Wednesday, January 01, 2025

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.

Saturday, January 15, 2022

Elsewhere

Saturday, January 08, 2022

Causes Of Inflation

Social norms exist about what wages can be expected from various types of jobs. And norms also exist for what the rate of profits or markups will be. Inflation arises when these norms conflict and institutions exist to fight about these norms.

There is no single rate of profits or a single wage for all jobs. In some jobs, you can expect to have a standard work week, weekends off, benefits, some asurance that your job will exist next week, and so. And in other jobs you cannot expect such. Here I am alluding to the theory of dual labor markets.

By the way, whether a job is in the formal or informal sector is not a matter of 'skill'. "The suggestion that any job is 'low skill' is a myth perpetuated by wealthy interests to justify inhumane working conditions, little/no healthcare, and low wages". A lot of struggle led to some jobs being considered 'skilled', and a reactionary counter-struggle resists such. Gender and race goes into this, of course. I doubt programmers were well-payed when a computer was a 'girl'. For example, I've read Richard Feynman's memoirs about how the 'computers' at Los Alamos implemented a time-sharing operating system (not his terminology). Do taxi drivers and Uber drivers face the same expectations? Bartenders at high-end restraurants in trendy parts of town and elsewhere?

How those with power understand what is going on matters. Suppose a certain set of hegemonic beliefs includes the incorrect idea that labor 'markets' tend to clear, maybe if only they could be made more 'flexible' and obstacles, such as labor unions, minimum wages, and so on are removed. And those running a country's central bank think their primary job is to fight inflation by raising interest rates whenever real wages show a slight increase. If the economy is run 'cold' for decades, much bad can result.

Consider a country where the workforce is highly unionized and collective bargaining is widely accepted, including with backing in law. Suppose contracts are staggered. Different sectors negoiate at different times. Suppose, by contrast, that the employers and employees are all expected to come together at one time. Inflation will be different in these two setups.

Another set of conventions involves families and households. Is co-habitation, without marriage, common? If you work in the formal sector, can you put your partner and non-biological children on your benefits? How many are expected, in the typical household - whatever that is - to work full or part time? What do you need for commuting? What kind of non-wage support can you expect? Have these norms varied recently? Have you tried following different conventions lately, and did you prefer it? The answer to these questions might have something to do with fluctuations in the labor force participation rate. With low unionization, a different set of institutions will resist attempts at the casualization of the work force.

Another set of expectations involves firms, their suppliers, and their customers. What proportion of restaurants and grocery stores do those who process agricultural products expect to be among those providing final demands? What level of capacity do firms expect to operate at? Does a different mode of operations change this? For example, I suspect a number of firms have realized they could double their office staff, if they had the demand and need, perhaps with an increase of support from their Information Technology support staff. If those running firms have highly uncertain or incorrect expectations, bottlenecks in some sectors can be expected to result.

I probably would not have written the above two paragraphs - maybe the whole post - without the prompting of current events. I look backwards to Joan Robinson's explanation (prediction) of stagflation and other literature.

Selected References
  • James K. Galbraith. 1998. Created Unequal: The Crisis in American Pay. Free Press.
  • Stephen A. Marglin. 1984. Growth, Distribution, and Prices, Harvard University Press.
  • Joan Robinson. 1962. "A Model of Accumulation" (In Essays in The Theory of Economic Growth, Macmillan).
  • Graham White. 2001. The Poverty of Conventional Economic Wisdom and the Search for Alternative Economic and Social Policies. The Drawing Board: An Australian Review of Public Affairs 2(2): 67-68.

Thursday, December 30, 2021

Variation Of Prices Of Production With Time In An Example Of Intensive Rent

Figure 1: Variation of the Wage Frontier with Technical Progress

I continue to explore perturbations of an example from Antonio D'Agata. I have found a new type of fluke switch point, in models of intensive rent. Here I explore structural dynamics along a path in which technical change overwhelms the scarcity of land.

