No Influence Of Tastes On Prices
Robert Vienneau
This long post illustrates the so-called non-substitution theorem.
(Luigi Pasinetti argues this theorem is misleadingly named.)
Consider three islands, Alpha, Beta, and Gamma, where a competitive
capitalist economy exists on each island. These islands are identical
in some respects and differ in others. The point is to understand that
differences in tastes need have no influence on prices.
All three islands have the same constant-returns-to-scale
technology available. They also face the same wage, and have fully
adapted production. Thus, they will choose to adopt the same
technique. This technique consists of a process to produce rye and
another one to produce wheat. Each process requires a year to
complete. Each process requires inputs of labor, rye, and corn. These
processes fully use up their inputs in producing their output. Table 1
specifies the coefficients of production for the selected technique.
TABLE 1: THE TECHNIQUE OF PRODUCTION
INPUTS HIRED
AT START OF RYE WHEAT
YEAR INDUSTRY INDUSTRY
Labor 1 Person-Year 1 Person-Year
Rye 1/8 Bushel 3/8 Bushel
Wheat 1/16 Bushel 1/16 Bushel
OUTPUTS 1 Bushel Rye 1 Bushel Wheat
2.0 QUANTITY FLOWS
The employed labor force grows at a rate of 100% on each island.
Each island differs, however, in the mix of outputs that they
produce. Table 2 shows the quantity flows per employed laborer
on Alpha. Notice that the commodity inputs purchased at the
start of the year total 5/32 bushels rye and 1/16 bushels wheat.
Since the rate of growth is 100%, 5/16 bushels rye and 1/8 bushels
wheat will be needed for inputs into production in the following
year. This leaves 9/16 bushels rye available for consumption at
the end of the year per employed worker.
TABLE 2: QUANTITY FLOWS ON THE ALPHA ISLAND PER WORKER
INPUTS RYE INDUSTRY WHEAT INDUSTRY
Labor 7/8 Person-Years 1/8 Person-Years
Rye 7/64 Bushels Rye 3/64 Bushels Rye
Wheat 7/128 Bushels Wheat 1/128 Bushels Wheat
OUTPUTS 7/8 Bushels Rye 1/8 Bushels Wheat
Table 3 shows the quantity flows on Beta. Here the same
sort of calculations reveal that Beta has 3/8 bushels wheat
available for consumption at the end of the year per employed
worker.
TABLE 3: QUANTITY FLOWS ON THE BETA ISLAND PER WORKER
INPUTS RYE INDUSTRY WHEAT INDUSTRY
Labor 1/2 Person-Years 1/2 Person-Years
Rye 1/16 Bushels Rye 3/16 Bushels Rye
Wheat 1/32 Bushels Wheat 1/32 Bushels Wheat
OUTPUTS 1/2 Bushels Rye 1/2 Bushels Wheat
Gamma's quantity flows, shown in Table 4, are an intermediate
case. Gamma has 3/8 bushels rye and 1/8 bushel wheat available
for consumption at the end of the year per employed worker.
TABLE 4: QUANTITY FLOWS ON THE GAMMA ISLAND PER WORKER
INPUTS RYE INDUSTRY WHEAT INDUSTRY
Labor 3/4 Person-Years 1/4 Person-Years
Rye 3/32 Bushels Rye 3/32 Bushels Rye
Wheat 3/64 Bushels Wheat 1/64 Bushels Wheat
OUTPUTS 3/4 Bushels Rye 1/4 Bushels Wheat
3.0 PRICE SYSTEM
Since these econmies have adapted to their requirements for
use, stationary prices prevail. Assuming the wage is paid at the
end of the year, the price system given by Equations 1 and 2
will be satisfied:
[ (1/8) p + (1/16) ]( 1 + r ) + 1 w = p (1)
[ (3/8) p + (1/16) ]( 1 + r ) + 1 w = 1 (2)
where p is the price of a bushel rye, w is the wage, and r is the
rate of profits. I have implicitly assumed in the above equations
that the price of a bushel wheat is $1.
The wage can be found in terms of the rate of profits:
w = ( 17 + r )( 3 - r )/[ 16 ( 5 + r ) ] (3)
More work is required to express the rate of profits in terms
of the wage:
r = - ( 8 w + 7 ) + 2 sqrt( 16 w w + 8 w + 25 ) (4)
The price of rye, in terms of the rate of profit, is given by
Equation 5:
p = 4/( 5 + r ) (5)
Suppose the wage, assumed identical across all three islands,
is $3/8. Then the rate of profits is 100%, and the price of rye
is $2/3 per bushel. On Alpha, workers consume their wages entirely
in rye. Consequently, each worker eats 9/16 bushels rye each year.
On Beta, workers consume only wheat. A Beta worker eats $3/8 bushels
wheat per year. Gamma is an intermediate case where workers consume
three bushels rye for every bushel wheat. A Gamma worker eats 3/8
bushels rye and 1/8 bushel wheat each year.
Note that the quantity flows specified above show the wage
entirely consumed and profits entirely invested. This characteristic
of the example is not necessary to the conclusion that the
difference in tastes among the islands need have no effect on
prices.
4.0 CONCLUSION
Under the conditions satisfied by this example, different tastes
have no influence on prices. If the economy is fully adapted to
changed tastes, the same prices can prevail.
--
Robert Vienneau
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n o Whether strength of body or of mind, or wisdom,
@ c or virtue, are always found...in proportion to
d . the power or wealth of a man [is] a question
r e fit perhaps to be discussed by slaves in the
e p hearing of their masters, but highly unbecoming
a a to reasonable and free men in search of the
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s -- Rousseau
S. Hales
unvariable then there will only be one price regardless of preferences.
What would happen to price if trade was allowed and the islands produced
different products?
Robert Vienneau <rv...@see.sig.com> wrote in message
news:rvien-30109...@ua3-p47.dreamscape.com...
> 1.0 INTRODUCTION
Mike
S. Hales <esa...@pipeline.com> wrote in message
news:7vfrur$4g4$1...@nntp3.atl.mindspring.net...
> I don't know why you bother posting drivel. If everything is fixed and
> unvariable then there will only be one price regardless of preferences.
> What would happen to price if trade was allowed and the islands produced
> different products?
It's not drivel at all. It's solid economic theory, which any good economist
should be aware of. Rather out of date, however.
Your question depends very much on the assumptions you make. International
trade isn't usually included in Leontief-style production functions like the
one above. I don't think it would make any difference to the conclusion
however: the islands have the same technology available so you'd end up with
a single world market price equal to the prices in the original islands.
But interesting as they are, I don't think Leontief production models are
much use as an approximation to reality. :-)
Mike.
Robert Vienneau
> S. Hales <esa...@pipeline.com> wrote in message
> > I don't know why you bother posting drivel. If everything is fixed and
> > unvariable then there will only be one price regardless of preferences.
> > What would happen to price if trade was allowed and the islands produced
> > different products?
> It's not drivel at all. It's solid economic theory, which any good economist
> should be aware of. Rather out of date, however.
I'm glad to find another that recognizes established theory. I don't
know what "out of date" means in this context. It is my opinion that
economists have established long-run theory cannot be coherently said
to be about the allocation of scarce resources among alternative ends.
My example shows one case in which "demand" does not affect prices, at
least in a fully adjusted position of the economy. In a sense, inputs
of rye and wheat are not "scarce" in the example.
I think economists should be trained well-enough to understand the
solid economic theory I draw on to reach this opinion.
> Your question depends very much on the assumptions you make. International
> trade isn't usually included in Leontief-style production functions like the
> one above.
I think Mike may misunderstand. I did not assume Leontief production
functions. I wrote:
All three islands have the same constant-returns-to-scale
technology available. They also face the same wage, and have fully
adapted production. Thus, they will choose to adopt the same
technique.
Note the distinction between "technique" and "technology." The
technology could consist of continuously-differentiable production
functions. Competitive firms are modeled as choosing a particular
set of coefficients of production, given the wage.
That is to say, the analysis could be expanded to explicitly include
marginal productivity conditions. It also could be expanded, I think,
to include marginal utility relationships. Marginal analysis, correctly
understood, is consistent with my example, but not central to it.
> I don't think it would make any difference to the conclusion
> however: the islands have the same technology available so you'd end up with
> a single world market price equal to the prices in the original islands.
I also don't think these islands would see any benefit to trade, if
they could trade.
But I fear that Mr. Hales does not understand the point of this conceit
of different islands. Some economists often seem to think comparative
statics analysis can or does tell us about a process of transition from
one equilibrium to another. This metaphor of islands, which is not
original with me, is to emphasize that no such claims are being made.
> But interesting as they are, I don't think Leontief production models are
> much use as an approximation to reality. :-)
Whatever.
Chris Auld
>I'm glad to find another that recognizes established theory. I don't
>know what "out of date" means in this context. It is my opinion that
>economists have established long-run theory cannot be coherently said
>to be about the allocation of scarce resources among alternative ends.
*Any* theory which says *anything* about what gets produced, how it's
produced, or who gets what's produced, is a theory of "the allocation
of scarce resources amongst alternative ends." Rob's interpretation
of Robbin's old definition is one which he has yet to explain, and which
I can't make the slightest bit of sense of.
>My example shows one case in which "demand" does not affect prices, at
>least in a fully adjusted position of the economy. In a sense, inputs
>of rye and wheat are not "scarce" in the example.
If those inputs weren't scarce, they would have a price of zero. What
Rob showed is that if supply curves are horizontal, the position of
the demand curve doesn't affect equilibrium prices. Why he wants to
apply this weird spin to the result is beyond me.
>I think economists should be trained well-enough to understand the
>solid economic theory I draw on to reach this opinion.
As usual, Rob, the profession waits with bated breath for your
latest pronouncements on and judgements of current graduate training.
--
Chris Auld (403)220-4098
Economics, University of Calgary <mailto:au...@ucalgary.ca>
Calgary, Alberta, Canada <URL:http://jerry.ss.ucalgary.ca/>
Hyman Blumenstock
Mike wrote:
>
> S. Hales <esa...@pipeline.com> wrote in message
> news:7vfrur$4g4$1...@nntp3.atl.mindspring.net...
> > I don't know why you bother posting drivel. If everything is fixed and
> > unvariable then there will only be one price regardless of preferences.
> > What would happen to price if trade was allowed and the islands produced
> > different products?
>
> It's not drivel at all. It's solid economic theory, which any good economist
> should be aware of. Rather out of date, however.
But drivel it is. Modern Economics is a completely overblown
takeoff of the Agrarian era of Food scarcity -- on now to
distribute scarce Food. But Food has been abundant for over
a century, and logic would dictate that all there is to
Economics, is give everyone free access to the Food supply.
Instead, the Money system has been elevated from merely a
surrogate to the far more important Food supply, as a means
of designating who shall NOT eat, because of the shortage,
into an unholy obsession with that surrogate itself, a pure
fantasy, in derogation of the literal "staff of life"
itself, Food.
The purpose of doing that can't be anything else but the
self aggrandizement of an otherwise totally useless, but
highy prestigious discpline, Doctrinaire Economics, whose
practitioners advise Presidents and Kings on how to most
quickly destroy what gains our civilization has already made
despite the efforts of Doctrinaire Economists to preserve
their position in society.
The predicted result, to which we are already rushing
headlong, may be seen in <http://dieoff.org/page5.htm>.
There is no other profession or discipline, wherein any
member thereof can call himself by title, wherein with
chronic failure at ever resolving any problem he was
supposed to be the master of, can continue to do so without
the ridicule he deserves. A rebuttal of this last point
would be to cite any success in resolving any Social
Problems by any Economist. Doctrinaire Economics is a
monstrous scam that has successfully blotted out any
realization by we the victims, of how badly we are being
had.
HB
>
> Your question depends very much on the assumptions you make. International
> trade isn't usually included in Leontief-style production functions like the
> one above. I don't think it would make any difference to the conclusion
> however: the islands have the same technology available so you'd end up with
> a single world market price equal to the prices in the original islands.
>
> But interesting as they are, I don't think Leontief production models are
> much use as an approximation to reality. :-)
>
> Mike.
Robert Vienneau
one of my posts with:
> Huh?
and, after making a technical correction, somehow refuses to answer
my quoted question.
Here, au...@jerry.ss.ucalgary.ca (Chris Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
>
> >It is my opinion that
> >economists have established long-run theory cannot be coherently said
> >to be about the allocation of scarce resources among alternative ends.
> ...Rob's interpretation of Robbin's old definition is one ...which
> I can't make the slightest bit of sense of.
