Wages, Employment Still Not Determined By Supply And Demand
Robert Vienneau
Mainstream North American economists are generally socialized to be
ignorant of price theory. At least, that's what the empirical evidence
presented by Usenet suggests. But hope springs eternal. So once more I
give some posters the opportunity to acknowledge the validity of
certain aspects of price theory.
This long post presents an example in which higher wages are
associated with firms choosing to employ more workers per unit output
produced. The exact numeric values used aren't necessarily reasonable.
The example, though, is used to make a point.
I assume a reader willing to follow tedious arithmetic. Skip down
to the conclusions at the end if you're curious about my point.
2.0 DATA ON TECHNOLOGY
Consider a very simple vertically-integrated firm that produces a
single consumption good, corn, from inputs of labor, iron, and (seed)
corn. All production processes in this example require a year to
complete. Two production processes are known for producing corn. These
processes require the following inputs to be available at the beginning
of the year for each bushel corn produced and available at the end of
the year:
TABLE 1: INPUTS REQUIRED PER TON CORN PRODUCED
Process A Process B
1 Person-Year 1 Person-Year
2 Tons Iron 1/2 Tons Iron
2/5 Bushels Corn 3/5 Bushels Corn
Apparently, inputs of iron and corn can be traded off in producing
corn outputs.
Iron is also produced by this firm. Two processes are known for
producing iron:
TABLE 2: INPUTS REQUIRED PER TON IRON PRODUCED
Process C Process D
1 Person-Year 275/464 Person-Years
1/10 Tons Iron 113/232 Tons Iron
1/40 Bushels Corn 0 Bushels Corn
Inputs of corn and iron can be traded off in producing iron. The
process that uses less iron and more corn, however, also requires
a greater quantity of labor input.
2.1 PRODUCTION FUNCTIONS
The data above allow for the specification of two well-behaved
production functions, one for corn and the other for iron. For
illustration, I outline how to construct the production function
for corn.
Let L be the person-years of labor, Q1 be tons iron, and Q2 be
bushels corn available for inputs for corn-production during the
production period (a year). Let X1 be the bushels corn produced
with Process A, and X2 be the bushels corn produced with Process B.
The production function is found as the solution of an optimization
problem. The (nonvertically-integrated) firm wants to produce as
much total corn output as possible. Accordingly, the production
function for corn is found as the solution to the Linear Program
in Display 1:
Max X = X1 + X2
2*X1 + (1/2)*X2 <= Q1
(2/5)*X1 + (3/5)*X2 <= Q2 (1)
X1 + X2 <= L
X1 >= 0, X2 >= 0
Let X = f(Q1, Q2, L) be the solution of this LP, that is, the
production function for corn. (This production function is not
Leontief.) The production functions constructed in this manner
exhibit properties typically assumed in neoclassical economics. In
particular, they exhibit Constant Returns to Scale, and the marginal
product, for each input, is a non-increasing step function. The
production functions are differentiable almost everywhere.
The point of this example, that sometimes a vertically integrated
firm will want to hire more labor per unit output at higher wages,
is compatible with the existence of many more processes for producing
each commodity. As more processes are used to construct the production
functions, the closer they come to smooth, continuously-differentiable
production functions. The point of this example seems to be compatible
with smooth production functions. It also does not depend on the
circular nature of production in the example, in which corn is used
to produce more corn.
2.2 TECHNIQUES
A technique consists of a process for producing iron and a process
for producing corn. Thus, there are four techniques in this example.
They are defined in Table 3.
TABLE 3: TECHNIQUES AND PROCESSES
Technique Processes
Alpha A, C
Beta A, D
Gamma B, C
Delta B, D
3.0 QUANTITY FLOWS
I want to consider a couple of different levels at which this
firm can operate the processes comprising the techniques. First,
suppose Process A is used to produce 1 41/49 Bushels corn, and
Process C is used to produce 4 4/49 Tons iron. The quantity flows
shown in Table 4 result.
TABLE 4: THE ALPHA TECHNIQUE PRODUCING CORN NET
INPUTS Process C Process A
Labor 4 4/49 Person-Years 1 41/49 Person-Years
Iron 20/49 Tons Iron 3 33/49 Tons Iron
Corn 5/49 Bushels Corn 36/49 Bushels Corn
OUTPUTS 4 4/49 Tons Iron 1 41/49 Bushels Corn
LABOR-INTENSITY: 5 45/49 Person-Years Per Bushel
When the firm operates these processes in parallel, it requires
a total of 41/49 Bushels corn as input. The output of the
corn-producing process can replace this input, leaving a net
output of one Bushel corn. Notice that the total inputs of
iron are 20/49 + 3 33/49 = 4 4/49 Tons iron, which is exactly
replaced by the output of Process C. So Table 4 shows a technique
in which 5 45/49 Person-Years labor are used to produce a net
output of one Bushel corn. The firm, when operating this technique
can produce any desired output of corn by scaling both processes
equally.
Table 5 shows the application of the same sort of arithmetic to
the Beta technique. The labor-intensity of the Beta technique is
listed.
TABLE 5: THE BETA TECHNIQUE PRODUCING CORN NET
INPUTS Process D Process A
Labor 3 304/357 Person-Years 1 2/3 Person-Years
Iron 3 59/357 Tons Iron 3 1/3 Tons Iron
Corn 0 Bushels Corn 2/3 Bushel Corn
OUTPUTS 6 178/357 Tons Iron 1 2/3 Bushel Corn
LABOR-INTENSITY: 5 185/357 Person-Years Per Bushel
Neither the Gamma nor the Delta technique are profit-maximizing
for the prices considered below.
4.0 PRICES
Which technique will the firm adopt, if any? The answer
depends, in this analysis, on which is more profitable. So one
has to consider prices. I assume throughout that inputs of iron,
corn, and labor are charged at the start of the year. Corn is
the numeraire; its price is unity throughout. Two different
levels of wages are considered.
4.1 PRICES WITH LOW WAGE
Accordingly, assume wages are initially 3/2780 Bushels per
Person-Year. By assumption, the firm neither buys nor sells iron on
the market. The firm produces iron solely for its own use. Still,
the firm must enter a price of iron on its books. I assume an
initial price of 55/1112 Bushels per Ton.
Table 6 shows accounting with these prices. The column labeled
"cost" shows the cost of the inputs needed to produce one unit
output, a bushel corn or a ton iron, depending on the process.
Accounting profits for a unit output are the difference between
the price of a unit output and this cost. The rate of (accounting)
profits, shown in the last column, is the ratio of accounting
profits to the cost. The rate of profits is independent of
the scale at which each process is operated.
TABLE 6: COSTS, WAGE 3/2780 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 55/1112 BUSHELS PER TON
INDUSTRY PROCESS COST PROFITS
Corn A 2*(55/1112) + (2/5)*1
+ 1*(3/2780) = 1/2 100%
Corn B (1/2)*(55/1112) + (3/5)*1
+ 1*(3/2780) = 6959/11120 60%
Iron C (1/10)*(55/1112) + (1/40)*1
+ 1*(3/2780) = 69/2224 59%
Iron D (113/232)*(55/1112) + 0
+ (275/464)*(3/2780) = 55/2224 100%
These prices are compatible with the use of the Beta technique
to produce a net output of corn. The Beta technique specifies that
Process A be used to produce corn and process D be used to produce
iron. Notice that Process B is more expensive than Process A, and
that process C is more expensive than Process D. These prices do
not provide signals to the firm that processes outside the Beta
technique should be adopted. The vertically-integrated firm is
making a rate of profit of 100% in producing corn with the Beta
technique. The same rate of profits are earned in producing corn
and in reproducing the used-up iron by an iron-producing process.
4.2 ONE SET OF PRICES WITH HIGHER WAGE
Suppose this firm faces a wage more than 20 times higher, namely
109/4040 Bushels per Person-Year. Consider what happens if the firm
doesn't revalue the price of iron on its books. Table 7 shows this
case. Since labor enters into each process, the rate of profits
has declined for all processes. The ratio of labor to the costs of
the other inputs is not invariant across processes. Thus, the
rate of profits has declined more in some processes than in
others. Notice especially, than the rate of profits is no longer
the same in the processes, A and D, that comprise the Beta
technique.
TABLE 7: COSTS, WAGE 109/4040 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 55/1112 BUSHELS PER TON
INDUSTRY PROCESS COST PROFITS
Corn A 2*(55/1112) + (2/5)*1
+ 1*(109/4040) = 0.5259 90.1%
Corn B (1/2)*(55/1112) + (3/5)*1
+ 1*(109/4040) = 0.6517 53.4%
Iron C (1/10)*(55/1112) + (1/40)*1
+ 1*(109/4040) = 0.05693 -13.1%
Iron D (113/232)*(55/1112) + 0
+ (275/464)*(109/4040) = 0.04008 23.4%
This accounting data does not reveal the firm's rate of return
in operating the Beta technique. The firm cannot be simultaneously
making both 23% and 90% in operating that technique. Furthermore,
this data provides a signal to the firm to withdraw from iron
production and make only corn. So this data says that something
must change.
4.3 ANOTHER SET OF PRICES
Perhaps all that is needed is to re-evaluate iron on the
firm's books. Higher wages have made iron more valuable. Table
8 shows costs and the rate of profits when iron is
evaluated at an accounting price of 0.106 Bushels per Ton.
TABLE 8: COSTS, WAGE 109/4040 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 0.10569123726 BUSHELS PER TON
INDUSTRY PROCESS COST PROFITS
Corn A 2*(0.106) + (2/5)*1
+ 1*(109/4040) = 0.6384 56.65%
Corn B (1/2)*(0.106) + (3/5)*1
+ 1*(109/4040) = 0.6798 47.10%
Iron C (1/10)*(0.106) + (1/40)*1
+ 1*(109/4040) = 0.06255 68.97%
Iron D (113/232)*(0.106) + 0
+ (275/464)*(109/4040) = 0.06747 56.65%
This revaluation of iron reveals that the firm makes a rate
of profits of 57% in operating the Beta technique. The firm makes
the same rate of profits in producing corn and in producing its
input of iron. But the manager of the iron-producing process would
soon notice that the cost of operating process C is cheaper.
4.4 FINAL EQUILIBRIUM PRICES
So the firm would ultimately switch to using process C
to produce iron. The price of iron the firm would enter on its
books would fall somewhat. Table 9 shows the accounting with a
price of iron of 10/101 Bushels per Ton. The firm has adopted
the cheapest process for producing iron, and the rate of profits
is the same in both corn-production and iron-production. The
accounting for this vertically-integrated firm is internally
consistent.
TABLE 9: COSTS, WAGE 109/4040 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 10/101 BUSHELS PER TON
INDUSTRY PROCESS COST PROFITS
Corn A 2*(10/101) + (2/5)*1
+ 1*(109/4040) = 5/8 60%
Corn B (1/2)*(10/101) + (3/5)*1
+ 1*(109/4040) = 2553/4040 58%
Iron C (1/10)*(10/101) + (1/40)*1
+ 1*(109/4040) = 25/404 60%
Iron D (113/232)*(10/101) + 0
+ (275/464)*(109/4040) = 24,075/374,912
54%
5.0 CONCLUSIONS
Table 10 summarizes these calculations. The ultimate result of
a higher wage is the adoption of a more labor-intensive technique.
If this firm continues to produce the same level of net output
and maximizes profits, its managers will want to employ more workers
at the higher of the two wages considered.
TABLE 10: PROFIT-MAXIMIZING FIRM ADOPTS MORE LABOR-INTENSIVE
TECHNIQUE AT HIGHER WAGE
LABOR-INTENSITY OF
WAGE CORN-PRODUCING TECHNIQUE
3/2780 Bushels Per Person-Year 5 185/357 Person-Years Per Bushel
109/4040 Bushels Per Person-Year 5 45/49 Person-Years Per Bushel
So much for the theory that wages and employment are determined
by the interaction of well-behaved supply and demand curves on the
labor market.
--
Try http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Bukharin.html
To solve Linear Programs: .../LPSolver.html
r c A game: .../Keynes.html
v s a Whether strength of body or of mind, or wisdom, or
i m p virtue, are found in proportion to the power or wealth
e a e of a man is a question fit perhaps to be discussed by
n e . slaves in the hearing of their masters, but highly
@ r c m unbecoming to reasonable and free men in search of
d o the truth. -- Rousseau
Frank Altschuler
> by the interaction of well-behaved supply and demand curves on the
> labor market.
So much for the theory that RV is doing anything but amusing himself in his
off hours.
I love phrases such as "Higher wages have made iron more valuable". Silly
me, I thought that the value of iron had something to do with the uses made
of the iron (cars, waffle irons etc.). I had no idea that increasing the
wages paid for its manufacture increased its value.
But wait! There's more!
RV: "The ultimate result of a higher wage is the adoption of a more
labor-intensive technique. If this firm continues to produce the same level
of net output and maximizes profits, its managers will want to employ more
workers at the higher of the two wages considered."
In the real world when presented with wage demands in excess of market
reality, companies do hire fewer people and invest in productivity tools
(perhaps that's what he meant by the somewhat elliptical phrase
"labor-intensive technique" where he might have been fishing for a phrase
that implied greater productivity). Employers have to make up the
difference between the output they could have achieved by hiring at market
rates and the output they can afford at the new "minimum" or "living" wage.
So far, so good.
But, he then turns around and, forgetting the increased capital investment
that the employer had to make in order to make up the productivity deficit
imposed by increasing wages, assumes that they'd then go into a wild hiring
binge ("managers will want to employ more workers at the higher of the two
wages"). My guess would be that managers will want to move their operations
(and whizzy new labor saving devices) to somewhere where they can get equal
productivity at the lower of the two wages (I don't see anything indicating
that the higher wage employees are in any way more "valuable" than the lower
paid workers, just higher paid.).
David Lloyd-Jones
> But wait! There's more!
>
Frank,
You are just frothing at the mouth and disgracing yourself.
You keep referring to "the real world," (presumably your version of it),
when Robert Vienneau's model that you pretend to attack is quite
explicitly not the real world: it is a model, crafted to show a point.
As an aside, I might comment that Vienneau, after a painful but vigorous
five years or so, seems to be showing signs of becoming an economist. I
wish him well in his continuing work -- and suggest that you, Frank,
might take him as a behavioural model.
With best wishes,
-dlj.
David Lloyd-Jones
> As an aside, I might comment that Vienneau, after a painful but vigorous
> five years or so, seems to be showing signs of becoming an economist. I
> wish him well in his continuing work -- and suggest that you, Frank,
> might take him as a behavioural model.
Let me add a small thing. Robert has a tiresome mode, where he quotes
stuff you've never heard of from the Authority you thought you were
acquainted with. Bleahhhh: low grade show. He wins, but he wins small.
I think his model-making is more impressive, though not yet great. (To
titivate [look it up]: what he does now is what I and my friend Fred
Martin did when we were 14, so it's pretty good, but not yet ready for
prime time.) By "impressive" I mean he is really destructive. His long
boring corn-and-whiskey things really do knock the pins out from under
whoever he's after.
Of people who have attacked Robert, let's say there are two, Chris
whatsisname at Queens/Alberta, and everybody else. My score is Chris has
won maybe 55% to date, but only by painting Robert's areas of ignorance
as frauds. Shows Chris is learning the ways of academic politics, seems
to me. All other attacks on Vienneau have the same or lower scores.
I haven't nailed him once, and G-d knows I would swoop in if I saw the
chance.
In recent months Robert seems to have stopped being a Vulgar Marxist.
(My partner, a strong conservative active in the Sudanese war, thinks
that every bit of Marx I have ever shown her is obviously true. Vulgar
Marxism has many homes.) When I was 13 years old the only thing that
saved me from Marxism was the beauty of Bertrand Russell.... And so it
goes...
As Robert continues his determined reading I think he may grow in
confidence, become lower in antagonism, and -- here's my guess -- become
a teacher to us all.
But I don't think it's happened quite yet.
But-but I think it will.
-dlj.
Robert Vienneau
Altschuler" <falts...@sbcglobal.net> wrote:
> > So much for the theory that wages and employment are determined
> > by the interaction of well-behaved supply and demand curves on the
> > labor market.
> [Silliness deleted.]
> I love phrases such as "Higher wages have made iron more valuable".
> Silly
> me, I thought that the value of iron had something to do with the uses
> made
> of the iron (cars, waffle irons etc.). I had no idea that increasing the
> wages paid for its manufacture increased its value.
In my example, the price of "iron" has something to with the uses made
of the "iron", e.g., in the production of "corn". "Iron" in my example
is not iron; "corn" is not corn. They are names of commodities in
the example picked to suggest commodities used exclusively for producing
other commodities and for producing both themselves and for consumption.
> But wait! There's more!
And why are you using that particular phrase?
> RV: "The ultimate result of a higher wage is the adoption of a more
> labor-intensive technique. If this firm continues to produce the same
> level
> of net output and maximizes profits, its managers will want to employ
> more
> workers at the higher of the two wages considered."
> In the real world when presented with wage demands in excess of market
> reality, companies do hire fewer people and invest in productivity tools
> (perhaps that's what he meant by the somewhat elliptical phrase
> "labor-intensive technique" where he might have been fishing for a phrase
> that implied greater productivity).
No. Assertions about "reality" don't make it so. A famous study of
natural experiments a few years back came up with no such result.
My example is of a firm choosing among known processes for producing
output. It does not include R&D, which results in new technology.
I explain what I mean by "technique" and "labor intensity" in the
post to which Frank is pretending to respond. The technique
with higher labor intensity has lower (net) output per worker.
So his comment is exactly backwards.
> Employers have to make up the
> difference between the output they could have achieved by hiring at
> market
> rates and the output they can afford at the new "minimum" or "living"
> wage.
Why would the level of net output in my example be affected by the
level of wages?
> So far, so good.
> But, he then turns around and, forgetting the increased capital
> investment
> that the employer had to make in order to make up the productivity
> deficit
> imposed by increasing wages, assumes that they'd then go into a wild
> hiring
> binge ("managers will want to employ more workers at the higher of the
> two
> wages").
Nope. I assume no such thing. I derive the increased employment,
given the level of net output, from the assumptions of
profit-maximization and known technology. It's a matter of
arithmetic.
What I actually wrote was:
"If this firm continues to produce the same level of net output
and maximizes profits, its managers will want to employ more workers
at the higher of the two wages considered."
> My guess would be that managers will want to move their
> operations
> (and whizzy new labor saving devices) to somewhere where they can get
> equal
> productivity at the lower of the two wages (I don't see anything
> indicating
> that the higher wage employees are in any way more "valuable" than the
> lower
> paid workers, just higher paid.).
In my example, all workers are paid whatever the wage is. So the above
comment makes no sense.
Certainly one of my assumptions is unrealistic in Frank's case. I
assumed a reader able and willing to follow arithmetic.
Robert Vienneau
<ji...@interchange.ubc.ca> wrote:
> : The data above allow for the specification of two well-behaved
> : production functions, one for corn and the other for iron. For
> : illustration, I outline how to construct the production function
> : for corn.
[>: Accordingly, the production ]
[>: function for corn is found as the solution to the Linear Program ]
[>: in Display 1: ]
[>: ]
[>: Max X = X1 + X2 ]
[>: ]
[>: 2*X1 + (1/2)*X2 <= Q1 ]
[>: (2/5)*X1 + (3/5)*X2 <= Q2 (1) ]
[>: X1 + X2 <= L ]
[>: ]
[>: X1 >= 0, X2 >= 0 ]
> : Let X = f(Q1, Q2, L) be the solution of this LP, that is, the
> : production function for corn. (This production function is not
> : Leontief.)
> The production function is only non-Leontief because you have forced the
> firm to start with a non-optimal input bundle.
That comment makes no sense to me. Do you deny that the production
function (for corn) is the solution to the above LP? You will notice
that the input bundle (L, Q1, Q2) can be any given triple with
non-negative elements.
> Given prices for all the
> inputs, the firm would generally only opt to use one of the two production
> technologies.
I assume you mean by a "technology" what I have been calling a "process".
I suspect you are confused on the role of prices here.
In other words, although you are correct in saying that the
production function for corn is non-Leontief, your explanation
of why seems like nonsense to me.
> Inputs would then be choosen accordingly and only one
> process would be used.
The above is certainly not true. Sometimes the solution to the above
LP consists of a linear combination of the two processes.
For example, suppose the inputs into (non-vertically) integrated
corn-production are 3 Person-Years, 3 Tons Iron, and 1 Bushel Corn.
Using the program in my sig, you can find that Process A will
be used to produce 13/10 Bushels Corn and Process B will be
used to produce 4/5 Bushels Corn. Thus, the production function
for corn, evaluated at these inputs, yields 21/10 Bushels Corn.
[>: assume wages are initially 3/2780 Bushels per ]
> : Person-Year. By assumption, the firm neither buys nor sells iron on
> : the market. The firm produces iron solely for its own use. Still,
> : the firm must enter a price of iron on its books. I assume an
> : initial price of 55/1112 Bushels per Ton.
> This is not an innocuous assumption. Why doesn't the firm outsource
> iron?
If the firm were to outsource iron, the market price of iron
would have to be as in my example for an "equilibrium" to be
established. Equilibrium, in this context, means firms engaged
in iron-production would not find that they could make more
profit by disinvesting in iron-production and investing in
corn-production. Likewise firms in corn-production would not
find they can make more by disinvesting in corn-production
and investing in iron-production. Furthermore, no firm is
operating a process in which they make a loss. And there
are no unoperated processes that are cheaper to operate
for producing a produced commodity than the processes
actually in operation.
> And what possible justification can you offer for the price of
> steel that you have picked? Your concept of profits becomes meaningless
> when the price of inputs is choosen arbitrarily by the firm.
I find your comment unclear. Either the initial price is chosen
arbitrarily by the firm, in which case they could set it to whatever
they like (e.g., 55/1112 Bushels per Ton) or the initial price is
not an innocuous choice by the analyst.
As a matter of fact, I chose the initial price of iron
so that the firm would be making the same rate of profits
in both iron and corn production when operating the
initial technique. Perhaps you might consider how Table 6
in my original post is constructed.
--------- From my initial post -----------------------
INDUSTRY PROCESS COST PROFITS
----------- End quote from my initial post --------
> We are not
> talking about transfer pricing here,
Well, I did not bring up transfer pricing.
> when multinationals attempt to pick
> the price of intermediate inputs for the purpose of tax arbitrage across
> several jurisdictions. There are real resource costs to producing
> iron...
My example shows iron being priced in a rational way.
REFERENCE:
H. D. Kurz and N. Salvadori, Theory of Production: A Long-Period
Analysis. Cambridge University Press, 1995.
JT
<rv...@see.sig.com> wrote:
>
>> : Let X = f(Q1, Q2, L) be the solution of this LP, that is, the
>> : production function for corn. (This production function is not
>> : Leontief.)
>
>> The production function is only non-Leontief because you have forced the
>> firm to start with a non-optimal input bundle.
>
>That comment makes no sense to me. Do you deny that the production
>function (for corn) is the solution to the above LP? You will notice
>that the input bundle (L, Q1, Q2) can be any given triple with
>non-negative elements.
You are answering the wrong question. A profit maximizing firm would
first calculate the cost of each production process given the price of
inputs. This is no different than what you have done in Table 6.
Depending on the cost, the firm chooses to produce using the cheaper
of the two. Inputs are then purchased in accordance with the ratios
defined by the process.
You instead have the firm arbitrarily buying inputs, without any
consideration of cost minimization, and then trying to maximize
output. This is nonsense.
Otherwise, you aren't really presenting an economics model here, but
rather just a series of production matrices. Without introducing
markets, this is a meaningless exercise; assumptions about market
structure will allow you to determine how prices are determined.
In any case models already exist in mainstream economics where
employment increases with the wage rate. One such model is the
monopsony/minimum wage model which is frequently presented in
introductory economics texts...
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> On Wed, 16 Oct 2002 18:39:42 -0400, Robert Vienneau
> <rv...@see.sig.com> wrote:
The data... allow for the specification of two well-behaved
production functions, one for corn and the other for iron. For
illustration, I outline how to construct the production function
for corn.
The production
function for corn is found as the solution to the Linear Program
in Display 1:
Max X = X1 + X2
2*X1 + (1/2)*X2 <= Q1
(2/5)*X1 + (3/5)*X2 <= Q2 (1)
X1 + X2 <= L
X1 >= 0, X2 >= 0
> >> : Let X = f(Q1, Q2, L) be the solution of this LP, that is, the
> >> : production function for corn. (This production function is not
> >> : Leontief.)
> >> The production function is only non-Leontief because you have forced
> >> the
> >> firm to start with a non-optimal input bundle.
> >That comment makes no sense to me. Do you deny that the production
> >function (for corn) is the solution to the above LP? You will notice
> >that the input bundle (L, Q1, Q2) can be any given triple with
> >non-negative elements.
> You are answering the wrong question.
No. You are babbling non-responsive balderdash.
Do you deny that the production function (for corn) is the
solution to the above LP? You will notice that the input bundle
(L, Q1, Q2) can be any given triple with non-negative elements.
You will notice that the arguments to a production function
are not prices.
An answer to the above question would start off with either "No"
or "Yes"...
> A profit maximizing firm would
> first calculate the cost of each production process given the price of
> inputs. This is no different than what you have done in Table 6.
> Depending on the cost, the firm chooses to produce using the cheaper
> of the two. Inputs are then purchased in accordance with the ratios
> defined by the process.
At this point, I am not concerned with (economic) profit maximization.
I am concerned with how the production function is constructed from
the data in my example.
> You instead have the firm arbitrarily buying inputs, without any
> consideration of cost minimization, and then trying to maximize
> output. This is nonsense.
The production function for corn, f(L, Q1, Q2), shows how much
corn can be produced with the given inputs. That is what the above
LP shows.
If you think that the production function for corn is something
else, perhaps you can outline how to construct it. It would be
nice if your outline did not yield the nonsensical conclusion that
all production functions are "only non-Leontief because [I] have
forced the firm to start with a non-optimal input bundle".
You might also show some appreciation of duality theory.
> Otherwise, you aren't really presenting an economics model here, but
> rather just a series of production matrices.
I am illustrating models long since established.
> Without introducing
> markets,
My example contains markets. But that is irrelevant to how the
production function is constructed.
> this is a meaningless exercise; assumptions about market
> structure will allow you to determine how prices are determined.
The assumption is that the markets in my example are competitive.
> In any case models already exist in mainstream economics where
> employment increases with the wage rate. One such model is the
> monopsony/minimum wage model which is frequently presented in
> introductory economics texts...
Why should I care?
Many introductory economics textbooks present nonsense for the
case of perfect competition. My example makes that point.
I am not concerned here with overlays to that nonsense, where
those overlays involve elements of market imperfections, information
assymmetries, income effects, etc. On the other hand, you seem
to want to change the subject.
Is the example with which I started this thread correct?
JT
<rv...@see.sig.com> wrote:
>In article <695squk7ec3467crb...@4ax.com>, JT
><ji...@nospam.interchange.ubc.ca> wrote:
>
>> You are answering the wrong question.
>
>No. You are babbling non-responsive balderdash.
>
>Do you deny that the production function (for corn) is the
>solution to the above LP? You will notice that the input bundle
>(L, Q1, Q2) can be any given triple with non-negative elements.
>You will notice that the arguments to a production function
>are not prices.
>
>An answer to the above question would start off with either "No"
>or "Yes"...
Yes, I am. The firm picks the lowest cost process. The production
function is then either
C=min(L,10C,40I)
or
C=min(464/275L,232/113I)
which are both Leotief processes...
>You might also show some appreciation of duality theory.
You might want to learn something about the theory of the firm. A
cost minimizing firm will generally use only one of the two processes.
>
>My example contains markets. But that is irrelevant to how the
>production function is constructed.
Not at all. As I said before, firms will choose the lower cost
process.
>The assumption is that the markets in my example are competitive.
Which, with fully stipulated markets and factor supplies, would drive
profits to zero. So your profit rates are drivel. I think your are
either a troll or someone who wants to attack the mainstream with a
little understanding of linear programming and not even the slightest
grasp of basic microeconomic thoery.
PLONK!
Dan Parker
news:T2qq9.239767$8b1.1...@news01.bloor.is.net.cable.rogers.com...
What if Frank prefers investigating and problem solving in
the real world? Even as a matter of efficiency, it would seem
far more utile, and maybe more fun, to indulge in massive
amounts of mind altering drugs than to study the details
of mainstream economics. The end result, as far as engaging
in productive behaviour, would be similar.
dp
>
> With best wishes,
>
> -dlj.
>
>
David Lloyd-Jones
> What if Frank prefers investigating and problem solving in
> the real world?
He might want to stay away from a discussion of models. Then again he
might want to use models as a way of understanding the real world.
Either way, I think it might be a good idea to keep straight in his
mind, and in his writing, which is supposed to be which.
> Even as a matter of efficiency, it would seem
> far more utile, and maybe more fun, to indulge in massive
> amounts of mind altering drugs than to study the details
> of mainstream economics. The end result, as far as engaging
> in productive behaviour, would be similar.
A frequent and rather dopey sort of remark made in disparagement of
economics. Funny thing is, most people who disparage "mainstream
economics" are themselves followers of various ululating cults:
protectionism, subsidies to the useless, training of the inapt, and so on.
-dlj.
James A. Donald
> Do you deny that the production function (for corn) is the
> solution to the above LP?
If each producer is himself free to use the lowest cost technology for
roduction of corn, he is not going to produce corn according to your
LP, so absent men with batons and guns standing over the kulaks, the
production function for corn, as Lenin found, is not going to follow
your LP.
Your model does not depict a free market economy, since the production
costs are never in equilibrium.
I make the same comment as I always make about your calculations.
Your argument is merely the standard totalitarian argument that
capitalism is already a centrally planned economy, and you can plan
the kulaks lives
as well as the next guy, and will be more benevolent in doing so.
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
I answer this nonsense even though JimT indicates he's stopped
reading. Maybe somebody will be amused.
--- Begin Extract From Original Post ----------------------
The data... allow for the specification of two well-behaved
production functions, one for corn and the other for iron. For
illustration, I outline how to construct the production function
for corn.
The production function for corn is found as the solution to the
Linear Program in Display 1:
Max X = X1 + X2
2*X1 + (1/2)*X2 <= Q1
(2/5)*X1 + (3/5)*X2 <= Q2 (1)
X1 + X2 <= L
X1 >= 0, X2 >= 0
---------------- End Extract ---------------------------------------
> >Do you deny that the production function (for corn) is the
> >solution to the above LP? You will notice that the input bundle
> >(L, Q1, Q2) can be any given triple with non-negative elements.
> >You will notice that the arguments to a production function
> >are not prices.
> >An answer to the above question would start off with either "No"
> >or "Yes"...
> Yes, I am. The firm picks the lowest cost process. The production
> function is then either
>
> C=min(L,10C,40I)
>
> or
>
> C=min(464/275L,232/113I)
>
> which are both Leotief processes...
The above is silly. First, it does not specify a production funtion.
Second, it is using the coefficients from the iron-producing processes,
not the corn-producing processes. Third, it presents an assertion
about Leontief PROCESSES as if it is contradicting a correct assertion
I made about how the production FUNCTION was not Leontief.
I'll go through a specific example that shows my respondent to
be simply incorrect.
First, from my original post, the coefficients for the processes
for producing corn are:
TABLE 1: INPUTS REQUIRED PER TON CORN PRODUCED
Process A Process B
1 Person-Year 1 Person-Year
2 Tons Iron 1/2 Tons Iron
2/5 Bushels Corn 3/5 Bushels Corn
So by JimT's "logic"
> The production function [for corn] is then either
X = min(L, (1/2) Q1, (5/2) Q2)
> or
X = min(L, 2 Q1, (5/3) Q2 )
> which are both Leotief processes...
where X is the Bushels Corn produced, L is the (direct) labor
input, Q1 is the iron input, and Q2 is the corn input.
