigan Press
• Fernand Braudel (1967). Capitalism and Material Life: 1400-1800 (Trans. by Miriam Kochan), Harper Colophon
• Jacques Derrida (1988). Limited, Inc. (Trans. by Samuel Weber), Northwestern University Press
• Michel Foucault (1972). The Archaeology of Knowledge (Trans. by A. M. Sheridan Smith), New York: Pantheon Books
• Richard Rorty (1991). Objectivism, Relativism, and Truth: Philosophical Papers, Volume 1, Cambridge University Press
• Ricard Rorty (1998). Achieving Our Country: Leftist Thought in Twentieth-Century America, Harvard University Press
• Slavoj Zizek (2001). On Belief, Routledge

Increasing Technorati Ratings

Whether it is realistic or not, I assume most readers of this blog probably have noticed Radek has been writing about me, sort of, lately.

Levy and Temin Should Reference Galbraith

From Dani Rodrik, I learn that Frank Levy and Peter Temin have out a new working paper, “Inequality and Institutions in 20th Century America” (1 May 2007). I haven't finished reading their paper, but I do not believe they reference James K. Galbraith’s Created Unequal: The Crisis in American Pay (Free Press, 1998) or Galbraith's later work. If not, they should.

János Kornai

Harvard has an economist on their faculty who understands how the hardness or softness of budget constraints varies among institutional structures.

János Kornai is a Hungarian who, as I understand it, published his first article on economics in 1956. During the 1960s, he researched a planning methodology in parallel with the official Hungarian planning; the official planning was based on Leontief input-output analysis. Kornai's methodology consisted of sectorial planning, addressed by Linear Programming, and a "central problem" of allocating resources, based on a game-theoretical formulation (Kornai and Liptak 1965).

Among the Post Keynesian economists I read, though, I think some of Kornai's later work is more frequently cited. In this work (Kornai (1971 and 1970), Kornai and Martos (1973)), he compares and contrasts certain institutional characteristics of actually existing capitalism and socialism. If I understand correctly, Kornai found that he had to create a lot of terminology because his observations did not fit into economic theory as he found it. In particular, neoclassical price theory ignores the institutional detail and non-price signals Kornai thinks important. Frank Hahn thought well enough of this work to engage it.

Lately Kornai (1990 and 2000) has been writing about post-communist transition economies.

I would like to be more familar with Kornai's work than I am. I would have trouble sumarizing his major points more than above.

References

• F. H. Hahn (1973). "The Winter of Our Discontent", Economica, New Series, V. 40, N. 159 (Aug.): 322-330
• J. Kornai and T. Liptak (1965). "Two-Level Planning", Econometrica, V. 33, N. 1 (Jan.): 141-169
• J. Kornai (1971). Anti-Equilibrium, Amsterdam: North Holland
• J. Kornai and B. Martos (1973). "Autonomous Control of the Economic System", Econometrica, V. 41, N. 3 (May): 509-528
• J. Kornai (1979). "Resource-Constrained versus Demand-Constrained Systems", Econometrica, V. 47, N. 4 (Jul.): 801-820
• J. Kornai (1990). The Road to a Free Economy: Shifting from a Socialist System: The Example of Hungary, New York: W. W. Norton
• J. Kornai (2000). "What the Change of System from Socialism to Capitalism Does and Does Not Mean", Journal of Economic Perspectives, V. 14, N. 1 (Winter): 27-42

Blinder, Once Again, On "Free" Trade

Alan Blinder has an op-ed in the Washington Post, and a lot of blogs are commenting. Brad DeLong merely echoes out Blinder's essay. Mark Thoma echoes some questions knzn has for Blinder. I've already pointed out an earlier Blinder comment on Globalization.

In related news, Max Sawicky doesn't appreciate Lou Dobb's support. Dani Rodrik has also been asking some questions about globalization in a dialog with, for example, Tyler Cowen. Ezra Klein has figured out that many economists ostracise those who deviate on free trade, whether they have anything serious to say or not.