I'm not sure why I should find persuasive Chris' lack of understanding
and lack of knowledge of the literature upon which I draw.
"It is possible that the outputs produced in an Arrow-Debreu
economy in the far distant future are independent of its initial
endowments. That would mean that in such an economy the relative
scarcities prevailing now would have no influence on the
relative prices and rentals in the distant future. This should
be enough to persuade the critics that the theory is not
committed to a relative scarcity theory of distribution, though
they seem to believe it is and that often motivates them in
their attacks."
-- Frank Hahn, "General Equilibrium Theory," in _The Crisis
in Economic Theory_, (edited by Daniel Bell and Irving
Kristol), 1981.
"[J. E.] King: You published your second thoughts on the capital
controversies in 1976. Any third thoughts today?
[G. C.] Harcourt: Yes. I think the methodological nature of Joan
Robinson's critique is the dominant one. And price as an index of
scarcity cannot be made coherent in the supply-and-demand framework,
which I think is the principal Sraffian critique. So that if the
demand curve for capital is not well-behaved, ... you might as well
give up neoclassical economics as a conceptual illumination because
the results aren't robust enough to go through, though you can
pretend that they do. All these one-sector models pretend that
there's a well-behaved demand curve for capital.
King: And they are being revived right now.
Harcourt: Yes, it's terrible: at best a sign of ignorance and
more probably a sign of intellectual arrogance. Hegemony has been
re-established by the mainstream, and it's breathtaking arrogance.
King: I think you're wrong. I think it's mainly ignorance. But you
regard the Cambridge controversies as more important than Joan
Robinson did, towards the end?
Harcourt: Oh, as a conceptual critique, yes. Joan must have known
about the Steedman-Metcalfe critique of international trade theory,
but by that time she was into the methodological points, and of
course she didn't know about Colin Rogers's destruction of the
Wicksellian foundations of modern monetary theory. I think Colin's
work is extremely important. If you destroy value and distribution
theory conceptually, and show that the central concepts are
incoherent - you see, what I say is, the harder-line defence is,
general equilibrium theory is not affected, but G.E. is not
descriptive, so it's not a theory about the world, and it means that
the cruder versions of neoclassical economics are vulnerable. So
either you've got a non-applicable theory or a vulnerable theory.
If you then go on and say that the critique may be extended to the
foundations of mainstream monetary theory as well, that's a pretty
damaging critique. It means that orthodox development theory,
orthodox trade theory, orthodox value theory, orthodox distribution
theory and orthodox monetary theory are incoherent at their very
foundations. Well, providing that us lot remain a minority, no one's
going to take much notice of it, and people have become more and
more ruthless in suppressing dissent. But the fact remains, *from
an intellectual point of view*, that it's an absolutely vulnerable
position for the mainstream to be in. Sadly, the students in the
advanced theory classes quickly fade away from my lectures on all
this, because I lecture at a conceptual level instead of just
squiggles - though I do some squiggles - and because of the
counter-attractions of game theory, or modern decision-making under
uncertainty, where there are precise answers If you can get on
top of the highly difficult technical stuff you've got ready-made
answers, and it's all self-contained. I don't think that's proper
honours work. I think a good honours question is one where you
have to do a conceptual discussion, a critical discussion, and some
analysis. That's what my courses and my questions are like. Well,
the students have to pass exams and get good marks, and so on, and
since many of the lecturers here would rubbish the whole thing
anyway, you can hardly blame the students for not coming. Though I
find it a very sad thing myself, because where's the intellectual
curiosity, where's the intellectual honesty in it all?"
-- J. E. King, _Converstions with Post Keynesians_, St. Martin's
Press, 1995?
SUSUPPLY
>In the thread on "Effects 'At The Margin'" Chris Auld responds to
>one of my posts with:
>
>> Huh?
>
>and, after making a technical correction, somehow refuses to answer
>my quoted question.
You mean he didn't waste any more of his time after demonstrating you were
mistaken? The man sounds like a practicing economist.
Speaking of refusing to answer questions:
>> Robert Vienneau <rv...@see.sig.com> wrote:
>>
>> >It is my opinion that
>> >economists have established long-run theory cannot be coherently said
>> >to be about the allocation of scarce resources among alternative ends.
>
>> ...Rob's interpretation of Robbin's old definition is one ...which
>> I can't make the slightest bit of sense of.
>
Or should I say, speaking of misquoting people, Robert? After all you left out
in the above, and with no indication of having done so, Chris's:
>*Any* theory which says *anything* about what gets produced, how it's
>produced, or who gets what's produced, is a theory of "the allocation
>of scarce resources amongst alternative ends." Rob's interpretation
>of Robbin's old definition is one which he has yet to explain, and which
>I can't make the slightest bit of sense of.
Not to mention his response to your:
>>My example shows one case in which "demand" does not affect prices, at
>>least in a fully adjusted position of the economy. In a sense, inputs
>>of rye and wheat are not "scarce" in the example.
Which was:
>If those inputs weren't scarce, they would have a price of zero. What
>Rob showed is that if supply curves are horizontal, the position of
>the demand curve doesn't affect equilibrium prices. Why he wants to
>apply this weird spin to the result is beyond me.
So when you now try to save some face with:
>I'm not sure why I should find persuasive Chris' lack of understanding
>and lack of knowledge of the literature upon which I draw.
You'll forgive the rest of us for merely accepting the above as yet more
confirmation of your blowhard status.
Patrick
Chris Auld
Robert Vienneau <rv...@see.sig.com> wrote:
>> >It is my opinion that
>> >economists have established long-run theory cannot be coherently said
>> >to be about the allocation of scarce resources among alternative ends.
>
>> ...Rob's interpretation of Robbin's old definition is one ...which
>> I can't make the slightest bit of sense of.
>
>I'm not sure why I should find persuasive Chris' lack of understanding
>and lack of knowledge of the literature upon which I draw.
> be enough to persuade the critics that the theory is not
> committed to a relative scarcity theory of distribution, though
> they seem to believe it is and that often motivates them in
Rob, a theory which says that relative prices will not reflect relative
scarcity is nonethless a theory of the allocation of scarce resources
amongst alternative ends. Nowhere in Robbins' definition does it
specify 'and the theory must find that that prices directly reflect
scarcity!' Understand?
Robert Vienneau
> Robert Vienneau <rv...@see.sig.com> wrote:
> >> >It is my opinion that
> >> >economists have established long-run theory cannot be coherently said
> >> >to be about the allocation of scarce resources among alternative ends.
> >> ...Rob's interpretation of Robbin's old definition is one ...which
> >> I can't make the slightest bit of sense of.
> >I'm not sure why I should find persuasive Chris' lack of understanding
> >and lack of knowledge of the literature upon which I draw.
> > be enough to persuade the critics that the theory is not
> > committed to a relative scarcity theory of distribution, though
> > they seem to believe it is and that often motivates them in
> Rob, a theory which says that relative prices will not reflect relative
> scarcity is nonethless a theory of the allocation of scarce resources
> amongst alternative ends. Nowhere in Robbins' definition does it
> specify 'and the theory must find that that prices directly reflect
> scarcity!' Understand?
What I don't understand is why Chris would think I should find
persuasive his refusal to address economic theory.
"...in a production context...it makes no sense to talk of
'endowments' of given physical quantities if these physical
quantities, to be carried over from one period to another, are
the unknowns to be determined. It makes no sense to talk of
'scarce' resources, if these resources can be produced in
whatever quantities may be needed by the economic system...
When all inputs are themselves produced, a change in the
composition of demand simply means that more of some inputs
and less of other inputs will have to be produced, while the
optimum technique remains the same. In other words, the process
of adaptation to any given change in the composition of final
demand is, in a production context, radically different from
the one considered by traditional theory. Whereas, with given
and fixed inputs (the traditional case), the only way to adapt
is through a change of technique which may allow the substitution
of some inputs for others, in a production context in which
all inputs are themselves produced the obvious way to adapt is
to produce the inputs which are needed and to cut down production
of those which are no longer needed. There is no question of
changing the technique. Input substitution, in a production
context, has no role to play."
-- Luigi L. Pasinetti, _Lectures on the Theory of Production_,
Columbia University Press, 1977, pp. 186.
SUSUPPLY
posters separated by a common language:
>What I don't understand is why Chris would think I should find
>persuasive his refusal to address economic theory.
Robert, it's obvious to everyone (except for your few kindred spirits,
Lauchlan, Hyman, Gary, Coburn) that you will never find anything persuasive
unless it contains such useful concepts as people who can go a year without
eating, and islands where saving someone's life is defined as exploitation.
No one is trying to persuade you, pal.
Patrick
Chris Auld
Robert Vienneau <rv...@see.sig.com> wrote:
>au...@jerry.ss.ucalgary.ca (Chris Auld) wrote:
>> Rob, a theory which says that relative prices will not reflect relative
>> scarcity is nonethless a theory of the allocation of scarce resources
>> amongst alternative ends. Nowhere in Robbins' definition does it
>> specify 'and the theory must find that that prices directly reflect
>> scarcity!' Understand?
>
>What I don't understand is why Chris would think I should find
>persuasive his refusal to address economic theory.
First, Rob, I stick by my statement above: your requirement that a
theory predict that prices will reflect relative scarcity in order
to conform to Robbin's definition is just goofy. Perhaps 90% of
mainstream economics is no longer "economics" if we were take your
misreading seriously. Second, the quote you finally provide which
might actually buttress your argument:
> "...in a production context...it makes no sense to talk of
> 'endowments' of given physical quantities if these physical
> quantities, to be carried over from one period to another, are
> the unknowns to be determined. It makes no sense to talk of
> 'scarce' resources, if these resources can be produced in
> whatever quantities may be needed by the economic system...
is very weak. It makes perfect sense to talk of "scarce"
resources, even if those resources cound "be produced in whatever
quantitities may be needed by the economic system," if that production
has an opportunity cost (that's what we mean by "scarce," Rob). And I
don't know of any produced resources with zero opportunity cost.
The quote above has either been taken wildly out of context or
is simply wrongheaded. Or both.
John J Weatherby
SOLID ECONOMIC THEORY?
When you drop the notion of scarcity you are no longer dealing in the realm
of economics.
Review definition of economics
The study of the allocation of scarce resources.
If your resources are not scarce you are not dealing in economics. Perhaps
your post belongs in solid Sociology theory not economics.
> My example shows one case in which "demand" does not affect prices, at
> least in a fully adjusted position of the economy. In a sense, inputs
> of rye and wheat are not "scarce" in the example.
>
Chris Auld
>> ...the quote you...provide which
>> might actually buttress your argument...is very weak.
>> ...an opportunity cost...
>> The quote above has either been taken wildly out of context or
>> is simply wrongheaded. Or both.
>
>mathematical economics illustrated in my first post on this thread
>or the conversations upon which I draw.
Gee, Rob, nice job quoting. It's not like you're trying to
make it appear I said something I didn't or anything, right?
I don't know why Rob thinks that rattling off another quote
about the non-substitution theorem rebukes, or is even relevant
to, my suggestion that such theories are, in fact, about how
scarce resources are allocated amongst alternative ends. Rob
seems desperate to believe that I am somehow arguing the non-
substitution theorem is wrong, such that, therefore, providing
even more quotes talking about that theorem is going to prove
me wrong. But I am not arguing the non-substitution theorem
is wrong, rather, I am arguing that Rob's idea that such
theories fall outside the bounds of Robbin's definition of
"economics" is wrong. Since Rob doesn't seem able to defend
his idea, he instead substitutes a very poorly aimed insult (good
grief, Rob, I've never seen you post anything a mediocre second-
year economics major couldn't follow, if only, perhaps, you would
learn how to write models cogently) for a rational reply.
Typical, but nonethless disappointing.
Chris Auld
>"John J Weatherby" <jwea...@bayou.uh.edu> wrote:
>
>> Review definition of economics
>
>I did. For example,
>
> Economics is the investigation of the evolution of market, institutional
> and technological forces as they affect production and distribution
> within a capitalist social formation.
Oops! Nothing I've ever written is "economics." What a dumb
definition. Where's it from?
>See:
>
> <http://online.bcc.ctc.edu/econ100/ksttext/chaplist.htm>
That explains it. A good exercise for first year students
would be to go through that set of unpublished lecture notes
and pick out some of the innumerable basic errors. What an
incompetent mess.
>Most academic subjects are defined by their practitioners in terms of
>their object of study, not their method.
Why, Rob, do you imagine that Robbin's definition specifies a
method?
