Welcome

I study economics as a hobby. My interests lie in Post Keynesianism, (Old) Institutionalism, and related paradigms. These seem to me to be approaches for understanding actually existing economies.

The emphasis on this blog, however, is mainly critical of neoclassical and mainstream economics. I have been alternating numerical counter-examples with less mathematical posts. In any case, I have been documenting demonstrations of errors in mainstream economics. My chief inspiration here is the Cambridge-Italian economist Piero Sraffa.

In general, this blog is abstract, and I think I steer clear of commenting on practical politics of the day.

I've also started posting recipes for my own purposes. When I just follow a recipe in a cookbook, I'll only post a reminder that I like the recipe.

Comments Policy: I'm quite lax on enforcing any comments policy. I prefer those who post as anonymous (that is, without logging in) to sign their posts at least with a pseudonym. This will make conversations easier to conduct.

Is The Labor Theory Of Value Compatible With Automation?

Automation Of Chinese Ports

With automation, many processes for production and distribution now execute with minimal human oversight. How can the labor theory of value, as in volume 1 of Capital, be compatible with this?

Marx has some comments on this subject in the Grundrisse:

The exchange of living labour for objectified labour – i.e. the positing of social labour in the form of the contradiction of capital and wage labour – is the ultimate development of the value-relation and of production resting on value. Its presupposition is – and remains – the mass of direct labour time, the quantity of labour employed, as the determinant factor in the production of wealth. But to the degree that large industry develops, the creation of real wealth comes to depend less on labour time and on the amount of labour employed than on the power of the agencies set in motion during labour time, whose 'powerful effectiveness' is itself in turn out of all proportion to the direct labour time spent on their production, but depends rather on the general state of science and on the progress of technology, or the application of this science to production. (The development of this science, especially natural science, and all others with the latter, is itself in turn related to the development of material production.) Agriculture, e.g., becomes merely the application of the science of material metabolism, its regulation for the greatest advantage of the entire body of society.

Real wealth manifests itself, rather – and large industry reveals this – in the monstrous disproportion between the labour time applied, and its product, as well as in the qualitative imbalance between labour, reduced to a pure abstraction, and the power of the production process it superintends. Labour no longer appears so much to be included within the production process; rather, the human being comes to relate more as watchman and regulator to the production process itself. (What holds for machinery holds likewise for the combination of human activities and the development of human intercourse.)

No longer does the worker insert a modified natural thing as middle link between the object and himself; rather, he inserts the process of nature, transformed into an industrial process, as a means between himself and inorganic nature, mastering it. He steps to the side of the production process instead of being its chief actor. In this transformation, it is neither the direct human labour he himself performs, nor the time during which he works, but rather the appropriation of his own general productive power, his understanding of nature and his mastery over it by virtue of his presence as a social body – it is, in a word, the development of the social individual which appears as the great foundation-stone of production and of wealth. The theft of alien labour time, on which the present wealth is based, appears a miserable foundation in face of this new one, created by large-scale industry itself. As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of the general powers of the human head. With that, production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis. The free development of individualities, and hence not the reduction of necessary labour time so as to posit surplus labour, but rather the general reduction of the necessary labour of society to a minimum, which then corresponds to the artistic, scientific etc. development of the individuals in the time set free, and with the means created, for all of them.

Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth. Hence it diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition – question of life or death – for the necessary. On the one side, then, it calls to life all the powers of science and of nature, as of social combination and of social intercourse, in order to make the creation of wealth independent (relatively) of the labour time employed on it. On the other side, it wants to use labour time as the measuring rod for the giant social forces thereby created, and to confine them within the limits required to maintain the already created value as value. Forces of production and social relations – two different sides of the development of the social individual – appear to capital as mere means, and are merely means for it to produce on its limited foundation. In fact, however, they are the material conditions to blow this foundation sky-high. 'Truly wealthy a nation, when the working day is 6 rather than 12 hours. Wealth is not command over surplus labour time' (real wealth), 'but rather, disposable time outside that needed in direct production, for every individual and the whole society.' (The Source and Remedy etc. 1821, p. 6.)