In this post, I repeat the data on technology, with a specific parameterization. Table 1 presents the available technology. Iron and steel are produced in processes with inputs of labor and circulating capital. Corn is grown on homogeneous land, and three processes are available for producing corn. One hundred acres of land are available, leading to the possibility of two processes being operated side-by-side with positive rent.

Table 1: The Coefficients of Production
InputIndustries and Processes
IronSteelCorn
IIIIIIIVV
Labor111(11/5) e(5/4) - σte(1/20) - φt
Land001e(5/4) - σte(1/20) - φt
Iron001/10(1/10) e(5/4) - σt(1/10) e(1/20) - φt
Steel002/5(1/10) e(5/4) - σt(1/10) e(1/20) - φt
Corn1/103/51/10(3/10) e(5/4) - σt(2/5) e(1/20) - φt

Requirements for use are 90 tons iron, 60 tons steel, and 19 bushels corn.

Table 2 shows the processes operated in each of the six techniques available. (All three corn-producing processes are operated only at a switch point where the Delta, Epsilon, and Zeta techniques are simultaneously cost-minimizing. Iron, steel, and corn are basic commodities in all techniques. Land is never a basic commodity.

Table 2: Techniques
TechniqueProcess
AlphaI, II, III
BetaI, II, IV
GammaI, II, V
DeltaI, II, III, IV
EpsilonI, II, III, V
ZeaI, II, IV, V

Suppose the coefficients or production in process IV decrease at the rate specified by setting σ to 5/4. And the coefficients of production in process V decrease, with φ set to 1/20.

Figure 1, at the top of the post, illustrates the evolution of the wage frontier with time in this scenario. Table 3 summarizes how the cost-minimizing technique varies with the rate of profits in each region. A discontinuity occurs at the pattern for requirements for use. Alpha, Delta, and Epsilon can satisfy requirements for use in Regions 1, 5, 10, and 11, while Alpha, Beta, Epsilon, and Zeta can satisfy requirements for use in Regions 12, 13, and 4. Finally, Alpha, Beta, and Gamma can satisfy requirements for use in Region 20, which is not shown in Figure 1. Region 20 is an example of a model of circulating capital. Land is in excess surprise, and rent is zero.

Table 3: Regions
RegionRangeTechniqueNotes
10 ≤ rRαAlphaNo rent.
40 ≤ rRβBetaNo rent.
50 ≤ rr1AlphaRent per acre, when Epsilon is
adopted, increases with the
rate of profits and decreases
with the wage.
r1rRεEpsilon
100 ≤ rRεEpsilonRent per acre increases with
the rate of profits and
decreases with the wage.
110 ≤ rr1EpsilonA range of the rate of profits
exists for which no technique
is cost-minimizing. The wage
frontier is a non-unique
function of the rate of profits.
The wage curve for Delta slopes
up on the frontier.
r1rr2Delta and Epsilon
120 ≤ rr1EpsilonRent per acre is a non-
monotonic function of the rate
of profits or of the wage. The
wage curve for Zeta slopes
up.
r1rr2Zeta
r2rRβBeta
130 ≤ rr1EpsilonRent per acre is a non-
monotonic function of the rate
of profits or of the wage. The
wage curve for Zeta slopes
down.
r1rr2Zeta
r2rRβBeta
140 ≤ rr1ZetaRent per acre, when Zeta is
adopted, decreases with the
rate of profits. The wage curve
for Zeta slopes down.
r1rRΒBeta
200 ≤ rRβBetaNo rent.

D'Agata's example arises when t is one. As shown in Figure 1, there is a range of the rate of profits in Region 11 in which both Delta and Epsilon are cost-minimizing. Regions 12 and 13 vary in that the wage curve for Zeta slopes up in Region 12 and down in Region 13. The cost-minimizing technique is not a unique function of the wage in Region 12.

Anyways, my approach of partitioning parameter spaces based on fluke cases applies to this example of intensive rent.

References
  • D'Agata, Antonio. 1983a. The existence and unicity of cost-minimizing systems in intensive rent theory. Metroeconomica 35: 147-158.
  • Kurz, Heinz D. and Neri Salvadori. 1995. Theory of Production: A Long-Period Analysis. Cambridge: Cambridge University Press.