Let me consider a couple of paragraphs in Blinder's essay:

"We economists assure folks that things will be all right in the end. Both Americans and Indians will be better off. I think that's right. The basic principles of free trade that Adam Smith and David Ricardo taught us two centuries ago remain valid today: Just like people, nations benefit by specializing in the tasks they do best and trading with other nations for the rest. There's nothing new here theoretically.

But I would argue that there's something new about the coming transition to service offshoring. Those two powerful forces mentioned earlier - technological advancement and the rise of China and India - suggest that this particular transition will be large, lengthy and painful." -- Alan Blinder

Notice the lengthly (dis-equilibrium) transition between two end states. Blinder's analysis is not set in an Arrow-Debreu model of intertemporal equilibrium, which some assure us is not vulnerable to a Cambridge capital critique. Rather, it seems to be set in the exploded Heckscher-Ohlin-Samuelson model, which is logically invalid if production uses capital goods [and the rate of interest is positive - I added this clause in an update]. Where else can you find an acknowlegement that, where Blinder accepts the orthodoxy, he gets his sums wrong?

Rymes Measures Productivity

I have previously referenced some papers providing empirical evidence that capital-reversing and other Sraffa effects can be seen in practice.

The Cambridge Capital Controversy has other implications for applications. In particular, one should be sceptical about the Solovian framework for measuring Total Factor Productivity (TFP). One might ask how one should analyze national accounts at an aggregate level instead. I have read very little of his work, but Thomas K. Rymes has pursued a research program directed at that question. He is also apparently interested in the Post Keynesian theory of endogenous money. I provide a list of some of his papers, most of which I recently downloaded. I don't have access to the book listed below.

References

• Thomas K. Rymes (2006). "On National Income", Carleton University Working Paper (9 October)
• T. K. Rymes (2004). "Modern Central Banks Only Have Real Effects", Carleton University Working Paper
• René Durand and Thomas K. Rymes (2000). "On Capital and Productivity: Harrodian and Keynesian Measures", 26th General Conference of the International Association for Research in Income and Wealth, Cracow, Poland
• T. K. Rymes (2000). "On the Cambridge Correction to the Measurement of Productivity in Manufacturing" CSLS Conference on the Canada-U.S. Manufacturing Productivity Gap (21-22 January)
• Colin Rogers and T. K. Rymes (1998). "On 'Money' in ISLM and AD/AS Models", Carleton University Working Paper (February)
• Alexandra Cas and Thomas K. Rymes (1991). On Concepts and Measures of Multifactor Productivity in Canada, 1961-1980, Cambridge University Press

Aristotle Manuscript Found

Exciting, for those interested in old writings. I haven't read the book this quotation is from:

"Of everything which we possess there are two uses: both belong to the thing as such, but not in the same manner, for one is the proper and the other the improper or secondary use of it. For example, a shoe is used for wear, and is used for exchange; both are uses of the shoe." -- Aristotle, Politics

That sounds like Smith's distinction, for example, between use value and exchange value.

Böhm-Bawerk on Surplus Value

It's easy enough to find on the Internet simple people (e.g., commentators here on the side of their host) ignorant of clarifications over a century old:

"The first question is, 'What is meant by saying, "Capital is productive"?'

In its commonest and weakest sense, the expression may be taken to mean merely that capital serves for the production of goods, as distinguished from serving for the immediate satisfaction of wants. In that event we are conferring upon capital the rank of a 'productive' entity only in one particular sense. I mean the same sense which appears in our general division of all goods into 'producers' and consumers' goods.' And even if that degree of productive effect were so slight that the value produced failed to equal the value of the capital expended in the producing, yet even that slight degree would justify us in conferring the title of 'productive.' But it is clear from the first, that a power which has productivity in this sense alone is completely incapable of accounting for the rise of originary interest.

The adherents of the productivity theories do, as a matter of fact, invest the term with a stronger meaning. Expressly or tacitly they understand it as meaning that, by the aid of capital, more is produced, that is to say, that capital is the cause of a special productive surplus result.

But this meaning is further subdivided. The words 'to produce more' or 'a productive surplus result' may mean one of two things. They may mean either that capital produces more goods or that it produces more value, and these are by no means identical. To keep the two as distinct in name as they are in fact, I shall designate the capacity of capital to produce more goods as its physical or technical productivity, and its capacity to produce more value as its productivity of value. It is perhaps not unnecessary to say that, at the present stage, I am leaving the question entirely open, as to whether capital actually possesses such capacities or not. I am merely recording the different meanings which may be given, and have been given, to the statement that 'capital is productive.'