Next, again consider inputs of 3 Person-Years, 3 Tons Iron, and 1
Bushel Corn. What is output? JimT's logic says, it is either 3/2
Bushels Corn or 5/3 Bushels Corn. Which answer is correct? JimT
gives no way of deciding.
Well, both are wrong, as I have previously pointed out. Suppose
Process A is used to produce 13/10 Bushels Corn and Process B
is used to produce 4/5 Bushels Corn. Readers, if any, can check
that these outputs will not require more inputs of any good
than are available (some labor will not be used). So I say
that output is 4/5 + 13/10 = 21/10 Bushels Corn. This exceeds
either of JimT's non-answers.
So JimT is claiming that firms will not produce as much as they
can, that profit-maximizing firms will willingly and knowingly
leave 100 dollar bills on the pavement.
> >You might also show some appreciation of duality theory.
> You might want to learn something about the theory of the firm. A
> cost minimizing firm will generally use only one of the two processes.
Who knows what JimT means by "generally"? He's probably
simply wrong. It is not the case that the firm will choose
a linear combination of the two processes only for a set
of measure zero in the set of factor prices.
Anyway, let me display that the cost-minimizing firm can choose
the linear combination of processes that I specified above. (This
requires knowledge of Linear Programming to follow.)
I here use a different concept of prices and cost-minimization
than in my original post. (I could explain how these two
different concepts are related, but that would take more time
than I would expect my readers, if any, would want to see in this
post.)
One should no longer think of iron and corn inputs as having been
previously produced. The corn output is a completely different
commodity than the corn input. The inputs are now just
given in quantity; they are like given natural resources. We
are not considering a vertically-integrated firm that has
adapted its produced inputs to be in the proper proportions
(e.g., as in Marshall's long run equilibrium).
Recall, the LP I was considering, where I have reordered
the constraints and substituted in the specific numeric
values for inputs:
Max X = X1 + X2
X1 + X2 <= 3
2*X1 + (1/2)*X2 <= 3
(2/5)*X1 + (3/5)*X2 <= 1
X1 >= 0, X2 >= 0
It's a standard result in Linear Programming that the dual
problem is:
Min C = 3 w1 + 3 w2 + w3
w1 + (1/2) w2 + (3/5) w3 >= 1
w1 + 2 w2 + (2/5) w3 >= 1
w1 >= 0, w2 >= 0, w3 >= 0
where C is the total cost and w1, w2, and w3 are shadow
prices for labor, iron-input, and corn-input, respectively.
The solution shadow prices are:
w1 = 0 Bushels per Person-Year
w2 = 1/5 Bushels Per Ton
w3 = 3/2 Produced Bushels Per Input Bushel
Notice that the minimized cost here is 21/10 Produced Bushels Corn,
which matches the quantity output. So this solution shows the
total output allocated to economic rents for the "factors".
Put aside that this is a model of central planning; pretend it
is about competitive markets. Notice that both constraints are
met with equality. This implies, contrary to JimT's assertion,
that both processes will be used by a cost-minimizing competitive
firm facing these factor prices.
Furthermore, note that my original LP for constructing the
production function for corn is indeed a correct way of
constructing the production function for corn; it is
dual to this way of thinking about cost-minimization, where
this is different than in my original post and contrary to
the characteristics of corn and iron.
> >My example contains markets. But that is irrelevant to how the
> >production function is constructed.
> Not at all. As I said before, firms will choose the lower cost
> process.
Which, in the price structure I originally presented, has nothing
to do with the construction of the production functions.
> >The assumption is that the markets in my example are competitive.
> Which, with fully stipulated markets and factor supplies, would drive
> profits to zero. So your profit rates are drivel.
As usual, the above is, at least, based on a misrepresentation
of my posts. In the theory, PURE ECONOMIC profits are zero. I
specifically stated in my original post that my table was talking
about ACCOUNTING profits. Accounting profits need not be zero in
the theory of perfect competition.
--- Begin Another Extract From Original Post ----------------------
Table 6 shows accounting with these prices. The column labeled
"cost" shows the cost of the inputs needed to produce one unit
output, a bushel corn or a ton iron, depending on the process.
Accounting profits for a unit output are the difference between
the price of a unit output and this cost. The rate of (accounting)
profits, shown in the last column, is the ratio of accounting
profits to the cost. The rate of profits is independent of
the scale at which each process is operated.
TABLE 6: COSTS, WAGE 3/2780 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 55/1112 BUSHELS PER TON
INDUSTRY PROCESS COST PROFITS
Corn A 2*(55/1112) + (2/5)*1
+ 1*(3/2780) = 1/2 100%
Corn B (1/2)*(55/1112) + (3/5)*1
+ 1*(3/2780) = 6959/11120 60%
Iron C (1/10)*(55/1112) + (1/40)*1
+ 1*(3/2780) = 69/2224 59%
Iron D (113/232)*(55/1112) + 0
+ (275/464)*(3/2780) = 55/2224 100%
---------------- End Extract ---------------------------------------
> I think your are
> either a troll or someone who wants to attack the mainstream with a
> little understanding of linear programming and not even the slightest
> grasp of basic microeconomic thoery.
> PLONK!
Actually, what I am saying is standard theory among those
(apparently few) economists who are well-educated in price
theory.
But hey, you might as well killfile those who don't share your
conceptual confusion and inability or unwillingness to do
arithmetic.
Robert Vienneau
> Robert Vienneau
> > Do you deny that the production function (for corn) is the
> > solution to the above LP?
> If each producer is himself free to use the lowest cost technology for
> roduction of corn, he is not going to produce corn according to your
> LP, so absent men with batons and guns standing over the kulaks, the
> production function for corn, as Lenin found, is not going to follow
> your LP.
The bit about the LP defining the production function was an aside
in my original post. The analysis of prices in my original post
was a description of producers free to use (and using) the
lowest cost method(s) for production of corn. The remainder of
James' comment above also bears no rational relation to anything
I posted in this thread, at least in the spatial-temporal
dimension the rest of us inhabit.
> Your model does not depict a free market economy, since the production
> costs are never in equilibrium.
I made no claim that anything would ever be in equilbrium in any
"free market" economy.
> I make the same comment as I always make about your calculations.
> Your argument is merely the standard totalitarian argument that
> capitalism is already a centrally planned economy, and you can plan
> the kulaks lives
> as well as the next guy, and will be more benevolent in doing so
But the posts I posted, at least in the spatial-temporal everybody
other than James inhabits, did not argue that capitalism is
already a centrally planned economy.
Dan Parker
>
> > Even as a matter of efficiency, it would seem
> > far more utile, and maybe more fun, to indulge in massive
> > amounts of mind altering drugs than to study the details
> > of mainstream economics. The end result, as far as engaging
> > in productive behaviour, would be similar.
>
> A frequent and rather dopey sort of remark made in disparagement of
> economics.
Can you direct me to the sources of this frequent remark?
And yes dope would be involved.
>Funny thing is, most people who disparage "mainstream
> economics" are themselves followers of various ululating cults:
This reads like those who believe in mainstream economics are
followers of one of the various ululating cults. Which would be
the truth.
In any case, what you have remarked on is a dynamic
that is obvious in any time of change when the old system
is wearing out. There are many who flail about for other
ways, once the corruption of the current system becomes
obvious. There are also many, including people with the
highest professional credentials, who present thoughtful
alternatives.
> protectionism, subsidies to the useless, training of the inapt, and so on.
Like mainstream economics again. Which leaves the thoughtful
alternative analyses the way of the future. If you ever want to make
yourself useful, you'd give up the guard dog routine for some
work in this field :-).
About 95% of money is created as debt, at compound interest.
Even bankers now will admit that they create the money, and
that yes, the loans are at compound interest. Compound interest
is positive feedback. That is, it graphs exponentially. So according
to the most basic math, what can be proven by the official figures,
and which the bankers will admit to, the system must be one of
lunatic instability.
I'm sorry I don't have as much time to spend on newsgroups as
I would like, so I'll post a link here for others seeking some
answers about how to develop viable alternatives.
http://www.socialcredit.com/links.htm
dp
>
> -dlj.
>
JT
<rv...@see.sig.com> wrote:
>In article <qrftqu8mpffmpdjq8...@4ax.com>, JT
><ji...@nospam.interchange.ubc.ca> wrote:
>
You should have presented the dual in the first place. I can finally
guess at what you are trying to do.
>Recall, the LP I was considering, where I have reordered
>the constraints and substituted in the specific numeric
>values for inputs:
>
> Max X = X1 + X2
>
> X1 + X2 <= 3
> 2*X1 + (1/2)*X2 <= 3
> (2/5)*X1 + (3/5)*X2 <= 1
>
> X1 >= 0, X2 >= 0
>
>It's a standard result in Linear Programming that the dual
>problem is:
>
> Min C = 3 w1 + 3 w2 + w3
>
> w1 + (1/2) w2 + (3/5) w3 >= 1
> w1 + 2 w2 + (2/5) w3 >= 1
>
> w1 >= 0, w2 >= 0, w3 >= 0
>
This is *not* the dual for a competitive firm. By assumption, the
competitive firm takes prices as *given* and chooses outputs
accordingly to minimize costs. You are taking the inputs as given and
letting the firm choose the prices to minimize the cost. I'll let you
figure out what the right linear programming function is. One hint;
the correct function to minimize is
min c= w1C+w2I + w3L
where w1 is the price of corn, etc.
One constraint involves specifying the amount of output; typically
this is set to one. The firm can alway scale inputs accordingly later
to increase/decrease output. The solution involves finding the
correct ratio of inputs (C,I,L). This is not inconsistent with the
program you have set out above. However, for most price combinations,
the firm will only pick a vector of inputs (C,I,L) such that the
solution to the problem that you have written down will involve either
X1=0 or X2=0. As the firm chooses the inputs optimally, there will be
none of the waste that you demonstrate in your counter example.
My guess is that you are using the First Welfare Theorem, which states
that under a certain set of conditions, the solution to the social
planner's problem is the same as the outcome of a decentralized
economy. In this case, if the economy-wide beginning of period
endowments of inputs were the values you gave, then I guess that the
market clearing prices could indeed be the same as the shadow prices
that you present. For this set of prices, a linear combination of the
two techniques would indeed be used (or at least I am guessing,
without further consideration.).
What I fail to see is how your example in any way supports your
grandiose claim
>So much for the theory that wages and employment are determined
>by the interaction of well-behaved supply and demand curves on the
>labor market.
By your own assessment, the wage rate (shadow price) of labour will
only change when the initial vector (supply) of available inputs
changes (see your linear program above). In a dynamic context, the
beginning of period inputs are not random. You may want to think
about the Marshallian steady state.
JT
<ji...@nospam.interchange.ubc.ca> wrote:
>This is *not* the dual for a competitive firm. By assumption, the
>competitive firm takes prices as *given* and chooses outputs
>accordingly to minimize costs.
Sorry, that should have read "chooses inputs"...
Christopher Auld
>Who knows what JimT means by "generally"? He's probably
>simply wrong. It is not the case that the firm will choose
>a linear combination of the two processes only for a set
>of measure zero in the set of factor prices.
>The solution shadow prices are:
>
> w1 = 0 Bushels per Person-Year
> w2 = 1/5 Bushels Per Ton
> w3 = 3/2 Produced Bushels Per Input Bushel
>Notice that the minimized cost here is 21/10 Produced Bushels Corn,
>which matches the quantity output. So this solution shows the
>total output allocated to economic rents for the "factors".
>Put aside that this is a model of central planning; pretend it
>is about competitive markets. Notice that both constraints are
>met with equality. This implies, contrary to JimT's assertion,
>that both processes will be used by a cost-minimizing competitive
>firm facing these factor prices.
In RV's notation, the cost to produce one unit of corn using
process 1 is
C1 = w1 + 2w2 + (2/5)w3,
and using process 2,
C2 = w1 + (1/2)w2 + (3/5)w3.
Since everything is linear, the firm will either choose process
1, process 2, or a be indifferent over which process to use,
contrary to RV's wild-eyed and lamentably incorrect assertions.
Equating C1 and C2 shows the firm will be indifferent iff
w2 (2/5 - 3/5) 2
-- = ----------- = --.
w3 (2 - 1/2) 15
Notice that the ratio of the shadow prices in the solution to
RV's (pointless) programming problem is 2/15.
Isoquants in (iron, corn) space with this technology are kinked
straight lines. The reason RV is able to show that there are
bundles of inputs such that the firm prefers to use a linear
combination of the processes is simply that he's chosen a bundle
of inputs that isn't "on" either process, ie, it would be wasting
inputs if the firm were forced to use only one of the two Leontief
technologies it has available. But of course the incorrectly
maligned JimT is quite correct when he notes that such a bundle
will generally never be chosen by a competitive cost-minimizing
firm, and if it is the case that such a bundle is optimal (which
only happens for a set of measure zero of factor prices), then it
is also the case that there exists a continuum of other input
bundles which produce the same output for the same cost. The
firm never strictly prefers to use both processes.
>But hey, you might as well killfile those who don't share your
>conceptual confusion and inability or unwillingness to do
>arithmetic.
Oh my, RV should probably not make such remarks, given his
ongoing inability to get freshman-level maths (we won't even
discuss freshman level economics) correct. Possibly RV wouldn't
make such mistakes if he would just copy the algebra of the
models he's for some reason been spamming the net with o' these
many years rather than insisting on turning them into tedious
numerical examples.
Incidentally, wages and employment in RV's model are determined
by... supply and demand (although perfect competition + constant
returns to scale make the model pretty much pointless). The
positive relation between wages and employment RV shows can obtain
does not constitute an example of an upward-sloping labor demand
schedule. Many people have explained this to RV over many years.
--
Chris Auld
Department of Economics
University of Calgary
au...@ucalgary.ca
James A. Donald
On Thu, 17 Oct 2002 19:04:35 -0400, Robert Vienneau
<rv...@see.sig.com> wrote:
> The bit about the LP defining the production function was an
> aside in my original post. The analysis of prices in my
> original post was a description of producers free to use (and
> using) the lowest cost method(s) for production of corn.
No it is not. You call it that, but your model describes a
planned economy in which individual producers do not get to
choose.
--digsig
James A. Donald
6YeGpsZR+nOTh/cGwvITnSR3TdzclVpR0+pr3YYQdkG
YQG3IbRIpL0JxJAIR+DogeVUv9WdUOejq3RvT30K
4t/2AJNC2Q3dPvixBjKcqsR5zIyEhbHm9TYhxbDOl
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> On Thu, 17 Oct 2002 18:57:35 -0400, Robert Vienneau
> <rv...@see.sig.com> wrote:
> >In article <qrftqu8mpffmpdjq8...@4ax.com>, JT
> ><ji...@nospam.interchange.ubc.ca> wrote:
> You should have presented the dual in the first place. I can finally
> guess at what you are trying to do.
I doubt it.
> >Recall, the LP I was considering, where I have reordered
> >the constraints and substituted in the specific numeric
> >values for inputs:
> >
> > Max X = X1 + X2
> >
> > X1 + X2 <= 3
> > 2*X1 + (1/2)*X2 <= 3
> > (2/5)*X1 + (3/5)*X2 <= 1
> >
> > X1 >= 0, X2 >= 0
> >
> >It's a standard result in Linear Programming that the dual
> >problem is:
I have changed the notation:
> > Min C = 3 w0 + 3 w1 + w2
> >
> > w0 + (1/2) w1 + (3/5) w2 >= 1
> > w0 + 2 w1 + (2/5) w2 >= 1
> >
> > w0 >= 0, w1 >= 0, w2 >= 0
where C is the total cost and w0, w1, and w2 are shadow
prices for labor, iron-input, and corn-input, respectively.
> This is *not* the dual for a competitive firm.
The above comment is silly. It is a mathematical fact that the
above two LPs are duals. This has nothing to do with the
semantics, that is, with what sort of model(s) these problems
are used to describe.
> By assumption, the
> competitive firm takes prices as *given* and chooses outputs
> accordingly to minimize costs. You are taking the inputs as given and
> letting the firm choose the prices to minimize the cost.
No. I have outlined a Linear Program whose solution is the production
function for corn. Since the arguments of production functions are
inputs, the quantities of inputs are taken as given in the statement
of this production function. I have noted, correctly, that the
decision variables in the dual problem are shadow prices of
factor inputs. As I explain below, the economy, in the theory, solves
for these prices. It is as if the economy is a giant computer, to use
a well-established metaphor.
I never asserted that a firm would solve the dual LP.
> I'll let you
> figure out what the right linear programming function is. One hint;
> the correct function to minimize is
> min c= w1C+w2I + w3L
In my notation, the objective function for the dual is
Minimize w0 L + w1 * Q1 + w2 * Q2
I can only wonder if JimT has been reading my posts, since he
presents his repetition of what I argued as if it is in contrast
to my posts. And since I had already established the notation
(L, Q1, Q2), why doesn't he use it?
I am quite aware of how to formulate other LPs relevant to my
example, thank you very much.
> One constraint involves specifying the amount of output; typically
> this is set to one. The firm can alway scale inputs accordingly later
> to increase/decrease output. The solution involves finding the
> correct ratio of inputs (C,I,L). This is not inconsistent with the
> program you have set out above. However, for most price combinations,
> the firm will only pick a vector of inputs (C,I,L) such that the
> solution to the problem that you have written down will involve either
> X1=0 or X2=0.
What prices the firm faces is not random, given endowments, in the
theory.
> As the firm chooses the inputs optimally, there will be
> none of the waste that you demonstrate in your counter example.
The only "waste" I demonstrate is in JimT's unargued assertion that
"generally" the production function for corn is formed from only
one of the corn-producing processes, not a linear combination
of them. It would be wasteful to use only one production process
for producing corn when the inputs into corn production are
3 Person-Years, 3 Tons Iron, and 1 Bushel Corn.
Naturally, JimT has yet to clarify what he means by "generally"
or this muddled statement:
"The production function is only non-Leontief because you have
forced the firm to start with a non-optimal input bundle."
The arguments to a production function are input quantities.
About the only sense I could see in arguing that the production
functions in my example are Leontief is to say that one doesn't
call production functions only of this form "Leontief":
X = min ( Q0/a0j, Q1/a1j, ..., Qn/anj )
Rather one might be willing to call "Leontief" the production
functions in my example. A better name might be something like
"generalized Leontief" production functions.
> My guess is that you are using the First Welfare Theorem, which states
> that under a certain set of conditions, the solution to the social
> planner's problem is the same as the outcome of a decentralized
> economy. In this case, if the economy-wide beginning of period
> endowments of inputs were the values you gave, then I guess that the
> market clearing prices could indeed be the same as the shadow prices
> that you present. For this set of prices, a linear combination of the
> two techniques would indeed be used (or at least I am guessing,
> without further consideration.).
It is a matter of fairly basic ideas in microeconomics, I thought.
Consider a simple economy in which all outputs are produced
directly from various natural resources. Call these resources,
counter-intuitively, labor, iron, and seed corn. There are no
capital goods. Suppose that consumers have no desire to consume
resources directly. (This assumption allows one to abstract from
reservation demand.)
Suppose the economy produces one consumption good. Then
competitively maximizing firms, supposedly, would result in
the solution of the LPs that I gave. That is, an equilibrium
of the firms would result in each process being operated at
the level found as a solution of the primal LP. The equilibrium
rental rates for the factor inputs would be the shadow prices
found as a solution of the dual LP.
If there were more than one consumption good, the output
prices would appear in the objective function for the prime
and in the right-hand-side of the dual. These output prices
are parameters in this model of production.
Here's a nice theorem about this sort of model:
If a constraint is met with inequality in the solution of the
primal LP (i.e., a factor is in excess supply), the
corresponding shadow price will be zero in the solution to
the dual LP. If a constraint is met with inequality in the
solution of the dual LP (i.e., a process costs more to operate
than the value of its output), it will not be operated in the
solution to the primal LP.
Thus, the shadow price for labor is zero in the specific solution
I calculated, since labor turned out to be in excess supply in the
vector of input quantities I gave.
Now in this sort of model, input quantities are whatever they
are. It would be ad hoc to impose any sort of constraints on
ratios for inputs. If you think about isoquants in quantity
space, I think you can see that the solution will generally
involve operating linear combinations of processes. If you
have some sort of probability distribution for the quantities
of inputs, the probability measure for the corresponding
distribution in the space of factor prices will be positive
for those price ratios in which profit-maximizing firms
adopt a linear combination of processes. At least I think
that's true.
So I don't know why one would say "generally" only one process
is adopted.
By the way, arguably, it is a mistake to see this as a model
of a market-economy. It is a model of central planning. But,
of course, as I noted, the concept of prices I used in the
solution to my numeric example in my original post was a
different concept of prices.
> What I fail to see is how your example in any way supports your
> grandiose claim
JimT misspelled "well-established".
> >So much for the theory that wages and employment are determined
> >by the interaction of well-behaved supply and demand curves on the
> >labor market.
I agree. JimT fails to see how.
Is the example with which I started this thread correct?
An answer to the above question would start off with either "Yes"
or "No"...
> By your own assessment, the wage rate (shadow price) of labour will
> only change when the initial vector (supply) of available inputs
> changes (see your linear program above).
I stated, explicitly, that the concept of prices relevant for my
dual LP above was a different concept than that used in my example
in my original post:
[>> Anyway, let me display that the cost-minimizing firm can choose ]
[>> the linear combination of processes that I specified above. (This ]
[>> requires knowledge of Linear Programming to follow.) ]
[>> ]
[>> I here use a different concept of prices and cost-minimization ]
[>> than in my original post. ]
> In a dynamic context, the
> beginning of period inputs are not random. You may want to think
> about the Marshallian steady state.
First, JimT is changing the subject here. He is no longer attempting
to defend his incorrect assertion that one must consider a
non-vertically integrated corn-producing firm's profit-maximizing
(or cost-minimizing) problem to construct the production function
for corn.
Second, JimT presents his comments about a dynamic context as if
they are in contrast to my exposition of my example. Suppose the
numeric example in my original post was an entire economy. Then
my example can be read as an example of a generalized von Neumann
ray in which both (accounting) profits and wages are consumed.
There's a large literature relating von Neumann rays to "dynamic"
models.
Third, I thought I explained in my original post that
beginning-of-period inputs are endogeneous, not given,
in my example:
------- Begin extract from original post ----------------------
I want to consider a couple of different levels at which this
firm can operate the processes comprising the techniques. First,
suppose Process A is used to produce 1 41/49 Bushels corn, and
Process C is used to produce 4 4/49 Tons iron. The quantity flows
shown in Table 4 result.
TABLE 4: THE ALPHA TECHNIQUE PRODUCING CORN NET
INPUTS Process C Process A
Labor 4 4/49 Person-Years 1 41/49 Person-Years
Iron 20/49 Tons Iron 3 33/49 Tons Iron
Corn 5/49 Bushels Corn 36/49 Bushels Corn
OUTPUTS 4 4/49 Tons Iron 1 41/49 Bushels Corn
LABOR-INTENSITY: 5 45/49 Person-Years Per Bushel
When the firm operates these processes in parallel, it requires
a total of 41/49 Bushels corn as input. The output of the
corn-producing process can replace this input, leaving a net
output of one Bushel corn. Notice that the total inputs of
iron are 20/49 + 3 33/49 = 4 4/49 Tons iron, which is exactly
replaced by the output of Process C. So Table 4 shows a technique
in which 5 45/49 Person-Years labor are used to produce a net
output of one Bushel corn. The firm, when operating this technique
can produce any desired output of corn by scaling both processes
equally.
------- End extract from original post -----------------------
Notice that in the above I have calculated the outputs of the
processes comprising a given techniques required to ensure
net output is a Bushel Corn. Notice that the inputs are
found as a result of these calculations; I did not take
them as givens.
By the way, how much corn can firms produce in my example if
the total inputs available for the corn-producing process
are L Person-Years, Q1 Tons Iron, and Q2 Bushels (Seed) Corn?
How would you find the answer to this question?
Robert Vienneau
> [ Comments, including stupidities. ]
A prediction: No economist will post here a derivation of a
long-period non-upward-sloping labor demand schedule and of
a labor supply schedule for my example, possibly with additional
assumptions.
"But, as economic theory has learned since the 1930s, the
pattern of activities adopted in the face of long-run
factor-price changes can be complicated and counterintuitive.
Consequently, the long-run demand for factors can be badly
behaved functions of factor prices... The principle of
variation works as an argument for long-run determinancy insofar
as the set of zero-profit activities shift in response to factor
price changes; it is not necessary that newly adopted activities
use cheaper factors more intensively or that production is more
capital intensive when r falls."
-- Michael Mandler, 1999.
James A. Donald
> Poor Chris Auld:
>
> > [ Comments, including stupidities. ]
>
> A prediction: No economist will post here a derivation of a
> long-period non-upward-sloping labor demand schedule and of
> a labor supply schedule for my example, possibly with
> additional assumptions.
Your models, if interpreted as models of a market economy, are
incoherent. From a contradiction, one can prove anything.
--digsig
James A. Donald
6YeGpsZR+nOTh/cGwvITnSR3TdzclVpR0+pr3YYQdkG
mti1JB0vl5P/Wera9chCQI6x1pf+gcjdWiTihM99
4XRBB70uluh3yeA1XcUiXDQ0wQpFwaqus+zACIYbh
Christopher Auld
This is sad even by Robert Vienneau's abysmal, kooky
standards. Perhaps Robert shouldn't post on usenet
if he's going to get so touchy when it's pointed out
that he's wrong.
>A prediction: No economist will post here a derivation of a
>long-period non-upward-sloping labor demand schedule and of
>a labor supply schedule for my example, possibly with additional
>assumptions.
A prediction: Robert Vienneau will never understand what
the technical term "labor demand schedule" means.
Robert Vienneau
> On Thu, 17 Oct 2002 19:04:35 -0400, Robert Vienneau
> <rv...@see.sig.com> wrote:
> > The analysis of prices in my
> > original post was a description of producers free to use (and
> > using) the lowest cost method(s) for production of corn.
> No it is not. You call it that, but your model describes a
> planned economy in which individual producers do not get to
> choose.
On the other hand, from my original post:
-----------------------------------------------------------------
TABLE 8: COSTS, WAGE 109/4040 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 0.10569123726 BUSHELS PER TON
INDUSTRY PROCESS COST PROFITS
Corn A 2*(0.106) + (2/5)*1
+ 1*(109/4040) = 0.6384 56.65%
Corn B (1/2)*(0.106) + (3/5)*1
+ 1*(109/4040) = 0.6798 47.10%
Iron C (1/10)*(0.106) + (1/40)*1
+ 1*(109/4040) = 0.06255 68.97%
Iron D (113/232)*(0.106) + 0
+ (275/464)*(109/4040) = 0.06747 56.65%
This revaluation of iron reveals that the firm makes a rate
of profits of 57% in operating the Beta technique. The firm makes
the same rate of profits in producing corn and in producing its
input of iron. But the manager of the iron-producing process would
soon notice that the cost of operating process C is cheaper.
--------------------------------------------------------------------
This argues that, in the model, the managers of a
vertically-integrated firm will choose which processes they want
to adopt on the basis of cost.
Apparently, on James' planet nobody ever develops a rational
argument.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> >Poor Chris Auld:
> >> [ Comments, including stupidities. ]
> [ Stupidity deleted ]
> >A prediction: No economist will post here a derivation of a
> >long-period non-upward-sloping labor demand schedule and of
> >a labor supply schedule for my example, possibly with additional
> >assumptions.
> A prediction: Robert Vienneau will never understand what
> the technical term "labor demand schedule" means.
Chris Auld behaves consistently with my prediction. And poor
Chris Auld's comment is typically off-kilter, misconceived, and
directed to no cognitive values. Directing his silly whining
at Michael Mandler would be more appropriate, if his
silliness were ever appropriate.
Robert Vienneau
that can be consumed are produced. These goods are called,
confusingly, produced corn and produced iron. Produced corn is
the numeraire in this model. The price of produced iron is
a given parameter in this model, p Bushels per Ton.
Produced goods are produced directly from natural resources
in this model; there are no capital goods. Somewhat confusingly,
these natural resources are called labor, unproduced iron, and
unproduced corn. Factor endowments - L Person Years, Q1 Tons
Iron, and Q2 Bushels Corn - are given parameters in this model.
The technology is also given. Technology is specifed by two
Constant-Returns-to-Scale fixed-coefficient processes for
producing corn and two CRS fixed-coefficient processes for
producing iron.
The equilibrium levels of operation of each process, for
the technology I specified in my first post on this thread,
are the decision variables that solve the following Linear
Program:
Max Z = Z1 + Z2 + p Z3 + p Z4
Z1 + Z2 + Z3 + (275/464) Z4 <= L
2*Z1 + (1/2)*Z2 + (1/10) Z3 + (113/232) Z4 <= Q1
(2/5)*Z1 + (3/5)*Z2 + (1/40) Z3 <= Q2
Z1 >= 0, Z2 >= 0, Z3 >= 0, Z4 >= 0
where
Z is the value of output,
Z1 is the amount of corn produced with the first
corn-producing process,
Z2 is the amount of corn produced with the second
corn-producing process,
Z3 is the amount of iron produced with the first
iron-producing process,
Z4 is the amount of iron produced with the second
iron-producing process.
Suppose both corn-producing processes are operated, and one
of the iron-producing processes is operated. Or suppose both
iron-producing processes are operated, and one of the corn
producing processes is operated. In either case, all three of
the constraints are met with equality, and three of the
(non-slack) decision variables would appear on the left-hand
side of the constraints if the coefficients were confined
to those variables with positive values. In other words,
one would get a system of three equations with three unknowns.
I have not solved the LP, but I believe that the solution in
these cases would define a region in quantity space with
positive volume.
This conclusion does not depend on the number of process
at all. Suppose there were a lot more processes for producing
iron and corn each, but less than an uncountably infinite
number. It is still the case, I think, that the region in
quantity space where a non-trivial linear combination of
processes is used in one or the other industry would have
a positive volume. If one focuses one's attention on internal
solutions, in some sense, the region in which only one process
is adopted in each industry has a set of Lebesque measure
zero.
Endowments cannot be assumed to exhibit any restricted
relationship. Generally, a linear combination of processes
will be adopted in some industry. Two properties of the
example drive this result in a model with this sort of
structure. Factors are not specialized, in some sense. And
the number of factors exceeds the number of produced goods.
Equilibrium factor prices are the shadow prices that solve
the dual of the above linear program. There are three prices,
one for each factor. Each process specified in the technology
provides a constraint in the dual problem. The number of
constraints met with equality is equal to the number of
processes adopted in the solution to the primal LP. If only
one process is adopted for each industry, the dual LP will
not pin down factor prices; they will be indeterminate. But
generally, that will not happen. A linear combination of
processes will be adopted in one industry, and the factor
shadow prices will be determinate. For reasonable probability
distributions over the space of endowments, shadow prices
with this characteristic of determinates have a positive
probability.
This conclusion, that generally factor prices will be such
that a cost-minimizing firm will want to adopt a non-trivial
linear combination of processes in equilibrium in some industry
or another, does not necessarily apply to models with another
structure.
I don't claim anything in the above argument as original with me.
Quite the contrary.
I emphasize, again, that the concept of prices used above differs
from that used in my numerical example of competitive profit-maximizing
firms employing more labor per (net) unit output at higher wages.
Poor Chris Auld.
James A. Donald
On Tue, 22 Oct 2002 02:57:04 -0400, Robert Vienneau
<rv...@see.sig.com> wrote:
> The equilibrium levels of operation of each process, for
> the technology I specified in my first post on this thread,
> are the decision variables that solve the following Linear
The trouble is that you, the central planner, declare these to
be "equilibrium" levels, rather than show that it is in the
interests of producers and consumers to act in a way that would
bring production to these levels. In other words, these are
planned levels, not equilibrium levels.