Nature builds no machines, no locomotives, railways, electric telegraphs, self-acting mules etc. These are products of human industry; natural material transformed into organs of the human will over nature, or of human participation in nature. They are organs of the human brain, created by the human hand; the power of knowledge, objectified.

The development of fixed capital indicates to what degree general social knowledge has become a direct force of production, and to what degree, hence, the conditions of the process of social life itself have come under the control of the general intellect and been transformed in accordance with it. To what degree the powers of social production have been produced, not only in the form of knowledge, but also as immediate organs of social practice, of the real life process. -- Karl Marx, Grundrisse, Contradiction between the foundation of bourgeois production (value as measure) and its development. Machines etc.

I take the paragraphing above from David McLellan's severely abridged version. I think I need a hard-copy version if I am ever going to fully read the Grundrisse. For what it is worth, John Von Neumann has a theory of value for a fully automated economy.

Marx above seems to offer one story of how capitalism will end. An issue exists with finding supposed anti-Marxist arguments echoed in writings unpublished in Marx's lifetime. It is not clear how to working class has a role in the above story. Is this story consistent with what Marx says in Capital, as quoted in Section 4 here? Sundry observations do not neccessarily add up to a consistent theory.

Adam Smith's 'Effectual Demand'

"There is in every society or neighbourhood an ordinary or average rate, both of wages and profit, in every different employment of labour and stock...

There is likewise in every society or neighbourhood an ordinary or average rate of rent...

These ordinary or average rates may be called the natural rates of wages, profit and rent, at the time and place in which they commonly prevail.

When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price...

The actual price at which any commodity is commonly sold, is called its market price. It may either be above, or below, or exactly the same with its natural price.

The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectual demand; since it maybe sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said, in some sense, to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it...

When the quantity brought to market is just sufficient to supply the effectual demand, and no more, the market price naturally comes to be either exactly, or as nearly as can be judged of, the same with the natural price. The whole quantity upon hand can be disposed of for this price, and can not be disposed of for more. The competition of the different dealers obliges them all to accept of this price, but does not oblige them to accept of less...

The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it.

The whole quantity of industry annually employed in order to bring any commodity to market, naturally suits itself in this manner to the effectual demand. It naturally aims at bringing always that precise quantity thither which may be sufficient to supply, and no more than supply, that demand." -- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter VII.

I prefer the term 'prices of production' to Smith's 'natural price'. Smith calling something 'natural' does not mean he approves of it, but I prefer to avoid the argument.

I wish I had access to Alex M. Thomas' 2021 article in The European Journal of the History of Economic Thought.

Adam Smith speaks of supply and demand in the above quotation. These are levels of quantities. Neither is a schedule showing how the quantity quantity supplied and demand varies with prices. These supplies and demands are thus not the curves graphed in introductory courses in contemporary mainstream economics.

I think of 'effectual demand' as being dependent on income distribution. It depends on how landlords, for example, divide up their income among savings, consumption on luxury commodities, and consumption of staples.

Some literature builds on and critiques Smith's metaphor of market prices gravitating towards or around prices of production.

Anyways, suppose all industries are producing at the level of effectual demand. Market prices match prices of production. In this situation, the total labor force of the country is distributed among industries in definition proportions. "The masses of products corresponding to the different needs require[s] different and quantitatively determined masses of the total labor of society."

Karl Marx described these quantities of labor being expended in each industry as "socially necessary".

A Personal Note: My Mind Is Going. I Can Feel It.

So my computer crashed. I hadn't backed it up in a while. But, even so, my backup failed, too. I am currently paying for some specialist organization to restore the data, and they are on their third attempt. The cost seems a lot for an individual, but I feel like I need a lot that is on it.

I am going to buy a new computer, and I have been slow about this. Until I do this, I will not be able to post any mathematical examples. I think that I have posted enough that I can recreate these examples. But I have lost draft introductions and conclusions not in posts. This is always my difficulty, and what I had should probably have rewritten those parts anyways.