Physical productivity manifests itself in an increased quantity or, possibly, in an improved quality of the product. I might illustrate it by the well-known example given by Roscher: 'Let us imagine a nation of fisher-folk without private ownership or capital, dwelling naked in caves, and living on fish caught by hand in pools left by the ebbing tide. All the workers here may be considered equal, and each man is presumed to catch and eat 3 fish per day. But now one prudent man limits his consumption to 2 fish per day for 100 days, lays up in this way a stock of 100 fish, and makes use of this stock to enable him to apply his whole labor-power for 50 days to the making of a boat and a net. With the aid of this capital he catches 30 fish a day from that time on.'

In this instance the physical productivity of capital manifests itself in the fact that the fisher, with the aid of capital, catches more fish than he would otherwise have caught, namely, 30 instead of 3. Or, to put it more correctly, he catches somewhat fewer than 30 instead of 3. For the 30 fish which are now caught in a day are the result of more than one day's work. To calculate properly, we must add to the labor of catching fish a quota of the labor that went into the making of boat and net. If, for instance, 50 days of labor were required to make the boat and the net, and if the boat and the net last for 100 days, then the 3,000 fish which are caught in the 100 days, appear as the result of 150 days labor. The surplus production then, due to the employment of capital, is represented for the whole period by 3,000 - 450 = 2,550 fish, or for each single day by 20 - 3 = 17 fish. This surplus production is a manifestation of the physical productivity of capital.

Now how would the production by capital of 'more value' be manifested? The expression 'to produce more value' is, in its turn, ambiguous because the 'more' may be measured by various standards. It may mean that, by the aid of capital, a value is produced which is greater than the value which could be produced without the aid of capital. In the foregoing illustration it may mean that the 20 fish caught in a day's labor with the aid of capital are of more value than the 3 fish which were got when no capital was employed. But the expression may also mean that, with the aid of capital, a value is produced which is greater than the value of the capital itself. In other words, it may mean that the capital gives a productive return greater than its own value, so that there remains a surplus value over and above the value of the capital consumed in the production. To put it in terms of our illustration, the fisher equipped with boat and net catches 2,700 more fish in 100 days than he would have caught without boat and net. These 2,700 fish are to be termed the (gross) return of the employment of capital and, according to this alternative interpretation of the expression, these 2,700 fish are of more value than the boat and net themselves, so that after boat and net are worn out, there still remains a surplus of value.

Of these two possible meanings those writers who ascribe to capital a productivity of value usually have the latter in mind. When, therefore, I use the expression 'productivity of value' without qualification, I shall mean the capacity of capital to produce value exceeding its own value.

Thus we have for the apparently simple proposition that 'capital is productive,' no fewer than four interpretations which are clearly distinguishable from each other. In order to place them in proper perspective, I should like to array them side by side. The proposition may signify any of the following:

1. Capital has the capacity of serving to produce goods.
2. Capital has the power of serving to produce more goods than could be produced without it.
3. Capital has the power of serving to produce greater value than could be produced without it.
4. Capital has the power to produce value greater than that which it possesses itself.

It should be self-evident that such widely differing ideas, even if they can, perchance be designated by identical terms to summarize them, must not be considered identical. Even less permissible would it be to consider them interchangeable in one or more given syllogisms. For instance, it should be self-evident that even though I may have demonstrated a capacity on the part of capital to produce goods at all, or to produce a greater quantity of goods, I am still not entitled to consider that I have established its power to produce more value than could have been produced without its assistance, or to produce a value in excess of that which the capital itself possesses. To substitute the latter two concepts in a demonstration which may have established the correctness of a syllogism involving the former two would obviously be tantamount to proffering a sophism, where a logically sound proof cannot be found..." -- Eugen von Böhm-Bawerk, Capital and Interest, V. I: "History and Critique of Interest Theories"; Chapter VII: The Productivity Theories, Section A. Preliminary Survey, Part 1. Ambiguity of the Term, 'Productivity of Capital'

Of course, Sraffa showed Böhm-Bawerk's answers to his questions to be logically invalid.