Robert Vienneau
> ...your requirement...is just goofy.
> ...the quote you...provide which
> might actually buttress your argument...is very weak.
> ...an opportunity cost...
> The quote above has either been taken wildly out of context or
> is simply wrongheaded. Or both.
Whatever. I think Chris and some others simply don't understand the
mathematical economics illustrated in my first post on this thread
or the conversations upon which I draw.
Here's a quote from a textbook more recent, more advanced, and more
comprehensive - e.g., it covers joint production - than Pasinetti's:
"The 'non-substitution theorem' states that under certain specified
conditions, and taking the rate of profit (rate of interest) as given
from outside the system, relative prices are independent of the
pattern of final demand. The 'non-substitution theorem' is of
particular interest in the present context since, as was already
mentioned, it puts into sharp relief the role of demand in neoclassical
analysis.
The original formulation of the theorem assumes (i) constant returns
to scale, (ii) a single primary factor of production only (homogeneous
labor) and (iii) no joint production, that is, circulating capital
only (see Arrow, 1951, Georgescu-Roegen, 1951, Koopmans, 1951a, and
Samuelson, 1951). The theorem was received with some astonishment by
authors working in the neoclassical tradition since it seemed to
flatly contradict the importance attached to consumer preferences for
the determination of relative prices. As Samuelson wrote: 'From
technology and the interest rate alone, AND COMPLETELY WITHOUT REGARD
TO DEMAND CONSIDERATIONS..., price relations can be accurately
predicted as constants' (1966b, p. 530). This astonishment is all the
more understandable, since several 'classroom' neoclassical models,
for didactical reasons, are based precisely on the set of simplifying
assumptions (i)-(iii) underlying the theorem, WITHOUT however
arriving at the conclusion that demand does not matter.
This latter observation should have raised doubts as to the validity
of the widely held opinion that it is first and foremost the SPECIAL
MODELING OF PRODUCTION on which the theorem hinges. In order for
demand to exert an influence on the price of a good the supply
function must not be horizontal. Then how do neoclassical models that
are subject to constant returns to scale, no joint production, and
homogeneous labor arrive at an upward sloping supply curve? The
upward slope of the supply curve reflects the increase in the relative
price of the productive service which is required in a relatively
high proportion in the production of the good. For example, if the
good under consideration happens to be produced with a relatively
high proportion of labor to 'capital,' that is, a high 'labor
intensity,' then an increase in the demand for the good, that is, a
rightward shift of the demand schedule, would lead to a rise in the
relative price of the good due to an increase in the wage rate relative
to the rate of profit. This change in relative prices of productive
services is ultimately traced back to changes in the relative scarcity
of factors, labor and 'capital,' the endowment of which is assumed to
be given.
It is therefore not so much assumptions (i)-(iii) which account for
the theorem: it is rather the hypothesis that the rate of profit (or,
alternatively, the wage rate) is given and independent of the level
and composition of output. This hypothesis is completely extraneous
to the neoclassical approach and in fact assumes away the role played
by one set of data from which that analysis commonly begins: given
initial endowments... While assumptions (i)-(iii) affect only the
degree of generality of the neoclassical theory, the assumption of a
given rate of profit radically transforms the substance of that theory.
With the endowment side chopped off, the concept of 'scarcity' of
factors of production loses the significance usually attributed to
it in neoclassical explanations of relative prices. Hence, the demand
for goods, and thus preferences, can no longer exert an influence on
prices via the derived demand for factor services which are available
in given suppply: prices of goods are independent of demand because
income distribution is assumed to be independent of demand. The
importance of the 'non-substitution theorem' should thus be seen in
the fact that it contributes to a clarification of the role of
consumer preferences and thus demand for the neoclassical theory of
distribution and relative prices.
It goes without saying that in the framework of classical analysis
with its different approach to the theory of value and distribution,
a characteristic feature of which is the non-symmetric treatment of
the distributive variables...there is nothing unusual or exceptional
about the 'non-substitution theorem.'"
-- Heinz D. Kurz and Neri Salvadori, _Theory of Production: A Long-
Period Analysis_, Cambridge University Press, 1995, pp. 26-28.
Robert Vienneau
> Review definition of economics
I did. For example,
Economics is the investigation of the evolution of market, institutional
and technological forces as they affect production and distribution
within a capitalist social formation.
See:
<http://online.bcc.ctc.edu/econ100/ksttext/chaplist.htm>
Most academic subjects are defined by their practitioners in terms of
their object of study, not their method.
--
Robert Vienneau
> ...But I am not arguing...
Yes; I know. I want my five pounds back.
"There are some commodities, the value of which is determined by their
scarcity alone. No labour can increase the quantity of such goods, and
therefore their value cannot be lowered by an increased supply. Some
rare statues and pictures, scarce books and coins, wine of a peculiar
quality, which can be made only from grapes grown on a particular
soil, of which there is a very limited quantity, are all of this
description. Their value is wholly independent of the quantity of
labour originally necessary to produce them, and varies with the
varying wealth and inclinations of those who are desirous to possess
them.
These commodities, however, form a very small part of the mass of
commodities daily exchanged in the market. By far the greatest part
of those goods which are the objects of desire, are procured by
labour; and they may be multiplied, not in one country alone, but in
many, almost without any assignable limit, if we are disposed to
bestow the labour necessary to obtain them.
In speaking then of commodities, of their exchangable value, and of
the laws which regulate their relative prices, we mean always such
commodities only as can be increased in quantity by the exertion of
human industry, and on the production of which competition operates
without restraint."
-- David Ricardo, _Principles of Political Economy_, (all
3 editions), Chapter 1 (p. 12 in the Sraffa edition).
Ricardo arguably defines scarce commodities to be goods which cannot
be "increased in quantity" "without...limit" by labor. Under this
reading, he states that his theory applies to non-scarce commoditiess
alone. Given this understanding, classical economics, including
contemporary revivals, does not fall under a definition of economics
as "the study of the allocation of scarce resources among alternative
ends."
Poor Chris Auld.
JMH
Chris Auld wrote in message <80047b$fja$1...@jerry.ss.ucalgary.ca>...
>Robert Vienneau <rv...@see.sig.com> wrote:
>>"John J Weatherby" <jwea...@bayou.uh.edu> wrote:
>>
>>> Review definition of economics
>>
>>I did. For example,
>>
>> Economics is the investigation of the evolution of market, institutional
>> and technological forces as they affect production and distribution
>> within a capitalist social formation.
>
>definition. Where's it from?
Why's it a dumb definition? I agree it's not quite what pure micro
theory is about but lot's of applied economics fits into that rather
broad description: all of political economy, e.g., Public Choice,
a good amount of monetary economics, IO, some of the experimental
economics/game theory efforts in economics. More specifically,
wouldn't you think that both the analysis of the succesive monopoly
problem and the analysis of the principle-agent problem and contracts
fall into the above definition.
Was Smith's Wealth of Nations not an economic text or was only the
first Book economics?
I don't have to agree with Rob that economics doesn't fundementally
confront the issue of scracity to accept the above definition of what
economics inquity is about.
JMH
Chris Auld
>au...@jerry.ss.ucalgary.ca (Chris Auld) wrote (in two posts):
>> ...But I am not arguing...
>
>Yes; I know. I want my five pounds back.
Careful, Rob, someone may come to the conclusion that you do,
have a sense of humor after all with quips like that. You should
go back to being as dour as possible immediately. Let's see, now,
oh yes, a tedious semi-relevant quote from someone dead for a
century or two:
> "There are some commodities, the value of which is determined by their
> scarcity alone. No labour can increase the quantity of such goods, and
> therefore their value cannot be lowered by an increased supply. Some
[ snip ]
>Ricardo arguably defines scarce commodities to be goods which cannot
>be "increased in quantity" "without...limit" by labor. Under this
>reading, he states that his theory applies to non-scarce commoditiess
>alone. Given this understanding, classical economics, including
>contemporary revivals, does not fall under a definition of economics
>as "the study of the allocation of scarce resources among alternative
>ends."
Ricardo is stating that whatever theory he's about to espouse
depends on the commodities being producable. We can't produce
more 19th century art, we can produce more sports cars, for instance.
Ricardo does not say, however, that he thinks that the latter type of
commodity is not "scarce," he says rather that that type of commodity
will not have a price determined by "scarcity ALONE." If you don't
think sports cars and every other good in their category are "scarce,"
Rob, would you mind please sending me a Ferrari?
>Poor Chris Auld.
Yes, poor Chris Auld. Once in a while he succumbs to the
temptation to correct one of Rob Vienneau's innumerable
misunderstandings of basic economics, and all he gains is
slightly higher blood pressure in exchange.
Chris Auld
>>> Economics is the investigation of the evolution of market, institutional
>>> and technological forces as they affect production and distribution
>>> within a capitalist social formation.
>Why's it a dumb definition? I agree it's not quite what pure micro
>theory is about but lot's of applied economics fits into that rather
>broad description: all of political economy, e.g., Public Choice,
It's a dumb definition because it limits "economics" in two
important ways: first, it specifies that "economics" only
studies "capitalist social formations" and second, that it
only studies "production and distribution." I agree with you
that it is applicable to a pretty big chunk of economics, but
it excludes so much stuff we refer to as "economics" that it
can't be a reasonable definition. How much of Gary Becker's
work would be "economics" under this definition, for instance?
SUSUPPLY
>>Poor Chris Auld.
>
>Yes, poor Chris Auld. Once in a while he succumbs to the
>temptation to correct one of Rob Vienneau's innumerable
>misunderstandings of basic economics, and all he gains is
>slightly higher blood pressure in exchange.
And the thanks of a grateful sci.econ readership. Or at least of those who
know the difference between economics and baloney.
Patrick
Andrew Campbell
that if they can be inthe business of producing giffen goods that is the one
to be in...........
Giffen good = a good which when the price is raised the demand goes
up..........
examples
1/ rolls royce automobiles
2/ buffalo jeans
geneally products where exclusivity is the important factor
Chris Auld <au...@jerry.ss.ucalgary.ca> wrote in message
news:801j9u$g7c$1...@jerry.ss.ucalgary.ca...
> >Poor Chris Auld.
>
> Yes, poor Chris Auld. Once in a while he succumbs to the
> temptation to correct one of Rob Vienneau's innumerable
> misunderstandings of basic economics, and all he gains is
> slightly higher blood pressure in exchange.
>
Andrew Campbell
in "capitalist" societies, economics is about choices and the costs and
benefits of those choices in all societies.......not just dollar costs
either, in fact if it was just dollar costs and benefits then perhaps the
right wing would have something, but it is about all those other costs and
benefits and the prices we put on them.......... and different societies put
different prices on the so called externalities.........neo marxist
economists like friedman do their level best to assume all externalities
away, while such as becker try to interpret what prices we put on them
Chris Auld <au...@jerry.ss.ucalgary.ca> wrote in message
news:801joc$g7s$1...@jerry.ss.ucalgary.ca...
> JMH <n...@home.org> wrote:
>
> >>> Economics is the investigation of the evolution of market,
institutional
> >>> and technological forces as they affect production and distribution
> >>> within a capitalist social formation.
>
> >Why's it a dumb definition? I agree it's not quite what pure micro
> >theory is about but lot's of applied economics fits into that rather
> >broad description: all of political economy, e.g., Public Choice,
>
> It's a dumb definition because it limits "economics" in two
> important ways: first, it specifies that "economics" only
> studies "capitalist social formations" and second, that it
> only studies "production and distribution." I agree with you
> that it is applicable to a pretty big chunk of economics, but
> it excludes so much stuff we refer to as "economics" that it
> can't be a reasonable definition. How much of Gary Becker's
> work would be "economics" under this definition, for instance?
>
Chris Auld
>well when wearing my hat as a business consultant, i always tell my clients
>that if they can be inthe business of producing giffen goods that is the one
>to be in...........
>
>Giffen good = a good which when the price is raised the demand goes
>up..........
>
>examples
>1/ rolls royce automobiles
>2/ buffalo jeans
Well, I'm not sure what this has to do with my post, but
those aren't actually examples of "Giffen goods," nor are
they likely to be goods with positively sloped demand curves.
A "Giffen good" is very specifically one which has a
positively sloped Marshallian demand curve because the
income effect is negative and outweighs the substitution
effect. Goods like designer jeans are not such goods --
*if* they exhibit a positive relationship between price
and quantity demanded, it is not through this mechanism.
Rather, it would be due to "conspicuous consumption,"
which essentially requires that prices directly enter
the utility function.