I have also lost code, some for applications I do not recall. I have lots of PDFs, some for works I have also in books. I had downloaded PDFs for collected works of Ricardo, Marx & Engels, and Lenin. I am not sure whether these are still freely available.

Anyways, maybe I will post less frequently for quite a while.

Selected Difficulties In Reading Marx's Capital

Infinite are the arguments of Marxists. This very selective survey needs references.

A first difficult is that everybody knows Marx has something to do with the Soviet Union. Many come to reading Capital with certain preconceptions. A couple comments in the book, for analytical reasons, contrast capitalism and feudalism and a post-capitalist economy with common ownership. But the book is about capitalism. The book contains expressions of outrage, often ironical. But is capitalism criticized for being unjust? And the labor theory of value, for Marx, is not about what workers should be paid.

I tend to read Marx as developing a theory for political economy, a theory about how capitalism works. But should such a thing as Marxian political economy even exist? "A critique of political economy" is the subtitle of of Capital. Maybe Marx is not offering a different theory to put in place of the existing theory. A similar argument arises over Sraffa. The subtitle of his 1960 masterpiece is, "A prelude to a critique of economic theory". Perhaps the formalism should lead to more concrete, institutial, and empirical studies. On the other hand, Marx says he is investigating the "laws of motion" of a commodity-producing society.

I take my next difficulty from some comments in David Harvey's Companion What arguments are logical, in some sense? What are describing history? It is obviously not all history, since otherwise the section on primitive accumulation would be towards the start. But the sequence of chapters on co-operation, manufacture, and modern industry are set in history. I do not mean formal logic or syllogisms by 'logic', but rather something like the unfolding of concepts.

Marx often postulates an ideal system, so as to address bourgeois political economists and Ricardian socialists. On the other hand, he often describes practices that deviate from such ideals. Which is which at any point in the text?

Does Marx ever present a complete description of his method? In the introduction to the Grundrisse, Marx distinguishes between the order of presentation and the order of discovery. In some of his correspondence, he outlines his book.

I tend to present (some variant of or critique of) Marx's political economy with mathematics. How much are those who have done such true to this approach? Some of the mathematics, such as Perron-Frobenius theorems, did not exist in Marx's day. Some find analytical marxists too willing to accept methodological individualism.

Then some background is very useful to understand what Marx is writing about. I might mention British political economy, Hegel's philosophy, and previous socialists.

There are some difficulties in the presentation. I have mentioned the last footnote in chapter 5. One then needs to read thousands of pages until Marx explains the transformation problem in volume 3. One might find it difficult to accept that Marx intends volume 1 to be something like a is first approximation.

This post echoes some themes in a recent working paper by Fabio Petri. Some confusions are probably my own.

Paul Davidson (23 October 1930 - 20 June 2024)

Overview

Paul Davidson took Keynes' General Theory of Employment Interest and Money seriously. The interpretation in mainstream textboooks misses important points. Keynes' book was about theory, not primarily about (short-run?) fiscal or monetary policy. Keynes does not explain persistent unemployment from imperfections or sticky or rigid money wages or prices. A general theory is one that has less axioms than the special case treated by, say, Marshall. Davidson identified, specifically, three axioms relaxed or rejected by Keynes:

• Neutrality of money. For Keynes, money is non-neutral in all runs.
• Gross substitution. Money has no substitutes; it cannot be produced from labor.
• Ergodicity. Important time series in economics can be non-ergodic. Numerical probabilities cannot necessarily be assigned to all possible outcomes. Some might not even be known.

Davidson, following Weintraub, took overall economic activity from a Keynes-like model of aggregate supply and demand. This is neither a 45 degree diagram found in, say, Samuelson's textbook, nor what is in current mainstream textbooks. Aggregate supply and demand are curves in the space of monetary proceeds and employment. Their intersection is the point of effective demand. In Davidson's development, investment is autonomous and not a function of current income.

