Friday, January 25, 2019

Donald J. Harris

Don Harris is a Stanford economist. Apparently, this post is on current events. His daughter, Kamala Harris is the junior senator from California and has announced that she is running for President of the United States. I gather Don and his wife divorced when Kamala was quite young, and that his ex-wife raised her.

I do not know much about Harris' personal history. I did not even know that he was Jamaican. Did he give Michael Manley any advice? (This is a great movie.) It is his more theoretical work that I am aware of. It is decades since I have read his AER article and book, and I do not recall much about them. I find that I happen to have handy the other five items in the reference below, including Harris' foreword to a reprint of the Bukahrin book.

If I do remember anything about the AER article, my impressions is that it is an overview of the Cambridge capital controversy, closer to Sraffa than Joan Robinson's emphasis on historical time. For purposes of this article, I'll talk about, rather, the article in Nell's 1980 collection.

Harris (1980) starts out by describing the aggregate neoclassical theory, including growth theory. He refers to Samuelson calling it a parable or fairy tale. He presents this theory in the context of a response to Harrod. Substitution of capital for labor allows for the existence of a stable steady state growth path. Of course the Cambridge capital controversy showed this parable does not apply once one allows for the production of more than one commodity. I like to put it that, in a comparison of steady states, a higher wage, all else equal, is not necessarily associated with the adoption of a technique requiring less labor to be employed per unit output. Harris suggests the existence of such non-monotonic relationships between inputs and prices has wider repercussions in the neoclassical theory of general equilibrium. Asserting that the price of each input is equal to the value of its marginal product doesn't get you very far.

Harris then moves on to considering an alternate theory, with labor being exploited, as in Marx. He has an independent investment function. He considers three possible regimes. I am reminded of some work of Joan Robinson in the 1960s and her "banana" diagram. Or looking ahead, to a Bhaduri and Marglin paper.

Harris, I guess, is closer to Marx than some Post Keynesians. It make sense that once one has seen that most of academic mainstream economics is nonsense, in many ways, that one would turn to a sociological explanation of why this balderdash persists. The leisure class, in Bukharin's terminology, consists of those, generally very rich, who obtain income from property, without having to do a lick of work. They need it to be commonsense that their exploitation be acceptable. Academics, particularly neoclassical economics, fill this need. Bukharin focuses specifically on Austrian economics.

I should probably reread Bhaduri and Harris (1987). It is the sort of article that needs an illustration or two. Such an illustration is easy to generate with the information technology we now have available.

(Gramsci's Political Thought (Brill, 2012), by Carlos Nelson Coutinho, is another book on my shelf. The foreword is by Joseph A. Buttigieg. His son, Pete, is mayor of South Bend, Indiana and just announced that he is running for President.)

  • Amit Bhaduri and Donald J. Harris (1987). The Complex Dynamics of the Simple Ricardian System. Quarterly Journal of Economics. (Reprinted in: Unconventional Economic Essays: Selected Papers of Amit Bhaduri (1993). Oxford University Press.)
  • Nikolai Bukharin. (1927). Economic Theory of the Leisure Class.
  • Donald J. Harris (1973). Capital, distribution, and the aggregate production function, American Economic Review 63 (1): 100-113. (reprinted? in Sraffian Economics, 2 volumes, (ed. by Ian Steedman) Edgar Elgar (1989)).
  • Donald J. Harris (1978). Capital Accumulation and Income Distribution. Stanford University Press.
  • Donald J. Harris (1980). A postmortem on the neoclassical 'parable'. In Growth, Profits, and Property: Essays in the Revival of Political Economy (ed. by E. J. Nell). Cambridge University Press
  • Donald J. Harris (1990). Comment (on Pasinetti). In Essays on Piero Sraffa: Critical Perspectives on the Revival of Classical Theory (ed. by K. Bharadwaj and B. Schefold). Routledge
  • Donald J.Harris (2005). Robinson on 'History versus equilibirum'. In Joan Robinson's Economics: A Centennial Celebration (ed. by B. Gibson). Edward Elgar.

Saturday, January 19, 2019

Elsewhere: Popular Writing On Modern Monetary Theory

Some articles:

I do not assert that all points in these articles are well-taken.

I think of MMT as descriptive. It combines endogenous money, functional finance, and chartalism. Much of its empirical evidence consists of qualitative descriptions of how financial institutions and central banks operate. One can imagine a policy regime where unemployment and inflation are addressed by changes in the level of taxes and government spending, with monetary policy is a more passive attempt to keep interest rates permanently low. This would contrast with one where central banks are more responsible, through interest rate policy, with addressing unemployment and inflation. An analysis of the implications of such treatments need not be normative.

(Some asides: As a contrast, Josh Barro could have brought up his father, Robert's, treatment of Ricardian equivalence, which Ricardo rejected. Doesn't Marx, in chapter 1, volume 1 of Capital have an incorrect theory in which barter precedes money?)

Saturday, January 12, 2019

What Is Pure Capitalism?

1.0 Introduction

This post is fairly stream of consciousness. It is a bit more about how many find me odd.