Now, marginal costs for designer jeans and luxury cars
are likely to approximately flat in anything other than
the very short run, so if these firms actually faced
positively sloped demand curves locally, they would
certainly raise their price. I don't know of any reason
why you should tell anyone they should be "in the business
of producing Giffen goods [sic]," generally speaking.
Andrew Campbell
> Andrew Campbell <aca...@direct.ca> wrote:
>
> >well when wearing my hat as a business consultant, i always tell my
clients
> >that if they can be inthe business of producing giffen goods that is the
one
> >to be in...........
> >
> >Giffen good = a good which when the price is raised the demand goes
> >up..........
> >
> >examples
> >1/ rolls royce automobiles
> >2/ buffalo jeans
>
> Well, I'm not sure what this has to do with my post, but
> those aren't actually examples of "Giffen goods," nor are
> they likely to be goods with positively sloped demand curves.
>
the post had to do with whether or not scarcity and price were always
related i named a class of goods in which they are not.........
> A "Giffen good" is very specifically one which has a
> positively sloped Marshallian demand curve because the
> income effect is negative and outweighs the substitution
> effect. Goods like designer jeans are not such goods --
> *if* they exhibit a positive relationship between price
> and quantity demanded, it is not through this mechanism.
> Rather, it would be due to "conspicuous consumption,"
> which essentially requires that prices directly enter
> the utility function.
>
> Now, marginal costs for designer jeans and luxury cars
> are likely to approximately flat in anything other than
> the very short run, so if these firms actually faced
> positively sloped demand curves locally, they would
> certainly raise their price.
your speculation versus my knowledge chris
I don't know of any reason
> why you should tell anyone they should be "in the business
> of producing Giffen goods [sic]," generally speaking.
the positively sloped demand curve is the reason
Chris Auld
Andrew Campbell <aca...@direct.ca> wrote:
>the post had to do with whether or not scarcity and price were always
>related i named a class of goods in which they are not.........
Umm, you did? Even if you were correct that the demand curves
for designer jeans and luxury cars are upwards sloping, why would
that mean that their prices are "unrelated" to scarcity?
>> Now, marginal costs for designer jeans and luxury cars
>> are likely to approximately flat in anything other than
>> the very short run, so if these firms actually faced
>> positively sloped demand curves locally, they would
>> certainly raise their price.
>your speculation versus my knowledge chris
Would you mind telling the nice newsgroup how you acquired this
"knowledge"?
>I don't know of any reason
>> why you should tell anyone they should be "in the business
>> of producing Giffen goods [sic]," generally speaking.
>
>the positively sloped demand curve is the reason
Care to explain that in a little more detail? In particular,
could you write down the profit maximization problem for a
firm with constant marginal costs which faces an upwards
sloping demand curve and check the second-order conditions?
Hyman Blumenstock
to get from here to there, requiring only a body that can
comfortably seat passengers, an engine, four wheels and
controls. To design one with multiple engines, many more
wheels, buggy whip sockets, and limitless extranous
attachments etc, would be a severe overcomplication that can
do nothing but hinder its original purpose.
Economics, developed during the Agrarian era of Food
shortage, has as its sole function, how to distribute that
scarce Food Supply to a population whose Demand for Food
exceeded that scarce Supply. Barter and Mediums of Exchange
were developed to add some rationale to that distribution.
One Economist, Marx, thought that a little compassion ought
to be applied, so that those completely left out in the cold
could have some Food shared from those who had the privilege
of getting not only enough but too much. He was roundly
ostracized for that deviation from holy writ.
Those "definitions" you are arguing about, are in the
category of what additional hangons to the basic automobile,
whose basic function was only to carry someone from here to
there, hangons that do nothing but hinder that function.
The original and basic function of Economics was no more
than to see everyone fed adequately when Food was scarce.
That function during the current Post-Agrarian era of Food
abundance ought to be a piece of cake, and renders
Doctrinaire Economics totally obsolete. But that is
compromised by the obscene focus upon all those totally
unncessary hang ons of Exchange, Money, Banking, Markets,
dollar costs, wherein people still go hungry in the midst of
a plentitude of Food. And the reason is solely to maintain
the highly prestigious profession of Economics far beyond
its real usefullness, into becoming a self serving,
rapacious vehicle that is rapidly destroying a world
environment that had been essential to the very survival of
the human race. Not to speak of all the unnecessary
slaughter of the last century due to the maintenance of
human misery, crime, violence and war sourced in the
deliberate withholding of sufficient food to rebellious
people by the continuing practice of Doctrinaire Economics.
HB
That
Andrew Campbell wrote:
>
> it is a dumb definition becaseu it also assumes that economics is onlythere
> in "capitalist" societies, economics is about choices and the costs and
> benefits of those choices in all societies.......not just dollar costs
> either, in fact if it was just dollar costs and benefits then perhaps the
> right wing would have something, but it is about all those other costs and
> benefits and the prices we put on them.......... and different societies put
> different prices on the so called externalities.........neo marxist
> economists like friedman do their level best to assume all externalities
> away, while such as becker try to interpret what prices we put on them
>
> Chris Auld <au...@jerry.ss.ucalgary.ca> wrote in message
> news:801joc$g7s$1...@jerry.ss.ucalgary.ca...
> > JMH <n...@home.org> wrote:
> >
> > >>> Economics is the investigation of the evolution of market,
> institutional
> > >>> and technological forces as they affect production and distribution
> > >>> within a capitalist social formation.
> >
> > >Why's it a dumb definition? I agree it's not quite what pure micro
> > >theory is about but lot's of applied economics fits into that rather
> > >broad description: all of political economy, e.g., Public Choice,
> >
> > It's a dumb definition because it limits "economics" in two
> > important ways: first, it specifies that "economics" only
> > studies "capitalist social formations" and second, that it
> > only studies "production and distribution." I agree with you
> > that it is applicable to a pretty big chunk of economics, but
> > it excludes so much stuff we refer to as "economics" that it
> > can't be a reasonable definition. How much of Gary Becker's
> > work would be "economics" under this definition, for instance?
> >
Grinch
<aca...@direct.ca> wrote:
>well when wearing my hat as a business consultant, i always tell my clients
>that if they can be inthe business of producing giffen goods that is the one
>to be in...........
>
>Giffen good = a good which when the price is raised the demand goes
>up..........
>
>examples
>1/ rolls royce automobiles
>2/ buffalo jeans
>
>geneally products where exclusivity is the important factor
Oh yeah, sure.
That's why Rolls Royce sells its cars for $1 million each. The higher
the price the greater the demand. No, $2 million per car is better,
*raise* the price get *more* demand. No, $3 million, *higher & more*
...
It's tough doing price consulting work for a business like that, isn't
it?
It's also why counterfeiters of designer jeans are so well known for
selling their wares at *higher* prices than the real thing -- the more
they charge the more the demand so the easier it is to get those quick
bucks.
In my dictionary of economics under the definition of "Giffen Good" it
says something about 'interplay of income and substitution effects'.
Did you ever hear of those things? Do they interplay with Rolls
Royces, do you think?
BTW, when you write up reports in your role as a business consultant,
do you charge your clients an extra fee for using punctuation and
capital letters?
Andrew Campbell
Chris Auld <au...@jerry.ss.ucalgary.ca> wrote in message
news:801ud3$gar$1...@jerry.ss.ucalgary.ca...
>
> Andrew Campbell <aca...@direct.ca> wrote:
>
> >the post had to do with whether or not scarcity and price were always
> >related i named a class of goods in which they are not.........
>
> Umm, you did? Even if you were correct that the demand curves
> for designer jeans and luxury cars are upwards sloping, why would
> that mean that their prices are "unrelated" to scarcity?
>
>
> >> Now, marginal costs for designer jeans and luxury cars
> >> are likely to approximately flat in anything other than
> >> the very short run, so if these firms actually faced
> >> positively sloped demand curves locally, they would
> >> certainly raise their price.
> >your speculation versus my knowledge chris
>
> Would you mind telling the nice newsgroup how you acquired this
> "knowledge"?
>
>
> >I don't know of any reason
> >> why you should tell anyone they should be "in the business
> >> of producing Giffen goods [sic]," generally speaking.
> >
> >the positively sloped demand curve is the reason
>
> Care to explain that in a little more detail? In particular,
> could you write down the profit maximization problem for a
> firm with constant marginal costs which faces an upwards
> sloping demand curve and check the second-order conditions?
>
Andrew Campbell
Chris Auld <au...@jerry.ss.ucalgary.ca> wrote in message
news:801ud3$gar$1...@jerry.ss.ucalgary.ca...
>
> Andrew Campbell <aca...@direct.ca> wrote:
>
> >the post had to do with whether or not scarcity and price were always
> >related i named a class of goods in which they are not.........
>
> Umm, you did? Even if you were correct that the demand curves
> for designer jeans and luxury cars are upwards sloping, why would
> that mean that their prices are "unrelated" to scarcity?
>
>
> >> Now, marginal costs for designer jeans and luxury cars
> >> are likely to approximately flat in anything other than
> >> the very short run, so if these firms actually faced
> >> positively sloped demand curves locally, they would
> >> certainly raise their price.
> >your speculation versus my knowledge chris
>
> Would you mind telling the nice newsgroup how you acquired this
> "knowledge"?
>
>
> >I don't know of any reason
> >> why you should tell anyone they should be "in the business
> >> of producing Giffen goods [sic]," generally speaking.
> >
> >the positively sloped demand curve is the reason
>
> Care to explain that in a little more detail? In particular,
> could you write down the profit maximization problem for a
> firm with constant marginal costs which faces an upwards
> sloping demand curve and check the second-order conditions?
>
supported haven with tenure, so i do not have the spare time to play with
math,
i prefer to be able to deal with reality
\
JMH
Chris Auld <au...@jerry.ss.ucalgary.ca> wrote in article <801joc$g7s$1...@jerry.ss.ucalgary.ca>...
. . .
> It's a dumb definition because it limits "economics" in two
> important ways: first, it specifies that "economics" only
> studies "capitalist social formations" and second, that it
> only studies "production and distribution." I agree with you
> that it is applicable to a pretty big chunk of economics, but
> it excludes so much stuff we refer to as "economics" that it
> can't be a reasonable definition. How much of Gary Becker's
> work would be "economics" under this definition, for instance?
Your first criticism is well taken--though one might raise
the question of how limiting "capitalist social formation"
actually is. If we are to apply the more political definition
of capitalist society that's certainly too narrow a scope.
I'm not well learned in Becker's writings--probably a
bad for anyone who's studied economics--but I would
think that much of his work fits into the "production
and distribution" bucket. I'm thinking of his household
production model and the piece on pressure groups.
Clearly the household production model doesn't fit
into the political "capitalist" society but that
family was obviously using capital and addressing
intertemporal choices. Is that sufficient to fit into
the general arean of "capitalist social formations"?
Very grey I suppose, and if one uses the implied, non-
political definition that leave most modern societies
as capitalist so is not very discriminating politically.
JMH
Robert Vienneau
> Careful, Rob, someone may come to the conclusion that you do,
> have a sense of humor after all with quips like that.
We can't have that, can we?
> You should
> go back to being as dour as possible immediately. Let's see, now,
> oh yes, a tedious semi-relevant quote from someone dead for a
> century or two:
From the thread "Effects 'At The Margin'":
---------------------------------------------------------------------
> Robert Vienneau wrote:
> >Strangely enough, those Classical/Marxian reconstructions I referred
> >to above are *not* about the allocation of scarce resources among
> >alternative uses and *don't* seem to be about this kind of logic.
Chris Auld wrote:
> Funny, I thought Classical/Marxian economics is mostly about how market-
> based economies operate, and is therefore about how scarce resources
> are allocated amongst alternate uses.
----------------------------------------------------------------------
Now Chris questions the relevance of the text of Ricardo's _Principles_
- if that's what he means to do by "semi-relevant" - to this discusion.
Strange that the text of the paradigmatic text of Classical economics
shouldn't be relevant to a discussion of Classical economics.
> > "There are some commodities, the value of which is determined by their
> > scarcity alone. No labour can increase the quantity of such goods, and
> > therefore their value cannot be lowered by an increased supply.
> [ snip ]
> >Ricardo arguably defines scarce commodities to be goods which cannot
> >be "increased in quantity" "without...limit" by labor. Under this
> >reading, he states that his theory applies to non-scarce commoditiess
> >alone. Given this understanding, classical economics, including
> >contemporary revivals, does not fall under a definition of economics
> >as "the study of the allocation of scarce resources among alternative
> >ends."