Irrelevant Aside On Friedman's Methodology

You may sometimes read (neoclassical) "Economic theory shows" p. Often these claims are untrue. One can prove this falsity by constructing examples in which the assumptions of (neoclassical) economic theory hold, but not p results. So the statement you have read is logically flawed.

I sometimes encounter people who respond with the non sequitur, "Assumptions do not need to be realistic." If this response made sense, those who propound it would be able to specify which assumption is claimed to be unrealistic in these examples. Good neoclassical economists understand this logic.

Anyways, those economists that insist that assumptions do not need to be realistic - that, in fact, unrealistic assumptions are actually desirable - probably take their position from Milton Friedman. From Steve Keen's Debunking Economics, I found a response by Alan Musgrave to this idea. Musgrave, perhaps when combined with a later Uskali Mäki comment, seems to me perceptive. From these two authors, one can get a taxonomy of assumptions. Here's Musgrave's, albeit with the first reworded following Mäki's suggestion:

• Negligibility: "The hypothesis that some factor", or combination of factors "has an effect upon" "the phenomenon under investigation" "small enough to be neglected relative to a given purpose".
• Domain: A specification of the domain of applicability of a theory.
• Heuristic: An assumption for developing a theory in a simple form that can be removed in later approximations.

The same wording might be used to express an assumption in all categories. For example, a model assumption might be "The government has a balanced budget". This might mean that the effects of budget imbalances have a negligible effect on the results of the model, that the model only applies when the budget is balanced, or that the model can be developed in a more complicated fashion with no assumption on the balance of the budget. Pace Friedman, assumptions, properly paraphrased, better be true ("realistic") in applications.

Update: Radek doubts some economists write "Economic theory shows..." As far as I am concerned, this is close enough:

"These observations should not be puzzling, for they are what standard economic theory predicts." -- Edward C. Prescott (1986). "Theory Ahead of Business Cycle Measurement", Quarterly Review, Federal Reserve Bank of Minneapolis (Fall): 9-22

References

• Milton Friedman (1953). "The Methodology of Positive Economics", in Essays in Positive Economics, University of Chicago Press
• Uskali Mäki (2000). "Kinds of Assumptions and Their Truth: Shaking an Untwisted F-Twist", Kyklos, V. 53, Fasc. 3: 317-336
• Alan Musgrave (1981). "'Unreal Assumptions' in Economic Theory: The F-Twist Untwisted", Kyklos, V. 34, Fasc 3: 377-387

Now war means seizing here and there the bread the tender Father would deny to none

I have an interest in both physiocracy and the distribution of income and wealth in the United States.

A vignette from Marguerite Kuczynski, co-editor (with Ronald Meek) of Quesnay's Tableau Economique surprised me. She rediscovered a copy of the "third edition" in the Du Pont library in the United States. Why would a manuscript from an eighteenth century French school of economics be in a twentieth century U.S. private library, that is the Eleutherian Mills Historical Library?

DuPont de Nemours was not only a great promoter of Quesnay and his ideas. He also founded the American chemical company. Apparently the company and other family businesses made his descendants wealth beyond the ken of most mortals. Here we are two centuries later, and, as I understand it, family members still live off their ancestors in the lap of luxury.

I had understood this connection when the mentally disturbed John E. Du Pont made the news for murder. Another appearance of the family name is in DuPont Circle, in Washington, D.C., named after a Civil War admiral.

I find the discovery of old books amazing, whether they are the Gnostic gospels, a version of the Morte d'Arthur that Caxton had not edited, various of Ricardo's manuscripts and his letters to James Mill, or an edition of the Tableau.

Marxists in Wikipedia Edit Wars

You can see internal squabbles among Marxists in recent edit wars over Wikipedia entries on the Temporal Single System Interpretation of Marx's theory of value and on David Laibman. I find Alan Kliman neutral in his modifications of the TSSI entry, and I do not see why Laibman should not keep reference to the TSSI out of his entry. Apparently he feels that its inclusion will make the description of his work in economics unbalanced.