I have previously mentioned, as an aside, Kozo Uno and his reading of Marx's Capital as a theory of pure capitalism. I like this idea, although it needs to be noted Marx had a lot to say in Volume I about concrete practices in his day and the historical development of capitalism. The theory and history are entwined. But Marx certainly presents the capitalist, not as a person, but as an embodiment of capital, in some sense.

I often bring a book with me when I go out to eat by myself. Sometimes people ask me what I am reading. For example, I have lately been re-reading the first volume of Capital; Marx's Value, Price, and Profit; and Böhm-Bawerk's Karl Marx and the Close of his System.

2.0 Small Businessmen Do Not Exist in Pure Capitalism

Many I run into are small businessmen, that is, petty bourgeois, in Marxist phraseology. I think of restaurant owners, general handymen, providers of mowing and plowing services, owners of auto repair shops, landscaping artists, and even one movie producer, musicians, consultants on Information Technology and Information Assurance, and so on. They do not obtain income solely from returns to capital, but, rather, from some combination of labor and capital. Their labor includes general scut work, managerial direction, and strategic planning. (Which of these tasks comprises the labor of superintendence?) Some have partners with finance capital invested in the business, often family members. Some sometimes have a few employees, and some have many more.

Maybe this is politeness, but I often say that Marx is not writing about you. I do not want to try to explain that capitalism restricts even your agency. I think many are conscious of trade-offs in staffing too much or too little on any given day, on the level of service provided, and on ensuring that staff do not quit. I bet many might agree that some staff that fall into the category of so-called unskilled labor, such as bartenders, baristas, waiters, bussers really know a lot about their tasks, do them well, and would take much time to train replacements. When they bid on jobs, they are conscious of socially necessary labor time and are worried about whether, for some reason not necessarily within the control of the worker, a job might take longer than assumed in the calculations which a bid was based on. Yet they feel that, with competition as it is, they cannot include a reserve time or even fully charge their own time. (Come to think of it, I am not including here those I know who make their income from profit on alienation, by buying collectibles low and selling high.)

I am more likely to explain to workers that the business owners' income comes from value added by their labor but not paid out in their wages. I also say that my income from Apple also comes from the exploitation of workers, and that this would be so even if Foxconn was not treating their workers so badly that they had to line their dorms with nets at ground level. And, of course, I am a consumer of commodities produced under capitalism. I am amused to attempt to explain that the labor theory of value can be seen not to work, as a theory of price, because of the existence of such products as wine and whiskey.

If you think about it, small businessmen do not fit in with the abstraction of pure capitalism since their earnings do not come solely from capital. Self-employed artisans and those close to such are, for Marx, survivors from a period of time before capitalism was fully developed. With John Kenneth Galbraith, I think this sector, however, will always exist, aside with the large corporate sector, in which many are somewhat sheltered, for a time, from the gales of competition.

3.0 Workers with Savings Do Not Exist in Pure Capitalism

Many skilled workers in the United States have savings, often in the form of mutual funds. They might not be able to access this wealth immediately, without a penalty, if it is in a 401K or Individual Retirement Account (IRA). (Defined-benefit pensions are now rare.) My casual empiricism is consistent with the observation that a tiny fraction of the population owns most of the wealth in the United States.

Here is another class of people whose income consists of returns to both labor and ownership of capital. And they have deferred not only the day-to-day management of the firms they indirectly have ownership shares in, but even decisions about investing and disinvesting in such firms to paid professionals. Does it matter to how the system works whether these savings are managed by financial experts on Wall Street or specialists more closely connected to labor unions? How should analyze executives corporate suites whose income is often classified as salaries, but anyways seems to have something to do with being in a class with control, but not ownership of the means of production? (I have not actually read that book or the one linked above by Drucker.)

4.0 Conclusion

So what kind of society is Marx describing abstractly? I think that in pure capitalism, some capitalists should be making investment decisions, but not being paid for labor power. Perhaps we want to think of the mid-nineteenth century when industrialists like John D. Rockefeller, Andrew Carnegie, or Karl Wittgenstein were starting out, but before they had obtained oligopolistic power.

One can build on this model to describe historic capitalism. You might think my account of small businesses shows something about a system organized around the production of commodities by means of commodities. Others have developed analyses of monopoly and finance capitalism. In the Post Keynesian tradition, Richard Kahn, Nicholas Kaldor, Luigi Pasinetti, and Joan Robinson had developed a model in which workers save, but investment decisions are driven by another class. Maybe a different model is more appropriate for the neoliberal era after the end of Bretton Woods, and in which workers do not seem to find their wages growing with productivity.

Friday, January 04, 2019

Linear Programming, M-C-M, and C-M

1.0 Introduction

Consider typical Linear Programs (LPs) for formulating the theory of firm in classical and neoclassical economics. I claim that the classical theory can be formulated as M-C...P...C-M, and that the neoclassical theory of production is something like C...P...C-M.