> Ricardo is stating that whatever theory he's about to espouse
> depends on the commodities being producable. We can't produce
> more 19th century art, we can produce more sports cars, for instance.
> Ricardo does not say, however, that he thinks that the latter type of
> commodity is not "scarce," he says rather that that type of commodity
> will not have a price determined by "scarcity ALONE." If you don't
> think sports cars and every other good in their category are "scarce,"
> Rob, would you mind please sending me a Ferrari?
That's circular reasoning. Chris seems to think that only scarce goods
can have a positive price and uses the evidence of a positive price to
conclude certain goods are scarce. But the premise is exactly what's
in dispute. Just repeatedly stating it is not an argument. It is
begging the question.
I think one can interpret Ricardo's statement that his theory applies to
goods which can be multiplied by labor as saying that he doesn't take
endowments of these goods as given (as opposed to the goods he excludes
from his theory). That's a common understanding in the literature
developing my favorite contemporary reconstruction of Classical
economics.
Here's an example of an article that contrasts (re)producability
with scarcity:
Alberto Quadrio-Curzio and Roberto Scazzieri, "The Exchange-
Production Duality and the Dynamics of Economic Knowledge,"
in _Foundations of Economics: Structures of Inquiry and
Economic Theory_, edited by Mauro Baranzini and Roberto
Scazzieri; Basil Blackwell, 1986.
> >Poor Chris Auld.
> Yes, poor Chris Auld. Once in a while he succumbs to the
> temptation to correct one of Rob Vienneau's innumerable
> misunderstandings of basic economics, and all he gains is
> slightly higher blood pressure in exchange.
If you grew up, you might live longer. Personally, I plan to live
forever. So far, so good.
There is no misunderstanding of basic economics on my side at issue
here. I note the distinction between goods whose endowments are given
in certain models and those goods, like wheat and rye in my example,
whose endowments are determined endogeneously. The question is whether
the latter goods can be characterized as "scarce," in the sense
relevant for the neoclassical definition of economics.
Here's another quote to bolster my argument with a reference to the
literature Chris wants to ignore:
"Hahn...asserts that, in order to obtain Sraffa's uniform rate of
return on the two capital goods, the initial endowments of wheat
and barley must bear some *particular proportion* to each other,
because '*It cannot be part of the doctrine* of Sraffa that you
are uninterested in whether there is enough...wheat and barley
to meet demand'...In other words, Hahn finds it inconceivable
that the simple answer to the question he raises in that
passage might be:
Yes, it can, and it is, part of the doctrine of Sraffa that
distribution and normal prices do *not* require the initial
endowments of wheat and barley for their determination.
Clearly, Hahn has begged his question here. He has *assumed*,
and not proved, that what constitutes a characteristic feature
of 'neoclassical' theory by his own definition of it - the
determining role of factor endowments - is present in Sraffa's
analysis. To that extent he has *assumed* what he intends to
prove, namely that Sraffa's analysis is a 'special case' of
neoclassical theory.
In fact, as he tells us in his Preface, Sraffa's standpoint is
that of 'the old classical economists from Adam Smith to
Ricardo,' and, as we shall presently see, this standpoint does
*not* attribute a determining role to 'the endowment of
agents*. Therefore, his analysis can hardly be a 'special case'
of the 'neoclassical' theory, which *does* admittedly rest on
such a role."
-- Pierangelo Garegnani, "Sraffa: Classical versus Marginal
Analysis," in _Essays on Piero Sraffa_, edited by Krishna
Bharadwaj and Bertram Schefold, Unwin-Hyman, 1990.
Some have found it ironic that Robbins propounded his definition of
economics when he did - in the midst of the Great Depression.
"Factors" were not scarce then; nor were they free. I think that
Classical economics is consistent with the denial of Say's law,
as did Ricardo's most astute 19th century critic.
Chris Auld
>Now Chris questions the relevance of the text of Ricardo's _Principles_
>- if that's what he means to do by "semi-relevant" - to this discusion.
>Strange that the text of the paradigmatic text of Classical economics
>shouldn't be relevant to a discussion of Classical economics.
Huh? The quotation is not relevant because the quotation does not
bolster Rob's silly argument that anything that can be produced is
not "scarce" (nbotice Rob doesn't defend his earlier interpretation
of Ricardo). This whole discussion seems to about Rob's
misunderstanding of what economists mean be that word. It is not
about whether prices are "scarcity indexes" (remember Rob initially
argued that Robbin's definition didn't apply to models which held
they are not, although he's now given up that interpretation). Now
he seems to want to argue that any good that's produced is not
"scarce." Rob, would you please mail me all the goods in your
household which are producable? I could really use a new couch.
Just how far do you intend to stick your feet in your mouth with
this ridiculous argument, Rob?
John J Weatherby
Neither. It was not the first book on economics nor was it not an economic
text. There were plenty of writers discussing economic issues before Adam
Smith. What the Wealth of Nations is considered is the start of what is
called classical economics not necessarily economics in general. In fact
Smith also had earlier works such as Moral Sentiments were the ideas in the
opulence of Nations were being developed.
John J Weatherby
Sir I seriously suggested that you refer to at least fifty years of
empirical research before you assert the knowledge that you have found a
Giffen good. For over fifty years researchers have econometrically search
for a good that fit the properties of a Giffen good. Until now have been
found. If this truly "knowledge" and you have spent the years researching to
find out that Rolls Royce automobiles and Buffalo Jeans are Giffen goods, I
seriously suggest you publish. Unless the econometrics were bad, which I
highly suspect they were if you actually found such results, then at least a
field medal is coming your way.
On the other hand if you have completed ignored the fifty years of
research and come up with the answer five minutes after positing the
question, I suggest you defer and let a real micro economist decide what is
speculation and what is knowledge. Being a macro-economist who is actually
doing research, I for one would not be so arrogant as to wily-nilly gives
examples of something that micro economist have spent years trying to find
and have not.
> your speculation versus my knowledge chris
>
> > why you should tell anyone they should be "in the business
> > of producing Giffen goods [sic]," generally speaking.
>
> the positively sloped demand curve is the reason
> >
John J Weatherby
And in your real world education you have completely missed the definition
of a Giffen good. Furthermore you have never begun to understand what it
means to prove something. Your statements are nothing more than arrogant
clap-trap. If you had an inkling of what it takes to really do research you
wouldn't make these statements.
Furthermore you reality seems way to clouded and biased by your own
arrogance.
John J Weatherby
non-scarce good will have non-zero excess demands. Simply put a free or
non-scarce means there is more than what is wanted. If there exist satiation
then there is an excess demand. Hence water is not scarce there is more than
can be used. At least one time this was true. One could say clean water
pumped into your house or that is bottled is scarce that is why you pay for
it. Simply if the excess demand for a good is zero it is scarce. Simply
people want more than is endowed or produced.
This means Chris is right. We know from the theorems of welfare, given
that indifference curves are convex there will be a price ratio which
supports a competitive equilibrium. If a good is scarce one of the
properties will be a non-zero price. If there is satiation of goods and
non-altruist preferences than any good that is given away is not scarce.
This is not hand waving around your "point" it is simply showing that you
are wrong.
Unfortunately you imagine yourself as Rocky Balboa in these sorts of
discussions and refuse to admit defeat. Well if you are Rocky no matter how
many times you try to get up Apollo Creed wins this one.
Hyman Blumenstock
any price for Food greater than zero? If you insist that
Food is scarrce, how then to explain our obesity rate
approaching 50%?
HB
Robert Vienneau
> Huh? ...silly argument...Rob's misunderstanding...
> [ some fantasies about positions I supposedly don't defend and
> that I've supposedly "given up" ] [ usual question-begging ]
>... ridiculous argument...
Chris seems to need to catch up on textbook treatment of these issues
including a textbook treatment of what some have said is the
greatest paper in mathematical economics in this century:
"Interestingly, in Champernowne's interpretation von Neumann's
model emerges as one characterized by 'classical' features...
These concern: (i) the concept of production as a circular
flow; (ii) the concept of the surplus product which forms the
basis of an explanation of all shares of income other than
wages; (iii) the notion of a uniformly expanding economy in
which the rate of expansion is determined endogeneously, that is,
a 'quasi-stationary system;' (iv) the concept of duality of the
relationship between relative quantities and the rate of growth
on the one hand and that between relative prices and the rate of
interest (rate of profit) on the other; (v) the way in which the
choice of technique is approached and the use of inequalities in
it; and (vi) the way the Rule of Free Goods is applied to primary
factors of production and to products, respectively. Von Neumann
in fact applied that rule in the same way as the classical
economists did. While he assumed 'that the natural factors of
production, including labour, can be expanded in unlimited
quantities,' this did not make him treat all these factors alike.
Rather, he singled labour out as the only factor that is exempt
from that rule; all other primary factors, although needed in
production, 'disappear' from the scene because they are taken as
non-scarce.
[Footnote] Assuming that natural resources are non-scarce is of
course not the same thing as assuming that there are no
natural resources at all. Von Neumann's model is frequently
misinterpreted in the latter sense. In this context it deserves
to be noted that von Neumann does not define goods in the same
way as Debreu: he does not consider a particular plot of land
in a particular location as a special good. However, with the
system growing forever, the point will surely come where some
natural resource(s) will become scarce. Surprisingly, von
Neumann does not seem to have seen this point. As Professor
Samuelson has pointed out to us in private correspondence, 'More
by inadvertence than conscious intention, v.N. failed to
emphasize the *basic classical* notion of land resources as
unproducible or diminishable.' The total neglect of the problem
of scarce primary resources such as land distinguishes his
analysis in fact both from the analyses of the classical and the
neoclassical economists...
Labor is assumed to receive an exogeneously given wage bundle which
is independent of the degree of employment.
[Footnote] 'At most, one could say that a "Rule of Zero 'Excess'
Wages" is applied because labour is less than fully employed'
(Steedman). The interpretation given by Dore of von Neumann's
use (or rather non-use) of the Rule of Free Goods is difficult
to sustain: according to Dore in the von Neumann model
'Cassel's "principle of scarcity"...is given an extreme binary
interpretation whereby a resource has either a positive economic
value if it is fully utilized, or its value is zero...Unless
every single man and woman is fully employed, the social value
of labour is zero; this is indeed extreme. Why did von Neumann
resort to this formulation?' The answer to this question is:
he did not."
-- Heinz D. Kurz and Neri Salvadori, _Theory of Production: A
Long-Period Analysis_, Cambridge University Press, 1995,
pp. 406-407.
Notice that we see above the same distinction between "scarce" goods
and (re)producible goods as I saw in the "semi-relevant" Ricardo
passage earlier in this thread. Notice that this is a different issue
of the use by Von Neumann of his Rule of Free Goods. (By the way, Von
Neumann doesn't use the word "scarce" or any derivative in formulating
his Rule of Free Goods - I looked.) Notice that the consistency of
classical analysis, including the Von Neumann model, with a denial of
Say's law is argued to be relevant to the non-applicability of the
(different) neoclassical Rule of Free Goods to the classical approach.
At least, the Rule of Free Goods appears in a different context in
classical and neoclassical models.
Kurz and Salvadori explain the neoclassical Rule of Free Goods in
extensions of the Walras-Cassel model in a section "On alternative
interpretations of the von Neumann model:"
"A recurrent criticism concerned the assumed positivity of the
prices of factor services. In the words of Wicksell: 'The
"simultaneous equations" are no guarantee that any "variable"
cannot assume the value of nil, even if we are discussing so
important a social factor as wages, or so questionable - not to
say odious - a social factor as the rent of land, site-rent,
or certain monoploy revenue, etc.' (Wicksell). Zeuthen was
presumably the first to argue that Cassel's quantity equations
ought to be written as inequalities, that is,
a1j S1 + a2j S2 + ... + anj Sn <= Zj, j = 1, 2, ..., z
since the demand for any factor service could fall short of or
at most be equal to its supply, but can never exceed it. In case
the demand for a factor service were smaller than its supply, then
the factor service could not be considered scarce. The 'principle
of scarcity' according to which only productive resources which
are in short supply have positive prices, could therefore not be
applied to the factor under consideration: its price would be
equal to zero."
-- ibid. p. 409
Notice that here, unlike in the Von Neumann model, the supplies of
primary inputs are given. (One might insert a unimportant caveat
here about reservation demand.) The question is whether when a
Rule of Free Goods is applied in models where endowments are not
given, it makes sense to talk about non-free goods as scarce. This
is not a question of mathematical formalism, but of the
interpretation of such formalism. I have demonstrated that some
economists do not characterize such goods as "scarce." There's no
misunderstanding of basic economics here. Others in this thread,
however, seem either not to understand or are unwilling to
acknowledge the differences among certain formal economic models.