In short, you are yet again making the old familiar argument,
that capitalism is central planning, and you, being a nice guy,
would plan better results than those selfish capitalists.
--digsig
James A. Donald
6YeGpsZR+nOTh/cGwvITnSR3TdzclVpR0+pr3YYQdkG
TBMOqrfbSUy/32ZwVrWKbXFJUvvSxxdY+OUjq4sv
4yA56qJeEGEeOIOXVklKuu8HbI2h3ecBhR5IjY2CS
Christopher Auld
[ blather ]
> Poor Chris Auld.
In the model RV posted, individual firms can use one
of two Leontief processes to produce corn. Since
RV assumes constant returns to scale, zero profits,
and that firms take prices as parametric, the output
of any firm is undetermined, which is why RV considers
only the firm's problem of cost-minimization in
producing, without loss of generality, one unit of
output. Under these assumptions, if the firm produces
that one unit by producing (a) units using process 1
and (1-a) units using process 2, its costs are
C(a) = aC1 + (1-a)C2
where Ci is the cost of producing one unit using process
i and Ci do not depend on a. Even RV should be able to
see that cost minimization is trivial here: a=0 if C1>C2,
a=1 if C1<C2, or any a yields the same cost if C1=C2. In
words, if and only if the price ratio is such that costs
are equal, the firm is indifferent over processes. This is
the only case in which the firm would ever use both
processes, and IT ONLY HAPPENS FOR A SET OF MEASURE ZERO
OF FACTOR PRICES, and either trivial combination works just
as well as the non-trivial solutions in this case.
In the bungled post I've deleted, RV tries to paraphrase
whatever he's Googled up on more complex versions of his
toy model. For example, he wants to talk about endowments,
which don't exist in his original version. Perhaps he
doesn't want to close the model because then it becomes
clear that both supply and demand generally shift to
produce apparently counterintuitive factor price/quantity
movements, more likely he simply doesn't understand the
issues (one of RV's many elementary misunderstandings
concerns the conceptual difference between a firm's
equilibrium and an economy's equilibrium, which is at play
here).
Robert Vienneau regularly makes a complete hash of
elementary economic concepts and mathematics, yet he
desperately wants to be taken seriously on advanced topics
in economic theory (more accurately, he firmly believes he
understands these topics better than the vast majority of
professional economists, not unlike Archimedes Plutonium's
beliefs about number theory and mathematicians). Perhaps
one day he will realize that one must learn the basics
before lecturing on sophisticated issues -- and here the
sophisticated issue is a largely uninteresting class of
models considered some forty years ago and only still
considered in certain branches of the history of economic
thought. But probably not, because Robert Vienneau is truly
one of the net's most prolific kooks, and he becomes more
tiresome as the shrillness of his oft-spammed "long essays"
increases.
Christopher Auld
>> A prediction: Robert Vienneau will never understand what
>> the technical term "labor demand schedule" means.
>Chris Auld behaves consistently with my prediction. And poor
>Chris Auld's comment is typically off-kilter, misconceived, and
>directed to no cognitive values.
Boring. Period-by-period, in RV's model wages and employment
are determined by supply and demand. Technically, this is
the only time frame in which one can use those terms. If one
abuses terminology and uses the phrase "long-run factor demand"
to refer to a total relationship between factors and factor
prices as other prices or quantities change over time, then
of course a seemingly counterintutive relationship could obtain,
as any good undergraduate could explain. Perhaps if RV tried to
understand the intuition behind his "long essays" he wouldn't
so regularly be revealed as a kook.
Robert Vienneau
> On Sat, 19 Oct 2002 14:39:18 -0400, Robert Vienneau
> <rv...@see.sig.com> wrote:
> > A prediction: No economist will post here a derivation of a
> > long-period non-upward-sloping labor demand schedule and of
> > a labor supply schedule for my example, possibly with
> > additional assumptions.
> Your models, if interpreted as models of a market economy, are
> incoherent. From a contradiction, one can prove anything.
I guess James finds arguments like so incoherent:
If 2 Ton Irons are needed per Bushel Corn produced by Process
A, and 1 41/49 Bushels Corn are produced by this process,
then 3 33/49 Tons Iron will be needed for input into this
process.
If it costs $0.06255 Per Ton for Iron produced by Process C
and it costs $0.06747 Per Ton for Iron produced by Process D,
then firms will have a tendency to adopt Process C (the
cheaper one).
They probably don't have arithmetic on James' planet.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
[> A prediction: No economist will post here a derivation of a ]
[> long-period non-upward-sloping labor demand schedule and of ]
[> a labor supply schedule for my example, possibly with ]
[> additional assumptions. ]
> [ Silliness deleted. ]
> Period-by-period, in RV's model wages and employment
> are determined by supply and demand. Technically, this is
> the only time frame in which one can use those terms.
I cannot decide if Chris Auld realizes he is changing the
subject and intends to implicitly concede supply and demand
do not explain prices and quantities in long run models. If
he wants to seem intellectually honest, he will explicitly state
that supply and demand do NOT explain prices and quantities
in long run models.
Consider an entire economy in which iron and corn are produced
with the technology I specified in my original post.
There are at least three models at play here.
(1) Static Equilibrium. This is the model, possibly extended,
I presented yesterday. Endowments and technology are part of
the data, as I described yesterday. The natural extension, for
those who believe in utility theory, is to take the distribution
of ownership of factors among consumers as given. The data
would then include the preferences of consumers over produced
goods. This extension makes the price of produced iron, in
terms of the numeraire (produced corn), endogeneous. Notice
there's no necessity for the prices of produced corn and
produced iron to equal the prices of iron and corn inputs.
(2) (Short-run) Temporary Equilibrium. Endowments at the
initial time are still given. Extend the model such that
produced iron and corn can be used as inputs into the
next period. Utility theory would be invoked to explain
how much iron and corn would be consumed between periods
and how much would be carried over into the next period
as input into further production. This extends to as
many periods as you like.
(3) Long-run equilibria. Long-run equilibria could be
conceived as a limit point of the dynamics outlined for
a model of temporary equilibria. These would be an
extension of my original example to an entire economy.
Endowments are endogeneous in such models; there ratios
are not constrained by period zero endowments since
there is no period zero in this model.
Chris is stating, correctly, that supply and demand functions
appear in short run models of temporary equilibria. Supply
and demand functions, as Chris describes them, do NOT appear
in models of long-run equilibria. Some literature does
refer to examples like mine as of an upward-sloping labor
demand schedule. I think understanding the effect is more
important than the label.
Sequences of temporary equilibria have many fundamental
problems that still remain open, even more than 60 years after
J. R. Hicks introduced them. It is even debated if this
is the appropriate dynamics to use. My long-run equilibria
have also been described as the result of other dynamics,
such as cross-dual dynamics.
One objection to sequences of temporary equilibria is that
they are essentially models of centrally planned economies.
However well-taken this objection is, economists have
not applied this objection to some other dynamics that
have my long-run equilibria as limit points. In fact, some
economists have argued that these other formulations do
not suffer from that objection.
Another objection involves issues of (in)stability. The literature,
I think, is still open on whether the sort of effect that I
illustrated, reswitching, and so on, are manifested in sequences
of temporary equilibria by effects on the stability of such
paths. Frank Hahn has hinted that they are, but not in any argument
that he has fully developed. P. Garegnani has claimed that the
argument about how long-run prices do not reflect relative
scarcity extends to sequences of temporary equilibria. One sees
the effect there by shifts between periods in supply and demand
curves. Bertram Schefold has outlined how to construct examples
of wages and employment increasing together. Garegnani's and
Schefold's arguments have been criticized.
Another economist who has considered how temporary equilibria and
long run models hang together is Michael Mandler. From what I
understand, Mandler is at Harvard.
"But, as economic theory has learned since the 1930s, the
pattern of activities adopted in the face of long-run
factor-price changes can be complicated and counterintuitive.
Consequently, the long-run demand for factors can be badly
behaved functions of factor prices... The principle of
variation works as an argument for long-run determinancy insofar
as the set of zero-profit activities shift in response to factor
price changes; it is not necessary that newly adopted activities
use cheaper factors more intensively or that production is more
capital intensive when r falls."
-- Michael Mandler, 1999.
Consider the intro textbook story about how minimum wages result
in unemployment. I believe some earlier poster on this thread
implicitly referred to that story. I don't know of any textbook
that explicitly presents this story in a context where no
produced capital goods arise. So it cannot be about (1) Static
Equilibria. I don't know of any intro textbook that presents labor
as a dated input and notes that an equality of demand and
supply in one period is consistent with endogeneous forces
that result in changed wages and employment in subsequent
periods. So this story cannot be about (2) Temporary Equilibria.
Frank Hahn has criticized this story on these grounds, if
I understand right. And, since supply and demand do not arise
in (3) Long Run Models, this story cannot be about the
long-run. So what is this story about?
(Notice that long-run Marshallian equilibrium is a non-starter.
My objection based on long-run models shows that Marshall's
principle of substitution does not apply to long run models.
And my objection does not require a full-blown long-run
equilibrium model; it only requires consideration of changed
wages in a vertically-integrated sector.)
> If one
> abuses terminology and uses the phrase "long-run factor demand"
> to refer to a total relationship between factors and factor
> prices as other prices or quantities change over time,
The bit about "changing over time" doesn't belong in this long-run
context. Notice Chris Auld offers no suggestion whatsoever what
the firm's accounting price for iron should be in my original
example at different levels of wages.
> then
> of course a seemingly counterintutive relationship could obtain,
> [ Stupidity deleted. ]
Chris Auld presents his comments about "abus[ing] terminology"
as if it is in response to something I posted on this thread. But,
of course, I never described here the relationship between
labor-input-per-unit-output and wages I derived in my example
initiating this thread as a "long-run factor demand" schedule.
I'm quite willing to quote the literature, though:
"However, as was argued in Section 3 with regard to 'perversely'
shaped, that is, upward sloping, factor-demand functions, this
possibility would question the validity of the entire economic
analysis in terms of demand and supply."
-- H. D. Kurz and N. Salvadori, _Theory of Production: A Long
Period Analysis_, Cambridge University Press, 1995.
By the way, what should I conclude about JimT vanishing from the
scene? It seems to me he is being intellectual cowardly.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> [Repetition of an argument that Chris already gave. ]
> In
> words, if and only if the price ratio is such that costs
> are equal, the firm is indifferent over processes. This is
> the only case in which the firm would ever use both
> processes, and IT ONLY HAPPENS FOR A SET OF MEASURE ZERO
> OF FACTOR PRICES,
That's ambiguous, and Chris should know it.
A Lebesque measure is only one kind of measure.
I think my intutition was correct in the context in
which JimT was raising his point, as I understood it. If
one takes as given a probability distribution over
endowments, the corresponding probability distribution
over equilibrium prices (which are found by solving
the model) generally has a positive probability of prices
being such that a non-trivial linear combination of
processes will be adopted in equilibrium.
That is, IT HAPPENS FOR A SET WITH A POSITIVE
MEASURE, where that measure defines the derived
probability distribution in the space of factor
prices.
It any case, the production functions are non-Leontief,
not "only non-Leontief because ..." in JimT's muddled
formulation.
> and either trivial combination works just
> as well as the non-trivial solutions in this case.
> [ Stupidities - deleted. ]
> he wants to talk about endowments,
> which don't exist in his original version.
JimT's raised a mistaken point about how one needed to
consider the firm's profit-maximizing/cost-minimizing
problem to construct production functions. This was
in the context of my aside about how to construct
production functions. Given inputs certainly
appeared in my original formulation of a certain
LP.
Furthermore, JimT appeared to me to be talking about
the shadow prices that appear in the dual to that LP.
I have always explicitly stated that this concept
of prices is different than I used in my original
post.
So I don't take Chris' point, if he has any.
In my long-run model, as I understand it, in the
solution, generally only one process will be adopted
for each produced commodity.
Generalized Leontief production functions, as in
my example, differ in important ways from
Leontief production functions. Furthermore, the
effect I illustrated is NOT driven by the existence
of "kinks" in the production functions.
In other words, JimT's objection seemed misdirected
to me, however he might try to put it.
> Perhaps he
> doesn't want to close the model because then it becomes
> clear that both supply and demand generally shift to
> produce apparently counterintuitive factor price/quantity
> movements,
> [ Stupidity - deleted. ]
Chris' comment makes no sense to me. Closing my
original model does NOT include the specification of
given endowments of iron and steel. Perhaps he will think
about my 2nd and 3rd models in my previous post.
I do not close my model, extended to be an entire
economy, because I recognize:
(1) My point about long-run models does not
require such closure.
(2) I recognize that there are a variety of
ways of closing it, and I find more
intriquing certain heterodox closures.
(I've explained this many times in this newsgroup.)
Furthermore, if he is talking about endogeneous shifts
in supply and demand in (short-run) temporary equilibria
models, he is echoing a point of the Sraffian
literature.
> (one of RV's many elementary misunderstandings
> concerns the conceptual difference between a firm's
> equilibrium and an economy's equilibrium, which is at play
> here).
If Chris were very familiar with the literature on which I
drew in constructing my argument, he would know:
(1) The effect illustrated has been claimed to apply
to a vertically-integrated industry. One does
not need to consider an entire economy.
(2) In an article published in the last decade in the
Cambridge Journal of Economics, the concept of
prices have been claimed to be accounting prices,
as in my example.
I have come to understand the latter (cutting-edge) point
by constructing such arguments as I presented here. I'm
thinking of reviewing the article I have in mind, now
that I've done the work to understand its point, to be
sure my memory is correct.
> [ Stupidities and denials of the existence of some ]
> [ contemporary literature in economics - deleted. ]
I don't think Chris looks good with all these stupidities
directed at personalities. (And, Chris, the phrase
"stupidities directed at personalities" is redundant
with the way I have been using "stupidities".) It would seem
he is trying to discredit me to avoid admitting that the
literature upon which I draw gives perfectly valid reasons
for thinking many introductory textbooks are misleading.
I continually point out that this line of reasoning that
I present is hardly original to me. There are whole
communities of contemporary economists that I am agreeing
with.
Christopher Auld
>Chris is stating, correctly, that supply and demand functions
>appear in short run models of temporary equilibria.
This is, of course, complete capitulation, even if Robert does not
understand why. As I already clearly stated, referring to total
relationships between factor prices and factors demanded as multiple
prices or quantities change as "factor demand schedules" is an
abuse of terminology.
>Consider the intro textbook story about how minimum wages result
>in unemployment.
Which is a partial equilibrium argument. Robert might as well
stop spamming his "long essay" and post the single sentence, "You
know, that doesn't necessarily hold if we consider feedback from
other markets." Again, any good undergraduate is aware of all
this, contra the hilarious insult Robert which now opens his "long
essay" (hint: insisting education makes you ignorant is possibly
the least persuasive _ad hominem_ argument in existence).
Robert's semi-relevant comments on dynamic economic models are
poorly informed. He is not aware of modern dynamic models, and
he does not appear to be interested in learning. As usual, he
is more interested in confusing history of economic thought with
current theory:
>(Notice that long-run Marshallian equilibrium is a non-starter.
Who cares? Is Robert ever going to grasp the quite obvious
fact that the literature has progressed in the last century?
>Chris Auld presents his comments about "abus[ing] terminology"
>as if it is in response to something I posted on this thread. But,
>of course, I never described here the relationship between
>labor-input-per-unit-output and wages I derived in my example
>initiating this thread as a "long-run factor demand" schedule.
Robert has posted literally hundreds of times that this schedule
is a labor demand schedule, including in this very post. And
he ended his essay with the ridiculous conclusion that his toy
model invalidates supply and demand. Simply because one can write
down models of labor market phenomena in which supply and demand
do not determine wages and employment does not imply supply and
demand is a useless framework, indeed, the mainstream literature
is full of such models, and at least one appears in every
introductory economics textbook.
And, why did Robert post this thread to alt.fan.noam-chomsky?
Is he confusing mathematics with his radical politics again?
Christopher Auld
>I think my intutition was correct in the context in
>which JimT was raising his point, as I understood it. If
>one takes as given a probability distribution over
>endowments, the corresponding probability distribution
>over equilibrium prices (which are found by solving
>the model) generally has a positive probability of prices
>being such that a non-trivial linear combination of
>processes will be adopted in equilibrium.
>
>That is, IT HAPPENS FOR A SET WITH A POSITIVE
>MEASURE, where that measure defines the derived
>probability distribution in the space of factor
>prices.
This is ridiculous. Robert picked a point not on one
of the two processes available to firms. JimT correctly
pointed out that such an input bundle would generally not
be chosen. Robert frothed at the mouth, misunderstood
the programming problem he cribbed from some third source,
and insisted that it is not the case that only a lower-
dimensional subspace of price vectors could induce the
firm to find it optimal to hire such a bundle.
There is nothing stochastic in Robert's model so I don't
know where the stuff above probability distributions comes
from, but it isn't relevant and it doesn't salvage
Robert's faulty arithmetic: An individual firm in this
model either uses one and only one process, or it is
indifferent over processes. It is only indifferent for
one price ratio in a continuum of possible price ratios,
ie, for a set of measure zero. This ain't rocket science.
Now, of course trying to construct a model with perfect
competition and constant returns to scale leads to
indeterminant outcomes. If the economy has endowments
such that all firms using one process does not exhaust
the endowments, that isn't an equilibrium, and some
fudge like an ad hoc probability distribution over
inputs hired when firms are indifferent could be used
to acheive an equilibrium. But Robert again confuses
an equilibrium for the economy with an equilibrium for
the firm: Once again, contra Robert, there is only one
price ratio for which the firm would ever use both
processes.
>Furthermore, if he is talking about endogeneous shifts
>in supply and demand in (short-run) temporary equilibria
>models, he is echoing a point of the Sraffian
>literature.
And in the perfectly mainstream literature, including most
introductory economics textbooks. Robert talks as if he
firmly believes the alpha and omega of mainstream economic
thought is partial equilibrium models as they were understood
circa 1910.
>I don't think Chris looks good with all these stupidities
>directed at personalities.
Again, Robert now opens his "long essay" with a personal
attack, and a silly personal attack it is, a sort of
reverse credentialism in which he insists people who
disagree with him are ignorant not because of a lack
of education, but because they are far more educated than
he himself is. He then has the lack of self-awareness to
whine when, oddly, these people fail to treat the 973th
repost of this essay, replete with a shiny new insult,
with the utmost respect and careful consideration.
>he is trying to discredit me to avoid admitting that the
>literature upon which I draw gives perfectly valid reasons
>for thinking many introductory textbooks are misleading.
Does Robert really believe the professional literature
and the professionals who he sneers at never get beyond
"introductory textbooks?" What on earth is his point?
>I continually point out that this line of reasoning that
>I present is hardly original to me. There are whole
>communities of contemporary economists that I am agreeing
>with.
Another of Robert's issues is he likes to restate arguments,
he restates them incorrectly, he then interprets "Robert
Vienneau is mistaken" as "the literature on which I draw is
mistaken." Sometimes both quoted remarks are true, more
often just the first one holds.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
[ A prediction: No economist will post here a derivation of a ]
[ long-period non-upward-sloping labor demand schedule and of ]
[ a labor supply schedule for my example, possibly with ]
[ additional assumptions. ]
> >Chris is stating, correctly, that supply and demand functions
> >appear in short run models of temporary equilibria.
> This is, of course, complete capitulation, even if Robert does not
> understand why.
It is true I fail to understand how my statement about short
run models can be a retraction of my claim about long run models.
But I doubt anybody capable of drawing logical conclusions
can either. (As I noted, there are many problems with models
of temporary equilibria.)
I still cannot decide if Chris Auld intends to implicitly concede
supply and demand do not explain prices and quantities in long
run models. If he wants to seem intellectually honest, he will
explicitly state that supply and demand do NOT explain prices
and quantities in long run models.
Part of the problem here is that I know what economists have
meant by "supply and demand" over the last century and where
economists should have beat a retreat, if they cared about
logical coherence and validity. Chris Auld demonstrates, in
his refusual to clearly state the scope of the theory,
that some professional economists have not absorbed certain
aspects of price theory.
"The critique of Robinson and Sraffa is more than forty years old.
Yet for psychological and political reasons, rather than for logical
and mathematical ones, the capital critique has not penetrated
mainstream economics. It likely never will. Today only a handful of
economists seem aware of it."
-- James Galbraith, "The Distribution of Income". In _A New
Guide to Post Keynesian Economics_, 2001.
> As I already clearly stated, referring to total
> relationships between factor prices and factors demanded as multiple
> prices or quantities change as "factor demand schedules" is an
> abuse of terminology.
Chris Auld presents his comments about "abus[ing] terminology"
as if it is in response to something I posted on this thread. But,
of course, I never described here the relationship between
labor-input-per-unit-output and wages I derived in my example
initiating this thread as a "long-run factor demand" schedule.
> >Consider the intro textbook story about how minimum wages result
> >in unemployment.
> Which is a partial equilibrium argument. Robert might as well
> stop spamming his "long essay" and post the single sentence, "You
> know, that doesn't necessarily hold if we consider feedback from
> other markets."
I notice Chris Auld doesn't state assumptions or outline a
logical structure that would justify the intro textbook story.
My example in the original thread considered a labor market. It
was not merely poor Chris Auld's generalization. It illustrated
specific tools in price theory. I still remain convinced that
some economists, including poor Chris Auld, don't understand
that example.
Notice poor Chris Auld has yet to state whether he thinks that
example valid or invalid.
Notice that I have repeatedly pointed out my example was not
of a general equilibrium model.
I'm sure poor Chris Auld will not provide any rational reason
whatsoever for his apparent disagreement with, say, Ian Steedman:
"It is sufficient to compare positions on the wage-rent-
interest-rate frontier to show that input use and 'price'
need not be inversely related; one does not need to 'close
the system' in any way. Our point, then, is not identical
to the general equilibrium one that changes in the data
have complicated consequences for the endogeneous variables...
The burden of proof, concerning the acceptability of partial
equilibrium based predictions and recommendations, always
lies with those who make them."
-- Ian Steedman, "On Input 'Demand Curves'". Cambridge
Journal of Economics. 1985.
> Again, any good undergraduate is aware of all
> this, contra the hilarious insult Robert which now opens his "long
> essay" (hint: insisting education makes you ignorant is possibly
> the least persuasive _ad hominem_ argument in existence).
I guess poor Chris Auld's silliness is meant to distract the reader
from the fact that he cannot explain how the introductory story
is coherent. Or its scope.
And I don't recall stating that education makes one ignorant. I
did offer an empirical hypothesis that appears to be true.
> Robert's semi-relevant comments on dynamic economic models are
> poorly informed. He is not aware of modern dynamic models, and
> he does not appear to be interested in learning.
Poor Chris Auld continues to abandon rational discourse above.
I suppose he's upset that I know what he calls "modern"
models date from the 1920s or 1930s. Notice poor Chris Auld does
not point out anywhere I actually stated something untrue, that is,
why my comments are "poorly informed". Or why he thinks dynamic
models are irrelevant (even though he brought up dynamic models in
his previous post).
> As usual, he
> is more interested in confusing history of economic thought with
> current theory:
> >(Notice that long-run Marshallian equilibrium is a non-starter.
> Who cares? Is Robert ever going to grasp the quite obvious
> fact that the literature has progressed in the last century?
It is hard to grasp how Chris Auld does not perceive that he
is contradicting himself, inasmuch as he is attempting to
say anything substantial at all:
"Which is a partial equilibrium argument."
"Marshallian equilibrium" is pretty much synonymous with
"partial equilibrium".
The bit about history of thought, I guess, is to distract that
poor Chris Auld has nothing substantial to respond with. Notice
poor Chris Auld does not specify any way understanding
of Marshallian equilibrium has progressed in the last
century.
> >Chris Auld presents his comments about "abus[ing] terminology"
> >as if it is in response to something I posted on this thread. But,
> >of course, I never described here the relationship between
> >labor-input-per-unit-output and wages I derived in my example
> >initiating this thread as a "long-run factor demand" schedule.
> Robert has posted literally hundreds of times that this schedule
> is a labor demand schedule, including in this very post.
Poor Chris Auld likes his persons of straw. I never described that
relationship that way in this thread. After explicitly stating
that I think understanding the effect illustrated in my
example is more important than the label, I quoted an economist
or two.
My choice of phrasing in this thread, I would think, should
suggest to any disinterested reader that contra poor Chris
Auld's silliness, I understand what a "labor demand schedule"
is.
> And
> he ended his essay with the ridiculous conclusion that his toy
> model invalidates supply and demand.
"Ridiculous" and "toy" seem to be meant to disguise the fact
that poor Chris Auld has no argument against those economists
who conclude exactly what I say in the literature upon which I
draw.
"The idea that demand and supply for factors of production determine
distribution has become so deeply ingrained in economic thought that
it is almost viewed as an immediate reflection of facts, and not as
the result of an elaborate theory. For the same reason, it is easily
forgotten how comparatively recent that theory is. In the first
systematic analysis of value and distribution by the English classical
economists up to Ricardo, we would look in vain for the conception
that demand and supply for labour and 'capital' achieve 'equilibrium'
as the proportions in which those 'factors' are employed in the
economy change with the wage and rate of profits. Thus, Ricardo saw
no inconsistency between free competition and unemployment of
labour. In his view lower wages could eliminate unemployment only
be decreasing the growth of population or by favouring accumulation...
...Outputs can influence relative prices ... by affecting the relative
scarcity of labour and capital, and thus the wage and rate of
interest, given the supply of the two factors and the state of
technical knowledge. This link between prices and outputs is one and
the same thing as the explanation of distribution by demand and supply
of factors of production: and it becomes untenable once that
explanation is abandoned.
Thus, the separation of the pure theory of value from the study of
the circumstances governing changes in the outputs of commodities,
does not seem to meet any essential difficulty. On the contrary,
it may open the way for a more satisfactory treatment of the
relations between outputs and the technical conditions of production.
Moreover, by freeing the theory of value from the assumption of
consumers' tastes given from outside the economic system, this
separation may favour a better understanding of consumption, and its
dependence on the rest of the system.
With this, the theory of value will lose the all-embracing quality
it assumed with the marginal method. But what will be lost in scope
will certainly be gained in consistency and, we may hope, in
fruitfulness."
-- P. Garegnani, RES, 1970.
> Simply because one can write
> down models of labor market phenomena in which supply and demand
> do not determine wages and employment
That was certainly not my point, as I tried to make clear in my
response to JimT's invocation of monopoly power of employers
with respect to workers.
> does not imply supply and
> demand is a useless framework, indeed, the mainstream literature
> is full of such models, and at least one appears in every
> introductory economics textbook.
Argument from popularity is a logical fallacy, of course.
> And, why did Robert post this thread to alt.fan.noam-chomsky?
Because of my judgement of what might amuse some who hang out
there.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
>
> >I think my intutition was correct in the context in
> >which JimT was raising his point, as I understood it. If
> >one takes as given a probability distribution over
> >endowments, the corresponding probability distribution
> >over equilibrium prices (which are found by solving
> >the model) generally has a positive probability of prices
> >being such that a non-trivial linear combination of
> >processes will be adopted in equilibrium.
> >
> >That is, IT HAPPENS FOR A SET WITH A POSITIVE
> >MEASURE, where that measure defines the derived
> >probability distribution in the space of factor
> >prices.
> This is ridiculous. Robert picked a point not on one
> of the two processes available to firms. JimT correctly
> pointed out that such an input bundle would generally not
> be chosen.
JimT seems to be wrong in that statement.
> Robert frothed at the mouth, misunderstood
> the programming problem he cribbed from some third source,
The above is poor Chris Auld being, as usual, contemptuous
of anybody who might be happen to be reading this. That is,
dear reader, he seems to think you would find his remarks,
instead of a rational argument, relevant and convincing.
It must be an accident that I was able to specify an
input bundle which required a linear combination of
processes.
> and insisted that it is not the case that only a lower-
> dimensional subspace of price vectors could induce the
> firm to find it optimal to hire such a bundle.
Of course, I never said anything about a lower-dimensional
subspace.
> There is nothing stochastic in Robert's model so I don't
> know where the stuff above probability distributions comes
> from,
Consider a static equilibrium model of an economy with a
technology described by less-than-uncountably-infinite
Leontief processes and more resources than produced
goods. The odds are high that equilibrium
prices will be such that firms will choose to adopt
a non-trivial linear combination of processes in
producing some good.
> but it isn't relevant and it doesn't salvage
> Robert's faulty arithmetic: An individual firm in this
> model either uses one and only one process, or it is
> indifferent over processes. It is only indifferent for
> one price ratio in a continuum of possible price ratios,
> ie, for a set of measure zero. This ain't rocket science.
Poor Chris Auld should say "for a set of Lebesque
measure zero". And I don't care.
The point is, generally, in the static equilibrium model
under consideration here, endowments are given to be
whatever they happen to be. The special case where no
firm will, in equilibrium, be willing to adopt a non-trivial
linear combination of processes is extremely unlikely to
arise.
Generally, in this static equilibrium context, factor
prices will be such that firms will be willing to
adopt a non-trivial linear combination of processes.
> Now, of course trying to construct a model with perfect
> competition and constant returns to scale leads to
> indeterminant outcomes.
That's strange. I outlined a static equilibrium model of
production that, generally, yields determinate outcomes,
at least as far as factor prices and quantities go.
(In)determinateness is a problem in many economic models.
> If the economy has endowments
> such that all firms using one process does not exhaust
> the endowments, that isn't an equilibrium,
Technically, Chris Auld is mistaken. As I have previously
noted, some endowments can be in excess supply in an
equilibrium.
> and some
> fudge like an ad hoc probability distribution over
> inputs hired when firms are indifferent could be used
> to acheive an equilibrium.
That's not exactly what I argued. I guess the comment about
"fudge" is designed to distract the reader from noticing
that I am generally correct.
Often, under the assumptions I previously noted, endowments
will be such that when the economy is in equilibrium,
prices will be such that firms will be able to adopt
non-trivial linear combinations of some processes.
> But Robert again confuses
> an equilibrium for the economy with an equilibrium for
> the firm:
Hardly. I was explicit, I thought, that the equilibrium
for the firm can be placed in a larger context.
> Once again, contra Robert, there is only one
> price ratio for which the firm would ever use both
> processes.
And that price ratio will often arise for many
endowment vectors in the static equilibrium model.
Poor Chris Auld tries to pretend that I am not generally
correct.
> >Furthermore, if he is talking about endogeneous shifts
> >in supply and demand in (short-run) temporary equilibria
> >models, he is echoing a point of the Sraffian
> >literature.
> And in the perfectly mainstream literature,
Whatever.
> including most
> introductory economics textbooks.
I doubt that poor Chris Auld can name an intro text that
treats a sequence of temporary equilibria in any
extensive way and that doesn't include mistaken models
of supply and demand.
> Robert talks as if he
> firmly believes the alpha and omega of mainstream economic
> thought is partial equilibrium models as they were understood
> circa 1910.
Poor Chris Auld loves those persons of straws.
The marginal revenue curve and the theory of market forms, such
as monopolistic competition, were not developed 'til the 1920s.
> >I don't think Chris looks good with all these stupidities
> >directed at personalities.
> [ more silliness ]
> >he is trying to discredit me to avoid admitting that the
> >literature upon which I draw gives perfectly valid reasons
> >for thinking many introductory textbooks are misleading.
> Does Robert really believe the professional literature
> and the professionals who he sneers at never get beyond
> "introductory textbooks?"
Of course, I said nearly exactly the opposite immediately
above.
> What on earth is his point?
Long-run supply and demand explanations of wages and
employment have been discarded for valid reasons.
There are some neat tools in price theory.
> >I continually point out that this line of reasoning that
> >I present is hardly original to me. There are whole
> >communities of contemporary economists that I am agreeing
> >with.