Tuesday, December 21, 2021

The Production of Commodities by Means of Commodity and Money

Money is a medium of exchange (or means of purchase), a unit of account, and a store of wealth. I think Sraffa (1960) implicitly assumes an economy in which money is used. How would one explicitly and formally introduce money into Sraffa's scheme? I think one would want a theory of endogenous money, maybe as in a circuitist theory. How should the references below be extended? Which should I make an effort to read? I am aware that Sinha (2021) has a couple of other chapters about money and that Bellofiore and Passarella (2016) and Giuseppe and Realfonzo (2017) are introductions to special issues of ROKE and Metroeconomica, respectively. Any guidance to the literature, including these pointers, would be useful.

Reference
  • Bailly, Jean-Luc, Alvaro Cencini, and Sergio Rossi (eds.) 2017. Quantum Macroeconomics: The legacy of Bernard Schmidt. Routledge.
  • Bellofiore, Riccardo and Marco Veronese Passarella. 2016. Introduction: the theoretical legacy of Augusto Graziani, Review of Keynesian Economics 4(3): 243-249.
  • Fontana, Giuseppe and Riccardo Realfonzo. 2017. Augusto Graziani and recent advances in the monetary theory of production, Metroeconomica 68(2): 202-204.
  • Graziani, Augusto. 2003. The Monetary Theory of Production. Cambridge University Press.
  • Moore, Basil. 1988. Horizontalists and Verticalists: The Macroeconomics of Credit Money. Cambridge University Press.
  • Panico, Carlo. 1988. Interest and Profit in the Theories of Value and Distribution.
  • Pivetti, Massimo (1991). An Essay on Money and Distribution.
  • Rochon, Louis-Philippe. 1999. Credit, Money and Production: An Alternative Post-Keynesian Approach.. Edward Elgar.
  • Sinha, Ajit (ed.). 2021. A Reflection on Sraffa’s Revolution in Economic Theory. Palgrave-Macmillan.
  • Rochon, Louis-Philippe and Mario Seccareccia (eds.). 2013. Monetary Economics of Production: Banking and Financial Circuits and the Role of the State: Essays in Honour of Alain Parguez. Edward Elgar.
  • Rogers, Colin. 1989. Money, Interest and Capital: A Study in the Foundations of Monetary Theory. Cambridge University Press.
  • Venkatachalam, Ragupathy and Stefano Zambelli (2021). Sraffa, money and distribution. In Sinha (2021).

Friday, December 17, 2021

A Pattern For Non-Uniqueness

Figure 1: The Wage Frontier And Rent

I continue to explore perturbations of an example from Antonio D'Agata. I have found a new type of fluke switch point, in models of intensive rent. In this post, I repeat the data on technology, with a specific parameterization.

Table 1 presents the available technology. Corn is grown on homogeneous land, and three processes are available for producing corn. One hundred acres of land are available, leading to the possibility of two processes being operated side-by-side with positive rent.

Table 1: The Coefficients of Production
InputIndustries and Processes
IronSteelCorn
IIIIIIIVV
Labor111(11/5) e(5/4) - σte(1/20) - φt
Land001e(5/4) - σte(1/20) - φt
Iron001/10(1/10) e(5/4) - σt(1/10) e(1/20) - φt
Steel002/5(1/10) e(5/4) - σt(1/10) e(1/20) - φt
Corn1/103/51/10(3/10) e(5/4) - σt(2/5) e(1/20) - φt

Table 2 shows the processes operated in each of the six techniques available. (All three corn-producing processes are operated only at a switch point where the Delta, Epsilon, and Zeta techniques are simultaneously cost-minimizing. Iron, steel, and corn are basic commodities in all techniques. Land is never a basic commodity.