The notation is from Marx. For Marx, simple commodity circulation is represented as C-M-C. A commodity is sold for money, and then that money is used to buy another commodity. An owner of a use value trades it for a more desired use value. The formula M-C-M characterizes capitalism. A capitalist buys commodities so as to later sell commodities to somehow obtain more money. The goal is the accumulation of capital, not the acquisition of commodities.

2.0 Classical Theory of Production

For the classical theory, I had a recent presentation here. This is the price-side of John Roemer's Reproducible Solution (RS). The question is what must prices be such that firms can be willing to choose to produce commodities such that capital goods are reproduced (perhaps on an expanded scale), so that the economy will continue.

For ease of exposition, I might as will assume all commodities are basic commodities (in Sraffa's sense) and that there is no choice of technique. I define the following variables:

  • ω: A N-element column vector of commodities in existence at the start of the year.
  • a0: A N-element row vector of labor coefficients for each industry.
  • A: A N x N Leontief matrix, with each column listing the coefficients of production for each industry.
  • w: The wage.
  • p: A N-element row vector of prices for each produced commodity.
  • q: Decision variables. A N-element column vector of the quantity of each commodity to produce.
  • r: Decision variable. The rate of profits.

Each firm begins with an inventory of produced commodities, after having sold those needed for consumption last year. A firm chooses quantities to produce, q, to:

Maximize {p - [p A + a0 w]} q

such that

p A qp ω
qi ≥ 0, i = 1, 2, ..., N

The dual LP is to choose the rate of profits, r, to:

Minimize p ω r

such that:

p A(1 + r) + a0 wp
r ≥ 0

Some theorems from duality theorem are useful here. If a decision variable is positive in an optimal solution to the primal LP, the corresponding constraint is met with equality in the dual LP. In this simple presentation, where all commodities must be produced for the economy to be smoothly reproduced, all decision variables in the primal LP must be positive. Consequently, all constraints must be met with equality in the dual LP. That is, the dual LP provides a system of N equations in N + 2 price variables. An introduction of a choice of technique yields a justification of Kurz and Salvadori's direct method.

Commodities appear on the right-hand side of the constraint in the primal LP. And the decision variables are the commodities to be produced. But the constraint is that the value of the capital goods advanced be less than the value of the given inventory. Likewise, the capitalists are trying to maximize the increment of value. Realization problems are abstracted from here. One assumes that markets exist where one can trade inventory for more appropriate commodities for production plans, and likewise produced commodities can be sold. So the LP can be characterized as M-C-M'. It describes the wealth of society as "an immense accumulation of commodities."

3.0 Neoclassical Theory of Production

For the neoclassical theory, you can look at an appendix in Pasinetti (1977). Neoclassical theory is about the allocation of given resources. I define the following variables:

  • b: A M-element column vector of (unproduced?) factors of production available at the start of the year.
  • A: A M x N Leontief matrix, with each column listing the coefficients of production for each process.
  • p: A N-element row vector of prices for each produced commodity, with repeated prices for commodities with more than process for producing them.
  • q: Decision variables. A N-element column vector of quantities to produce with each process.
  • w: Decision variables. A M-element column vector of shadow prices.

The factors of production need have no relation to produced commodities. Don't think of seed corn and harvested corn. Think rather of various kinds of land, ores, and such-like for factors; and of consumer goods for produced goods. The managers of firms, in neoclassical theory, choose the levels, q, of operation of each process to:

Maximize p q

such that

A qb
qi ≥ 0; i = 1, 2, ..., N

The dual LP is to choose shadow prices w

Minimize bT w

such that

AT wpT
wj ≥ 0; j = 1, 2, ..., M

If a process is not operated in the solution to the primal LP, its cost, at shadow prices, exceeds the price of its outputs. If a given resource has a positive shadow price in the solution to the dual LP, it will fully used in the primal LP. Or, if it is not fully used (its constraint in the primal LP is met with inequality) then its shadow price will be zero.

The neoclassical theory ends up with C-M as a description of produced commodities being sold on markets. Its starts with use-values, though. So I guess it can be represented at, a high-level, as C-M alone.

4.0 Conclusion

I have previously contrasted post-Sraffian price theory and the neoclassical theory of value. The former is about an analysis of what needs to be the case for the reproduction of society. The latter is about the allocation of scarce resources. This post has introduced another contrast. Post-Sraffian price theory applies to a capitalist society, in which the accumulation of monetary value is an end of itself. I am not sure what kind of society, if any, can be described by the neoclassical theory of production. I guess neoclassical economics makes a bit more sense when it is used to described a series of temporary equilibria strung together.

  • Robert Dorfman, Paul A. Samuelson, and Robert M. Solow. 1958. Linear Programming and Economic Analysis
  • Heinz Kurz and Neri Salvadori. 1995. The Theory of Production: A Long-Period Analysis.
  • Luigi L. Pasinetti. 1977. Lectures on the Theory of Production
  • John Roemer. 1979. Analytical Foundations of Marxian Economic Theory
  • Robert L. Vienneau. 2005. On labour demand and equilibria of the firm. Manchester School: 73: 612-619.