> Another of Robert's issues is he likes to restate arguments,
> he restates them incorrectly, he then interprets "Robert
> Vienneau is mistaken" as "the literature on which I draw is
> mistaken." Sometimes both quoted remarks are true, more
> often just the first one holds.
Notice that poor Chris Auld does not show how my main point
in this thread misrepresents the literature upon which I
draw. Nor does poor Chris Auld address this main point
in any rational way.
Christopher Auld
>I still cannot decide if Chris Auld intends to implicitly concede
>supply and demand do not explain prices and quantities in long
>run models. If he wants to seem intellectually honest, he will
>explicitly state that supply and demand do NOT explain prices
>and quantities in long run models.
[...]
>Chris Auld presents his comments about "abus[ing] terminology"
>as if it is in response to something I posted on this thread. But,
>of course, I never described here the relationship between
>labor-input-per-unit-output and wages I derived in my example
>initiating this thread as a "long-run factor demand" schedule.
What to make of Robert Vienneau's Orwellian use of language? He
claims his toy model shows supply and demand is invalid, and
simultaneously claims that he is not making the mistake of
terming the "long run" relationship he derives as a demand
schedule. If he understands that the "long run" relationships
in questions are not "supply [or] demand," why does conclude
the latest spamming of his essay be asserting his has shown
supply and demand do not determine prices and quantities in
his model?
Again, dynamic models are commonplace on modern economic theory.
Robert Vienneau is obsessed with critiques of economic theory
as it stood in the first couple of decades of the 20th century.
And again, in the model Robert Vienneau posted, supply and demand
determine wages and employment. His use of "long run" to describe
other relationships in dynamic models is archaic.
>> Which is a partial equilibrium argument. Robert might as well
>> stop spamming his "long essay" and post the single sentence, "You
>> know, that doesn't necessarily hold if we consider feedback from
>> other markets."
>I notice Chris Auld doesn't state assumptions or outline a
>logical structure that would justify the intro textbook story.
Trying to get Robert Vienneau to understand elementary economic
methodology is a herculean task. The difference between partial
equilibrium models and more general models has been patiently
explained to him many times. The conditions under which, empirically,
we would expect partial equilibrium models to be good approximations
have been repeatedly laid out, as have the conditions under which
one would probably not want to use a partial equilibrium model.
>I'm sure poor Chris Auld will not provide any rational reason
>whatsoever for his apparent disagreement with, say, Ian Steedman:
>
> "It is sufficient to compare positions on the wage-rent-
> interest-rate frontier to show that input use and 'price'
> need not be inversely related; one does not need to 'close
> the system' in any way. Our point, then, is not identical
> to the general equilibrium one that changes in the data
> have complicated consequences for the endogeneous variables...
>
> The burden of proof, concerning the acceptability of partial
> equilibrium based predictions and recommendations, always
> lies with those who make them."
> -- Ian Steedman, "On Input 'Demand Curves'". Cambridge
> Journal of Economics. 1985.
As usual, Robert Vienneau misunderstands everything he reads.
Notice I did not refer to his toy model as a model of general
equilibrium, I noted it considers multiple-market equilibrium.
If Robert Vienneau reads very carefully, he may understand that
"comparing positions on the wage-rent frontier" is in fact
comparing equilibria in multiple markets.
A rational reason to disagree with Ian Steedman is that his
last sentence makes just as much sense if "partial equilibrium"
is replaced with "general equilibrium," or indeed any other
more general model. It is not costless to consider more complex
models, and it is undesirable to do so if one expects that the
first order effects of the changes under consideration will
dominate. This is an entirely uncontroversial methodological
consideration that has been explained to Robert Vienneau
repeatedly.
>And I don't recall stating that education makes one ignorant. I
>did offer an empirical hypothesis that appears to be true.
The empirical hypothesis was, of course, that education makes
one ignorant, so long as that education is in economics. Of
course, Robert Vienneau has, as usual, proceeded to demonstrate
his own vast ignorance of elementary economic theory and
methodology.
[ snip: insults, irrelevancies, misunderstandings, and
the usual slew of Jay Hanson-like quotes of semi-
relevant material. ]
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
>
> >I still cannot decide if Chris Auld intends to implicitly concede
> >supply and demand do not explain prices and quantities in long
> >run models. If he wants to seem intellectually honest, he will
> >explicitly state that supply and demand do NOT explain prices
> >and quantities in long run models.
> [...]
> If he understands that the "long run" relationships
> in questions are not "supply [or] demand," why does conclude
> [silliness deleted] his essay be asserting his has shown
> supply and demand do not determine prices and quantities in
> his model?
Readers, if any, should note that Chris Auld is just funning.
(By the way, I have never posted the essay before with which
I began this thread. The numbers are different.)
I showed how the vertially-integrated firm's desired employment
is determined, given real wages and technology. Since the
demand for labor does not determine employment, given wages,
in my example, I conclude, obviously, that supply and demand
do not determine wages and employment in the model of
which my numerical example is an example.
> And again, in the model Robert Vienneau posted, supply and demand
> determine wages and employment.
The above is simply untrue. Supply and demand apply to another
model than mine that shares the same specification of technology.
In this other model, period zero endowments are given parameters.
They aren't in the model which my numerical example instantiates.
In this other model, supply and demand explain the wage and
employment of dated labor.
> His use of "long run" to describe
> other relationships in dynamic models is archaic.
Readers, please note that Chris continues to just play.
The models that John J. Weatherby studies include long run
models. The literature upon which I draw includes criticism
of dynamic temporary-equilibrium models. For example,
Bertram Schefold has a (long) essay on this topic on his
web site.
Limit points are relevant to dynamic models.
Chris has provided no rational reason whatsoever for thinking
the literature, for instance, relating the von Neumann model
to models of temporary equilibrium should be ignored.
"Sraffa's role in the field of economic sciences has
received contrasting evaluations. On the one hand, we have
the extraordinary interest that his analyses aroused in
so many economists all around the world, epitomised by Paul
Samuelson's (1971:400) reference to 'This age of Leontief
and Sraffa'; let us note that Samuelson is not a follower
of Sraffa's ideas, but one of the leading exponents of
the system of thought criticised by the Italian economist.
On the other hand, today's mainstream economists show a
widespread feeling of impatience for Sraffian analysis:
too frequently they leave aside the criticisms raised by
Sraffa concerning the very foundations of their approach,
and declare his contributions to be overrun by the most
recent theoretical investigations; but do not explain why
those criticisms can be disregarded."
-- Alessandro Roncaglia, 2000.
> It is not costless to consider more complex
> models, and it is undesirable to do so if one expects that the
> first order effects of the changes under consideration will
> dominate.
Readers, if any, should note that Chris Auld continues to
just play.
He has not given any reason to expect the effects illustrated
by a partial equilibrium labor-demand curve to be first-order.
"Begging the question" is the logical fallacy he illustrates
here.
He has not specified the assumptions behind that curve or
how you can tell whether or not a situation is within the
scope of that model.
If Chris Auld had specified the scope, for example, one would
be able to easily infer his opinion on the question of whether
the partial equilibrium story is applicable to labor used
with a produced capital good in the production of a commodity,
when labor is also used in producing that capital good.
It is true I do not understand why one would respond to the
question "What are your assumptions?" with "If you understood
methodology, you would know assumptions do not have to be
realistic". But I haven't seen anything even that coherent
about methoodology from poor Chris Auld here.
Christopher Auld
>(By the way, I have never posted the essay before with which
>I began this thread. The numbers are different.)
Oh, the numbers are different! Well, then the zillionth
repost of the same toy model with the same shrill and
ridiculous conclusions is surely warranted.
[ snip: confused mutterings and lecturing on models Robert
Vienneau doesn't understand. ]
>> It is not costless to consider more complex
>> models, and it is undesirable to do so if one expects that the
>> first order effects of the changes under consideration will
>> dominate.
>Readers, if any, should note that Chris Auld continues to
>just play.
>He has not given any reason to expect the effects illustrated
>by a partial equilibrium labor-demand curve to be first-order.
>"Begging the question" is the logical fallacy he illustrates
>here.
Robert Vienneau is intellectually dishonest. Robert insisted
that any partial equilibrium model is "invalid." The perfectly
correct and uncontroversial response is that that is not so:
Whether a partial equilibrium model is appropriate depends on
the question the modeler wishes to answer. For example, as
has been explained numerous times to Robert Vienneau in the
past, it is not desirable to model the world interest rate as
an endogenous outcome when considering a change in the minimum
wage in one U.S. State. When this was repeatedly, slowly,
patiently, and non-technically explained to Robert Vienneau
before, he simply stopped responding, waited a few months, and
then continued to spam the same essay in Pavlovian fashion
whenever the phrase "minimum wage" appeared anywhere, as he has
again done in this thread. And Robert Vienneau wonders why
he's widely considered a kook.
>He has not specified the assumptions behind that curve or
>how you can tell whether or not a situation is within the
>scope of that model.
Huh? It would really help if Robert Vienneau had ever read
a single piece of applied economic analysis, or anything in
the labor economics literature, or, indeed, any economic
writing besides radical and archaic meta-analysis. His
discussion here is "not even wrong." It's so confused on
basic issues it's impossible to even form a cogent reply.
Robert Vienneau
> ...toy model...
> ...shrill and ridiculous conclusions...
>
> ...confused mutterings and lecturing...
> ...intellectually dishonest... ...perfectly correct and
> uncontroversial response... ...as
> has been explained numerous times... ...repeatedly, slowly,
> patiently, and non-technically explained...
> ...spam the same essay in Pavlovian fashion...
> ...widely considered a kook...
> ...any economic
> writing besides radical and archaic meta-analysis...
> so confused on basic issues...
Just some notes.
I sincerely believe that poor Chris Auld doesn't know he doesn't
present valid arguments in this forum.
I also think he has never worked his way through one of my examples
or the examples in the literature upon which I draw. That literature,
by the way, draws pretty much the same conclusions that I draw. I
have demonstrated that on many occasions, and nobody has ever even
attempted to explain cogently how I misrepresent that literature:
"...no explanation is needed for that which is definitely possible:
it demonstrates itself. Moreover, this phenomenon can be called
'perverse' only in the sense that the conventional parables did
not prepare us for it..."
-- Paul A. Samuelson, 1966.
"However, as was argued in Section 3 with regard to 'perversely'
shaped, that is, upward sloping, factor-demand functions, this
possibility would question the validity of the entire economic
analysis in terms of demand and supply."
-- H. D. Kurz and N. Salvadori, _Theory of Production: A Long
Period Analysis_, Cambridge University Press, 1995.
The fact that my example is so simple should give one pause. When
is the textbook partial equilibrium model of the labor market
applicable, if it cannot even handle this simple case?
Poor Chris Auld has not indicated any statement of mine that
misrepresents either models of sequences of temporary equilibria
or generalized von Neumann models, much less demonstrated such
misunderstandings. Assertion doesn't make it so.
By the way, poor Chris Auld has yet to acknowledge that my example
is correct or that supply and demand explanations do not apply
to long-period models.
It is currently controversial whether Marshallian partial
equilibrium models are valid if any factors can be used in
the production of more than one commodity and if there are
capital goods. Poor Chris Auld appears just to be unaware
of the relevant literature on this point.
"What a cleaned-up version of Sraffa (1926) establishes is how
NEARLY EMPTY are ALL of Marshall's partial equilibrium boxes. To
a logical purist of Wittgenstein and Sraffa class, the MARSHALLIAN
PARTIAL equilibrium box of CONSTANT cost is even more empty than
the box of INCREASING cost...As we let Sraffa (1926) fade into
history, we are left with no EMPIRICAL primacy for the constant-
cost-approximation."
-- Paul A. Samuelson (2000).
"Despite the numerous advances made in microeconomic theory during
the twentieth century, the theory of the cost conditions of the
firm in a perfectly competitive industry remains mired in
contradictions. On some level, increasing, constant and decreasing
costs are all incompatible with a partial equilibrium analysis of
perfect competition. Although this incompatibility between perfect
competition and the entire range of cost functions was first
pointed out by Piero Sraffa in a famous 1926 paper entitled 'The
Laws of Returns Under Competitive Conditions', the theory of
perfect competition persists. The purpose of the present
paper is threefold: to illustrate the contradictions that persist
to this day in this area, to trace those contradictions back to
Sraffa's 1926 paper and to suggest why the contradictions have
remained unresolved."
-- Avi J. Cohen (1983).
Poor Chris Auld has not specified the assumptions behind the
labor demand schedule or how you can tell whether or not a situation
is within the scope of that model. I don't think he has ever
given a response that indicates a familiarity with the details of
the arguments Cohen is talking about, for instance.
If Chris Auld had specified the scope, for example, one would
be able to easily infer his opinion on the question of whether
the partial equilibrium story is applicable to labor used
with a produced capital good in the production of a commodity,
when labor is also used in producing that capital good.
(By the way, whether the theory can apply to this simple case
is a question that goes back to at least J. R. Hicks _Theory
of Wages_.)
To say:
"Whether a partial equilibrium model is [valid] depends on
the question the modeler wishes to answer."
is a non-sequitur. Whether Euclidean geometry is internally
consistent cannot be decided by how big an area of the
more-or-less spherical surface of the globe surveyors and
cartographers can treat as if it was a plane. Suppose I were
able to construct a triangle with compass and staightedge
whose angles added up to more than 180 degrees. Consider
an argument based on such an imaginary construction that
Euclidean geometry is inconsistent. It should puzzle anybody
capable of logic how such an argument could be dismissed by
calling it a "toy example" and saying surveyors find Euclidean
geometry useful.
When poor Chris Auld complains that my example has unrealistic
assumptions in that it does not apply to changed minimum wages at
the level of a state or province, and in that it identifies the
profit-rates in my example with "the world interest rate", he is
just confusing levels of abstraction. If he were interested in
that question, he could always explore the literature inspired by
Sraffa on spatial economics and economic geography, say Sheppard
and Barnes' textbook. (I have pointed out this text several times
in this newsgroup.)
Given poor Chris Auld's inability to not include stupid invective
in his posts, it is odd that he should complain if I choose to
stop responding to his non-arguments.
I don't know why he thinks my new essay with which I began this
thread was a response to the appearance of some mention of minimum
wages somewhere. As those who have looked at Graham White's essay,
"The Poverty of Conventional Economic Wisdom and the Search for
Alternative Economic and Social Policies" (available somewhere on
the Web), know, my essay is perfectly germane to discussions of
the desirability of improving labor market flexibility, anyways.
The suggestion that "Robert Vienneau wonders why he's widely
considered a kook" seems to be an ill-mannered attempt at
mind-reading.
The suggestion that I confine my reading to "radical and archaic
meta-analysis" is demonstratably balderdash and irrelvant to
reasoned discussion. Even if it were true, poor Chris Auld could
not know that by the selection of my reading I prefer to reference.
(By the way, poor Chris Auld seems to use "economic meta-analysis"
to deliberately confuse works on economic methodology with
all economic theory, textbooks, and even standard references such
as the New Palgrave.)
It seems to be true that poor Chris Auld is unable "to even form
a cogent reply".
Poor Chris Auld.
Christopher Auld
>> ...spam the same essay in Pavlovian fashion...
>> ...widely considered a kook...
etc.
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
> poor Chris Auld
Why Robert Vienneau expects to be treated with anything resembling
courtesy or respect given his boorish behavior over many years is beyond
me.
[ snip: The usual slew of misunderstood, Jay Hanson-like
quotes ]
>To say:
>
> "Whether a partial equilibrium model is [valid] depends on
> the question the modeler wishes to answer."
>
>is a non-sequitur. Whether Euclidean geometry is internally
>consistent...
Here is an internally consistent and empirically applicable model of a
labor market:
Ld = Ld(Xb) + u
Ls = Ls(Zg) + e
Ld = Ls
where Ld and Ls are labor supply and labor demand, X and Z are vectors of
supply and demand shifters, and u and e are noise. This model is
internally consistent.
Similar models are applied in theory and statistically to a variety of
phenomena in labor and other markets countless times in the peer-reviewed
literature every year. Just as often, the modeler might be interested in
mechanisms which are not best considered in such a simple framework. Such
a modeler would not conclude the simple supply and demand story is
"invalid," which would betray a terribly naive understanding of how
quantitative research is conducted.
Those interested in the vast theoretical and empirical literatures on
application of the simple model can look up the numerous relevant chapters
in the volumes of the _Handbook of Labor Economics_, with particular
reference to the chapters discussing labor supply, demand, and methods in
labor econometrics. Startlingly, this literature actually does get beyond
what was in Marshall! Who would have thought? To repeat, it is entirely
uncontroversial that
> "Whether a partial equilibrium model is [appropriate] depends on
> the question the modeler wishes to answer,"
the objections of usenet kooks who have never read so much as a
single piece in the labor economics literature notwithstanding.
>When poor Chris Auld complains that my example has unrealistic
>assumptions in that it does not apply to changed minimum wages at
>the level of a state or province, and in that it identifies the
>profit-rates in my example with "the world interest rate", he is
>just confusing levels of abstraction.
Robert Vienneau misunderstands (again). He insists a partial equilibrium
story is "invalid" because it fails to consider possible complex feedbacks
from other markets, in his example, the capital market. I have, again,
clearly explained that this objection is naive: It is not the case that
all models could or should reflect all of a terrifically complex system.
Taken at face value, Robert Vienneau's story is about how wages and
interest rates interact. *He* wants to apply this story to changes in
local minimum wages. He should then explain how any model which does not
include the world interest rate is "valid," in the sense he uses the word.
Robert Vienneau also misunderstands the use of the phrase "toy model." If
one can make a point using a very simple model, then one should indeed use
a very simple model to make that point. There is nothing inherently wrong
with using toy models. But, of course, a problem arises if one then
confuses the toy model with a good framework for more general purposes,
such as empirical modeling. Just for laughs, this is a good point to ask
Robert Vienneau for empirical evidence on the empirical relevance of the
mechanisms he's fond of spamming the net with essays about (oh wait, this
is a "new essay" -- Robert "changed the numbers" -- too funny.)
> If he were interested in
>that question, he could always explore the literature inspired by
>Sraffa on spatial economics and economic geography, say Sheppard
Oh yeah, that's the first place I'd look for an analysis of minimum
wages....
>The suggestion that "Robert Vienneau wonders why he's widely
>considered a kook" seems to be an ill-mannered attempt at
>mind-reading.
Robert Vienneau is, indeed, widely considered a kook. Perhaps he should
think about why comes across as a kook. Perhaps he should think about
approaching his readings in economics in a manner *not* similar to that in
which a creationist approaches evolutionary biology (the point being not
to understand biological (social) systems, but to scrounge about for
arguments that biologists (economists) are wrong). In this very thread,
Robert Vienneau has presented arguments which the vast, vast majority of
economists -- even those he considers his intellectual fellow travelers --
would disagree with, and has offered as explanation for that disagreement
the opinion that education makes one ignorant, such that Robert Vienneau's
lack thereof is not only not an obstacle, it's actually a virtue. If
there is some sort of checklist for sure signs of usenet kookery, surely
that sort of argument is near the top of the list. That he compunds this
nonsense by littering his posts with elementary economic and mathematical
errors while also lecturing professionals on advanced techniques is really
quite breathtaking kookery.
>The suggestion that I confine my reading to "radical and archaic
>meta-analysis" is demonstratably balderdash and irrelvant to
>reasoned discussion. Even if it were true, poor Chris Auld could
>not know that by the selection of my reading I prefer to reference.
>(By the way, poor Chris Auld seems to use "economic meta-analysis"
>to deliberately confuse works on economic methodology with
>all economic theory, textbooks, and even standard references such
>as the New Palgrave.)
^^^^^^^^^^^^
I like how the first sentence and the last sentence form such a
deliciously ironic couplet:
A nonprofessional reader would never guess from these volumes
that economists working in the Marxian-Sraffian tradition
represent a small minority of modern economists, and that
their writings have had virtually no impact on the professional
work of most economists in major English-language universities.
-- Stigler reviewing the Palgrave
Robert Vienneau is, of course, infamous for thinking that the
tiny, archaic, and radical literature he Googles up or reads
about in his dictionary discusses current issues in current
economic thought.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> >To say:
> >
> > "Whether a partial equilibrium model is [valid] depends on
> > the question the modeler wishes to answer."
> >
> >is a non-sequitur. Whether Euclidean geometry is internally
> >consistent...
> Here is an internally consistent and empirically applicable model of a
> labor market:
>
> Ld = Ld(Xb) + u
> Ls = Ls(Zg) + e
> Ld = Ls
>
> where Ld and Ls are labor supply and labor demand, X and Z are vectors of
> supply and demand shifters, and u and e are noise. This model is
> internally consistent.
Chris Auld misrepresents mainstream theory, probably deliberately.
Some economists believed the above model can and should be derived
from optimizing behavior.
Chris Auld refuses to explain how to derive such a model
for my example or why such a model cannot be derived there.
He refuses to face up to the literature that I draw upon.
"The view which is adopted here however is that there is
insufficient robust theoretical ground to support the
notion, underlying virtually all economic discussions of
employment, that real wages and employment are related in a
systematically inverse way. In other words,the view is adopte
here that no clear economic reasoning can be provided by which
to suppose that in general a fall in real wages would lead to
an increase in labour employment."
-- Graham White, 2001.
(It's not so much that I draw upon White, as that the above quote
demonstrates that some economists, better informed than
Chris Auld about the literature upon which I draw to construct
my example, make the same points.)
> Similar models are applied in theory and statistically to a variety of
> phenomena in labor and other markets countless times in the peer-reviewed
> literature every year. Just as often, the modeler might be interested in
> mechanisms which are not best considered in such a simple framework.
> Such
> a modeler would not conclude the simple supply and demand story is
> "invalid," which would betray a terribly naive understanding of how
> quantitative research is conducted.
The above is simply an irrelevancy and a strawperson.
> [Blah, blah, blah]
Chris Auld still has not provided any "economic reasoning by
which to suppose that in general a fall in real wages would lead
to an increase in employment".
> >When poor Chris Auld complains that my example has unrealistic
> >assumptions in that it does not apply to changed minimum wages at
> >the level of a state or province, and in that it identifies the
> >profit-rates in my example with "the world interest rate", he is
> >just confusing levels of abstraction.
> Robert Vienneau misunderstands (again). He insists a partial equilibrium
> story is "invalid" because it fails to consider possible complex
> feedbacks
> from other markets, in his example, the capital market.
That's strange. I'm not at all sure a capital market appears in the
example with which I began this thread.
Chris Auld's generalization is the sort of remark that leads me
to wonder whether he has grasped my example. It doesn't seem
to deal with the specific aspects of that example, but could
equally be as well about other models.
Chris Auld has yet to acknowledge that the example with which I
began this thread is correct.
> I have, again,
> clearly explained that this objection is naive: It is not the case that
> all models could or should reflect all of a terrifically complex system.
Strawperson. My objection was not that all models should reflect
all of a terrifically complex system.
Chris Auld explains why his complaints that the assumptions of
an abstract model are unrealistic are naive, on his own account.
> Taken at face value, Robert Vienneau's story is about how wages and
> interest rates interact. *He* wants to apply this story to changes in
> local minimum wages. He should then explain how any model which does not
> include the world interest rate is "valid," in the sense he uses the
> word.
The above suggests that the use of "valid" to refer to internal
logical consistency is a novel use of the word. Of course, that's
what logicians mean by the word.
Chris Auld's position seems to be that a partial equilibrium
story is internally consistent except when firms use produced
capital goods. I find it odd that one would think that a defense
of the story, instead of an attack.
> Robert Vienneau also misunderstands the use of the phrase "toy model." If
> one can make a point using a very simple model, then one should indeed
> use a very simple model to make that point.
Chris Auld seems not to understand where the limitations of
my simple example are irrelevant to its point.
> There is nothing inherently
> wrong
> with using toy models. But, of course, a problem arises if one then
> confuses the toy model with a good framework for more general purposes,
> such as empirical modeling.
I don't know why Chris Auld thinks Leontief input-output analysis
is not a good framework for empirical modeling.
Maybe Chris Auld should explain to David Lloyd-Jones why his
correct reading of my post was naive. I have never suggested in
this thread that a model with two produced goods is a
good framework for general empirical modeling. I don't
think I have ever suggested such a thing.
> Just for laughs, this is a good point
That is to say, this strawperson and irrelevancy is a good point...
> to ask
> Robert Vienneau for empirical evidence on the empirical relevance of the
> mechanisms he's fond of...
I know of no empirical evidence whatsoever that technology cannot
have the relevant characteristics of my example. Chris Auld has not
and will not point to any such evidence.
I do know of where to look for cases of technology with such
characteristics.
My opinion is not unique.
"...there appears to be very few empirical studies that
specifically test for reswitching, or reverse capital
deepening. Indeed,the notion of testing for these phenomena
by reference to historical data is itself highly problematic.
Instead what one needs to consider is the likelihood of
technologies that would admit reverse capital deepening
being included in the set of feasible technologies relevant to
the choice of technique decisions of producers, as relative prices
of inputs change (though it is not clear that this is something
econometrics can shed much light on)... Certainly the extent of
discussion is insufficient to warrant calling it 'conclusive'.
...the absence of empirical results either way cannot be used as
a defence of the orthodox position that the absence of reverse
capital deepening is the 'general case'. Orthodox analysis
has no a priori basis on which to presume that what it considers
to be the general case is in fact the general case. Such a defence
would require a logically coherent argument as to why one
should expect technologies admitting reverse capital deepening to
be less likely than those that do not. No such argument has been
provided by orthodox theorists."
-- Graham White, 2001.
> > If he were interested in
> >that question, he could always explore the literature inspired by
> >Sraffa on spatial economics and economic geography, say Sheppard
> Oh yeah, that's the first place I'd look for an analysis of minimum
> wages....
Chris Auld is being silly. He suggested that certain assumptions
in my examples could not be relaxed to accomodate problems that
arise in considering a minimum wage. I suggested where to see
that those assumptions could be relaxed for that purpose.
> ...That he compunds this
> nonsense by littering his posts with elementary economic and mathematical
> errors
Chris Auld, of course, has not pointed out errorS - my emphasis
on the plural is deliberate.
> while also lecturing professionals on advanced techniques is
> really quite breathtaking kookery.
I suppose the above is Chris Auld's emotional reaction to
having his error pointed out in his assertion that equilibrium
is inconsistent with an endowment being in excess supply.
By the way, Chris Auld has not noted the errors in JimT's posts.
Just as a reminder: Chris Auld has given no justification,
in theory, for the idea that employment would be higher if
real wages were lower.
Christopher Auld
>(Christopher Auld) wrote:
>> Here is an internally consistent and empirically applicable model of a
>> labor market:
>Chris Auld misrepresents mainstream theory, probably deliberately.
The model I displayed is perfectly standard. Anyone can find variants of
it in any econometrics textbook, discussions of closely related models and
theoretical considerations in any microeconomic theory or labor economics
textbook, and tens of thousands of applications in the professional
literature. Robert Vienneau, steeped in archaic and radical literature,
is apparently unaware of any of this. A reasonable and self-aware
individual would conclude he is in no position to lecture on the topic.
Robert Vienneau concludes I must be "misrepresenting mainstream theory."
>Chris Auld refuses to explain how to derive such a model
>for my example or why such a model cannot be derived there.
I have answered this question numerous times. I suppose answering it is
somewhat like explaining to a creationist that, in fact, the eye is a
structure which has evolved independently and demonstrably numerous times:
They just blink, wait a while, and repeat again that it is implausible
that an eye could ever evolve.
>He refuses to face up to the literature that I draw upon.
Pay attention, Robert: Numerous people have told you numerous times that,
yes, it is indeed possible to write down models in which there exists a
positively-sloped locus between factor prices and factors demanded. That
locus is not a factor demand curve. More directly, empirically, labor
demand curves slope down ("the literature Robert draws on," as he likes to
put it, predates econometrics, so this point always falls on deaf ears).
>> [Blah, blah, blah]
That's good, Robert. I'm sure you're winning converts to your cause with
such "reasoned discussion." Why not try insisting that education makes
you ignorant and follow *immediately* with "blah blah blah?" A double
whammy like that would be hard to counter!
>Chris Auld has yet to acknowledge that the example with which I
>began this thread is correct.
I don't know if the "new" ("I changed the numbers") version of this toy
model is correct. I do know it is possible to write down models of the
sort Robert favors in which the mechanisms Robert is obsessed with can be
shown to obtain, although Robert often gets things wrong when he
paraphrases rather than quotes. But I do not agree with any of Robert's
conclusions regarding the implications for economic theory. Neither did
most economists when JFK was president, which is roughly the period in
which this discussion mostly took place. It wasn't a very important
discussion then, and the literature has moved on in many interesting
directions since.
On that note, did anyone else get a good laugh out of RV's repeatedly
referring to a paper written in 1926 to demonstrate that his pet theories
are of current interest, not matters of historical curiousity? Robert
believes that Marshall is the alpha and omega of economic thought. Here's
a list of working papers issued last week by the NBER:
***********
Solving Dynamic General Equilibrium Models Using a Second-Order
Approximation to the Policy Function
Stephanie Schmitt-Grohe and Martin Uribe #T282 (TWP)
The Role of Output Stabilization in the Conduct of Monetary Policy
Frederic S. Mishkin #9291 (EFG, ME)
Agglomeration, Integration and Tax Harmonization
Richard E. Baldwin and Paul Krugman #9290 (ITI, PE)
Employee Stock Options, Corporate Taxes and Debt Policy
John R. Graham, Mark H. Lang, and Douglas A. Shackelford #9289 (PE)
Financial Globalization and Emerging Markets: With or Without Crash?
Philippe Martin and Helene Rey #9288 (IFM)
Digital Dispersion: An Indutrial and Geographic Census of Commercial
Internet Use
Chris Forman, Avi Goldfarb and Shane Greenstein #9287 (IO, PR)
Margin Calls, Trading Costs, and Asset Prices in Emerging Markets: The
Financial Mechanics of the 'Sudden Stop' Phenomenon
Enrique G. Mendoza and Katherine A. Smith #9286 (IFM)
A Gravity Model of Sovereign Lending: Trade, Default and Credit
Andrew K. Rose and Mark M. Spiegel #9285 (IFM)
The Benefits of the Home Mortgage Interest Deduction
Edward L. Glaeser and Jesse M. Shapiro #9284 (EFG, PE)
Prices vs. Quantities vs. Tradable Quantities
Roberton C. Williams III #9283 (EE, PE)
After the Big Bang? Obstacles to the Emergence of the Rule of Law in
Post-Communist Societies
Karla Hoff and Joseph E. Stiglitz #9282 (LE)
Is Health Insurance Affordable for the Uninsured?
M. Kate Bundorf and Mark V. Pauly #9281 (HC)
Does Medicare Benefit the Poor? New Answers to an Old Question
Jay Bhattacharya and Darius Lakdawalla #9280 (HC)
Mergers as Reallocation
Boyan Jovanovic and Peter L. Rousseau #9279 (DAE, EFG, PR)
The Stability and Growth Pact as an Impediment to Privatizing Social Security
Assaf Razin and Efraim Sadka #9278 (PE)
Anomalies and Market Efficiency
G. William Schwert #9277 (AP)
************
Does anyone else see twenty-odd papers on issues directly relating to
capital theory and the Marshallian theory of the firm? Raise your hand if
you see a bunch of papers on a variety of issues of interest to economists
on social issues, and a couple on technical issues not related to Robert's
"long essays." Possibly, some of these issues would be discussed
informally on sci.econ, but no, every time someone brings up any issue,
Robert Vienneau wades into the discussion and turns it into YET ANOTHER
discussion of the god damned Cambridge Capital Controversy. There is
more to economics than dreamt of in your philosophy, Mr. Vienneau.
>Maybe Chris Auld should explain to David Lloyd-Jones why his
>correct reading of my post was naive.