In the discussion on the TSSI, I find Kliman asserting that the Fundamental Theorem of Marxism is due to Okishio, not Morishima. Apparently, I get it wrong in my LTV FAQ.

I disagree with the TSSI. But I find TSSI advocates amusing, even when they mock views I find more congenial:

"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 take 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 this 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).

I earlier mentioned that I was reading Andrew Kliman's recent book. And I posted about one narrow point in the book. Some have complained about my use of numerical examples on this blog. Such examples may help those uncomfortable with math, but they may not make the reasoning as clear to others as the use of algebra would. When I began Kliman's book, I worried that his numerical examples would suffer from the same problem. I needn't have worried; his explanations are generally clear. I was impressed with Kliman's refutation of the Okishio theorem. I didn't think that was possible, and I couldn't see any mistakes in his refutation.

I do have some problems with Kliman's book. I am not at all sure that Kliman adequately addresses Veneziani's claim that the Monetary Expression of Labor Time (MELT) is not defined. In arguing that the TSSI is a reasonable interpretation of Marx's texts, Kliman concentrates on those parts in which Marx puts forth quantitative theories. I would like to see more about Theories of Surplus Value and other texts in which Marx engages previous developers of political economy. I find that Marx, while appreciative of Ricardo and Smith, tends to read his own distinctions - e.g., between value and prices of production - back into, for example, Ricardo. Yet I do not find Marx criticizing Ricardo for not having temporal dynamics in Ricardo's treatment of natural prices. I assume TSSI advocates do not think Ricardo had Marx's supposed TSSI theory. What do they have to say about Marx's treatment of Ricardo? As far as I am aware, this is a gap in the literature.

By the way, the positions that Sraffa and the Sraffians take on Marx's theory of value are not uniform. Of course, Steedman's 1977 work is a classic in this literature. But I draw more on Eatwell, who is more approving of Marx's theory. Bellofiore, who has seen Sraffa's unpublished notes, recently argues that Sraffa came to be more accepting of Marx's theory as his research evolved. Sraffa's use of the standard commodity seems to have taken him to a position much like the "New Interpretation" of Foley and Lipietz.

References

• Riccaro Bellofiore (2007). "Sraffa after Marx: An Open Issue" New School seminar, (22 Feb)
• John Eatwell (1975). "Mr. Sraffa's Standard Commodity and the Rate of Exploitation", Quarterly Journal of Economics, V. 89, N. 4 (Nov): 543-555
• Duncan K. Foley (1986). Understanding Capital: Marx's Economic Theory, Harvard University Press.
• Alan Freeman (1996). "The Psychopathology of Walrasian Marxism", in Marx and Non-Equilibrium Economics (Ed. by Alan Freeman and Guglielmo), Edward Elgar
• Alan Kliman (2007). Reclaiming Marx's "Capital": A Refutation of the Myth of Inconsistency, Lexington Books
• Alain Lipietz (1982). "The So-Called 'Transformation Problem' Revisited", Journal of Economic Theory, V. 26, N. 1 (Feb): 59-88
• Ian Steedman (1977). Marx After Sraffa, NLB
• Roberto Veneziani (2004). "The Temporal Single-System Interpretation of Marx's Economics: A Critical Evaluation", Metroeconomica, V. 55, N. 1: 96-114
• Roberto Veneziani (2005). "Dynamics, Disequilibrium, and Marxian Economics: A Formal Analysis of Temporal Single-System Marxism", Review of Radical Political Economics, V. 37, N. 4 (Fall): 517-529

Binmore and Mirowski Going at It Hammer and Tongs

In 2004, the Journal of Economic Methodology sponsored a symposium on Philip Mirowski's Machine Dreams: Economics Becomes a Cyborg Science. The exchange between Kenneth Binmore and Mirowski is amusing for those who prefer lots of heat, whether or not there is any light. (I read them as not having any personal dislike.) Mirowski is particularly critical of this passage from Binmore:

"...Mirowski thinks that only computable mathematics should be used in economic modeling. He is particularly scathing about the fact that the Walrasian correspondence is non-computable, and rejects out of hand the response that Scarf has provided a computable algorithm for finding approximate Walrasian equilibria. If I understand him correctly, the reason is that an approximate Walrasian equilibrium may not be an approximation to an exact Walrasian equilibrium. But this is to misunderstand how mathematical modeling works - not only in economics, but in physics as well.