Kurz and Salvadori explain the differences between the Walras-Cassel
and Von Neumann models:
"It is a characteristic feature of the 'Walras-Cassel model,' as of
neoclassical theory in general, that it attempts to explain all
prices and quantities, including the prices of productive services
and the employment levels of these services, in terms of demand
and supply...the data or independent variables from which the
theory starts are the following. It takes as given
(i) initial endowments of the economy and who owns them;
(ii) preferences of consumers; and
(iii) the set of available techniques.
On the basis of these data the theory tries to find an 'equilibrium'
price vector that simultaneously clears all markets for goods and
services.
Those who claim that von Neumann's model can be given a neoclassical
interpretation would have to demonstrate that the former starts
from the same set of data (i)-(iii) and centers around the same
theoretical concepts: 'demand' and 'supply.' Such a demonstration is
still lacking, and the following discussion shows why.
In von Neumann's model there are no initial endowments that could
constrain productive activity and economic expansion: it is explicitly
assumed that primary factors are available in abundance and that
there is no historically given endowment of the economy with physical
or value capital. This observation leads to the following one...The
neoclassical economists explain all distributive variables, including
profits, symmetrically in terms of supply and demand in regard to
the respective factors of production, including a factor called
'capital.' This *necessitates* that one starts from a given 'quantity
of capital,' the 'scarcity' of which is seen to be reflected in
the level of the rate of profit, or rate of interest. In
contradistinction, and this concerns a crucial difference, in the
von Neumann model we encounter exactly the same asymmetry in the
theory of distribution that is characteristic of classical analysis:
the real wage is given and profits are conceived of as a residual
magnitude...
Finally, it deserves to be mentioned that in the von Neumann model
the (long-term) rate of growth is determined *endogenously* rather
than exogeneously, as in Cassel's neoclassical analysis which
takes as given the rates of growth of all primary factors and
assumes their continuous full employment. No such assumption is to
be found in von Neumann.
In von Neumann's model preferences can at most be said to play a
rather concealed role: the only route through which they could exert
some influence on the equilibrium solution is via the so-called
necessities of life which are taken into account in the (augmented)
input matrix A. If the necessities of life reflect to some extent
consumers' choice, as is argued by Samuelson (1989), it might be
said that tastes play a role in the determination of relative prices
and income distribution. For with a different vector of wage goods
reflecting workers' needs, even with available technical processes
given, the process(es) chosen, the product(s) that have zero prices
and the rate of interest may be different (see the numerical example
in Steedman, 1977). Samuelson is, of course, right in stressing that
a change in the real wage rate may, and generally will, result in a
change in the equilibrium solution of a von Neumann model. Yet in
von Neumann's analysis the vector of goods constituting the means of
subsistence of workers does not depend on relative prices. Hence,
while it is perhaps an exaggeration to maintain that the von Neumann
model is characterized by 'a complete omission of final demand'
(Arrow), it is, of course, true that 'in contrast to Walras's
formulae...no direct marginalistic connection between prices and
quantities is assumed' (Menger)."
-- Ibid, p. 410-411.
Poor, poor Chris Auld.
Chris Auld
>au...@jerry.ss.ucalgary.ca (Chris Auld) wrote:
>
>> Huh? ...silly argument...Rob's misunderstanding...
>> [ some fantasies about positions I supposedly don't defend and
>> that I've supposedly "given up" ] [ usual question-begging ]
>>... ridiculous argument...
This new quoting style of yours is really awful, Rob. Why do you think
anyone will be impressed by this nonsense?
As for "positions you supposedly don't defend," do you or do you not
wish to maintain your initial premise that models which do not predict
that prices are "scarcity indexes" don't conform to Robbins' definition
of "economics?"
>Chris seems to need to catch up on textbook treatment of these issues
>including a textbook treatment of what some have said is the
>greatest paper in mathematical economics in this century:
Oh for crying out loud. Rob, "scarce" in Robbins' definition essentially
means "has an opportunity cost." The literature you've quoted below
uses a *different definition of scarce*, in particular, it is being used
in the odd sense that something is "scarce" if it's not producible. You
can't make Robbins' inapplicable by redefining the words he uses! Do
you really think that Robbins meant (substituting this non-standard
definition): "economics is the study of the allocation of non-producible
resources amongst alternative ends?" You are being *really* dense here,
Rob, and just digging the hole deeper.
>Poor, poor Chris Auld.
For god's sake Rob, grow up. You are simply wrong. Deal with it.
Markku Stenborg ®
<hys...@home.com> wrote:
> How about Food? Is that in scarce supply? If not, why then
Yes. Its production and delivery have opportunity costs.
> any price for Food greater than zero? If you insist that
> Food is scarrce, how then to explain our obesity rate
> approaching 50%?
People like to eat more calories than they use.
[snip]
--
© Markku Stenborg
markku döt stenborg ät finofc döt fi
Robert Vienneau
> Robert Vienneau <rv...@see.sig.com> wrote:
> >au...@jerry.ss.ucalgary.ca (Chris Auld) wrote:
> >> Huh? ...silly argument...Rob's misunderstanding...
> >> [ some fantasies about positions I supposedly don't defend and
> >> that I've supposedly "given up" ] [ usual question-begging ]
> >>... ridiculous argument...
> This new quoting style of yours is really awful, Rob. Why do you think
> anyone will be impressed by this nonsense?
I think it makes it clear that there's good reason to doubt that
you are interested in discussion.
> >Chris seems to need to catch up on textbook treatment of these issues
> >including a textbook treatment of what some have said is the
> >greatest paper in mathematical economics in this century:
> Oh for crying out loud. Rob, "scarce" in Robbins' definition essentially
> means "has an opportunity cost." The literature you've quoted below
> uses a *different definition of scarce*, in particular, it is being used
> in the odd sense that something is "scarce" if it's not producible.
Suppose that those employed workers shown in my original example
were only a certain percentage of the labor force. Some workers are
involuntarily unemployed. Now compare a fourth island, Delta, to
Alpha. The unemployed rate is lower on Delta, and more rye is
available per member of the population. What has been given up on
Delta such that they have more rye than Alpha? Since the initial
amounts of rye and wheat are determined endogeneously, no wheat had
to be given up. Likewise the rate of growth is the same. The only
thing that seems to be sacrificed is unwanted leisure. In short,
the opportunity cost of rye (or wheat) in my example could be
non-positive. Thus, rye and wheat are positively priced, but
non-scarce BY THE DEFINITION OF SCARCITY AS MEANING "HAS AN
OPPORTUNITY COST."
This, of course, raises the issue of the relationship between the
ideas of Sraffa and Keynes.
> You
> can't make Robbins' inapplicable by redefining the words he uses! Do
> you really think that Robbins meant (substituting this non-standard
> definition): "economics is the study of the allocation of non-producible
> resources amongst alternative ends?"
I'm sure that Chris will find it odd that I don't find that paraphrase
absurd. But then, I doubt Chris understands the distinction between
models of the production of commodities by means of commodities and
the view presented by so-called neoclassical theory of a one-way
avenue that leads from 'Factors of production' to 'Consumption goods.'
Chris, why do you think anyone will be impressed by such nonsense as:
> You are being *really* dense here,
> Rob, and just digging the hole deeper.
--
Chris Auld
>> This new quoting style of yours is really awful, Rob. Why do you think
>> anyone will be impressed by this nonsense?
>
>I think it makes it clear that there's good reason to doubt that
>you are interested in discussion.
Wow, Rob, I never new that deliberately misquoting someone in a childish
manner could produce such an effect. You learn something new and useful
on Usenet every day! "Discussion?" Rob, every time you post you come
up with a brand new argument and implicitly disavow the previous ones.
Why don't you just admit you made a little gaffe and be quit these silly
games?
>> Oh for crying out loud. Rob, "scarce" in Robbins' definition essentially
>> means "has an opportunity cost." The literature you've quoted below
>> uses a *different definition of scarce*, in particular, it is being used
>> in the odd sense that something is "scarce" if it's not producible.
>
>Suppose that those employed workers shown in my original example
>were only a certain percentage of the labor force. Some workers are
>involuntarily unemployed. Now compare a fourth island, Delta, to
>Alpha. The unemployed rate is lower on Delta, and more rye is
>available per member of the population. What has been given up on
>Delta such that they have more rye than Alpha? Since the initial
Did the unemployment rate appear in Rob's initial story? Nope. Did it
appear in the previous reinterpretations? Nope. But apparently it's what
Rob meant all along. This is now the *fourth* reinterpretation of Rob's
initial premise he's provided. The brand new argument: unemployed
resources have zero opportunity cost of use. This is not, in particular,
the same as the first argument: if a model predicts prices aren't "scarcity
indexes," the model doesn't conform to Robbins' definition. (Recall
I explicitly asked Rob if he wished to maintain this argument. Oddly,
that question has been snipped without comment).
To answer the question: what has been given up? Leisure. But that's
not really the point, either. If we are inside the production
possibilitities frontier, then that argument *in and of itself* makes
Robbins' definition applicable. And even more fundamentally, if the
unemployed resources are brought "on line," we still need to choose
what those incremental resources will produce. Rob's final question
should be: what has been given up on Alpha such that they have more
Rye on *Alpha*?
>This, of course, raises the issue of the relationship between the
>ideas of Sraffa and Keynes.
Only in your mind, Rob, where apparently just about everything brings
up this question.
>> You
>> can't make Robbins' inapplicable by redefining the words he uses! Do
>> you really think that Robbins meant (substituting this non-standard
>> definition): "economics is the study of the allocation of non-producible
>> resources amongst alternative ends?"
>I'm sure that Chris will find it odd that I don't find that paraphrase
>absurd.
Rather, I'll simply interpret it as more evidence that Rob's interpretation
of Robbins' definition is not the same one everyone else who's ever read
it draws.
>But then, I doubt Chris understands the distinction between
>models of the production of commodities by means of commodities and
>the view presented by so-called neoclassical theory of a one-way
>avenue that leads from 'Factors of production' to 'Consumption goods.'
Rob has again managed to turn a discussion into one over Sraffa. Why?
Who knows? What revevence does the above rather sad attempt at an
insult have? Who knows? Does Rob really think *anyone* actually
believes he has a point in any of this?
DJR80
I just reread your original post. There may be a problem with your example.
Assume the rye and wheat industries are made up of many competing
firms/farmers. A farmer can grow some rye and some wheat; if he grows a little
more of one and a little less of the other it has no effect on prices since he
is a small part of the market.
Equilibrium requires that he not increase nor decrease his profit/net revenue
by shifting from one to the other. This leads to:
3P - 4 - Pr = 0
Combined with the other equations yields:
P = 1
w = 1
and r = -1
Any thoughts?
Dan
in Philly
Robert Vienneau
> Equilibrium requires that he not increase nor decrease his profit/net revenue
> by shifting from one to the other.
My equations (1) and (2) show the same economic profit, zero, being
earned in both industries, due allowance being made for time.
> This leads to:
> 3P - 4 - Pr = 0
Could you expand where you think that equation comes from? I don't
think that's correct.
Robert Vienneau
> Robert Vienneau <rv...@see.sig.com> wrote:
> >> This new quoting style of yours is really awful, Rob. Why do you think
> >> anyone will be impressed by this nonsense?
> >I think it makes it clear that there's good reason to doubt that
> >you are interested in discussion.
> Wow, Rob, I never new that deliberately misquoting someone in a childish
> manner could produce such an effect.
Notice that Chris doesn't point out where I misquoted him. His posts
have been, of course, full of abuse. Mayhaps his
brainwashing^H^H^H^H^H^H^H^H^H education has left him unable to have
a discussion on some of the topics I find of interest in economics.
> You learn something new and useful
> on Usenet every day! "Discussion?" Rob, every time you post you come
> up with a brand new argument and implicitly disavow the previous ones.
Go take a look at how repetitive my posts in this thread are on stating
the question is whether scarcity applies to models in which endowments
are not given. Has Chris addressed this point? Nope.
> [ silly abuse deleted. ]
> >> Oh for crying out loud. Rob, "scarce" in Robbins' definition essentially
> >> means "has an opportunity cost." The literature you've quoted below
> >> uses a *different definition of scarce*, in particular, it is being used
> >> in the odd sense that something is "scarce" if it's not producible.