I think DLJ said that Robert's model was crafted to show a point. I think I
just said that toy models are actually preferable when a point can be
demonstrated in such a model. I think Robert Vienneau has profound reading
comprehension problems.
>> to ask
>> Robert Vienneau for empirical evidence on the empirical relevance of the
>> mechanisms he's fond of...
>I know of no empirical evidence whatsoever that technology cannot
>have the relevant characteristics of my example. Chris Auld has not
>and will not point to any such evidence.
The answer to the first part of Robert paragraph is "empirically, factor
demand curves slope down." The second part clumsily reverses the
question: I asked Robert Vienneau for empirical evidence on the relevance
of these mechanisms. Where is it?
>Just as a reminder: Chris Auld has given no justification,
>in theory, for the idea that employment would be higher if
>real wages were lower.
Just as a reminder, Chris Auld has repeatedly stated that eyes can evolve.
This grows tiresome. I have a weakness in that at regular intervals I
succumb to the temptation to point that Robert Vienneau's "long essays"
and various kooky diatribes don't hold water. He infests almost every
thread on sci.econ, recently taking even to answering every question posed
by graduate students and researchers, usually incorrectly. But he never
learns anything, indeed, he seems to actually understand less than he used
to (or perhaps I just gave him the benefit of the doubt previously where
it was not warranted). And the level of arrogance and obnoxiousness keeps
steadily rising. I used to wonder why Robert Vienneau, who is clearly a
clever man, doesn't actually read some economics rather than just rooting
around for criticism that he can merrily repost and repost again, usually
without any understanding of the issue at hand (cf, "David Friedman
wrong.") Alas, even clever creationists don't read biology to understand
how biological systems work, and no amount of prodding to get them to do
so is going to be effective.
Woodard R. Springstube
news:aph96b$59...@acs4.acs.ucalgary.ca:
Chris,
I learned long ago, that no number of replies to Robert are
sufficient to move him into modern microeconomics or
econometrics. He has decided that ALL modern economists have
prostituted their science for the benefit of the "plutocrats"
and that all modern economics is, therefore, corrupt. As a
result of this, he insists on attempting to resurrect the
economic thought of a previous century and use it to justify
his religious faith in collectivism. About the only good you
do is to, perhaps, keep him from misleading others.
Woodard R. Springstube
Robert Vienneau
R. Springstube" <springst...@Diespammer.net> wrote:
> I learned long ago, that no number of replies to Robert are
> sufficient to move him into modern microeconomics or
> econometrics.
Woodard doesn't know what he is talking about. On this
thread, I am explaining aspects of modern microeconomics.
> He has decided that ALL modern economists have
> prostituted their science for the benefit of the "plutocrats"
> and that all modern economics is, therefore, corrupt.
Woodard doesn't know what he is talking about. On this
very thread I have referenced works by modern economists
that I recommend, e.g.,
H. D. Kurz and N. Salvadori, Theory of Production: A Long-Period
Analysis. Cambridge University Press, 1995.
> As a
> result of this, he insists on attempting to resurrect the
> economic thought of a previous century and use it to justify
> his religious faith in collectivism.
Woodard doesn't know what he is talking about. I have never
advocated "collectivism".
> About the only good you
> do is to, perhaps, keep him from misleading others.
Whatever. I'm not the one making up persons of straw.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> >(Christopher Auld) wrote:
> >> Here is an internally consistent and empirically applicable model of a
> >> labor market:
> >Chris Auld misrepresents mainstream theory, probably deliberately.
> The model I displayed is perfectly standard...
I never said it wasn't standard.
Chris Auld refuses to address my point. Labor demand and supply
curves are supposedly derived in mainstream theory; they are
not basic entities. Whether or not they can be derived is
addressed neither by citing correlation coefficients in
empirical work nor by making statements about what the
majority of economists supposedly believe.
> >Chris Auld refuses to explain how to derive such a model
> >for my example or why such a model cannot be derived there.
> I have answered this question numerous times...
Chris Auld refuses to explain how to derive such a model
for my example or why such a model cannot be derived there.
> >He refuses to face up to the literature that I draw upon.
> Pay attention, Robert: Numerous people have told you numerous times that,
> yes, it is indeed possible to write down models in which there exists a
> positively-sloped locus between factor prices and factors demanded. That
> locus is not a factor demand curve.
Chris Auld presents his last sentence as if he is arguing against
what I have stated in this thread. He is misrepresenting what I
say (although I am aware how some summarize the effect which I
illustrated in my example).
Chris Auld has not derived a long-run labor demand schedule for my
example or explained what special case assumptions he is inclined to
make that rule my example out.
> More directly, empirically, labor
> demand curves slope down ("the literature Robert draws on," as he likes
> to
> put it, predates econometrics, so this point always falls on deaf ears).
Chris Auld has not outlined a model, other than a short run model
of sequences of temporary equilibria, which such claimed empirical
results can be said to validate (fail to falsify). (It is not clear
to me that such empirical results are abut such short-run models.)
I think Leontief's work was important in creating econometrics.
Chris Auld has not pointed out any literature in the econometrics
literature that addresses my point.
"Amazingly, collections on unemployment such as that by Debelle
and Borland (1998), and other work surveyed in Le and Miller
op. cit., demonstrate almost no cognizance of the serious
deficiencies at a fundamental level in orthodox discussions of
labour demand. An exception in this regard is Doucouliagos
(1997) who, in relation to dissent on the neoclassical labour
demand function, remarks on how 'few of [these] criticisms have
made their way into the empirical literature' (p.225). At the
very least, the capital theoretic problems alluded to here
should make one extremely cautious about orthodox interpretations
of any statistical association between changes in real wages and
changes in employment."
-- Graham White
Chris Auld will not state whether he thinks White is correct in
saying that much literature on unemployment fails to address the
point raised by the literature upon which White and I draw.
> That's good, Robert... [blah, blah, blah ]
If Chris Auld wants to point out literature that addresses my
example, whether in econometrics or not, he should say so.
This sort of statement does not make any such relevant point:
"Those interested in the vast theoretical and empirical literatures
on application of the simple model can look up the numerous relevant
chapters in the volumes of the _Handbook of Labor Economics_, with
particular reference to the chapters discussing labor supply, demand,
and methods in labor econometrics."
> >Chris Auld has yet to acknowledge that the example with which I
> >began this thread is correct.
> I don't know if the "new" ("I changed the numbers") version of this toy
> model is correct.
It's not as if my first post takes more than 7th grade math to check.
> I do know it is possible to write down models of the
> sort Robert favors in which the mechanisms Robert is obsessed with can be
> shown to obtain...
> But I do not agree with any of Robert's
> conclusions regarding the implications for economic theory. Neither did
> most economists when JFK was president, which is roughly the period in
> which this discussion mostly took place...
Chris Auld misrepresents that discussion in his argument from authority.
For example, Burmeister, long after RFK was in the ground, arguably
accepted my conclusions that supply and demand do not apply to long
run models. Burmeister argued that short run models, where period
zero endowments are given parameters, are of more interest. Presumably,
the effects I point out could have implications for the stability of
paths in such models. There is contemporary discussion on this
point.
My point about long run models is often accepted by those who know
what they are talking about.
"The obvious starting-point for an account of the history of
something called 'Sraffian political economy' would seem to be
the publication of Piero Sraffaąs Production of Commodities by
Means of Commodities in 1960. However, as Sraffa indicated in his
sub-title and explicitly stated in his Preface (1960, pp. v-vii),
his purpose was to provide the basis for a Critique of Economic
Theory, i.e. a critique of the marginal theory of value and
distribution, and to revive the standpoint adopted by the old
classical economists, that is, the surplus approach to the theory
of value and distribution. It has meanwhile been demonstrated that
the basis provided by Sraffa was sound. This implies, of course,
that there is no such thing as a 'Sraffian political economy'. What
now exists is rather a logically coherent formulation of the theory
of value and distribution in capitalist economies in conditions of
universal free competition. While many authors have contributed to
its development, its consistent modern reformulation is mainly due
to Piero Sraffaąs seminal contributions to economic theory...
...The most important difference between the surplus approach to
the theory of value and distribution and the neoclassical one
concerns the treatment of capital (goods) in the analysis. The
surplus approach starts from the following data: (i) the size
and composition of the social product, (ii) the technical
alternatives from which producers can choose, and (iii) the
ruling real wage rate (or the rate of profits). From this data
it determines long-period commodity prices and the normal rate of
profit (or the real wage rate) compatible with cost-minimization
in conditions of free competition. A fundamental characteristic of
the surplus approach is the asymmetric treatment of the distributive
variables, which is in sharp contrast with neoclassical analysis.
The latter takes as given: (i) the initial endowments of the economy
with goods and factors of production and their distribution among
agents, (ii) the preferences of consumers, and (iii) the available
technical alternatives. These differences in the data reflect, of
course, a fundamental difference between the two approaches with
regard to the determination of the distribution of income in
capitalist economies in conditions of full competition. Traditional
neoclassical theory has generally viewed the distribution of income
to be determined by the relative scarcity of the 'factors of
production', i.e. labour, Ścapitalą, and land. It thus sought to
treat 'capital' in full symmetry with labour and land, i.e. it
sought to extend the scarcity principle, which the classical
economists had only applied to non-reproducible inputs like land,
symmetrically to all 'factors of production'. However, the
formidable problem for traditional neoclassical theory was to find
an expression for the given 'amount of capital' which is
independent of the distribution of income. As the controversy in
the theory of capital of the 1960s has shown, this is not
possible other than in excessively special cases. The initial
endowment with capital goods, i.e. with produced means of
production, can therefore only be taken to be given in kind,
which, however, implies that only short-period equilibria can
be determined...
These findings destroy, for example, the general validity of
Heckscher-Ohlin-Samuelson trade theory (as authors such as Sergio
Parrinello, Stanley Metcalfe, Ian Steedman, and Lynn Mainwaring
have demonstrated), of the Hicksian neutrality of technical
progress concept (as Steedman has shown), of neoclassical tax
incidence theory (as Steedman and Metcalfe have shown), and of
the Pigouvian taxation theory applied in environmental economics
(as Gehrke and Lager have shown)."
-- Christian Gehrke and Christian Lager, "Sraffian Political
Economy".
This is an entry in a recent dictionary, I guess. It is available
somewhere on the Web. I think Samuelson, for example, agrees
that the theory discussed above is valid long period theory.
Where economists like Samuelson and Hahn disagree
is in the suggestion that stories about relative scarcity are
required for neoclassical or mainstream theory. The generally
invalid framework of supply and demand is, of course, used to
tell such stories.
By the way, the main reason I am in the acknowledgements to
Keen's book is probably that I pointed out to him some
important references on the CCC from the 1980s.
> On that note, did anyone else get a good laugh out of RV's repeatedly
> referring to a paper written in 1926 to demonstrate that his pet theories
> are of current interest, not matters of historical curiousity? ...
Chris Auld, of course, does not point out an answer to that paper,
including current discussions based on it. Anybody picking up an
intermediate micro text and either Chamberlin or Robinson can check
that such texts are, indeed, used to teach models developed in the
1920s. Caveat: this does not apply to texts organized around game
theory.
Lists of references that do not address my point do not adress my
point. So,
> [ snip ]
[>>> But, of course, a problem arises if one then ]
[>>> confuses the toy model with a good framework for more ]
[>>> general purposes, such as empirical modeling. ]
> >Maybe Chris Auld should explain to David Lloyd-Jones why his
> >correct reading of my post was naive.
> I think DLJ said that Robert's model was crafted to show a point. I
> think I
> just said that toy models are actually preferable when a point can be
> demonstrated in such a model...
Chris Auld is misrepresenting his own text. He suggested that I
think my simple example, with all its limitations, is a good
framework for empirical modeling. Of course, he was misrepresenting
my text in his own text that he misrepresents here.
> >> to ask
> >> Robert Vienneau for empirical evidence on the empirical relevance of
> >> the
> >> mechanisms he's fond of...
> >I know of no empirical evidence whatsoever that technology cannot
> >have the relevant characteristics of my example. Chris Auld has not
> >and will not point to any such evidence.
> The answer to the first part of Robert paragraph is "empirically, factor
> demand curves slope down."
Chris Auld refuses to address the structure of the arguments in
the literature upon which I draw.
"...there appears to be very few empirical studies that
specifically test for reswitching, or reverse capital
deepening. Indeed,the notion of testing for these phenomena
by reference to historical data is itself highly problematic.
Instead what one needs to consider is the likelihood of
technologies that would admit reverse capital deepening
being included in the set of feasible technologies relevant to
the choice of technique decisions of producers, as relative prices
of inputs change (though it is not clear that this is something
econometrics can shed much light on)... Certainly the extent of
discussion is insufficient to warrant calling it 'conclusive'.
...the absence of empirical results either way cannot be used as
a defence of the orthodox position that the absence of reverse
capital deepening is the 'general case'. Orthodox analysis
has no a priori basis on which to presume that what it considers
to be the general case is in fact the general case. Such a defence
would require a logically coherent argument as to why one
should expect technologies admitting reverse capital deepening to
be less likely than those that do not. No such argument has been
provided by orthodox theorists."
-- Graham White, 2001.
> The second part... reverses the
> question: I asked Robert Vienneau for empirical evidence on the relevance
> of these mechanisms. Where is it?
Chris Auld has yet to outline a special case model that rules
out technology in which the effect illustrated in my model
can arise.
But I have given an answer to that question, repetitively, while
acknowledging I haven't read such references since I think
the question begs the point. I have also said, repetitively,
what I think is at least one more interesting question for
empirical research.
Just as a reminder: Chris Auld has given no justification,
in theory, for the idea that employment would be higher if
real wages were lower.
I have done Chris Auld the favor of editing out many of his
stupidities above. His comments are still not on-topic, but
at least they don't look as silly as the deleted parts.
Christopher Auld
>I never said it wasn't standard.
Oh, Robert Vienneau merely believes that the perfectly standard,
internally consistent, and empirically applicable model I displayed is
"invalid." I suppose the relevant question is: Who cares?
>Chris Auld refuses to address my point. Labor demand and supply
>curves are supposedly derived in mainstream theory; they are
>not basic entities. Whether or not they can be derived is
>addressed neither by citing correlation coefficients in
>empirical work nor by making statements about what the
>majority of economists supposedly believe.
Partial equilibrium labor supply and demand can, of course, be derived.
Robert Vienneau confuses the following two questions:
When is the partial equilibrium story exact?
and
When is the partial equilibrium story useful?
The first question is worth answering; the second question is, for the
vast majority of professional economists, far more important. These
questions need not have the same answer. It is also worth noting that, of
course, empirical modelers often consider far more complicated models than
single-market partial equilibria, and even when considering only one
market in partial equilibrium potential biases can be mitigated by simply
controlling for relevant prices and quantities in other markets.
>> >Chris Auld refuses to explain how to derive such a model
>> >for my example or why such a model cannot be derived there.
>
>> I have answered this question numerous times...
>
>Chris Auld refuses to explain how to derive such a model
>for my example or why such a model cannot be derived there.
Eyes can evolve. "Long period labor demand" doesn't exist. And so it
goes.
>> Pay attention, Robert: Numerous people have told you numerous times that,
>> yes, it is indeed possible to write down models in which there exists a
>> positively-sloped locus between factor prices and factors demanded. That
>> locus is not a factor demand curve.
>Chris Auld presents his last sentence as if he is arguing against
>what I have stated in this thread.
"So much for supply and demand."
> made their way into the empirical literature' (p.225). At the
> very least, the capital theoretic problems alluded to here
> should make one extremely cautious about orthodox interpretations
> of any statistical association between changes in real wages and
> changes in employment."
> -- Graham White
>Chris Auld will not state whether he thinks White is correct in
>saying that much literature on unemployment fails to address the
>point raised by the literature upon which White and I draw.
I love the phrasing: Robert dishonestly implies I have in the past
explicitly refused to say whether I think "White is correct."
I do not think White is correct, indeed, I think White misunderstands the
point of the "statistical associations" to which he alludes. But, of
course, White is more than welcome to prove me wrong by writing a paper
which demonstrates how "orthodox" practice is empirically misleading. This
would preferably be done by deriving the statistical properties of the
"orthodox" estimators under the stochastic process proposed by White.
Following by developing an empirical model which sidesteps the difficulty
he identifies and presenting and interpreting better estimates of the
phenomena in question would be compelling. Muttering about "orthodox
practice" and vaguely suggesting that the complicated world may lead to
misleading results in statistical models of complex phenomena is less than
compelling.
That said, off the top of my head it seems to me that simply controlling
for the interest rate in empirical work nullifies of all the Sraffian
hand-wringing. There isn't enough variation in the interest rate for
this to make any substantive difference in labor econometrics.
>> I don't know if the "new" ("I changed the numbers") version of this toy
>> model is correct.
>
>It's not as if my first post takes more than 7th grade math to check.
Ironic, considering Robert proceeded to get the 7th grade math wrong. In
any case, for reasons unknown Robert absolutely insists on writing "his"
models with tedious numerical examples rather than generally. I don't
know why anyone would ever want to go through and "check" his poorly
expressed work. Perhaps that's the point.
>> But I do not agree with any of Robert's
>> conclusions regarding the implications for economic theory. Neither did
>> most economists when JFK was president, which is roughly the period in
>> which this discussion mostly took place...
>Chris Auld misrepresents that discussion in his argument from authority.
I love the complaint about argument from authority -- a fallacy, I agree,
that Robert Vienneau has a love/hate relationship with. Whenever he can
find anyone making a criticism of economics, it's endless argument from
authority -- how many times in this thread, indeed, in this post, does
Robert Vienneau quote some authority, as if that's the end of the
argument? It doesn't really matter whether the source is credible or
correct, so long as the source is making a critique. But Robert bristles
when it's pointed out that the vast, vast majority of professional
economists find the sort of arguments he favors uninteresting and
uncompelling.
In any case, my observation above is correct. This just isn't a very
interesting argument, in 1962 or particularly in 2002. Just for laughs,
let's quote David Colander on this topic, in a paper which RV didn't
read before citing and claiming it made the same arguments he makes
in an essay he spams with the same title:
Let me be clear about what I am sentencing to death -- it
is not the content of neoclassical economics... What I am
declaring dead is the term.
The problem is its use by some heterodox economists, by many
nonspecialists, and by historians of thought at unguarded
moments, as a classifier for the the approach that the
majority of economists take today.... The use of the term
neoclassical to describe the economics that is practiced today
is not only not useful, but it actually hinders understanding
by students and lay people of what contemporary economics is.
Economists today are not neoclassical by any reasonable
definition of the term. They are far more eclectic, and
concerned with different issues than were the economists
of the early 1900s.
-- David Colander
Of course, Robert Vienneau is a "nonspecialist" (to put it mildly) who
primarily reads "heterodox economists" and "historians of thought,"
reading which has clearly "hindered his lay person's understanding of what
contemporary economics is." Of course, Colander is referring to people
honestly mislead by the ideological abuse of theory by "heterodox
economists." Robert Vienneau's intellectual sins are far more grievous:
not only does he not know what "contemporary economics is," he doesn't
care, and refuses to even broach the topic.
>By the way, the main reason I am in the acknowledgements to
>Keen's book is probably that I pointed out to him some
>important references on the CCC from the 1980s.
I love how Robert peppers his posts with random comments. On the
matter above: We're very, very proud of you, Robert! Feel better
now?
>> On that note, did anyone else get a good laugh out of RV's repeatedly
>> referring to a paper written in 1926 to demonstrate that his pet theories
>> are of current interest, not matters of historical curiousity? ...
>Chris Auld, of course, does not point out an answer to that paper,
Robert has such a knack for completely missing the point.
>including current discussions based on it.
"Current discussion" from historians of thought, about issues
which are of little current interest. Which leads us to:
>Lists of references that do not address my point do not adress my
>point. So,
>
>> [ snip ]
Of course, "[snip]." Robert Vienneau will not acknowledge, or is not
aware, that the issues he's obsessed with are basically orthogonal to most
current research in economics. One would get the impression from reading
RV that what economists do all day is sit around writing papers with
titles such as, "Yet another paper about the Marshallian theory of the
firm, and why it's super-cool." Robert Vienneau has never shown any
interest in current issues in economic thought, for much the same reason,
one presumes, as a typical creationist may focus on problems in
evolutionary theory while showing zero interest in current biological
thought writ broadly.
>> The answer to the first part of Robert paragraph is "empirically, factor
>> demand curves slope down."
>Chris Auld refuses to address the structure of the arguments in
>the literature upon which I draw.
I don't even know how to address this: Empirically, we may be interested
in the partial correlation between labor demanded and wages, often over
time. This partial correlation is negative. I think the association
between the value of capital and the interest rate Graham White refers to
is a different issue altogether. In any case, I don't even know how frame
Robert's objection in an empirically relevant manner: I don't think he
knows what labor econometricans are interested in measuring, I don't think
he's read any labor econometrics, and I don't think he really cares what
the empirical evidence suggests.
>> The second part... reverses the
>> question: I asked Robert Vienneau for empirical evidence on the relevance
>> of these mechanisms. Where is it?
>Chris Auld has yet to outline a special case model that rules
>out technology in which the effect illustrated in my model
>can arise.
I love how the response entirely avoids answering the question.
>Just as a reminder: Chris Auld has given no justification,
>in theory, for the idea that employment would be higher if
>real wages were lower.
Just as a reminder, Chris Auld has addressed the meaning of
this point several times in this thread and has explained
it to Robert Vienneau hundreds of times in the past. It has
had all the impact of explaining that, yes, eyes can evolve.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
>
> >I never said it wasn't standard.
> Oh, Robert Vienneau merely believes that the perfectly standard,
> internally consistent, and empirically applicable model I displayed is
> "invalid." I suppose the relevant question is: Who cares?
Chris Auld misrepresents my text. I said that the model
he presents is supposed to be derived in theory, and that such
derivations seem to be invalid. I am echoing the literature in this
view. Chris Auld need not care that he does not know what he is
talking about.
> >Chris Auld refuses to address my point. Labor demand and supply
> >curves are supposedly derived in mainstream theory; they are
> >not basic entities. Whether or not they can be derived is
> >addressed neither by citing correlation coefficients in
> >empirical work nor by making statements about what the
> >majority of economists supposedly believe.
> Partial equilibrium labor supply and demand can, of course, be derived.
> Robert Vienneau confuses the following two questions:
>
> When is the partial equilibrium story exact?
>
> and
>
> When is the partial equilibrium story useful?
Chris Auld misrepresents my text, including the text immediately
preceding his comment. It was Chris Auld who previously substituted
a claimed answer to the second question for the first.
> The first question is worth answering;
But Chris Auld does not indicate any answer to that question.
I think that at any point along a long-period labor demand curve,
there should not be endogeneous forces within the firm in the model
driving the economy away from that point. In other words, every
point on a labor demand schedule must be capable of being of
being an equilibrium when the demand schedule is intersected
by the supply schedule at that point. In general, Chris
Auld cannot and will not derive any such curve. And Chris
Auld does not state any special case assumptions, either.
> the second question is, for the
> vast majority of professional economists, far more important.
I would like to defend professional economists from Chris Auld's
claim that they do not care about the logical (in)validity of
their models. Some do.
> These
> questions need not have the same answer. It is also worth noting
No, it's not of much worth, since empirical results are of no
point to questions of logical validity.
> that, of
> course, empirical modelers often consider far more complicated models
> than
> single-market partial equilibria,
Like Leontief's work, which I alluded to in my previous post.
Chris Auld deleted that comment.
> and even when considering only one
> market in partial equilibrium potential biases can be mitigated by simply
> controlling for relevant prices and quantities in other markets.
As usual, Chris Auld begs the question of theoretical validity.
My concerns are obviously not limited to partial equilibrium
models. Recall that I have already considered other models
in which labor demand curves might be claimed to appear. In
other threads, I have explained why other neoclassical
approaches do not work.
Recall I said that I thought Marshallian equilibrium was a
nonstarter for an attempt to justify such curves. Chris
Auld misrepresented that as a claim about the history of
thought, while saying himself that partial equilibrium was
the correct answer. (The misrepresentation seems functional in
that it allows Chris Auld to pretend his refusal to
address the point of the literature upon which I draw is
justified.)
> >> >Chris Auld refuses to explain how to derive such a model
> >> >for my example or why such a model cannot be derived there.
> >> I have answered this question numerous times...
> >Chris Auld refuses to explain how to derive such a model
> >for my example or why such a model cannot be derived there.
> Eyes can evolve. "Long period labor demand" doesn't exist. And so it
> goes.
Chris Auld refuses to explain how to derive such a model
for my example or why such a model cannot be derived there.
> >> Pay attention, Robert: Numerous people have told you numerous times
> >> that,
> >> yes, it is indeed possible to write down models in which there exists
> >> a
> >> positively-sloped locus between factor prices and factors demanded.
> >> That
> >> locus is not a factor demand curve.
> >Chris Auld presents his last sentence as if he is arguing against
> >what I have stated in this thread.
> "So much for supply and demand."
Chris Auld pretends that that justifies his misrepresentation. It
doesn't.
> > made their way into the empirical literature' (p.225). At the
> > very least, the capital theoretic problems alluded to here
> > should make one extremely cautious about orthodox interpretations
> > of any statistical association between changes in real wages and
> > changes in employment."
> > -- Graham White
> >Chris Auld will not state whether he thinks White is correct in
> >saying that much literature on unemployment fails to address the
> >point raised by the literature upon which White and I draw.
> I love the phrasing: Robert dishonestly implies I have in the past
> explicitly refused to say whether I think "White is correct."
Chris Auld misrepresents my text. "Will not" is a prediction.
Besides, since I have been quoting White right along, Chris Auld
could have easily Googled it up. What has Chris Auld had to say
about these quotes from Graham White up to his last post? He
has deleted them without comment. He has not explained why I
should ignore the literature relevant to my point.
> I do not think White is correct, indeed, I think White misunderstands the
> point of the "statistical associations" to which he alludes.
But Chris Auld used such supposed statistical associations for
exactly the point that White alludes to.
"More directly, empirically, labor demand curves slope down."
> But, of
> course, White is more than welcome to prove me wrong by writing a paper
> which demonstrates how "orthodox" practice is empirically misleading.
Apparently, such a paper has already been written.
Anyadike-Danes M. and Godley W. (1989) Real Wages and Employment: a
Skeptical View of some Recent Empirical Work, The Manchester School,
vol. 57, no. 2.
I haven't yet read this paper.
> This
> would preferably be done by deriving the statistical properties of the
> "orthodox" estimators under the stochastic process proposed by White.
> Following by developing an empirical model which sidesteps the difficulty
> he identifies and presenting and interpreting better estimates of the
> phenomena in question would be compelling.
Nope. There are other ways of making an argument. For example,
one could simulate data from a model in which one knows the
structure and parameters of the process and demonstrate that
the "orthodox" estimators are misleading. A couple of papers
have done this or argued for this conclusion in other contexts.
> Muttering about "orthodox
> practice" and vaguely suggesting that the complicated world may lead to
> misleading results in statistical models of complex phenomena is less
> than compelling.
Chris Auld, in that last sentence, misrepresents what White is
saying. But Chris Auld refuses to address the theoretical
arguments in the literature upon which White draws.
> That said, off the top of my head it seems to me that simply controlling
> for the interest rate in empirical work nullifies of all the Sraffian
> hand-wringing. There isn't enough variation in the interest rate for
> this to make any substantive difference in labor econometrics.
It is a good thing that that is merely off the top of Chris Auld's
head. A so-called factor price frontier need not be set in a
two-dimensional space. In previous threads, I have presented,
drawing on some work of Steedman and Metcalfe, examples with
more than one non-produced commodity. The interesting behavior
in such a more complex example does not depend on the rate of
profits varying.
Furthermore, it is problematic, as White more or less points out,
to identify the rate of profits in such models directly with
"the interest rate" in empirical data.
> >> I don't know if the "new" ("I changed the numbers") version of this
> >> toy
> >> model is correct.
> >It's not as if my first post takes more than 7th grade math to check.
> Ironic, considering Robert proceeded to get the 7th grade math wrong.
Chris Auld is, as usual, misrepresenting the discussion. He has
not pointed out any error in my post.
> In
> any case, for reasons unknown Robert absolutely insists on writing "his"
> models with tedious numerical examples rather than generally. I don't
> know why anyone would ever want to go through and "check" his poorly
> expressed work. Perhaps that's the point.
Chris Auld seems to be admitting he does not understand the theoretical
argument he pretends to be addressing. I don't think it is at all
difficult for somebody who can read and add to set up the price and
quantity equations for the technology in my example, and solve them.
In fact, I have done that, but decided the more simple math in
my presentation on this thread was easier for the novice to follow.
And there's no reason Chris Auld could not attempt to read the
literature. There's no reason that Chris Auld has not, after
n years, sat down, and calculated an equilibrium for a model
with my example's structure.
> >> But I do not agree with any of Robert's
> >> conclusions regarding the implications for economic theory. Neither
> >> did
> >> most economists when JFK was president, which is roughly the period in
> >> which this discussion mostly took place...
> >Chris Auld misrepresents that discussion in his argument from authority.
> I love the complaint
When I point out that Chris Auld has no valid argument, I am
not "complaining". In other words, Chris Auld misrepresents my
text.
> about argument from authority -- a fallacy, I agree,
> that Robert Vienneau has a love/hate relationship with. Whenever he can
> find anyone making a criticism of economics, it's endless argument from
> authority --
The above is simply untrue, and, as usual, presumes mind-reading
powers. Chris Auld cannot know that I have not read critiques
that I don't mention and don't find impressive. Besides I am
explaining aspects of price theory and defending modern
economics in this thread.
> how many times in this thread, indeed, in this post, does
> Robert Vienneau quote some authority, as if that's the end of the
> argument?
No. It's more like why reporters ask Ari Fleisher (sp?) the same
question over and over. After a while, the point is to see what
balderdash one gets in reply. Of course, here the usual response
of some is to pretend the literature upon which I draw does not
exist.
> It doesn't really matter whether the source is credible or
> correct, so long as the source is making a critique. But Robert bristles
> when it's pointed out that the vast, vast majority of professional
> economists find the sort of arguments he favors uninteresting and
> uncompelling.
Chris Auld is making things up. My first post in this thread
certainly contains no argument from authority. Chris Auld
is making a fallacious argument from authority in talking about
what the majority of economists find uninteresting and uncompelling.
"Bristles" is, once again, Chris Auld pretending he can read
minds.
I sometimes respond to Chris Auld's nonsense by pointing out I am
only echoing modern literature. E.g.,
"There is no systematic inverse relation between the real wage and
labour demand based on direct or indirect factor substitution. The
theoretical foundations for this lay in the demonstration, in
contributions to the so-called capital controversy, that the
notion of decreasing demand curves for 'production factors'
including labour is fundamentally flawed (Sraffa, 1960, pp. 38, 81;
Garegnani, 1966, 1970; Pasinetti, 1969; see also Roncaglia, 1988).
As distribution changes so do all prices and consequently it is
not granted that, for example, techniques using (directly and
indirectly) a higher proportion of labour per unit of output will
be more profitable in consequence of a fall of the wage rate. But
without 'well behaved' substitutability, the marginalist approach
ceases to be a theory, i.e. to provide an explanation of
distribution, prices and output levels.
[Footnote] It should be noted that once the flaws in its analytical
foundations are recognized, the downward sloping demand for labour
cannot turn for support to striking empirical evidence (see
Anyadike-Danes and Godley, 1989; Zenezini, 1993; Hamermesh, 1993,
pp. 339-42; see also, for the short period, the empirical results
on the movements of real wages over the cycle (Michie, 1988;
Brandolini, 1995)."
-- Antonella Stirati
The above is not an argument from authority in that I have explained
what these claims are all about. In fact, that's my point. (By the
way, I doubt Stirati was alive in at least some of the 1960s.)