The equilibria of physics are no more computable than those of economics. It is not just that Scarf cannot think of an algorithm that computes them, but that there is nothing whatever the universe as a whole can do to instantiate them. So how come the non-computable models of physics work? The reason is that they provide mathematically tractable approximations to the way the universe really is. Similarly, in economics, it is wrong-headed to reject Scarf's algorithm because it does not adequately approximate the Arrow-Debreu model. On the contrary, we need to elaborate the Arrow-Debreu model so it approximates better whatever the real-world analogue of Scarf's algorithm happens to be in any particular context. Whether the elaboration turns out to be computable or not matters not in the least. If you think it does, consistency also demands that you advocate abandoning the use of calculus and most other mathematical tools in physics."

References

• Kenneth Binmore (2004). "A Review of Philip Mirowski's Machine Dreams", Journal of Economic Methodology, V. 11, N. 4 (Dec.): 477-483
• John B. Davis (2004). "Economists' Dreams: Machine Dreams", Journal of Economic Methodology, V. 11, N. 4 (Dec.): 483-488
• Matthias Klaes (2004). "Algorithmic Economics: A Plea for Natural Economic History", Journal of Economic Methodology, V. 11, N. 4 (Dec.): 489-498
• Philip Mirowski (2004). "Philosophizing with a Hammer: Reply to Binmore, Davis and Klaes", Journal of Economic Methodology, V. 11, N. 4 (Dec.): 499-513

Lord Eatwell Celebrates Sraffa

"...But Sraffa's most dramatic scholarly achievement went further than mere correction of perspective. His reconstruction of Ricardo's surplus theory, presented in but a few pages of the introduction to his edition of Ricardo's Principles, penetrated a hundred years of misunderstanding and distortion to create a vivid rationale for the structure and content of surplus theory, for the analytical role of the labor theory of value, and hence for the foundations of Marx's critical analysis of capitalist production...

...But the greater achievement was yet to come. Neoclassical orthodoxy survived the attacks on Marshall by retreating to the less persuasive but apparently secure general equilibrium theory. By the late fifties the neoclassical resurgence was well under way, overwhelming the Keynesian critique, armed, as it was, with seemingly invincible algebraic weapons. Sraffa punctured the balloon. He demonstrated in Production of Commodities that the foundations of neoclassical theory are logically unsound, and, remarkably, demonstrated simultaneously that the old surplus approach to problems of value and distribution, which had been cast aside with ascent of neoclassical theory, was logically sound and, indeed, was the ideal basis on which to develop a satisfactory analysis of market economies.

At first sight, these precise logical exercises, dramatic though their influence may have been in theoretical circles, might seem to be the very stuff of arid academic debate. But on the contrary, they represent the very nucleus of the interpretation and evaluation of the operation of capitalism. Sraffa's demonstration that price formation and the distribution of income cannot be the outcome of the forces of supply and demand, as believed by the orthodox theorists, eliminates the case for the market system as a mechanism which brings about an efficient allocation of scarce resources. Thus the theoretical arguments which are commonly claimed to support so many of today's economic policies, including those of the monetarists, are revealed to be the utterly unfounded claims of sectional interests...

...The objective analysis which Sraffa sought he found in the surplus theories of Ricardo and Marx. The classical theory of value and distribution takes as its starting point quantities which are all, in principle, objectively measurable, and behind those quantities lie the objective characteristics of social institutions. There is no place for utility or disutility. For example, labor requires a given quantity of commodities as wages, and this must be replaced from the product. The wage is a set of physical magnitudes, its determination rooted in the character of contemporary society. It is not a measure of how the worker subjectively feels about working. Orthodox theory asks us to believe that real cost is the sum not only of the disutility of labor, but also of the subjective pain suffered by the capitalists, who must be induced to sacrifice their wealth to engage in the acquisition of profit." -- John Eatwell (1984). "Piero Sraffa: Seminal Economic Theorist", Science and Society, V. 48, N. 2 (Summer): 211-216.