Table 2: Techniques
TechniqueProcess
AlphaI, II, III
BetaI, II, IV
GammaI, II, V
DeltaI, II, III, IV
EpsilonI, II, III, V
ZeaI, II, IV, V

Requirements for use are 90 tons iron, 60 tons steel, and 19 bushels corn. Alpha, Delta, and Epsilon can meet requirements for use. That is, one can find levels of operation of the processes comprising these techniques such that the net output of the economy is the previously specified vector and no more than 100 acres of land are farmed. Beta, Gamma, and Zeta are infeasible.

At the specific parameter values illustrated at the top of this post, the switch point between the Alpha and Epsilon techniques occurs at the rate of profits at which the wage curve for the Delta technique intercepts the axis for the rate of profits. This fluke condition arises for a locus in the parameter space in which (φt) is a function of (σt). It reminds me of a fluke case for the order of fertility in models of extensive rent.

At a slightly lower value of (σt) or a higher value of (φt), no range of the rate of profits exists in which both the Alpha and Delta technique are cost-minimizing. A range of the rate of profits does exist in which the Epsilon technique is uniquely cost-minimizing. On the other hand, at a slightly higher value of (σt) or a lower value of (φt), a range of profits exists in which both the Alpha and Delta technique are cost-minimizing, and Epsilon is not uniquely cost-minimizing for any rate of profits. In both cases near this fluke case, a range of profits exists in which Alpha is uniquely cost-minimizing. And a range of the rate of profits exists in which both the Delta and Epsilon techniques are cost-minimizing.

So this fluke case is associated with a variation in the details of of an example in which the cost-minimizing technique is non-unique, and in which no cost-minimizing technique exists even though feasible techniques with positive prices, wages, rate of profits, and rent exist.

References
  • D'Agata, Antonio. 1983a. The existence and unicity of cost-minimizing systems in intensive rent theory. Metroeconomica 35: 147-158.
  • Kurz, Heinz D. and Neri Salvadori. 1995. Theory of Production: A Long-Period Analysis. Cambridge: Cambridge University Press.

Saturday, December 11, 2021

A Mistake In Kurz And Salvdori (1995)?

On page 299 of Kurz and Salvadori (1995), they write:

System (10.10) is identical with system (8.13).

The above statement is correct only if the steady state rate of growth is zero. The analysis presented around system 8.13 applies to any rate of growth lower than the rate of profits.

Chapter 8 is about joint production in general. Equations 8.13a through 8.13e specify a long-period position for joint production. Equation 8.13c specifies quantity relations and is:

zT ( B - (1 + g) A) ≥ cT

Equation 8.13d is a duality condition known as the rule of free goods. It is:

zT ( B - (1 + g) A) y = cT y

A full exposition would explain the notation above.

Chapter 10 is about land rent. Equations 10.10a, 10.10b 10.10c, 10.10f, and 10.10g specify a long-period position with land being cultivated. Equation 10.10a specifies quantity relationships and, more or less, is:

xT ( B - A) ≥ dT

Equation 10.10b is the rule of free goods for models with rent. It is:

xT ( B - A) p = dT p

If the rate of growth were positive in models of rent, a steady state could not be maintained. Eventually, a less efficient technique (at the given rate of profits) must be adopted, and the rate of growth must be lower.

I find I often may explain the dual quantity system for Sraffa's price equation in a confused manner. I often want to consider the trade-off between a steady state rate of growth and consumption per worker, with a given composition of the consumption basket. Given the technique, this trade-off is identical to the wage curve for the technique. On the other hand, one could present the quantity relations for a given level and composition of net output, that is, for given requirements for use. In an exposition, one must choose one of these approached.

Kurz and Salvadori (1995) is comprehensive. Of the mathematics I understand, this is as close as I found to a mathematical mistake. After publication, some argued about what I think are matters of history and judgement in the critique of neoclassical theory in Chapter 14. I think it was demonstrated about half a century ago that most of what most mainstream economists teach in North America is, at best, incorrect. From twitter, I have learned that economics is astrology for white men.

  • Heinz D. Kurz and Neri Salvadori. 1995. Theory of Production: A Long-Period Analysis. Cambridge University Press.