Once again, I would like to defend professional economists. Some
know that it is no answer to an argument to declare it "uninteresting".
Some do find logic "compelling".
> In any case, my observation above is correct. This just isn't a very
> interesting argument, in 1962 or particularly in 2002.
Whether it is interesting or not is irrelevant.
> Just for laughs,
> let's quote David Colander on this topic, in a paper which RV didn't
> read before citing and claiming it made the same arguments he makes
> in an essay he spams with the same title:
As usual, Chris Auld misrepresents what I said and claims
mind-reading powers.
> Let me be clear about what I am sentencing to death -- it
> is not the content of neoclassical economics... What I am
> declaring dead is the term...
>
> Economists today are not neoclassical by any reasonable
> definition of the term. They are far more eclectic, and
> concerned with different issues than were the economists
> of the early 1900s.
> -- David Colander
I think I've been clear that in this thread I have been attacking
the idea of substitution that underlies supply and demand, as such
stories appear in contemporary textbooks.
Colander's quote doesn't seem relevant to this point, which
Chris Auld does not address.
> [ Stupidity deleted. ]
> >> On that note, did anyone else get a good laugh out of RV's repeatedly
> >> referring to a paper written in 1926 to demonstrate that his pet
> >> theories
> >> are of current interest, not matters of historical curiousity? ...
> >Chris Auld, of course, does not point out an answer to that paper,
> Robert has such a knack for completely missing the point.
> >including current discussions based on it.
[>> Anybody picking up an ]
[>> intermediate micro text and either Chamberlin or Robinson can ]
[>> check that such texts are, indeed, used to teach models ]
[>> developed in the 1920s. Caveat: this does not apply to texts ]
[>> organized around game theory. ]
> "Current discussion" from historians of thought, about issues
> which are of little current interest.
Chris Auld appears to be making things up. I pointed out why the
papers I cited are of current interest. Chris Auld does not dispute
my evidence. He just deletes it. In fact, the papers I referred
to, which, by the way, were not written in 1926, make the same
point.
> Which leads us to:
> >Lists of references that do not address my point do not adress my
> >point. So,
> >> [ snip ]
> Of course, "[snip]." Robert Vienneau will not acknowledge, or is not
> aware, that the issues he's obsessed with are basically orthogonal to
> most
> current research in economics.
I still recognize an irrelevancy when I see one.
> One would get the impression from reading
> RV that what economists do all day is sit around writing papers with
> titles such as, "Yet another paper about the Marshallian theory of the
> firm, and why it's super-cool."
Chris Auld continues to make things up.
> Robert Vienneau has never shown any
> interest in current issues in economic thought,
> [ stupidity deleted ]
Chris Auld still makes things up. As I continue to point out, I
draw on current literature. Not all of this literature is in
the history of thought.
> >> The answer to the first part of Robert paragraph is "empirically,
> >> factor
> >> demand curves slope down."
> >Chris Auld refuses to address the structure of the arguments in
> >the literature upon which I draw.
> I don't even know how to address this:
> [snip]
I agree. Chris Auld doesn't seem to be able to address my argument
in this thread.
> >> The second part... reverses the
> >> question: I asked Robert Vienneau for empirical evidence on the
> >> relevance
> >> of these mechanisms. Where is it?
> >Chris Auld has yet to outline a special case model that rules
> >out technology in which the effect illustrated in my model
> >can arise.
[>> But I have given an answer to that question, repetitively, while ]
[>> acknowledging I haven't read such references since I think ]
[>> the question begs the point. I have also said, repetitively, ]
[>> what I think is at least one more interesting question for ]
[>> empirical research. ]
> I love how the response entirely avoids answering the question.
Once again, Chris Auld appears to be making things up. If he has
forgotton, I can easily repeat references.
> >Just as a reminder: Chris Auld has given no justification,
> >in theory, for the idea that employment would be higher if
> >real wages were lower.
> Just as a reminder, Chris Auld has addressed the meaning of
> this point several times in this thread and has explained
> it to Robert Vienneau hundreds of times in the past. It has
> had all the impact of explaining that, yes, eyes can evolve.
Chris Auld has given no justification, in theory, for the idea
that employment would be higher if real wages were lower.
Chris Auld intervened in this thead to defend the "much maligned" -
Chris Auld's incorrect description - JimT. JimT incorrectly
asserted that the solution of a certain LP was not the production
function for corn in my example. Chris Auld has yet to
acknowledge that JimT was mistaken on this point.
Chris Auld has yet to acknowledge that economists have rejected
the use of factor supply and demand schedules in long
run models, such as my example.
Chris Auld continues to pretend, unargued, that empirical results
can decide questions on the logical validity or internal coherence
of theoretical models.
I have frequently pointed out recent literature on one of my
favorite themes in economics. Chris Auld continues to insinuate that
such literature does not exist. Or perhaps his incoherent position
is that (1) of recent and 30-year old literature on these themes,
one should prefer the 30-year old literature and (2) one should
ignore 30-year old literature.
Chris Auld suggests that one interested in how economists in
some communities come to have the beliefs that they do is not
interested in understanding social systems.
Many think that good novelists should not tell the reader about
characters' traits, but show them. I tend to be amused by crime
capers where many of the characters are none-too-bright.
Christopher Auld
>Chris Auld misrepresents my text. I said that the model
>he presents is supposed to be derived in theory, and that such
>derivations seem to be invalid. I am echoing the literature in this
>view. Chris Auld need not care that he does not know what he is
>talking about.
See, as I've repeatedly said, it is not the case that
[ BING! ]
oops, sorry folks, I've hit the ol' threshold on tolerating being lectured
on economics by Robert Vienneau. In what follows, he lectures me on
methods in labor econometrics, insists I don't understand the toy model he
presents, says that by disagreeing the implications of a radical
interpretation of a radical literature I am "attacking modern economics,"
and so on. Possibly, someone, somewhere might be impressed by all this
gnashing of teeth if Robert didn't simultaneously make a hash of
Economics 101:
>But Chris Auld does not indicate any answer to that question.
>I think that at any point along a long-period labor demand curve,
>there should not be endogeneous forces within the firm in the model
>driving the economy away from that point. In other words, every
>point on a labor demand schedule must be capable of being of
>being an equilibrium when the demand schedule is intersected
>by the supply schedule at that point.
How to make sense of this weirdness? The answer lies in another of
Robert's "long essays"
http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/LaborDemand.pdf
which is an ode to Robert's failure to understand the concept of
"equilibrium:"
Robert, for the record, if x(w) is a vector of factor demands at prices w,
then x(w) has the property that at every point x(w) maximizes profits, by
construction. That is, the firm is in equilibrium by hiring x when facing
prices w (again -- by construction, this is not a debatable point).
Whether the economy is in a steady-state if all firms were to choose x is
another question entirely. Whether w can be maintained as an equilibrium
for the economy is another question entirely. There is a simple axiomatic
argument, which has been pointed out to Robert before, which easily shows
that own-price factor demand schedules do not slope up. Period.
I do not agree with Robert's interpretation of the what his toy model
implies about economic theory (in particular, "so much for supply and
demand" is a laughable conclusion). Most economists had a similar
reaction (to less strident and weird professional presentations of the
ideas Robert mangles) in the 1950s and 1960s when this issue -- minor even
at the time -- was current (if we are to be generous; really this issue
hasn't been of much interest since circa 1920). Most economists of my
generation have never even heard of Sraffa; Robert Vienneau thinks this is
part of a vast political conspiracy; alternate less melodramatic
explanations exist. In any case, I am definitely tired of being lectured
on basic economics by Robert Vienneau.
>The above is simply untrue, and, as usual, presumes mind-reading
>powers. Chris Auld cannot know that I have not read critiques
>that I don't mention and don't find impressive.
World's Shortest Book:
---------------------
"Critiques of mainstream economics I don't find impressive,"
by Robert Vienneau
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
>
> Most economists of my
> generation have never even heard of Sraffa;
"Sraffa's role in the field of economic sciences has
received contrasting evaluations. On the one hand, we have
the extraordinary interest that his analyses aroused in
so many economists all around the world, epitomised by Paul
Samuelson's (1971:400) reference to 'This age of Leontief
and Sraffa'; let us note that Samuelson is not a follower
of Sraffa's ideas, but one of the leading exponents of
the system of thought criticised by the Italian economist.
On the other hand, today's mainstream economists show a
widespread feeling of impatience for Sraffian analysis:
too frequently they leave aside the criticisms raised by
Sraffa concerning the very foundations of their approach,
and declare his contributions to be overrun by the most
recent theoretical investigations; but do not explain why
those criticisms can be disregarded."
-- Alessandro Roncaglia, 2000.
I began this thread with a simple example of a vertically integrated
firm. A number of people have responded. So far, nobody has explicitly
stated whether they think that example correct or not. (JimT
incorrectly stated that an aside about how to construct production
functions is wrong.)
Suppose corn and iron were the only two goods produced in a model
of the economy. That is, suppose the sectors in my example were the
entire economy. Then one would have a model like I present here:
<http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf>
This essay has a different numeric example. Appendix A presents the
model of production in terms of algebra.
Chris Auld will object that I have mislabelled some curves "demand".
Fine. I wrote that essay some time ago. But it shows how to find
equilibria anyway. The data are technology, the (trivial) growth path
of the labor force, and tastes. If somebody wants to argue that
supply and demand determine equilibria in the long period, they should
explain how the equilibria in this model are equilibria of well-behaved
supply and demand schedules or why such schedules are not applicable
to such an example.
Whether or not the effects I illustrate with my example, in
which prices are not scarcity indices, arise is a separate question
than the one about supply and demand, as Chris Auld understands
demand schedules. If one insists that technology does not have
the characteristics that result in these effects, one should
specify what special case assumptions, presumably on technology,
one wants to add to the model to rule out these effects. To help
one explore this question, I have created a Excel spreadsheet for
the production side of the two-good model:
<http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/ChoiceOfTechnique
.xls>
In this spreadsheet model, wages are advanced. (It is simply
incorrect, I think, to say that continuously-differentiable
production functions rule out these effects. That
seems to be a consensus position in the literature.)
Another question is how these effects are manifested in
short-run models, say, of sequences of temporary equilibria.
Until these questions are addressed, I don't see why I should
take seriously comments on empirical data that some pretend
are relevant to this discussion.
As usual, I claim to be arguing for (aspects of) modern economic
theory. Others seem to be arguing against modern economic theory and
for exploded (invalid) ideas.
REFERENCES
Heinz D. Kurz and Neri Salvadori, _Theory of Production: A Long-
Period Analysis_. Cambridge University Press, 1995.
Luigi L. Pasinetti, _Lectures on the Theory of Production_.
1977.
Vivian Walsh and Harvey Gram, _Classical and Neoclassical Theories
of General Equilibrium: Historical Origins and Mathematical
Structure_. Oxford University Press, 1980.
J. E. Woods, _The Production of Commodities: An Introduction to
Sraffa_. Humanities Press International, 1990.
Robert Vienneau
Scale production function with the unit isoquant:
1 = c a0^( alpha ) a1^( 1 - alpha )
where
a0 = the person-years labor per produced widget
a1 = the units of capital per produced widget
These coefficients of production are variable. They are
defined by the following set:
{ ( a0( k ), a1( k ) ) | a0 = k^( ( 1 - alpha )/alpha ),
a1 = 1/( c0 k ), k > 0 }
where
c0 = c^( 1/(1 - alpha) )
Assume the firm is in a perfectly competitive market. The
firm maximizes pure economic profits. That is, the firm
chooses coefficients of production to solve the following
program (in obvious notation):
max p - w a0 - r a1
such that:
1 = c (a0)^(alpha) (a1)^(1 - alpha)
The solution of this program will determine a unique pair
of coefficients of production; a linear combination of
processes defined by the set of coefficients will not be
chosen.
Thus, the production function is effectively Leontief.
But the production function is a Cobb-Douglas production
function. So Cobb-Douglas production functions are
effectively Leontief.
We'll see if JimT has the fortitude to acknowledge his
mistake. (I assume he is still reading these newsgroups.)
APPENDIX:
Proof that production function is Cobb-Douglas:
From the definition of the set of coefficients of production:
k = a0^( alpha/( 1 - alpha ) )
Or:
1/k = a0^( -alpha/( 1 - alpha ) )
Also from the definition of the set of coefficients of production:
a1 = ( 1/c0 ) a0^( -alpha/( 1 - alpha ) )
Or:
1 = c0^(1 - alpha ) * a0^( alpha ) * a1^( 1 - alpha )
Or:
1 = c * a0^( alpha ) * a1^( 1 - alpha )
Multiply through by quantity produced:
Q = c * (a0*Q)^alpha * (a1*Q)^( 1 - alpha )
Or, in obvious notation:
Q = c L^( alpha ) K^( 1 - alpha )
JT
Otherwise I would never have seen this gem by Robbie Vienneau,
defender of the Perpetual Motion Machine and other lost truths.
Imagine how ignorant we would all be without the likes of him.
Ah, Robbie, even when there is a hint that you might get something
right, you manage to screw it up. You've finally figured out the
right programming problem for a profit maximizing firm. Of course,
since price is given, it is really just the cost-minimization problem
that Chris Auld gave you earlier.
Cobb-Douglas technology is not "essentially Leontief". With a Cobb-
Dougles function, when the factor prices change, the factor mixes
change as well. With a true Leontief technology, this would not be
the case. Now maybe in a putty-clay framework you could argue that
the Cobb Douglas function is a hull defining the isoquant factor
ratios of a continuous series of Leontief technologies, and that once
the firm picks its factor intensities, it is locked in to a
technology. However, this isn't really a Cobb-Douglas formulation but
rather a variant of a putty-clay model of capital.
Now taking the factor ratios obtained from a profit maximinzing firm
using a Cobb-Douglas production function and showing that the
production function is Cobb-Douglas is not only a trivial (and
pointless) exercise, but as with most of your math games, it also
falls to show the point that you are claiming to make.
Anyhow, I don't have the patience of Chris Auld, so instead of
writting careful rebuttals to your nonsense, I am going to spend my
time finding an alternative newsreader so I can toss you back in to my
killfile...
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> [ Silliness deleted ]
> Cobb-Douglas technology is not "essentially Leontief". With a Cobb-
> Dougles function, when the factor prices change, the factor mixes
> change as well. With a true Leontief technology, this would not be
> the case.
My point exactly. I was refuting this statement:
"The production function is only non-Leontief because you have
forced the firm to start with a non-optimal input bundle. Given
prices for all the inputs, the firm would ... only opt to use one
...production technologies. Inputs would then be choosen
accordingly and only one process would be used."
Reading comprehension is hard. Perhaps you might notice the
title of this thread.
> Now maybe in a putty-clay framework you could argue that
> the Cobb Douglas function is a hull defining the isoquant factor
> ratios of a continuous series of Leontief technologies, and that once
> the firm picks its factor intensities, it is locked in to a
> technology. However, this isn't really a Cobb-Douglas formulation but
> rather a variant of a putty-clay model of capital.
I have no well-formed opinion on the above, although I'm inclined to
say I would not think of it that way either.
> Now taking the factor ratios obtained from a profit maximinzing firm
> using a Cobb-Douglas production function and showing that the
> production function is Cobb-Douglas is not only a trivial (and
> pointless) exercise, but as with most of your math games, it also
> falls to show the point that you are claiming to make.
Well, one cannot say it fails to make my point if one has not
understood my text.
> Anyhow, I don't have the patience of Chris Auld,
Since his first post on that other thread included stupid personalities,
I cannot say I noticed any personalities.
> so instead of
> writting careful rebuttals to your nonsense,
As usual, I defend modern economics. My "nonsense" is well-established
theory.
> I am going to spend my
> time finding an alternative newsreader so I can toss you back in to my
> killfile...
You can do what you like.
Robert Vienneau
my presentation. Once again, I help Chris Auld look more intelligent
by editing out stupid personalities and labels of no cognitive
significance.
In article <apmfrh$6i...@acs4.acs.ucalgary.ca>, au...@acs.ucalgary.ca
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> >I think that at any point along a long-period labor demand curve,
> >there should not be endogeneous forces within the firm in the model
> >driving the economy away from that point. In other words, every
> >point on a labor demand schedule must be capable of being of
> >being an equilibrium when the demand schedule is intersected
> >by the supply schedule at that point.
> How to make sense of this...? The answer lies in another of
> Robert's "long essays"
> http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/LaborDemand.pdf
> ...for the record, if x(w) is a vector of factor demands at prices w,
> then x(w) has the property that at every point x(w) maximizes profits, by
> construction. That is, the firm is in equilibrium by hiring x when facing
> prices w (again -- by construction, this is not a debatable point).
> Whether the economy is in a steady-state if all firms were to choose x is
> another question entirely. Whether w can be maintained as an equilibrium
> for the economy is another question entirely. There is a simple axiomatic
> argument, which has been pointed out to Robert before, which easily shows
> that own-price factor demand schedules do not slope up. Period.
The meaning of "equilibrium" is context-dependent and has varied
in economics. Chris Auld is correct in stating that some use it
to mean merely the solution to an (optimizing) model. In many
contexts, it implies that something is stable through time. I
try to be explicit about these distinctions in the above-referenced
essay.
The essay shows profit-maximizing solutions, x, when facing
prices w. The essay Chris Auld refers to also presents
the axiomatic argument which Chris Auld refers to. (This
argument also appears in Steedman (1985).) As usual, Chris Auld
presents his text as if it is arguing against something
I say when I have already incorporated his point into what I
am saying. I do not assert in that essay, I think, that
labor demand schedules slope up.
I do point out that most of Chris Auld's equilibria include
endogeneous forces within the firm that will change the environment
in which the firm operates. I derive a locus where such forces
will not exist. This locus does not ensure that the economy
will be in a steady-state. Nor does it ensure w can be maintained
as an equilibrium for the economy. (By the way, Chris Auld's
position is that the vertically-integrated firm in the example
with which I began this thread generally does not adopt
sensible accounting practices in equilibria of the firm.)
Why not? There is nothing about consumer choice in that model.
To see what more is needed for the economy to be in a steady
state from a mainstream perspective, notice the overlapping
generations part of the model in:
http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf
The production part of this model can be seen as an (unoriginal)
generalization of von Neumann's model. Supply and demand schedules
do not appear in von Neumann's model.
> I do not agree with Robert's interpretation of the what his toy model
> implies about economic theory (in particular, "so much for supply and
> demand" is a laughable conclusion). Most economists had a similar
> reaction ... in the 1950s and 1960s when this issue ... was current...
Actually, economists have abandoned a supply and demand explanation
of prices in long run general equilibrium models. Good economists have
also abandoned Marshall's principle of substitution and the notion of
prices as scarcity indices.
In other words, I continue to be defending modern economics.
Robert Vienneau
Vienneau <rv...@see.sig.com> wrote:
> will not exist. This locus does not ensure that the economy
> will be in a steady-state. Nor does it ensure w can be maintained
> as an equilibrium for the economy. (By the way, Chris Auld's
> position is that the vertically-integrated firm in the example
> with which I began this thread generally does not adopt
> sensible accounting practices in equilibria of the firm.)
> Why not? There is nothing about consumer choice in that model.
I meant that the locus does not ensure w can be maintained
as an equilibrium because the model does not include consumer
choice.
Robert Vienneau
Vienneau <rv...@see.sig.com> wrote:
> In article <8u00sustpvat7p22v...@4ax.com>, JT
> <ji...@nospam.interchange.ubc.ca> wrote:
> > Anyhow, I don't have the patience of Chris Auld,
> Since his first post on that other thread included stupid personalities,
> I cannot say I noticed any personalities.
I meant I cannot say I noticed any patience.
Christopher Auld
>I do point out that most of Chris Auld's equilibria include
>endogeneous forces within the firm that will change the environment
>in which the firm operates.
Robert Vienneau still misunderstands the difference between a firm's
equilibrium and equilibrium allocations for the economy. His essay
is simply wrong. He is not, as he imagines, "defending modern economics,"
he is making an error in basic methods which would earn him a failing
grade in an undergraduate theory course. It is worth noting in
passing that Robert is dealing with a dynamic economy using static
methods which leads to part -- but not all of -- his misunderstandings.
I would explain it further, but it wouldn't do any good, and it just so
hard to keep from laughing when considering that Mr. Vienneau is sputtering
about his deep understanding of "modern economics" immediately after posting
an argument that Leontief production functions are "essentially the same" as
Cobb-Douglas production functions (hint: the techology Robert labelled
"Leontief," ain't).
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> ...His essay is simply wrong...
Chris Auld misspells "well-established".
> [ Stupidity deleted. ]
> it just so
> hard to keep from laughing when considering that Mr. Vienneau is
> sputtering
> about his deep understanding of "modern economics"
Chris Auld, of course, makes crap up.
> immediately after
> posting
> an argument that Leontief production functions are "essentially the same"
> as
> Cobb-Douglas production functions (hint: the techology Robert labelled
> "Leontief," ain't).
Reading comprehension of, say, titles is hard.
Christopher Auld
>> ...His essay is simply wrong...
>Chris Auld misspells "well-established".
I don't know how to respond to "is to!" as an argument.
Robert Vienneau's essay is, indeed, simply wrong. He
still doesn't appear to understand the difference between,
"This agent is in equilibrium [optimizes] at prices w,"
and "The economy is in equilibrium at prices w." The
conclusion of the essay is just ignorant.
>> Cobb-Douglas production functions (hint: the techology Robert labelled
>> "Leontief," ain't).
>Reading comprehension of, say, titles is hard.
If Robert means to imply that he knows his asserting "Leontief
technologies are essentially Cobb-Douglas" is rubbish, he should
say so in the post. I am very sure he is the only one in on his
own joke, if that's what it is.
JT
my line of reasoning, you should strive for some honesty and use
comparable technologies to what you presented earlier. Replace the
Cobb-Douglas production function with a pair of fixed coefficient
technologies and try solving your programming problem. Maybe you'll
learn something, though I'm not holding my breath...
On Wed, 30 Oct 2002 15:43:21 -0500, Robert Vienneau
<rv...@see.sig.com> wrote:
<Snippage of same ol' B.S.>
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> >> ...His essay is simply wrong...
> I don't know how to respond to "is to!" as an argument.
> Robert Vienneau's essay is, indeed, simply wrong.
I guess Chris Auld is making fun of himself.
> He
> still doesn't appear to understand the difference between,
> "This agent is in equilibrium [optimizes] at prices w,"
> and "The economy is in equilibrium at prices w." The
> conclusion of the essay is just ignorant.
The essay presents optimum solutions of a programming
problem at any set of prices. The essay explains how "equilibrium"
is used in the essay, that is, as it is used in physics.
The essay never presents an economy necessarily in equilibrium,
as I have already explained.
> If Robert means to imply that he knows his asserting "Leontief
> technologies are essentially Cobb-Douglas" is rubbish, he should
> say so in the post.
I would think one should be able to infer that from my title, if
that was indeed what my assertion was. But even here, as
Chris Auld shows, reading comprehension is indeed hard.
I always find curious these demonstrations that Chris
Auld hasn't been following along.
Christopher Auld
>The essay presents optimum solutions of a programming
>problem at any set of prices. The essay explains how "equilibrium"
>is used in the essay, that is, as it is used in physics.
Once again, the essay, like the post a couple of days ago, confuses
equilibrium of the firm with equilibrium of the economy. The above
is an assertion that Robert means "equilibrium of the economy" by
"equilibrium," but then concludes that "one can explain the quantity
of labor demanded either by a traditional neoclassical labor demand
curve or an analysis of equilibrium of the firm, but not both," which
is rubbish and definitely not "well-established."
>I would think one should be able to infer that from my title, if
>that was indeed what my assertion was. But even here, as
>Chris Auld shows, reading comprehension is indeed hard.
I don't have any clue what Robert means by "how not to think of
production functions," or whatever the exact title is. In context,
he could have meant "one should not think of Cobb-Douglas and
Leontief production functions as being essentially dissimilar."
The only person who might have figured out Robert's weird and
oblique point was the person to whom it was addressed, JimT, who
interpreted the post in exactly the same manner I did.
And then Robert implies above that, I guess, his assertion
was not, in fact, that it is wrong to think of Cobb-Douglas
and Leontief production functions as essentially the same.
Robert Vienneau keeps getting stranger and stranger over
time, even as he becomes more arrogant:
>I always find curious these demonstrations that Chris
>Auld hasn't been following along.
--
James A. Donald
So what?
For a change, you actually do depict a firm that acts like a firm in a
free market, though not an economy that acts like it is composed of
firms acting like firms in a free market.
--digsig
James A. Donald
6YeGpsZR+nOTh/cGwvITnSR3TdzclVpR0+pr3YYQdkG
7QI8Qc/AebS0Q3KNPiFe0TdQAvZP098PjkN53Hvb
43rsy7IYU4HpW8Z/9LobYH5ygaZ7SHSx3p3ug+Oh1
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> Bobby, you are truly clueless. If you want to claim this represents
> my line of reasoning, you should strive for some honesty
It's not just price theory JimT is ignorant of.
> and use
> comparable technologies to what you presented earlier. Replace the
> Cobb-Douglas production function with a pair of fixed coefficient
> technologies and try solving your programming problem. Maybe you'll
> learn something, though I'm not holding my breath...
Abstract reasoning is tough. You claim P(f) and apply this general
proposition for f = a. To test your proposition, I try P(b) and get
a falsehood. I conclude your general proposition is false. You
object that a and b are not equal.
You say:
"The production function is only non-Leontief because you have
forced the firm to start with a non-optimal input bundle. Given
prices for all the inputs, the firm would ... only opt to use one
...production technologies. Inputs would then be choosen
accordingly and only one process would be used."
So I don't "force" the firm to start with a non-optimal input bundle.
I set up the firm's profit-maximization problem, and I end up with
the appropriate coefficients of production. These coefficients
are elements of the set of all possible coefficients.
Of course, I end up with idiocy for a conclusion. I leave it to
the reader to figure out why following JimT's "reasoning" might
lead to idiocy.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/LaborDemand.pdf
> >The essay presents optimum solutions of a programming
> >problem at any set of prices. The essay explains how "equilibrium"
> >is used in the essay, that is, as it is used in physics.
> Once again, the essay, like the post a couple of days ago, confuses
> equilibrium of the firm with equilibrium of the economy. The above
> is an assertion that Robert means "equilibrium of the economy" by
> "equilibrium,"
Chris Auld is not reading for sense. The above is not such an
assertion, and my essay certainly does not say that I mean
"equilibrium of an economy" by "equilibrium". If I were to rewrite
that essay, I would clarify that "equilibria of the firm" are
characterized by the absences of endogeneous forces INTERNAL TO THE
FIRM that will cause the firm to alter decision variables in
succeeding periods, at least as I use "equilibria of the firm" there.
Again, my essay
http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf
describes an equilibrium of the economy. The essay Chris Auld
refers to does not contain the overlapping-generations
utility-maximization component of that model. The locus emphasized
in the essay that Chris Auld refers to is therefore not an
equilibrium of the economy, as mainstream economists conceive
of an equilibrium of the economy.
Chris Auld has yet to describe how to construct a labor-demand
schedule for the vertically-integrated firm in the example
with which I began this thread. It seems to be his position
that one should assume the firm has incompetent accountants.
[>>> If Robert means to imply that he knows his asserting "Leontief ]
[>>> technologies are essentially Cobb-Douglas" is rubbish, he should ]
[>>> say so in the post. ]
> >I would think one should be able to infer that from my title, if
> >that was indeed what my assertion was. But even here, as
> >Chris Auld shows, reading comprehension is indeed hard.
> And then Robert implies above that, I guess, his assertion
> was not, in fact, that it is wrong to think of Cobb-Douglas
> and Leontief production functions as essentially the same.
Chris Auld is making things up. I do not imply that my
assertion was not "it is wrong to think of Cobb-Douglas and
Leontief production functions as essentially the same." I
imply that my assertion was not "it is wrong to think of
Leontief technologies as essentially Cobb-Douglas".
And such an implication is correct. I did not make that
true assertion, but I made another true assertion.
Notice Chris Auld's editing. (I have edited a lot of nonsense
out of Chris Auld's post to make clear his misrepresentation
of his own text. I suppose that nonsense could have been
there to disguise this misrepresentation.) Maybe I was being too
kind in the following:
> >I always find curious these demonstrations that Chris
> >Auld hasn't been following along.
--
JT
of output) of two fixed coefficient technologies is simply the convex
hull of two L-shaped curves. You can think of this as resulting from
either producing using only one technology (at the vertex of each of
the original Ls) or using a linear combination of the two to split up
production between the two. As Chris Auld and myself have tried to
explain to you on multiple occassions, there is only multiples of a
single vector of prices where the firm would actually operate both
technologies (the linear combination). At this point, a firm's
optimal choice of inputs is indeterminate, though in a two input world
(and probably also a three input world) an interval can be defined
which places a bound on the input ratio that any firm will use
(between the vertices). Any more precision involves using market
supply to pin down the average ratio employed by a firm; no individual
firm needs to actually satisfy this ratio. Even if I was to accept
your claim that you've correctly stated the production technology,
you've given no indication you understand how a competitive firm would
pick its inputs optimally.
Unfortunately, for all your ranting about price systems, you seem
incapable of using the most basic economic principles (firm behaviour
in competitive markets, market clearing) to:
1) Construct factor demands for individual firms and the entire
market.
2) Discuss how the features of your market would lead to supply and
demand functions.
and
3) Use all of this to show the point that you claim to make i.e. that
for whatever reason the correctly derived supply and demand functions
fail to determine prices and allocations in both the factor and output
markets. Until you can do this, there is no reason to take your
babbling, foaming at the mouth and arrogant posturing seriously...
JT
<ji...@nospam.interchange.ubc.ca> wrote:
>Robert, the isoquants (combinations of output that yield a given level
>of output) of two fixed coefficient technologies is simply the convex
>hull of two L-shaped curves.
Sorry. That of course should read "...combinations of inputs that..."
Christopher Auld
>Chris Auld is not reading for sense. The above is not such an
>assertion, and my essay certainly does not say that I mean
>"equilibrium of an economy" by "equilibrium". If I were to rewrite
>that essay, I would clarify that "equilibria of the firm" are
>characterized by the absences of endogeneous forces INTERNAL TO THE
>FIRM that will cause the firm to alter decision variables in
>succeeding periods, at least as I use "equilibria of the firm" there.
Consider a two-period model in which (x1(p), and x2(p)) are
choice functions. All (x1, x2) pairs are equilibria of the
firm, by definition. If one wishes to change the meaning
of jargon such that "equilibrium" means "x1(p)=x2(p)," then,
one is talking about equilibrium prices, p*, for the economy
which would induce the behavior x1(p*)=x2(p*). Robert's
essay amounts to "most prices p do not induce x1=x2, so we
cannot use x1(p) or x2(p) for any purpose." This is foolish.
And again, it would probably help if Robert familiarized
himself with dynamic models.
>Chris Auld has yet to describe how to construct a labor-demand
>schedule for the vertically-integrated firm in the example
This is surreal. This is the first time Robert hasn't
put "long period" in front of this -- that schedule
doesn't exist, as I've repeatedly stated. Robert can
find how to construct a labor demand schedule in any
microeconomics textbook. If he wants me to go through
his tedious numerical example and calculate the step-function
that results from his silly technology in terms of 1232/128
bushels of corn, I refuse. Nor am I sure why I should type
out a definition Robert can look up in any textbook. Oh,
and eyes can indeed evolve.
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> Robert, the isoquants (combinations of [in]put that yield a given level
> of output) of two fixed coefficient technologies is simply the convex
> hull of two L-shaped curves...
Those are the isoquants of the solution of the LP that JimT
incorrectly stated did not yield the production function.
Does JimT yet realize he was incorrect?
(I can express the production function in closed form, if
anybody cares.)