> >Suppose that those employed workers shown in my original example
> >were only a certain percentage of the labor force. Some workers are
> >involuntarily unemployed. Now compare a fourth island, Delta, to
> >Alpha. The unemployed rate is lower on Delta, and more rye is
> >available per member of the population. What has been given up on
> >Delta such that they have more rye than Alpha? Since the initial
>
> Did the unemployment rate appear in Rob's initial story? Nope. Did it
> appear in the previous reinterpretations? Nope.
Allusions to it appeared in my previous posts on this thread, which
Chris, with his usual difficulties with reading, missed.
From my 1 Nov post:
> > In a sense, inputs
> > of rye and wheat are not "scarce" in the example.
Notice the suggestion that labor is somehow different from rye and
wheat.
From my 8 November post:
> > Some have found it ironic that Robbins propounded his definition of
> > economics when he did - in the midst of the Great Depression.
> > "Factors" were not scarce then; nor were they free. I think that
> > Classical economics is consistent with the denial of Say's law,
> > as did Ricardo's most astute 19th century critic.
Quoting Kurz and Salvadori in my 9 Nov post:
> > [Footnote] 'At most, one could say that a "Rule of Zero 'Excess'
> > Wages" is applied because labour is less than fully employed'
> > (Steedman). The interpretation given by Dore of von Neumann's
> > use (or rather non-use) of the Rule of Free Goods is difficult
> > to sustain: according to Dore in the von Neumann model
> > 'Cassel's "principle of scarcity"...is given an extreme binary
> > interpretation whereby a resource has either a positive economic
> > value if it is fully utilized, or its value is zero...Unless
> > every single man and woman is fully employed, the social value
> > of labour is zero; this is indeed extreme. Why did von Neumann
> > resort to this formulation?' The answer to this question is:
> > he did not."
Note the statement that the model, of which a special case is illustrated
by my example, exhibits a positive wage even when labor is in excess supply.
That is, the neoclassical Rule of Free Goods does not apply to labor in
my model.
So Chris is just demonstrating his difficulties with reading comprehension.
> But apparently it's what
> Rob meant all along. This is now the *fourth* reinterpretation of Rob's
> initial premise he's provided. The brand new argument: unemployed
> resources have zero opportunity cost of use.
The interesting point is not only that the model I illustrated has been
applied by economists rejecting the applicability of the neoclassical
Law of Free Goods to labor in excess supply; the interesting point is
also that the prices of rye and wheat cannot have that law applied to
them, at least as the law applies in Neoclassical models, because their
endowments are not given.
Chris has problems seeing how ideas might be connected.
> This is not, in particular,
> the same as the first argument: if a model predicts prices aren't "scarcity
> indexes," the model doesn't conform to Robbins' definition. (Recall
> I explicitly asked Rob if he wished to maintain this argument. Oddly,
> that question has been snipped without comment).
One obvious reason to not address a comment is that it is a distracting
side issue. Prices might not be scarcity indices because of monopolistic
influences, rigidities, information assymetries, etc. I don't think
that these reasons have much to do with my argument that classical
economics, including contemporary reconstructions, fall outside of
Robbins' definition. Here's a quote about this from another thread:
"How can classical-Keynesian economists show that there is no
tendency towards a long-period equilibrium in order to establish
the principle of effective demand in the short, medium, and long
terms? The only possible way is to attempt to show that selected
premises underlying neoclassical theory are untenable. Specifically,
it must be shown that under ideal conditions, i.e. perfect
competition and absence of disturbing elements like uncertainty
and money, one or more markets do not function properly so that,
even in the long run, no tendency towards full employment exists:
the problem is *not* about possible market failures, but about
principles.
This task has been accomplished by the capital-theory debate, the
main economic implications of which are set out in Garegnani (1970),
Kurz (1985) and Pasinetti (1974, pp. 132-42; 1977, pp. 169-77);
a comprehensive and easily understandable presentation of the crucial
issues is Harcourt (1972).
The capital-theory debate has revealed that, *if production is
conceived of as a social process*, i.e. if there is 'production
of commodities by means of commodities' (and labor) (implying the
existence of heterogeneous capital goods), it is impossible to
measure capital independently of income distribution since
relative prices depend upon the conditions of production *and*
upon the profit rate (or a hierarchy of profit rates); a
physical measure of capital independent of value and distribution
and consequently a marginal product of capital simply cannot
be conceived of. As a consequence, no regular (downward-sloping)
associations between profit rates, on the one hand, and capital
and output per worker and the capital-output ratio, on the other
hand, exist. These relationships are, in fact, totally irregular.
Since the 'capital market' does not function in the neoclassical
sense and since factor markets are supposed to be interrelated,
regular *long-period* relationships between 'factor prices' and
'factor quantities' cannot exist in general, i.e. there are no
'factor markets' at all if the long run is considered. This is
the main result of the capital-theory debate...
...The fact that there are no regular relationships between 'factor
prices' and 'factor quantities' is extremely damaging for equilibrium
theory: the market cannot produce a tendency towards some postulated
long-period equilibrium to solve the central economic problems, i.e.
value, distribution and employment. This clears the way for classical-
Keynesian political economy. For instance, it may be argued that
effective demand always governs the level of employment."
-- Heinrich Bortis, _Institutions, Behavior and Economic Theory:
A Contribution to Classical-Keynesian Political Economy_,
Cambridge University Press, 1997
Chris deleted the following from the post to which he is supposedly
replying:
[ > > Since the initial ]
[ > > amounts of rye and wheat are determined endogeneously, no wheat had ]
[ > > to be given up. Likewise the rate of growth is the same. The only ]
[ > > thing that seems to be sacrificed is unwanted leisure. In short, ]
[ > > the opportunity cost of rye (or wheat) in my example could be ]
[ > > non-positive. Thus, rye and wheat are positively priced, but ]
[ > > non-scarce BY THE DEFINITION OF SCARCITY AS MEANING "HAS AN ]
[ > > OPPORTUNITY COST." ]
> To answer the question: what has been given up? Leisure.
His editing goes along with his abuse; it doesn't meet acceptable
scholarly norms.
> But that's
> not really the point, either. If we are inside the production
> possibilitities frontier, then that argument *in and of itself* makes
> Robbins' definition applicable.
I guess Chris thinks emphasis constitutes an argument. He still ignores
the point that the interesting features of the models I am considering
depend on endowments not being given.
> And even more fundamentally, if the
> unemployed resources are brought "on line," we still need to choose
> what those incremental resources will produce. Rob's final question
> should be: what has been given up on Alpha such that they have more
> Rye on *Alpha*?
Is Chris' point that he cannot show that Robbins' definition applies
to my example, so he rejects the example? Or is his point that he,
like Stephen, does not understand this use of the metaphor of islands?
> >This, of course, raises the issue of the relationship between the
> >ideas of Sraffa and Keynes.
> Only in your mind, Rob, where apparently just about everything brings
> up this question.
This thread has been about Sraffian economics all along. If I'm going
to also discuss Keynes, intellectual standards would sort of mandate
that I mention that there's an issue here; it's not clear to those
familiar with the relevant literature - a set excluding Chris,
obviously - that Sraffa and Keynes are compatible.
I think the connection to Sraffa is obvious, given the arithmetic
in my example, the sources of the quotes I provided - obviously
Chris deson't know about the contents of the books I've referenced -
and the parallels between Sraffa's work and the Von Neumann
model. Does Chris not know about Sraffa's work, the Von Neumann model,
or both?
But let me point out selected implicit and explicit references to
Sraffian economics. From my 2 Nov post:
> > "This should
> > be enough to persuade the critics that the theory is not
> > committed to a relative scarcity theory of distribution"
> > -- Frank Hahn
The critics Hahn refers to are the Sraffians. This should have been
clear from this, also from the same post:
> > "[G. C.] Harcourt: ...And price as an index of
> > scarcity cannot be made coherent in the supply-and-demand framework,
> > which I think is the principal Sraffian critique."
From my 3 Nov post:
> > "...in a production context...it makes no sense to talk of
> > 'endowments' of given physical quantities if these physical
> > quantities, to be carried over from one period to another, are
> > the unknowns to be determined. It makes no sense to talk of
> > 'scarce' resources, if these resources can be produced in
> > whatever quantities may be needed by the economic system..."
> > -- Luigi L. Pasinetti
When Pasinetti is refering to "a production context," he is referring
to Sraffian economics, as is obvious to anybody who's even glanced
at the book from which this quote is taken.
From my 6 Nov post:
> > Ricardo arguably defines scarce commodities to be goods which cannot
> > be "increased in quantity" "without...limit" by labor. Under this
> > reading, he states that his theory applies to non-scarce commoditiess
> > alone. Given this understanding, classical economics, including
> > contemporary revivals, does not fall under a definition of economics
> > as "the study of the allocation of scarce resources among alternative
> > ends."
The contemporary revival I was referring to is Sraffian economics. I
thought that obvious to anybody who understood the topic under discussion.
I was even more explicit in my 8 Nov post:
> > That's a common understanding in the literature
> > developing my favorite contemporary reconstruction of Classical
> > economics.
and
> > "Hahn...asserts that, in order to obtain Sraffa's uniform rate of
> > return on the two capital goods...
> > '*It cannot be part of the doctrine* of Sraffa that you
> > are uninterested in whether there is enough...wheat and barley
> > to meet demand'...In other words, Hahn finds it inconceivable
> > that the simple answer to the question he raises in that
> > passage might be:
> >
> > Yes, it can, and it is, part of the doctrine of Sraffa that
> > distribution and normal prices do *not* require the initial
> > endowments of wheat and barley for their determination.
> >
> > Clearly, Hahn has begged his question here. He has *assumed*,
> > and not proved, that what constitutes a characteristic feature
> > of 'neoclassical' theory by his own definition of it - the
> > determining role of factor endowments - is present in Sraffa's
> > analysis. To that extent he has *assumed* what he intends to
> > prove, namely that Sraffa's analysis is a 'special case' of
> > neoclassical theory.
> >
> > In fact, as he tells us in his Preface, Sraffa's standpoint is
> > that of 'the old classical economists from Adam Smith to
> > Ricardo,' and, as we shall presently see, this standpoint does
> > *not* attribute a determining role to 'the endowment of
> > agents*. Therefore, his analysis can hardly be a 'special case'
> > of the 'neoclassical' theory, which *does* admittedly rest on
> > such a role."
> > -- Pierangelo Garegnani, "Sraffa: Classical versus Marginal
> > Analysis,"
It's hard to be more explicit than that. Clearly Chris' new-found
discovery that I am discussing Sraffian economics reflects, once
again, his difficulties reading and his lack of knowledge of the
literature I am discussing. By the way, this Garegnani paper has
something to say about unemployment, wages, and Keynes.
> >> You
> >> can't make Robbins' inapplicable by redefining the words he uses! Do
> >> you really think that Robbins meant (substituting this non-standard
> >> definition): "economics is the study of the allocation of non-producible
> >> resources amongst alternative ends?"
> >I'm sure that Chris will find it odd that I don't find that paraphrase
> >absurd.
> Rather, I'll simply interpret it as more evidence that Rob's interpretation
> of Robbins' definition is not the same one everyone else who's ever read
> it draws.
Chris is being silly.
I find it interesting that Chris cannot or does not relate opportunity
costs to the Law of Free Goods in neoclassical models, especially after
Mr. Weatherby and I both discussed it.
There's nothing novel about the idea that Robbins' definition is
connected to neoclassical theory, and it might not be applicable to
other approaches.
> >But then, I doubt Chris understands the distinction between
> >models of the production of commodities by means of commodities and
> >the view presented by so-called neoclassical theory of a one-way
> >avenue that leads from 'Factors of production' to 'Consumption goods.'
> Rob has again managed to turn a discussion into one over Sraffa. Why?
> Who knows? What revevence does the above rather sad attempt at an
> insult have? Who knows? Does Rob really think *anyone* actually
> believes he has a point in any of this?
I don't see how noting Chris lacks understanding of the topic under
discussion is an insult. He seems to have very curious standards of
behavior. I think anybody who is not ignorant of the economics upon
which I draw sees that I have reason to think I have a point, whether
they agree with it or not.
SUSUPPLY
>Notice that Chris doesn't point out where I misquoted him. His posts
>have been, of course, full of abuse. Mayhaps his
>brainwashing^H^H^H^H^H^H^H^H^H education has left him unable to have
>a discussion on some of the topics I find of interest in economics.
That would be the opportunity cost of his brainwashing. All those years he
could have spent in a mental institution.