Davidson's perspective led to conflict with other Post Keynesians. Labor markets do not clear, given either competitive or non-competitive markets. One does not need Kalecki's degree of monopoly. At times, he appreciated the internal critique of marginalism offered by Sraffa those developing his ideas. But he thought that they did not appreciate Keynes' emphasis on uncertainty. On the other hand, some, such as Eatwell, might argue that Davidson's emphasis on money was an imperfection. I think both perspectives assert that Keynes' rejection of Say's law is not confined to the short run.

Maybe developments in the theory of endogenous money are also in tension with some of Davidson's work. Keynes assumed in the General Theory, but not in the Treatise on Money, that the monetary authority could vary the supply of money.

Davidson also wrote about various policy suggestions and international financial institutions. For example, he did not think the Tobin tax would achieve its goals.

Davidson insisted that the Post in "Post Keynesianism" should be capitalized and that no hypen should seperate the words.

Some Aspects of Professional Life

Davidson received an undergraduate degree from Brooklyn College. He performed research in biochemstry at the University of Pennsylvania during 1950-1952. He performed military service during the Korean War.

He switched to economics. Sidney Weintraub supervised his doctorate dissertation at the University of Pennsylvania. He moved to Rutgers in 1958. I think his stint as an executive at an oil company in the early 1960s influenced his views on Keynes' user cost.

He helped found the Journal of Post Keynesian Economics in 1978 and co-edited it with Sidney Weintraub.

After a purge of heterodox economics at Rutgers, Davidson moved, in 1986, to the University of Tennesee at Knoxville. I know of a number of heterodox economists who came out of Rutgers when Davidson was there. The career of Anne Mayhew, an institutionalist, overlapped with Davidson at the University of Tennesee.

In more recent years, Davidson was a visiting scholar at the New School for Social Research, Bernard Schwartz Center for Economic Policy Analysis.

Obituaries elsewhere: Chicago Tribune, Greg Davidson on his father at Daily Kos.

Very Selective Bibliography

• Paul Davison. 1968. Money, portfolio balance, capital accumulation, and economic growth. Econometrica 36(2): 291-321.
• Paul Davison. 1972. Money and the Real world. Macmillan
• Paul Davison. 1989. The economics of ignorance or the ignorance of economics? Critical Review 3(3-4): 467-487.
• Paul Davison. 1991. Is probability theory relevant for uncertainty? A Post Keynesian perspective. Perspectives on Economics 5: 29-43.
• Paul Davison. 1994. Post Keynesian Macroeconomic Theory: A Foundation for Successful Economic Policy for the Twenty-First Century. Edward Elgar
• Paul Davison. 2007. John Maynard Keynes. Palgrave Macmillan
• J. E. King. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar.

Alexander Harrington Corrects Professor On Hegel's Dialectic

Michael Harrington was a great socialist in the United States. This is not to say that he did not make some political missteps, at least at Port Huron. Isserman's biography seems to have Michael making political missteps throughout the 1950s and 1960s. His son Alexander had exposure to some hard-to-understand ideas before he got to college:

My older son, Alexander, began to read Dostoevsky on his own when he was about fifteen and once told a college professor who was explaining Hegel's dialectic in terms of thesis, antithesis, and synthesis that Hegel didn't use those terms and that he should read the section on Master and Servant in the Phenomenology of Spirit for the real theory. -- Michael Harrington. 1988. The Long-Distance Runner: An Autobiography. New York: Henry Holt and Company: p. 125.

The part on the master and bondsman is the same part of Hegel that Richard Wolff recommends to 'Destiny'. I do not like Hegel. The Phenomenology seems to be about the evolution of consciousness from a purely sensuous beginning. That bit about the master and slave is about how the self-consciousness of the master is reflected within the consciousness of the servant. The master wants his consciousness recognized by the servant, but also wants to dominate the servant. (I go by the Baillie translation.) I was surprised that it ends with something like the alienation of the worker.

References

• Robert A. Gorman. 1995. Michael Harrington: Speaking American. New York: Routledge.
• Michael Harrington. 1988. The Long-Distance Runner: An Autobiography. New York: Henry Holt and Company: p. 125.
• Maurice Isserman. 2000. The Other American: The Life of Michael Harrinton. New York: Public Affairs.