> As Chris Auld and myself have tried to
> explain to you on multiple occassions, there is only multiples of a
> single vector of prices where the firm would actually operate both
> technologies (the linear combination).
Actually, JimT has never made that point. He said something vague
and not necessarily correct about what the firm would "generally"
do. Anybody reading along with good understanding has figured
out that I understand Chris Auld's point.
In a static equilibrium model where inputs are not industry-specific,
in some sense, and there are more inputs than outputs, those price
ratios would frequently arise, at least in equilibrium. The odds are,
in that context, that, for generalized Leontief production functions,
equilibrium prices will be such that firms in at least one industry
can adopt a non-trivial linear combination of processes. Some firm
generally will.
These odds are different in other sorts of models.
> At this point, a firm's
> optimal choice of inputs is indeterminate, though in a two input world
> (and probably also a three input world) an interval can be defined
> which places a bound on the input ratio that any firm will use
> (between the vertices).
Notice that coefficients of production are variable. They are
not fixed, as they would be for Leontief production functions.
> Any more precision involves using market
> supply to pin down the average ratio employed by a firm; no individual
> firm needs to actually satisfy this ratio.
Exactly.
And at those points where the production function is not differentiable,
which will generally not arise in a static equilibrium context,
prices are indeterminate. I think that the more interesting
sort of indeterminancy.
> Even if I was to accept
> your claim that you've correctly stated the production technology,
It's not much of a claim. The production processes I can define
anyway I want for my example. They are the data. The rest is
merely arithmetic.
> you've given no indication you understand how a competitive firm would
> pick its inputs optimally.
JimT, of course, is contradicting himself.
"You [have] the right programming problem for a profit maximizing
firm." -- JimT
(I've edited the above to be less silly than the original.) But why
should I care what JimT thinks of my ability? Such personalities are
not worthy of reasoned discourse.
But, anyway, the firm's profit-maximization problem is not
relevant to the construction of the production function.
Consider the production functions in my corn-and-iron example of
a vertically-integrated firm adopting a more labor-intensive
technique at a higher wage. Those production functions are
not Leontief. Linear combinations of processes are relevant
to the theory. It seems like nonsense to say, "The production
function is only non-Leontief because you have forced the firm to
start with a non-optimal input bundle." The nonsensical
nature of that statement is the point of THIS thread.
> Unfortunately, for all your ranting about price systems, you seem
> incapable of using the most basic economic principles (firm behaviour
> in competitive markets, market clearing)
JimT, once again, is being silly.
> to:
>
> 1) Construct factor demands for individual firms and the entire
> market.
>
> 2) Discuss how the features of your market would lead to supply and
> demand functions.
That was my challenge to my respondents.
My claim about the implications of profit-maximization/cost-
minimization, that a more labor-intensive technique can be
adopted at a higher wage, is extremely well-established in the
literature, at least at the level of vertically-integrated
industries. I don't think I am being very innovative to extend
this result to a vertically-integrated firm, as I've explained
before.
The analysis I use to determine which technique will be adopted,
in the competitive case, by criteria of cost-minimization/
profit-maximization is textbook. Anybody can check out the
references I have been giving right along to confirm that.
Does JimT yet acknowledge the correctness of my example with which I
began the former thread?
I think it fairly uncontroversial, too, that supply and demand are
not generally applicable in a long-period context. I've pointed
out where the literature says exactly that.
> and
> 3) Use all of this to show the point that you claim to make i.e. that
> for whatever reason the correctly derived supply and demand functions
> fail to determine prices and allocations in both the factor and output
> markets.
I've shown how to determine prices and allocations in all markets
in:
http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf
Where are well-behaved factor demand curves?
> Until you can do this, there is no reason to take your
> babbling, foaming at the mouth and arrogant posturing seriously...
Such stupidity does not help JimT's case.
But let's see what a classic article says:
"The idea that demand and supply for factors of production determine
distribution has become so deeply ingrained in economic thought that
it is almost viewed as an immediate reflection of facts, and not as
the result of an elaborate theory. For the same reason, it is easily
forgotten how comparatively recent that theory is. In the first
systematic analysis of value and distribution by the English classical
economists up to Ricardo, we would look in vain for the conception
that demand and supply for labour and 'capital' achieve 'equilibrium'
as the proportions in which those 'factors' are employed in the
economy change with the wage and rate of profits. Thus, Ricardo saw
no inconsistency between free competition and unemployment of
labour. In his view lower wages could eliminate unemployment only
be decreasing the growth of population or by favouring accumulation...
...Outputs can influence relative prices ... by affecting the relative
scarcity of labour and capital, and thus the wage and rate of
interest, given the supply of the two factors and the state of
technical knowledge. This link between prices and outputs is one and
the same thing as the explanation of distribution by demand and supply
of factors of production: and it becomes untenable once that
explanation is abandoned.
Thus, the separation of the pure theory of value from the study of
the circumstances governing changes in the outputs of commodities,
does not seem to meet any essential difficulty. On the contrary,
it may open the way for a more satisfactory treatment of the
relations between outputs and the technical conditions of production.
Moreover, by freeing the theory of value from the assumption of
consumers' tastes given from outside the economic system, this
separation may favour a better understanding of consumption, and its
dependence on the rest of the system.
With this, the theory of value will lose the all-embracing quality
it assumed with the marginal method. But what will be lost in scope
will certainly be gained in consistency and, we may hope, in
fruitfulness."
-- P. Garegnani, RES, 1970.
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
>
> >Chris Auld is not reading for sense. The above is not such an
> >assertion, and my essay certainly does not say that I mean
> >"equilibrium of an economy" by "equilibrium". If I were to rewrite
> >that essay, I would clarify that "equilibria of the firm" are
> >characterized by the absences of endogeneous forces INTERNAL TO THE
> >FIRM that will cause the firm to alter decision variables in
> >succeeding periods, at least as I use "equilibria of the firm" there.
> Consider a two-period model in which (x1(p), and x2(p)) are
> choice functions. All (x1, x2) pairs are equilibria of the
> firm, by definition.
Chris Auld does not acknowledge that the meaning of "equilibrium"
is not univocal in economics. Sometimes it merely means an
optimizating solution. Sometimes it implies something not
changing through time.
> If one wishes to change the meaning
> of jargon such that "equilibrium" means "x1(p)=x2(p)," then,
> one is talking about equilibrium prices, p*, for the economy
> which would induce the behavior x1(p*)=x2(p*).
No. Again, my essay
http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf
describes an equilibrium of the economy. The essay Chris Auld
refers to does not contain the overlapping-generations
utility-maximization component of that model. The locus emphasized
in the essay that Chris Auld refers to is therefore not a locus
of equilibria of the economy, as mainstream economists conceive
of an equilibrium of the economy.
> Robert's
> essay amounts to "most prices p do not induce x1=x2, so we
> cannot use x1(p) or x2(p) for any purpose."
The above is simply untrue. My essay makes no such claim.
However, the locus I emphasize is picked out by the analysis
as having important properties that points off the locus do
not have.
> [Some silliness - deleted. ]
> And again, it would probably help if Robert familiarized
> himself with dynamic models.
Again, Chris Auld is being silly. In such models, steady states
and limit points are useful first steps for analysis.
Furthermore, dynamic models of sequences of temporary
equilibria are problematic. There are other approaches to
dynamics, such as cross-dual dynamics.
> >Chris Auld has yet to describe how to construct a labor-demand
> >schedule for the vertically-integrated firm in the example
> This is surreal. This is the first time Robert hasn't
> put "long period" in front of this -- that schedule
> doesn't exist, as I've repeatedly stated.
Chris Auld has yet to describe how to construct a labor-demand
schedule for the vertically-integrated firm in the example.
Go ahead; stop being vague. What happens to accounting prices
of internally-produced capital goods?
> Robert can
> find how to construct a labor demand schedule in any
> microeconomics textbook.
The above is simply untrue. The typical text does not consider
the internal structure of the firm in my example.
> If he wants me to go through
> his tedious numerical example and calculate the step-function
> that results from his [wording of no cognitive value -deleted]
> technology in terms of 1232/128
> bushels of corn, I refuse. [Silliness deleted.]
Chris Auld refuses to answer the question of how to construct
a labor-demand schedule for...
Actually setting out a short-run dynamic model for such an
example and establishing how the interesting properties of
the locus I analyze are manifested in that model might be
an original contribution to the literature.
Christopher Auld
>> If one wishes to change the meaning
>> of jargon such that "equilibrium" means "x1(p)=x2(p)," then,
>> one is talking about equilibrium prices, p*, for the economy
>> which would induce the behavior x1(p*)=x2(p*).
>No. Again, my essay
>
> http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf
>
>describes an equilibrium of the economy. The essay Chris Auld
>refers to does not contain the overlapping-generations
>utility-maximization component of that model. The locus emphasized
>in the essay that Chris Auld refers to is therefore not a locus
>of equilibria of the economy, as mainstream economists conceive
>of an equilibrium of the economy.
"The literature Robert Vienneau draws on," like this model,
imposes such restrictive assumptions on technology that
equilibrium prices can be deduced without closing the model.
Notice Robert's reply that his model isn't closed does not
address my point.
>> Robert's
>> essay amounts to "most prices p do not induce x1=x2, so we
>> cannot use x1(p) or x2(p) for any purpose."
>The above is simply untrue. My essay makes no such claim.
"Hence, one can explain the quantity of labor demanded either
by a traditional neoclassical labor demand function or an
analysis of equilibria of the firm, but generally not both."
It is impossible to read this rubbish such that it makes
any sense, even if we re-define "a firm's equilibrium" to
mean "the firm is in steady state." Notice, for example,
we would generally need x1(p) and x2(p) (labor demand
functions) to analyse "the equilibria of the firm" when
that phrase means "the firm is in steady state."
>> [Some silliness - deleted. ]
>> And again, it would probably help if Robert familiarized
>> himself with dynamic models.
>Again, Chris Auld is being silly. In such models, steady states
>and limit points are useful first steps for analysis.
The points where one of Robert's two goods aren't produced
wouldn't generally be equilibria because forward-looking
agents would stockpile goods to preclude such a state.
Since Robert Vienneau has agents solving static problems
in a dynamic world, he winds up with rubbish conclusions.
>> This is surreal. This is the first time Robert hasn't
>> put "long period" in front of this -- that schedule
>> doesn't exist, as I've repeatedly stated.
>Chris Auld has yet to describe how to construct a labor-demand
>schedule for the vertically-integrated firm in the example.
>Go ahead; stop being vague. What happens to accounting prices
>of internally-produced capital goods?
Let the firm's objective function be f(x; w). Let the i'th
element of x and w be labor demanded and wages. The
labor demand function is x^*_i(w_i) such that x* solves
sup_x f(x;w). This ain't rocket science, and the "accounting
prices of internally produced capital goods" do not enter into
the problem (although they may be recovered as shadow prices).
JT
I should have given Chris Auld the last word here.
The problem with you example is the following. In your example,
supply ends up being the result of plants operating in a "replacement
equilibrium". The beginning of period factor endowments are the
"right ones" because the plants chose them to be the "right ones" a
period earlier.
Now if wages rise, as in your example, individual firms will no longer
want to produce both outputs, and will, as you correctly note in Table
7, only want to opt for producing corn, using technology A, in the
process processing nothing but corn.
So you consider a new equilbrium with the firm now opting for a
different replacement equilibrium. Problem is that you are doing
essentially what Chris accused you of. Changing the price of iron
shifts the demand for labour. And as any first year student can tell
you, even if labour is downward sloping, an outward shift in the
labour curve can result in higher wages and employment in equilibrium.
So I don't see any contradiction here.
Which suggests that we've wasted considerable bandwidth for no
discernible purpose....
JT
I've had a chance to think through your example in some detail. I
don't think you've done anything wrong. I do however think you are
misinterpreting your results. I'll take my own stab at trying to
explain why.
You've outlined two self-replicating equilibria. You have then
outlined prices that will sustain each equilibrium. Fine so far,
though I would argue that in competitive markets profits would be
exhausted (this equates to scaling up the price vector until profits
are zero). However, I don't think this point affects your argument
any. You then want to go on to claim that an increase in wages
induces a change in equilibria. I think this is a stretch and shows
some misunderstanding on your part.
Let's consider an individual firm up until the price change. Up to
the price change, it has been producing inputs in anticipation of
using the Alpha technique. Presumably the set of inputs immediately
after the price change are the same. So the firm has a given set of
corn and iron in hand and now faces a higher wage. Given the set of
inputs, we can vary the wage and consider the amount of labour the
firm wants to hire. This will trace out a labour demand curve and
will involve "steps" as we switch across production regimes. Since
corn and iron input quantities are given, the shadow price of each
will vary as the wage changes.The dynamic nature of the problem makes
defining the demand curve somewhat difficult (proper modelling would
include specifying expectations about future prices). Presumably one
set of expectations is that all firms in the economy will again be
using the Alpha technology next period. Supply is trivially defined
by the quantity of labour available. The equilibrium price determined
by supply and demand will just be the old price. So the question,
given the input set hasn't changed, is why does the economy not just
return to the original equilibrium. Why doesn't the market price just
adjust so that labour demand satisfies labour supply? What possible
justification is there for a disequilibrium price to emerge in the
first place and why doesn't the price adjust to clear markets? The
existing factor mix will not be fully exhausted by the Beta technique,
which would drive the (shadow) price of one input to zero.
Otherwise, you can't take it as a given that the price of corn (iron)
as an input will be the same as the price as corn (iron) as an output.
We are considering goods at different times, which means they can have
different prices. Having the same prices is a consequence of your
self-replicating equilibirum concept...however, in your case you are
considering an adjustment between equilibrium, so presumably there
will be an adjustment path of time varying prices (could be as simple
as a one-time break). You don't model this adjustment and I don't see
it as a given that there is any reason for the market to adjust to the
Beta technique equilibrium. Given the set of factor endowments, price
should revert to the market clearing value...
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> There is nothing wrong with your production function...
I assume you mean, including using my LP to define it.
> The problem with you example is the following. In your example,
> supply ends up being the result of plants operating in a "replacement
> equilibrium". The beginning of period factor endowments are the
> "right ones" because the plants chose them to be the "right ones" a
> period earlier.
Yes. The outputs of corn and iron end up being capable of supporting
a "replacement equilibrium". I'm not sure it is required that
firms actually produce steady state outputs.
And the endowments into the production a period earlier were chosen
to be the right ones two periods earlier. There is nowhere a period
in which endowments of iron and corn constrain my solution.
I don't see that this is a problem.
> Now if wages rise, as in your example,
It may be better to think of what would be the case at different
levels of wages, while avoiding dynamic terminology. I can see
where one might not read me as achieving that.
> individual firms will no longer
> want to produce both outputs, and will, as you correctly note in Table
> 7, only want to opt for producing corn, using technology A, in the
> process processing nothing but corn.
> So you consider a new equilbrium with the firm now opting for a
> different replacement equilibrium. Problem is that you are doing
> essentially what Chris accused you of. Changing the price of iron
> shifts the demand for labour.
Suppose there is no market price for iron because all iron production
is for vertically-integrated firms. The price of iron is only a
book value. What happens?
> And as any first year student can tell
> you, even if labour is downward sloping, an outward shift in the
> labour curve can result in higher wages and employment in equilibrium.
> So I don't see any contradiction here.
> Which suggests that we've wasted considerable bandwidth for no
> discernible purpose....
At this point, we are not talking about time-indexed wages, time-indexed
labor inputs, etc.
What is meant by the demand for labor in introductory textbooks? They
don't speak of time-indexing, and they tell stories about the effects
of a floor on wages and so on.
I don't think they mean the demand for labor to be only, say, from
my non-vertically integrated corn industry. It should be the sum of
iron and corn industries' demand.
When can such a schedule be constructed exactly? If you look at an
intro physics book, you'll perhaps see explicit assumptions that
all objects move at much less than the speed of light; that for
small angles, the sine of an angle is approximately equal to
the angle; that inertial mass equals graviational mass; and so
on. Without such explict theory, I don't see how one can talk about
what are first-order effects and what are second-order effects.
Above, you have begged these questions. You talk about the demand
for labor and shifts in a labor-demand schedule as if such a
schedule is well-defined. But what are the assumptions that would
allow one to construct such a schedule? I think my example helps
raise that question, which remains unanswered.
Changing the topic to temporal sequences of temporary equilibrium
(one way of approaching "dynamics") does not answer these questions.
Nor does saying something vague about the absence of feedback between
markets. One who wants to justify the story should be able to
derive such a schedule, pointing out where in the derivation
simplifying assumptions are explicitly made.
Anyway, I here append a formal treatment of my example:
CRS production processes:
TABLE 1: INPUTS REQUIRED PER TON CORN PRODUCED
Process A Process B
1 Person-Year 1 Person-Year
2 Tons Iron 1/2 Tons Iron
2/5 Bushels Corn 3/5 Bushels Corn
TABLE 2: INPUTS REQUIRED PER TON IRON PRODUCED
Process C Process D
1 Person-Year 275/464 Person-Years
1/10 Tons Iron 113/232 Tons Iron
1/40 Bushels Corn 0 Bushels Corn
Let Xa = Bushels corn produced (gross) by process A
Xb = Bushels corn produced by process B
Xc = Tons iron produced by process C
Xd = Tons iron produced by process D
p = the accounting (book) price of iron
w = wage
r = rate of (accounting) profits
R = 1 + r
Q1 = Tons iron in firm's inventory at start of period
Q2 = Bushels corn in firm's inventory at start of period
Corn is the numeraire; that is, the price of a bushel corn is unity.
A profit-maximization problem:
Maximize (1 - w - 2 p - (2/5)) Xa
+ (1 - w - (1/2) p - (3/5)) Xb
+ (p - w - (1/10) p - (1/40)) Xc
+ (p - (275/464) w - (113/232) p) Xd
Such that
(w + 2 p + (2/5)) Xa
+ (w + (1/2) p + (3/5)) Xb
+ (w + (1/10) p + (1/40)) Xc
+ ((275/464) w + (113/232) p) Xd <= Q1 p + Q2
Xa, Xb, Xc, Xd >= 0
The levels of operation of each process are choice variables. The
constraint shows that the value of the firm's inputs are limited by
the firm's value.
The dual LP is:
Minimize (Q1 p + Q2) R
Such that
(w + 2 p + (2/5)) R >= (1 - w - 2 p - (2/5))
(w + (1/2) p + (3/5)) R >= (1 - w - (1/2) p - (3/5))
(w + (1/10) p + (1/40)) R >= (p - w - (1/10) p - (1/40))
((275/464) w + (113/232) p) R >= (p - (275/464) w - (113/232) p)
R >= 0
The vertically-integrated firm needs to produce both iron and corn
so production can be continued into the next period. That is, in
a solution, at least one of Xa and Xb must be positive, and at
least one of Xc and Xd must be positive. In other words, one of
the first two constraints and one of the last two constraints in
the dual LP will be met with equality. This condition determines
p, for w between zero and some maximum value.
The amount of labor the firm wants to hire, as a function of
the wage and some planned path of growth of the firm, is:
L(w) = Xa + Xb + Xc + (275/464) Xd
where the X's are found as a solution of the above Linear
Program with the book value of iron found as specified.
Sometimes the above firm will want to hire more labor at a
higher wage. I have shown that the firm will sometimes want
to adopt a more labor-intensive technique at a higher wage.
Anybody wanting to check this should look at wages around
13/1530 Bushels per Person-Year.
There is nothing above to show that firm can sell its
(net) output of corn at the ratio of wages to the price
of corn given by w. So a solution to the above with
the given condition for the (book) price of iron is not
necessarily an equilibrium of the economy.
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> I've had a chance to think through your example in some detail. I
> don't think you've done anything wrong. I do however think you are
> misinterpreting your results. I'll take my own stab at trying to
> explain why.
There are open conceptual issues in the literature with my sort
of example. I think it is in the interpretations that the disputes
lie.
> You've outlined two self-replicating equilibria. You have then
> outlined prices that will sustain each equilibrium. Fine so far,
> though I would argue that in competitive markets profits would be
> exhausted (this equates to scaling up the price vector until profits
> are zero). However, I don't think this point affects your argument
> any.
I agree that this point doesn't seem to be a problem in my context.
Below you note that spot prices of output and of inputs are
conceptually distinct. To see whether any pure economic profits
exist, you need to discount the output prices back one time
period.
In a model of a full economy in flow equilibrium, the discount rat
needs to be consistent with rate of accounting profits (rate of
interest?) I derive for a given level of wages. You would probably
want to consider a model that includes intertemporal
utility-maximizing.
> You then want to go on to claim that an increase in wages
> induces a change in equilibria.
I calculate equilibria at different levels of wages.
> I think this is a stretch and shows
> some misunderstanding on your part.
>
> Let's consider an individual firm up until the price change. Up to
> the price change, it has been producing inputs in anticipation of
> using the Alpha technique. Presumably the set of inputs immediately
> after the price change are the same.
We start at period zero with everything adjusted. Period 0 endowments
of iron and corn are given data for what follows.
> So the firm has a given set of
> corn and iron in hand and now faces a higher wage. Given the set of
> inputs, we can vary the wage and consider the amount of labour the
> firm wants to hire. This will trace out a labour demand curve and
> will involve "steps" as we switch across production regimes.
Presumably you mean a schedule showing the demand for labor at
a given time period, given some assumption about expectations.
> Since
> corn and iron input quantities are given, the shadow price of each
> will vary as the wage changes.The dynamic nature of the problem makes
> defining the demand curve somewhat difficult (proper modelling would
> include specifying expectations about future prices). Presumably one
> set of expectations is that all firms in the economy will again be
> using the Alpha technology next period. Supply is trivially defined
> by the quantity of labour available. The equilibrium price determined
> by supply and demand will just be the old price. So the question,
> given the input set hasn't changed, is why does the economy not just
> return to the original equilibrium.
The sort of thought experiment you describe is how one conducts
stability analysis. You ask how can this equilibrium not be
stable? But you give no justification for the conclusion that
it is. There are known to be stability issues with dynamic models
of sequences of temporary equilibria. Does the effect illustrated in
my model raise such issues and help clarify them? This seems to be
an open question.
> Why doesn't the market price just
> adjust so that labour demand satisfies labour supply? What possible
> justification is there for a disequilibrium price to emerge in the
> first place and why doesn't the price adjust to clear markets? The
> existing factor mix will not be fully exhausted by the Beta technique,
> which would drive the (shadow) price of one input to zero.
I did not model the supply of labor. Consider the following sort of
stories. At some specified period, there is an anticipated war
that kills off a portion of the labor force. Or there is anticipated
immigration of workers.
Presumably, your intutition is that in the former case, labor is
scarce relative to capital after the change; the technique adopted
at the start of a dynamic path is too labor-intensive. Presumably,
you would expect the economy to follow a path in which wages rise and
desired employment falls and a more capital-intensive technique
is ultimately adopted.
Presumably, your intuition in the latter case is that the economy
follows a path in which wages fall, desired employment rises, and
a less labor-intensive technique is ultimately adopted.
My example suggests these intuitions are wrong. Once again, they
seem to be, at best, based on unstated assumptions, in this case
on technology. Once again, we have the question what are the
assumptions?
In my example of overlapping generations, the interesting story
one would want to examine is when there is an abrupt change in
the parameter of the utility function at some point. Before
then, all generations have one value for the parameter;
afterwards all generations have a second value.
These models are difficult to analyze.
> Otherwise, you can't take it as a given that the price of corn (iron)
> as an input will be the same as the price as corn (iron) as an output.
Oh, yes I can. You are begging questions of conceptual issues
and of appropriate techniques for analysis.
Consider a firm after a round of production. It faces market prices
for some things in its inventory, and has to record book values
for other items. Is this firm in STOCK equilibrium? Historical
values of inputs are irrelevant to this question.
"A firm is in stock equilibrium when its actual balance sheet -
i.e., the balance sheet which gives the firm's actual assets as
against its liabilities - is, in some well-defined sense, better
than any alternative balance sheets showing the same gross
value... The natural thing to say is that a firm is in stock
equilibrium...if the surplus value of its assets over and
above its liabilities is greater than could be obtained by any
other combination of stocks of commodities that could nominally
be purchased (i.e., which show the same value as the balance
sheet)... For a firm interested in being able to reproduce
itself, the appropriate liabilities are the inputs used to
produce the current output vector evaluated at current prices.
This method of evaluation then allows the producer to determine
a real rate of profits... The rate of profits so determined is
a kind of index of fitness of the firm. The firm with the
highest 'real' (or 'reproduction') rate of profits is the
fittest of all, and is one which, ceteris paribus, can be
expected to reproduce (or wish to reproduce itself) most
rapidly. Thus, this simple balance sheet exercise yields a
useful indicator of a firm's health in both an absolute and
a relative sense. (The firm is healthy in an absolute sense if
its real rate of profits is positive; and it is relatively
healthy if its rate of profits is higher than others'.)...
...It is assumed that agents - unsure of the underlying
economic structure - tend to rely on their balance sheets to
obtain an idea of how well they are doing. Indeed, given that
the environment is at its most unpredictable when stationarity
is dropped, the use of optimisational methods is most dubious
and the argument for the use of evolutionary ones (with their
attendant concepts of fitness, balance-sheet comparisons, and
so on) is extremely strong."
-- Keiran Sharpe
Furthermore, the dynamic system you are considering, if I understand
it right, seems irrelevant to a decentralized market economy. This
dynamics shows changes all anticipated correctly. No factor is
ever in excess supply except at a (shadow) price of zero. There
is no unemployment, no unintended accumulation of unsold
inventories, no plant re-evaluated because its output is found
to be unwanted at profitable prices. (Yes, I am aware of attempts
to incorporate non-market-clearing into non-Walrasian
approaches.)
"Any attempt to incorporate the search for equilibrium in the
neoclassical model ruins the significance of the preasymptotical
equilibrium. Only the limit to infinity can be preserved; this
limit embodies the basic features of the classical target of the
convergence process. Everything which does not correspond to
prices of production in the neoclassical apparatus does not have
the least economic significance. Formulating the problem in the
most favourable way for the neoclassicals, it would be possible
to contend that their model describes a very particular line
of convergence of the classical dynamics which has no reason to
be followed by any real decentralized economy."
-- G. Dumenil and D. Levy
Cross-dual dynamics seems to be a more general sort of dynamic
process that does not suffer from some of the defects of
neoclassical dynamics. I don't claim to fully understand any
issues raised here.
> We are considering goods at different times, which means they can have
> different prices. Having the same prices is a consequence of your
> self-replicating equilibirum concept...however, in your case you are
> considering an adjustment between equilibrium, so presumably there
> will be an adjustment path of time varying prices (could be as simple
> as a one-time break). You don't model this adjustment
True. I consider what could be the asymptotic points of some
dynamic processes.
> and I don't see
> it as a given that there is any reason for the market to adjust to the
> Beta technique equilibrium. Given the set of factor endowments, price
> should revert to the market clearing value...
The set of factor endowments are not given. The endowments of corn
and iron change during the adjustment process. I don't know what
you think your comment, "price should revert to the market clearing
value", is all about.
"The vast majority of economists believe that this high caste, the
mathematical economists, did their work properly, and proved that
the theory is internally consistent. The caste has indeed done
its work properly, but it has proven precisely the opposite: that
the theory is only consistent under the most restrictive and
specious of assumptions."
-- Steve Keen
REFERENCES
G. Dumenil and D. Levy, "The Classicals and the Neoclassicals:
A Rejoinder to Frank Hahn". Cambridge Journal of Economics. 1985.
Bertram Schefold, "Paradoxes of Capital and Counterintuitive
Changes of Distribution in an Intertemporal Equilibrium Model".
July 1996.
http://www.wiwi.uni-frankfurt.de/professoren/schefold/docs/paradoxes.pdf
Keiran Sharpe, "On Sraffa's Price System". Cambridge Journal
of Economics. 1999.
Robert Vienneau
"Mainstream North American economists are generally socialized to be
ignorant of price theory. At least, that's what the empirical evidence
presented by Usenet suggests. But hope springs eternal. So once more I
give some posters the opportunity to acknowledge the validity of
certain aspects of price theory.
This long post presents an example in which higher wages are
associated with firms choosing to employ more workers per unit output
produced."
The effect I illustrated has been called a Sraffa effect in the
literature. Chris Auld agrees with me that mainstream North
American economists are generally socialized to be ignorant of
those aspects of price theory that I have described:
"Most economists of my generation have never even heard of Sraffa."
-- Chris Auld
and he makes some statements to illustrate his ignorance of the
price theory drawing on Sraffa's work. For example:
"'The literature Robert Vienneau draws on,' like this model,
imposes such restrictive assumptions on technology that
equilibrium prices can be deduced without closing the model."
-- Chris Auld
Christopher Auld
[ insults and out-of-context quotes ]
I have asked Mr. Vienneau before to not put my name
in the subject line.
The reason most economists have little interest in Sraffa
is because Sraffian economics has contributed little to
modern economic thought. That is not equivalent to
"economists are socialized to be ignorant." There are
lots of other dead ideas relegated to blurbs in history
of thought texts, and time in theory courses is a scarce
resource. I wonder which fundamental topic required to
understand contemporary research Mr. Vienneau thinks
should be struck from curricula in order to teach
outdated methods in a deceased, tiny, and ideologically
charged literature?
Earlier in this thread I posted a list of twenty or so
brand new working papers by top-notch economists an a
wide variety of topics of interest to economists, noting
none of them had anything to do with the point Mr. Vienneau
thinks topples mainstream economics. Mr. Vienneau's
ironically clueless response was that none of these papers
had anything to do with the point he was making, so he felt
it off topic to post this list.
Mr. Vienneau claims in his essay that he is presenting
equilibrium prices, yet he does not close his model. So
either his restrictions on technology are severe enough
such that this is possible, or Mr. Vienneau has got his
arithmetic wrong. Again. (I think Paul Samuelson has
a paper called something like "Sraffa's Other Leg"
making this same point and essentially arguing it is
sufficient to render Sraffian economics useless).
But perhaps I am wrong on all this. Perhaps Sraffian
economics is the way to go, and perhaps -- not being as
clever as Mr. Vienneau -- I am unable to break free of
the fascist brainwashing I received in grad school.
Mr. Vienneau, I am currently working on a paper developing
endogenously switching censored regression methods with
robust and heteroskedastic errors. What insights can a
Sraffian offer for this exercise?
Alex Huemer
> But perhaps I am wrong on all this. Perhaps Sraffian
> economics is the way to go, and perhaps -- not being as
> clever as Mr. Vienneau -- I am unable to break free of
> the fascist brainwashing I received in grad school.
> Mr. Vienneau, I am currently working on a paper developing
> endogenously switching censored regression methods with
> robust and heteroskedastic errors. What insights can a
> Sraffian offer for this exercise?
>
> --
> Chris Auld
Chris, why are you wasting your time? Robert isn't going to understand
time-series analysis, LDV models, or any manner of error decomposition. All
of those are EMPIRICAL tools of analysis. Mr. Vienneau's world is comprised
of imaginary corn, capital, workers, and utterly improbable assumptions.
It's generous of you engage him in debate, but I put it to you that you are
being indulgent. As an Assistant Professor, I would think your time would
be better spent on research and publication. Sci.econ is long since overrun
by cranks and loonies, interspersed with missives from confused
undergraduates and well meaning economists; such is the lot of unmoderated
forums intended for serious academic discussion (compare to
sci.econ.research). Robert is one of the founders (I've been reading his
posts for many years), and he is certainly deserving of the tinfoil crown
bestowed upon those who truly and doggedly adhere to a line of thought
untroubled by such petty concerns as relevence, pertinence of underlying
assumptions, or veritable tomes of prestigious literature contradicting his
assertions. I have watched with silent awe, year after year, as Robert has
turned aside any and every such consideration put to him. Truly, if
lexicographic preferences exist, you'll find them here.