Patrick
Andrew Campbell
he is one of the ones that promotes the idea that if you have more doctors
then the individual fees to doctors will increase.......
one of the rather strange views that conventional economists often take
although in most other casesthesame ones use the opposite logic.
he is a clear example of how feeding too much disconnected theory into a
young mind will rot it
but he certainly does fit well into the alberta mentality
Robert Vienneau <rv...@see.sig.com> wrote in message
news:rvien-12119...@ua7-p53.dreamscape.com...
]
> [ > > amounts of rye and wheat are determined endogeneously, no wheat
had ]
> [ > > to be given up. Likewise the rate of growth is the same. The
ly ]
> [ > > thing that seems to be sacrificed is unwanted leisure. In
rt, ]
> [ > > the opportunity cost of rye (or wheat) in my example could
]
> [ > > non-positive. Thus, rye and wheat are positively priced,
]
> [ > > non-scarce BY THE DEFINITION OF SCARCITY AS MEANING "HAS
]
> [ > > OPPORTUNITY
DJR80
>think that's correct.
You're right, I must have goofed. Now I get your equation 5 result.
Interesting model. It reminds me of the Ricardian model we teach in
international econ: the PPC (production possibilities curve) is straight, so
relative prices are constant regardless of preferences. The interesting thing
is, that model has perfect substitutability of inputs (in fact there's only one
input, labor) whereas your's has no substitutability.
Dan
in Philly
Robert Vienneau
> Interesting model. It reminds me of the Ricardian model we teach in
> international econ: the PPC (production possibilities curve) is straight,
> so
> relative prices are constant regardless of preferences. The interesting
> thing
> is, that model has perfect substitutability of inputs (in fact there's
> only one
> input, labor) whereas your's has no substitutability.
Dan,
What's that mean? Once again, I think you are mistaken.
Chris Auld
>Notice that Chris doesn't point out where I misquoted him. His posts
>have been, of course, full of abuse. Mayhaps his
>brainwashing^H^H^H^H^H^H^H^H^H education has left him unable to have
>So Chris is just demonstrating his difficulties with reading comprehension.
>Chris has problems seeing how ideas might be connected.
>Chris deleted the following from the post to which he is supposedly
>replying:
>His editing goes along with his abuse; it doesn't meet acceptable
>scholarly norms.
>I guess Chris thinks emphasis constitutes an argument.
>Is Chris' point that he cannot show that Robbins' definition applies
>to my example, so he rejects the example? Or is his point that he,
>like Stephen, does not understand this use of the metaphor of islands?
>This thread has been about Sraffian economics all along. If I'm going
>to also discuss Keynes, intellectual standards would sort of mandate
>that I mention that there's an issue here; it's not clear to those
>familiar with the relevant literature - a set excluding Chris,
>obviously - that Sraffa and Keynes are compatible.
>I think the connection to Sraffa is obvious, given the arithmetic
>in my example, the sources of the quotes I provided - obviously
>Chris deson't know about the contents of the books I've referenced -
>and the parallels between Sraffa's work and the Von Neumann
>model. Does Chris not know about Sraffa's work, the Von Neumann model,
>or both?
>The contemporary revival I was referring to is Sraffian economics. I
>thought that obvious to anybody who understood the topic under discussion.
>It's hard to be more explicit than that. Clearly Chris' new-found
>discovery that I am discussing Sraffian economics reflects, once
>again, his difficulties reading and his lack of knowledge of the
>literature I am discussing. By the way, this Garegnani paper has
>Chris is being silly.
>I find it interesting that Chris cannot or does not relate opportunity
>costs to the Law of Free Goods in neoclassical models, especially after
>I don't see how noting Chris lacks understanding of the topic under
>discussion is an insult. He seems to have very curious standards of
>behavior. I think anybody who is not ignorant of the economics upon
>which I draw sees that I have reason to think I have a point, whether
>they agree with it or not.
Wow! I am sure an ignorant fool! Must be all that education, whoops,
brainwashing. I guess I have not completely learned the first rule of
sci.econ: knowing what you're talking about BAD, making crap up as you
go along GOOD! Sorry, Rob, I'll try to do better in the future.
For anyone who cares, Rob is engaging in some rather ludicrous historical
revisionsism through all of this. The discussion started with:
>> >It is my opinion that
>> >economists have established long-run theory cannot be coherently said
>> >to be about the allocation of scarce resources among alternative ends.
>> ...Rob's interpretation of Robbin's old definition is one ...which
>> I can't make the slightest bit of sense of.
>I'm not sure why I should find persuasive Chris' lack of understanding
>and lack of knowledge of the literature upon which I draw.
> be enough to persuade the critics that the theory is not
> committed to a relative scarcity theory of distribution, though
> they seem to believe it is and that often motivates them in
That is, Rob claimed that Robbins' definition is inapplicable to "long-run
theory" (aside: a now completely antiquated concept; Rob continues to criticize
models which haven't been in widespread use since before I was born), and it
is inapplicable precisely because "the theory is not committed to a relative
scarcity theory of distribution." That is wrong, and that is no longer even
remotely the view that Rob is now defending. Apparently, we were discussing the
relevant merits of Sraffian economics all along, which is news to me. Anyways,
nice chatting with you Rob, and I'm sorry I'm so terribly ignorant of basic
economics. By the way, since you've treated every other trained, professional
economist who's ever visited this group with the same sneering disdain, I am
left wondering if there is anyone on the planet qualified to discuss economics
with you? It truly is humbling to be in the presence of such a staggering
intellect.
DJR80
Trying to remember my micro...
Let's start with isoquants.
Assuming two inputs, rye and wheat. Put these on the axes. Then you can draw
an isoquant showing production of one unit of output. In your example, this
curve will be L-shaped; the corner occurs at rye=1/8 and wheat=1/16 if the
isoquant is for rye. This indicates no substitution.
If there is some substitution between inputs, you get a smooth curve convex to
the origin. Exactly where on the curve a firm will be depends on the relative
price of the two inputs.
And for perfect substitution, the curve becomes a straight line. The latter
applies to the Ricardian case, where there is only labor as an input; actually
two inputs, labor making wine and labor making cloth, but these two types of
labor can interchange.
Regarding PPCs:
For your example, assume we start with 1 rye and 1 wheat. If used for rye
production we get 8 rye (with some excess wheat left over). If used for wheat
production we get 8/3 wheat (again with some excess input). Plot these points
on rye-wheat axes and connect them and we have a straight-line ppc.
Likewise, the Ricardian ppc is straight, as labor shifts from one industry to
another without increasing opportunity costs.
Dan
in Philly
Robert Vienneau
> >... substitutability ...
> Trying to remember my micro...
> Let's start with isoquants.
> Assuming two inputs, rye and wheat. Put these on the axes. Then you can draw
> an isoquant showing production of one unit of output. In your example, this
> curve will be L-shaped; the corner occurs at rye=1/8 and wheat=1/16 if the
> isoquant is for rye. This indicates no substitution.
Dan,
Your comments would be correct if you had not misread me. What I wrote
was:
All three islands have the same constant-returns-to-scale
technology available. They also face the same wage, and have fully
adapted production. Thus, they will choose to adopt the same
technique. This technique consists of a process to produce rye and
another one to produce wheat. Each process requires a year to
complete. Each process requires inputs of labor, rye, and wheat. These
processes fully use up their inputs in producing their output. Table 1
specifies the coefficients of production for the selected technique.
Notice I do not claim that the processes shown for the selected technique
are the only processes available. Rather, the technology may contain other
techniques consisting of other processes.
I specified as much of a model as I thought needed for making my point. I
do this regularly, and economists seem to regularly misread me.
The technique I specified is assumed to be the cost-minimizing technique
when endowments are appropriate. In a model in which technology is fully
specified, the cost-minimizing techniques are determined once the
wage (or rate of profits) is given. The non-substitution theorem goes
through in any case. My story is consistent with a technology consisting
of one technique - i.e. the specified one, continuously differentiable
production functions, or a technology formed out of linear combinations
of at most a countable infinity of "fixed coefficient" processes.
Which of these three choices would you like to see explained in the
context of my story, if any? Or would you rather see some explanations
by somebody else? A good elementary introduction to some of these
matters is:
V. Walsh and H. Gram, _Classical and Neoclassical Theories of
General Equilibrium: Historical Origins and Mathematical Structure_,
Oxford University Press, 1980.
An intermediate treatment is provided by Pasinetti, and a more
advanced presentation is in the Kurz & Salvadori reference that Chris
Auld ignores.
I am aware of Ricardo's story about international trade and of
Production Possibility Curves.
Robert Vienneau
> [ Much silliness deleted. ]
Apparently Chris thinks I am not singling him out for undue opprobrium,
just ordinary opprobrium.
Perhaps Andrew will be amused by the following:
"Furthermore, in the West, in a climate of intellectual intolerance
charmingly reminiscent of Sino-Soviet totalitarianism, all varieties
of non-mainstream economics - including Marxism, Post Keynesianism
and the 'old' institutionalism - have systematically been driven out
of university departments in several countries in the 1980s and 1990s.
Contrary to the more pluralistic state of affairs in the 1950s and
1960s, non-mainstream economists are increasingly rare in economics
departments in Britain, the United States, Germany and elsewhere.
Against such developments, 'A Plea for a Pluralistic and Rigorous
Economics' was signed by 44 leading economists - including four
Nobel Laureates - and published in the May 1992 edition of the
_American Economic Review_. This plea included the words:
We the undersigned are concerned with the threat to economic
science posed by intellectual monopoly. Economists today
enforce a monopoly of method or core assumptions, often
defended on no better ground than it constitutes the 'mainstream'.
Economists will advocate free competition, but will not practice
it in the marketplace of ideas."
-- Geoffrey M. Hodson, _Economics & Utopia_, Routledge, 1999.
SUSUPPLY
>"Furthermore, in the West, in a climate of intellectual intolerance
> charmingly reminiscent of Sino-Soviet totalitarianism, all varieties
> of non-mainstream economics - including Marxism, Post Keynesianism
> and the 'old' institutionalism - have systematically been driven out
> of university departments in several countries in the 1980s and 1990s.
Yes, Commissar Auld has been kept busy incarcerating and torturing the peoples'
enemies up there in the Frozen North.
[snip]
>We the undersigned are concerned with the threat to economic
> science posed by intellectual monopoly.
Oh good. I've been waiting for a Department of Economics to be added to the
EEOC, so Hyman can have a professorship at Stanford.
>Economists today
> enforce a monopoly of method or core assumptions, often
> defended on no better ground than it constitutes the 'mainstream'.
> Economists will advocate free competition, but will not practice
> it in the marketplace of ideas."
And mathemeticians enforce the monopoly of 2 + 2 = 4. This is a problem,
Robert?
Patrick
Andrew Campbell
preference in this ng, and one of the special skills of some is when this
is pointed out, is to lay on to such as Mr sproule with nastiness, it would
be useful if such as chris were to actually go play in the real world every
couple of years as do the some of better professors at the better
universities
Robert Vienneau <rv...@see.sig.com> wrote in message
news:rvien-16119...@ua3-p24.dreamscape.com...
> au...@jerry.ss.ucalgary.ca (Chris Auld) wrote:
>
> > [ Much silliness deleted. ]
>
> Apparently Chris thinks I am not singling him out for undue opprobrium,
> just ordinary opprobrium.
>
> Perhaps Andrew will be amused by the following:
>
> "Furthermore, in the West, in a climate of intellectual intolerance
> charmingly reminiscent of Sino-Soviet totalitarianism, all varieties
> of non-mainstream economics - including Marxism, Post Keynesianism
> and the 'old' institutionalism - have systematically been driven out
> of university departments in several countries in the 1980s and 1990s.
> Contrary to the more pluralistic state of affairs in the 1950s and
> 1960s, non-mainstream economists are increasingly rare in economics
> departments in Britain, the United States, Germany and elsewhere.
> Against such developments, 'A Plea for a Pluralistic and Rigorous
> Economics' was signed by 44 leading economists - including four
> Nobel Laureates - and published in the May 1992 edition of the
> _American Economic Review_. This plea included the words:
>
> We the undersigned are concerned with the threat to economic
> science posed by intellectual monopoly. Economists today
> enforce a monopoly of method or core assumptions, often
> defended on no better ground than it constitutes the 'mainstream'.
> Economists will advocate free competition, but will not practice
> it in the marketplace of ideas."
>
> -- Geoffrey M. Hodson, _Economics & Utopia_, Routledge, 1999.
>