Better to lurk. Venables might make interesting use of this forum, but I
can't think of anyone else who could.
ro...@telus.net
wrote:
>I have asked Mr. Vienneau before to not put my name
>in the subject line.
Putting an opposing poster's name in the subject line is an automatic
loss, like the first reference to Hitler or the Nazis.
Call it Roy's Law.
-- Roy L
Robert Vienneau
(Christopher Auld) wrote:
> Robert Vienneau <rv...@see.sig.com> wrote:
> [ insults and out-of-context quotes ]
Chris Auld starts out with untruths above.
> The reason most economists have little interest in Sraffa
> is because Sraffian economics has contributed little to
> modern economic thought.
"One can insist, seriously, that a neoclassical
Hall of Fame deserves Sraffa's statue.
Actually all of Sraffa's findings about the impossibility
of defining 'more roundaboutness' and 'less roundaboutness'
apply precisely to smoothly differentiable vector-capital
Clarkian models. Neoclassicists should reproach themselves,
and thank Robinson and Sraffa, for belated recognition
that the locus of (stationary-state consumption, interest
rate) need not be a one-way tradeoff. This recognition
is achievable quite apart from the dramatic case of
double-switching...
...Did any scholar have so great an impact on economic
science as Piero Sraffa did in so few writings? One
doubts it... With each passing year, economists perceive
new grounds for admiring his genius."
-- Paul Samuelson, "Sraffian Economics", New Palgrave
Of course, the point isn't Sraffa, but rather that economists
should be trained to have proper intuition about price theory.
Here's some statements that seem to reflect a lack of such proper
training:
"Production functions do not have to be continuously differentiable
for most of the postulates of canonical neoclassical theory to hold.
The problem with assuming fixed-coefficent technologies, the particular
variety of non-differentiable function used in the reswitching argument
you gave, is that the substitution effect is simply assumed away. Even
if a variety of such processes are available, no substitution occurs
conditional on whatever technology is chosen. This assumption alone
drives the reswitching argument you provided earlier, I believe..."
-- Chris Auld, 28 June 1994
"If capital becomes cheaper relative to labor, other things
constant, then the profit-maximizing assumption (along with the
market structure assumptions) dictates a higher K/L ratio.... The
point is that if there is some sort of change in relative prices,
and that change is viewed as permanent, then firms will definitely
alter their factor mix accordingly -- if they want to maximize their
profits. I happen to think the profit maximizing assumption is a
pretty good one. "
-- Edward Flaherty, 27 July 1994
"yes but some arbitrary close approximation is not what you are
using in your example. Your example proports to reject standard
theory but in fact it just shows that the particular production
functions that you have chosen don't work. This is not a genaric
result. Try using Cobb Douglas or CES. oops the standard theory
doesn't fail anymore does it?
The question is 'why are you using a form of production function which
(a) is known to have pathological properties (ie differentiability)
(b) no one uses because we know it doesn't fit the data'
let me hazard a guess. Because if you used a more standard production
function the standard model does not fail."
-- Robert Simon, 29 November 2001
Here's some statements from the literature that makes my point about
one aspect of what economists should know about price theory:
"Those who have followed the literature of the past 20 years know
that...many properties of the Clarkian paradigm do NOT all hold
generally. In every Cambridge, and wherever informed economic
theory is taught, there is no...disagreement on this."
-- Paul A. Samuelson, 1975?
"The line of research initiated by Robinson culminated in the 1960s
with the realization that many of the comparative statics theorems
valid for the one capital good case do not generalize to the
multigood case. To a sensibility educated on the former, the
heterogeneous capital good case admitted models with behavior that
appeared 'bizarre', 'exotic', 'paradoxical'...I should be quick to
add that this was no disappointment to J. Robinson and her followers.
It was rather their point and in this they were perceptive."
-- Andreu Mas-Collel
"But, as economic theory has learned since the 1930s, the
pattern of activities adopted in the face of long-run
factor-price changes can be complicated and counterintuitive.
Consequently, the long-run demand for factors can be badly
behaved functions of factor prices. Worse still, both Hicks
and Robertson, again following J. B. Clark, applied the
long-run principle of variation to changes in the interest
rate: they claimed that a fall in r causes production to
shift to more 'capital-intensive' intermediate inputs...
The principle of variation works as an argument for long-run
determinancy insofar as the set of zero-profit activities
shift in response to factor price changes; it is not
necessary that newly adopted activities use cheaper factors
more intensively or that production is more capital
intensive when r falls."
-- Michael Mandler, _Dilemmas In Economic Theory: Persisting
Foundational Problems Of Microeconomics_. Oxford, 1999.
p. 34.
And, yes, given the ignorance of aspects of price theory displayed
in the quotes from participants in sci.econ, the fact that I can
quote Mas-Collel in support is quite curious.
> ...I wonder which fundamental topic required to
> understand contemporary research Mr. Vienneau thinks
> should be struck from curricula in order to teach
> outdated methods in a deceased, tiny, and ideologically
> charged literature?
The above is just silly. Leontief-Sraffa-Von Neumann
methods cannot be proved useless by mere declaration,
my point is not dependent on methods of activity
analysis with countable activities, and poor Chris Auld just
proves himself ideologically-charged by suggesting the above
descriptions of aspects of price theory are intimately tied to
radical politics.
> Earlier in this thread I posted a list of twenty or so
> brand new working papers by top-notch economists an a
> wide variety of topics of interest to economists, noting
> none of them had anything to do with the point Mr. Vienneau
> thinks topples mainstream economics...
As Chris Auld says, he demonstrated no relevance of those
papers for this conversation. (I took his word about their
irrelevance.) Of course, poor Chris Auld's phrase about
"the point" I think "topples mainstream economics" is a
clueless strawperson. I am explaining price theory, as good
economists understand it.
(My Excel spreadsheet gives a tool for interested readers, if
any, to play around with a simple model.)
> ...Mr. Vienneau claims in his essay that he is presenting
> equilibrium prices, yet he does not close his model. So
> either his restrictions on technology are severe enough
> such that this is possible, or Mr. Vienneau has got his
> arithmetic wrong.
Chris Auld just misrepresents my essay and the discussion above
(or maybe he's already forgotton the context of his remarks).
I claim that a certain locus shows a kind of equilibrium OF
THE FIRM in that there are no endogeneous forces within the
(vertically integrated) firm at each point on that locus driving
the economy away from that point. Even here, the model is
open, in that no particular point on that locus is picked
out. There may very well be other endogeneous forces elsewhere
in the economy (e.g., consumer choice) driving the economy from
those points.
Chris Auld incorrectly asserted that all those points had
to be equilibria of the economy. The point in dispute is
whether the locus describes equilibria of the economy. (It's
not much of a dispute; poor Chris Auld simply refuses to
add.) So in the following incorrect statement, Chris
Auld was making incorrect assertions about equilibria
OF THE ECONOMY:
"'The literature Robert Vienneau draws on,' like this model,
imposes such restrictive assumptions on technology that
equilibrium prices can be deduced without closing the model."
> (I think Paul Samuelson has
> a paper called something like "Sraffa's Other Leg"
(Economic Journal, May 1991, V. 101, pp. 570-574)
> making this same point and essentially arguing it is
> sufficient to render Sraffian economics useless).
Paul Samuelson's point is exactly opposite from what
poor Chris Auld says it is. He says that Sraffa's approach
is open, as I say. Samuelson's primary focus is on Sraffa
1925 papers; mine is on Sraffa's 1960 book.
Chris Auld can quote Samuelson not noting that prices depend
on distribution in Sraffa's book and that distribution is taken
as exogeneous. Here's a paper in the literature upon which
I draw:
Krishna R. Bharadwaj, "Value Through Exogeneous Distribution".
Economic Weekly (Bombay), 24 August 1963.
Samuelson does NOT say that Sraffian economics is therefore
useless. He says that consumer demand remains important
in Sraffa's approach. Samuelson knows that the stories
about scarcity and substitution that supply and demand
are often used to justify remain without foundation,
in theory.
That paper led to still-ongoing disputes. Reading a later
Samuelson papers in that dispute, one might get the distinct
impression that Samuelson thinks Marshallian partial
equilibrium models of the firm, as presented in many, many
intermediate microeconomics textbooks, are useless.
> But perhaps I am wrong on all this.
Poor Chris Auld is.
> [Irrelevancies about regressions in which variance varies ]
> [with response variable - deleted. ]
To reiterate. Chris Auld agrees that mainstream economists
do not learn those aspects of price theory in which I am
interested. He demonstrates the truth of this with his
comments.
Christopher Auld
>Chris, why are you wasting your time?
Check the "economic analysis of addiction" thread.
Robert Vienneau
<alexande...@claremontmckenna.edu> wrote:
> Chris, why are you wasting your time? Robert isn't going to understand
> time-series analysis, LDV models, or any manner of error decomposition.
I don't know what LDV models are. My name appears in the
acknowledgements in certain papers dealing with time series. (I
have no problem acknowledging the authors of these papers know
more about Vector Autoregression (VAR) models than I do.) But I
don't know how Mr. Huemer jumps to his conclusions.
> All
> of those are EMPIRICAL tools of analysis. Mr. Vienneau's world is
> comprised
> of imaginary corn, capital, workers, and utterly improbable assumptions.
As usual, I don't know how empirical tools can bear on the points of
logic I usually make. My examples usually illustrate standard
theory. The assumptions are usually of generalized Leontief
functions. The assertions about these assumptions being
"improbable" seems to need justification, if anybody cares
to argue on that basis.
>It's generous of you engage him in debate...
You don't notice that Chris Auld's method of "debate" consists
mainly of misrepresentation and rhetorical fallacies?
> Robert... truly and doggedly adhere[s] to a line of thought
> untroubled by such petty concerns as relevence, pertinence of underlying
> assumptions, or veritable tomes of prestigious literature contradicting
> his
> assertions. I have watched with silent awe, year after year, as Robert
> has
> turned aside any and every such consideration put to him.
I don't recall anybody putting correct and coherent considerations
of relevance and pertinence of underlying assumptions. My favorite
argument generalizes to many-good models with processes taking many
different-length periods. There can be as many alternative processes
as one cares to assume. I don't see why generalized Leontief
production functions are not pertinent. I don't think I depend
on assumptions about Constant-Returns-to-Scale. So I don't know
what Mr. Huemer is on about.
And, of course, I am only echoing the literature. There are those
economists who realize that and those who don't.
JT
On Fri, 01 Nov 2002 17:10:47 -0600, Robert Viennau
<rv...@see.sig.com> wrote:
>At this point, we are not talking about time-indexed wages, time-indexed
>labor inputs, etc.
>What is meant by the demand for labor in introductory textbooks? They
>don't speak of time-indexing, and they tell stories about the effects
>of a floor on wages and so on.
>I don't think they mean the demand for labor to be only, say, from
>my non-vertically integrated corn industry. It should be the sum of
>iron and corn industries' demand.
>When can such a schedule be constructed exactly? If you look at an
>intro physics book, you'll perhaps see explicit assumptions that
>all objects move at much less than the speed of light; that for
>small angles, the sine of an angle is approximately equal to
>the angle; that inertial mass equals graviational mass; and so
>on. Without such explict theory, I don't see how one can talk about
>what are first-order effects and what are second-order effects.
If you want to see the assumptions and layout of the standard static
model check out Debreau's "Theory of Value" or "Microeconomic Theory"
by Mas-Colell et al. These are models where the economy has an
endowment of goods, and whereas goods may be used as inputs in
production, all output is ultimately for consumption. There is no
need for dynamics in this kind of model, because the economy is not
producing inputs for future production. If you want to add such
considerations, you have left this class of models and entered into
the realm of dynamic models. No ifs or buts. In which case you are
confusing the equilibrium of a static model with the steady state of a
dynamic model. Once there is any kind of state dependency (current
production possibilities depend on past production), you need to
introduce expectations and dynamic objective functions to talk about
how the economy operates.
I can't construct static demand functions for your vertically
integrated firm. That firm is internalizing future factor supplies,
so demand only makes sense in the context of a set of expectations
about the future, which is of course an aspect of a *dynamic* model.
I could do it for a firm that simply takes prices as given, hires
inputs for a single period and sells its outputs at the end of the
period. This is essentially a static problem, since past actions have
no implications for the firm's current position. (These will show up
at the level of the economy). The factor demands depend on the
production technique(s) that the firm chooses, conditional on the
prices. So for a set of input and output prices, factor demand is
defined in terms of factor ratios. This will be indeterminate when
prices are such that production of either good is profitable and will
instead be a linear combination of the factor ratios for each. I
could then see how factor intensities vary when I change only the wage
(labour demand is the ceteris paribus exercise of changing only the
*wage* rate). I doubt the properties of such a function would abuse
my intuition too severly.
The regularity conditions that you speak of are not necessary for an
equilibrium. Typically all that is required is convexity. Strict
convexity is often imposed so that there is a unique equilibrium.
Other regularity conditions are imposed out of convenience--they allow
for marginal analysis using calculus. However, these are points that
are well understood by contemporary micro theorists, of which I make
no claim to being. I have no idea what Sraffa's role was in the
development of static theory. Leontief technologies and factor
intensity reversals both exist in the modern literature.
Otherwise, Sraffa is essentially considering dynamic models where the
beginning of period "endowments" are determined by past production
decisions. Possible outcomes are still restricted by historical
considerations. If the economy starts with no iron, none of the
equilibria you outline are feasible.
Alex Huemer
I've never read the Becker & Murphy paper, by the way, but I suppose it
isn't too different from Stigler & Becker's "De Gustibus Non Est
Disputandum."
Just remember that, with respect to harmful addictive commodities, "an
increase in consumption at any age reduces the stock of consumption capital
available subsequently, and this raises the shadow price at all ages." :)
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
I have studied Debreu and looked at Mas-Collel before. Some other
times when I have quoted one or the other on this newsgroup, I
have received ignorant nonsense or childish whining in reply.
Anyways, you don't seem to be interested in justifying the partial
equilibrium approach of intro textbooks, but seem to want to discuss
supply and demand in general equilibrium models.
I have already outlined the static equilibrium model several times
on the previous thread. Each time I explicitly noted that the
static equilibrium approach was different than the price concept
illustrated by my numeric example in which a vertically-integrated
firm adopts a more labor-intensive technique at a higher wage.
Anyways, you seem to recognize models in which goods are not
time-indexed and in which there are produced capital goods are
outside the scope of static equilibrium models. That's part of
my point. Sometimes one can find in introductory textbooks a
production function of the form f(L, K), where K is said to
be capital. Supply and demand arguments are then developed.
I suggest that that's nonsense.
You write about the need to treat dynamics as if you are rebuking
me. I am not making any confusion between statics and steady states
of dynamic models. But, somehow, I am able, while drawing on the
literature, to analyze such steady states without explicitly
modelling expectations.
I keep on pointing out that my numerical example can be seen as
a generalized Von Neumann model. The turnpike theorem relates
non-steady states to the Von Neumann model. In other words,
my model relates to some standard mainstream treatments of
dynamics.
I also keep on pointing out that appropriate treatments of
dynamics is a debated concept among economists. You seem to
have a rigid view of the matter in which models in which
agents know they don't know enough to construct probability
distributions over all relevant aspects of the future (uncertainty
versus risk, non-ergodicity versus a restricted class of
stationary models) are outside the scope of dynamics.
Last posts I presented an LP model of a firm in which the
rate of profits sprang out of the dual. And I quoted
Keiran Sharpe describing a stock equilibrium based on
a firm's balance sheet. You offer no comment on his claim
that this rate of profits is an index of fitness of the
firm in this more expansive concept of dynamics than you
seem to be describing:
"It is assumed that agents - unsure of the underlying
economic structure - tend to rely on their balance sheets to
obtain an idea of how well they are doing. Indeed, given that
the environment is at its most unpredictable when stationarity
is dropped, the use of optimisational methods is most dubious
and the argument for the use of evolutionary ones (with their
attendant concepts of fitness, balance-sheet comparisons, and
so on) is extremely strong."
-- Keiran Sharpe
> I can't construct static demand functions for your vertically
> integrated firm. That firm is internalizing future factor supplies,
> so demand only makes sense in the context of a set of expectations
> about the future, which is of course an aspect of a *dynamic* model.
> I could do it for a firm that simply takes prices as given, hires
> inputs for a single period and sells its outputs at the end of the
> period. This is essentially a static problem, since past actions have
> no implications for the firm's current position. (These will show up
> at the level of the economy). The factor demands depend on the
> production technique(s) that the firm chooses, conditional on the
> prices. So for a set of input and output prices, factor demand is
> defined in terms of factor ratios. This will be indeterminate when
> prices are such that production of either good is profitable and will
> instead be a linear combination of the factor ratios for each. I
> could then see how factor intensities vary when I change only the wage
> (labour demand is the ceteris paribus exercise of changing only the
> *wage* rate). I doubt the properties of such a function would abuse
> my intuition too severly.
Since you are no longer considering my problem, but have retreated
back to a static model, I don't see the relevance.
> The regularity conditions that you speak of are not necessary for an
> equilibrium. Typically all that is required is convexity. Strict
> convexity is often imposed so that there is a unique equilibrium.
> Other regularity conditions are imposed out of convenience--they allow
> for marginal analysis using calculus. However, these are points that
> are well understood by contemporary micro theorists, of which I make
> no claim to being. I have no idea what Sraffa's role was in the
> development of static theory. Leontief technologies and factor
> intensity reversals both exist in the modern literature.
I am not sure what regularity conditions you speak of. I am quite
aware that my description of technology is not novel. You seem to
be saying that I am mistaken because I am repeating results that
are well-known, but not taught at an intro level. Given this is my
point, I can only find such confused.
> Otherwise, Sraffa is essentially considering dynamic models where the
> beginning of period "endowments" are determined by past production
> decisions. Possible outcomes are still restricted by historical
> considerations. If the economy starts with no iron, none of the
> equilibria you outline are feasible.
I don't know how you can be so confident about what Sraffa does.
Anyways, I don't see the evidence of that claim in his book. What
one can say, is that a mainstream economist can map the models in
Sraffa's book into such a framework. This does not mean that Sraffa
does not have a different framework. Those recently building on
Sraffa have developed models known as cross-dual dynamics and as
gravitational models.
That point about needing initial iron is a trivial caveat. The point
is that given non-trivial asymptotic behavior, the specific ratios
of initial quantities do not determine steady states. As usual,
my point is not novel:
"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.
In this context, the critics take Marshall's principle of substitution
and the concept of prices as scarcity indices as central to the
neoclassical theory of value and distribution. Consider a fully
adjusted (steady state) economy. Suppose the quantity of one
non-produced input (e.g., labor) was somewhat less, all else
unchanged. The price of that input would be a scarcity index
if the resulting steady state must necessarily have a higher
price for that input, firms have adopted techniques that
use that input less intensively, the prices of produced
commodities that use that input more intensively are necessarily
higher, and consumers have substituted away from those
commodities. As my example shows, the neoclassical theory of
value and distribution is false:
"Outputs can influence relative prices ... by affecting the relative
scarcity of labour and capital, and thus the wage and rate of
interest, given the supply of the two factors and the state of
technical knowledge. This link between prices and outputs is one and
the same thing as the explanation of distribution by demand and supply
of factors of production: and it becomes untenable once that
explanation is abandoned."
-- P. Garegnani, RES, 1970.
There are several responses to this critique I think miss the point.
Some incorrectly say that it is solely an aggregation problem. Then
they say that because mainstream economists are aware of aggregation
problems, criticisms of economics based on aggregation problems
are uninteresting.
Some say that mainstream economists now consider assymmetric information,
sticky and rigid prices, and non-perfectly competitive markets that
thwart the logic of perfectly competitive markets from fully working
itself out. That is hardly an acceptance that the logic of competitive
markets is not one of prices as scarcity indices.
Some ask for empirical evidence that prices do not behave as scarcity
indices. And they also assert that ideas about economics need to
be expressed in models to be rigorous and coherent. Yet they do not,
will not, and cannot specify the special-case assumptions on, say,
technology that they want to make to rule out the sort of effects
illustrated by my example. (I don't think saying that one will only
consider solutions with certain characteristics, while making no
effort to determine when, if ever, such solutions arise counts as an
"assumption".) They do not specify how to tell in practice whether
technology will lead only to their special-case solutions. Or how the
effects in my example will be manifested out of equilibrium. For some
reason, some who offer this muddled empirical objection to a logical
critique have referred me to works by such economists as Burmeister,
Hahn, or Samuelson, who understand the logic of modern price theory
and don't support this empirical objection.
A particularly inane idea is that the rejection of the neoclassical
theory of value and distribution can be ignored because price
theory does not help one develop bootstrap estimates and other
sophisticated statistical tools. Of course, one is free to
advocate measurement without theory.
Some economists, including some mainstream economists, understand
what modern price theory does and does not assert. Some assert
mainstream price theory can get along without the neoclassical
theory of value and distribution. However, intermediate microeconomic
teaching apparently frequently conveys false impressions:
"Even people who have made no study of economic theory
are familiar with the idea that when something is more
plentiful its price will be lower, and introductory
courses on economic theory reinforce this common
presumption with various examples. However, there is no
support from the theory of general equilibrium for the
proposition that an input to production will be cheaper
in an economy where more of it is available. All that
the theory declares is that the price of the use of an
input which is more plentiful cannot be higher if all
other inputs, all other outputs and all other input
prices are in constant proportions to each other."
-- Christopher Bliss, _Capital Theory and the
Distribution of Income_, North Holland, 1975
(as quoted in Daniel M. Hausman, _Capital, Profits,
and Prices_, Columbia University Press, 1981.)
Such constant proportions will generally not obtain in comparisons
of asymptotic states of dynamic models.
JT
point (I'm not sure that I feel any need to do so), let me tell you
what I originally though you were claiming and what I know think you
are trying to say and you can sort me out.
My original reaction was to suppose that you were claiming that:
1. Labour demand increases with the wage rate.
and
2. It is not possible to recreate the equilibrium that you outlined
using a model of factor supply and demand.
My belief is now that you are making the following points:
1. Relative factor prices need not reflect relative factor scarcity.
2. Endowments of factors depend on past production. Economists often
think of prices as emerging from endowments, whereas "endowments" can
be thought of as resulting from prices (?).
3. Alternative models of firm behaviour can be used to justify an
economic steady-state. I'm still working on the details of this
point.
Somewhere in there, there is also a critique of the pedagogy of modern
economic instruction.
I don't feel any need to dispute the first two points. I'll have to
think a little more about what you are suggesting in the third case.
On Thu, 07 Nov 2002 20:24:22 -0500, Robert Vienneau
<rv...@see.sig.com> wrote:
<snipped>
JT
On Thu, 07 Nov 2002 20:24:22 -0500, Robert Vienneau
<rv...@see.sig.com> wrote:
>In article <q5disusjp281cbrdn...@4ax.com>, JT
><ji...@nospam.interchange.ubc.ca> wrote:
>
>> On Fri, 01 Nov 2002 17:10:47 -0600, Robert Viennau
>> <rv...@see.sig.com> wrote:
>
>
>Anyways, you seem to recognize models in which goods are not
>time-indexed and in which there are produced capital goods are
>outside the scope of static equilibrium models. That's part of
>my point. Sometimes one can find in introductory textbooks a
>production function of the form f(L, K), where K is said to
>be capital. Supply and demand arguments are then developed.
>I suggest that that's nonsense.
I think this depends on what you are trying to accomplish. Trade
models are often based on this kind of a framework. And if you are
looking at countries over reasonably brief periods of time, the
capital stock does not appear to grow that rapidly. So this may be a
reasonable approach if you are trying to understand the trade flows
that we observe now. It is probably less fruitful if we are trying to
understand why some countries are more capital intensive than others.
>
>You write about the need to treat dynamics as if you are rebuking
>me. I am not making any confusion between statics and steady states
>of dynamic models. But, somehow, I am able, while drawing on the
>literature, to analyze such steady states without explicitly
>modelling expectations.
As I suggested earlier, I think I have been guilty of misunderstanding
your intention. In any case, I think you are wrong about what you
claim above. Implicitly, the firm is assuming that the wage will be
the same in the next period (and all following periods) as it is in
the present (and has been in the past). This is a very particular
assumption about firm expectations. And given those expectations, I
can easily state what the firm's labour demand is conditional on the
wage (and current input holdings). As to the supply function...you
have already provided it and it is rather trivial...labour is supplied
perfectly elastically at the quoted wage rate. (I was assuming before
that available labour was fixed and at an amount that was exactly
exhausted by the production regime supported at the original prices.)
The equilibrium solution to such a problem depends only on the level
of commodities available for production (whatever the firm produced in
the previous period).
>
>I keep on pointing out that my numerical example can be seen as
>a generalized Von Neumann model. The turnpike theorem relates
>non-steady states to the Von Neumann model. In other words,
>my model relates to some standard mainstream treatments of
>dynamics.
I am not presently familiar with this theorem.
>I also keep on pointing out that appropriate treatments of
>dynamics is a debated concept among economists. You seem to
>have a rigid view of the matter in which models in which
>agents know they don't know enough to construct probability
>distributions over all relevant aspects of the future (uncertainty
>versus risk, non-ergodicity versus a restricted class of
>stationary models) are outside the scope of dynamics.
I'm not sure what you are saying here. I don't have any strong priors
on the "right" way to model expectations. Rational expectations have
always seemed suspect to me. In any case, none of this seems relevent
to the example at hand.
>Last posts I presented an LP model of a firm in which the
>rate of profits sprang out of the dual. And I quoted
>Keiran Sharpe describing a stock equilibrium based on
>a firm's balance sheet. You offer no comment on his claim
>that this rate of profits is an index of fitness of the
>firm in this more expansive concept of dynamics than you
>seem to be describing:
>
> "It is assumed that agents - unsure of the underlying
> economic structure - tend to rely on their balance sheets to
> obtain an idea of how well they are doing. Indeed, given that
> the environment is at its most unpredictable when stationarity
> is dropped, the use of optimisational methods is most dubious
> and the argument for the use of evolutionary ones (with their
> attendant concepts of fitness, balance-sheet comparisons, and
> so on) is extremely strong."
> -- Keiran Sharpe
I don't see how this is relevant to the problem that you have set out,
other than that firms are picking the profit maximizing technique.
Which seems to be based on the assumption that today's wage is
tomorrow's wage. There wouldn't be a steady state if the wage was
truly non-stationary.
>
>> The regularity conditions that you speak of are not necessary for an
>> equilibrium. Typically all that is required is convexity. Strict
>> convexity is often imposed so that there is a unique equilibrium.
>> Other regularity conditions are imposed out of convenience--they allow
>> for marginal analysis using calculus. However, these are points that
>> are well understood by contemporary micro theorists, of which I make
>> no claim to being. I have no idea what Sraffa's role was in the
>> development of static theory. Leontief technologies and factor
>> intensity reversals both exist in the modern literature.
>
>I am not sure what regularity conditions you speak of. I am quite
>aware that my description of technology is not novel. You seem to
>be saying that I am mistaken because I am repeating results that
>are well-known, but not taught at an intro level. Given this is my
>point, I can only find such confused.
Fine. If economics was taught the same way as, say, physics, this
probably wouldn't be an issue. I'm not interested in defending the
status quo of economics education.
>
>> Otherwise, Sraffa is essentially considering dynamic models where the
>> beginning of period "endowments" are determined by past production
>> decisions. Possible outcomes are still restricted by historical
>> considerations. If the economy starts with no iron, none of the
>> equilibria you outline are feasible.
>
>I don't know how you can be so confident about what Sraffa does.
>Anyways, I don't see the evidence of that claim in his book. What
>one can say, is that a mainstream economist can map the models in
>Sraffa's book into such a framework. This does not mean that Sraffa
>does not have a different framework. Those recently building on
>Sraffa have developed models known as cross-dual dynamics and as
>gravitational models.
This comment was based on a quick pass of the first chapter of
"Production of Commodities by Means of Commodities". There may well
be more to what he has to say then this. Ask me again in three
months, if I retain any interest in all of this.
>
>That point about needing initial iron is a trivial caveat. The point
>is that given non-trivial asymptotic behavior, the specific ratios
>of initial quantities do not determine steady states.
However, in your model there is no clear way to determine the steady
state either, short of stating the wage. This is in and of itself a
way of specifying labour supply. I am familiar with all kinds of
models in economics in which additional criteria are needed to pick
out a specific equilibrium. I'm guessing the gravitational models
that you refer to attempt to do this...
I am guessing your point is that relative factor prices don't
neccessary map back to relative factor scarcity. Papers with results
like this have penetrated the mainstream, though I make no claim that
they have affected the "intuition" of most economists. Thinking past
a two by two world is not easy. This problem of visualization also
accounts for the reliance on partial equilibrium at the undergraduate
level. More complicated models (i.e. more than two inputs, more than
one period, etc.) generally require mathematic treatment, but in
economics, mathematic formalism is reserved for senior undergrads and
graduate students.
What I initially thought you were claiming was that labour demand
increased in the wage rate. This no longer appears to me to be what
you are claiming. I don't think I am alone in this perception, though
maybe we all suffer from reading comprehension problems. Or maybe you
aren't terrible good at presenting your ideas. Try dropping some of
the arrogance...maybe people would be more receptive...
Robert Vienneau
<ji...@nospam.interchange.ubc.ca> wrote:
> My original reaction was to suppose that you were claiming that:
> 1. Labour demand increases with the wage rate.
In my numerical example, the vertically-integrated firm wants to
employ more labor at the higher wage, given the level of net
output.
Sometimes in the literature, this is called an upward-sloping
labor-demand schedule. I don't care about the label, and I
did not use it myself. I note that nobody has offered a suggestion
of some other reasonable way for the firm to specify the book price
of iron and seed corn.
> 2. It is not possible to recreate the equilibrium that you outlined
> using a model of factor supply and demand.
I illustrate well-established tools for analyzing long-period
positions. They do not include the construction of well-behaved
supply and demand curves. Nobody here has constructed such curves
for my example.
> My belief is now that you are making the following points:
> 1. Relative factor prices need not reflect relative factor scarcity.
Yes.
Supply and demand were invented to embody a certain vision of how
prices work, and is still used to tell stories based on that
view. That view is false and without theoretical foundation in
models that have within their scope economies in which
produced capital goods are used.
> 2. Endowments of factors depend on past production. Economists often
> think of prices as emerging from endowments, whereas "endowments" can
> be thought of as resulting from prices (?).
Endowments of corn and iron do not constrain the solution in my
example. In some sense, they are not scarce.
(Trivial caveat: there has to have been some iron or seed corn
at some time if there is no backstop technology for producing
either directly from labor (something like that).)
> 3. Alternative models of firm behaviour can be used to justify an
> economic steady-state. I'm still working on the details of this
> point.
My example illustrates an accounting answer for the managers and
owners of a firm to the question of "How am I doing?"
"But self-absorption and consistent policy error are just two of
the endemic problems of the leading American economists, and not
even the most serious among them. The deeper problem is the nearly
complete collapse of the prevailing economic theory--of the
structure of thought that supports their policy ideas. It is a
collapse so complete, so pervasive, that the profession can only
deny it by refusing to discuss theoretical questions in the first
place."
-- James Galbraith
In reading Sraffa's book, one should try not to be dogmatic about
what framework must underlie his analysis. I think you have already
made some claims that could be false. On the other hand, some of
my comments could also be attacked on the same grounds. I have
been deliberately offering justifications for the analysis that
I think a mainstream economist can understand.
Here's a different way of thinking about it. Take a snapshot of
the quantity flows occurring in an economy at a point of time.
Sraffa's prices show a certain consistency for those quantity
flows. They need not be for a stationary state. Net investment
may be going on, an innovation may be altering the coefficients
of production. So at another instant, the quantity flows, including
ratios, will be different; and Sraffa's prices will differ.
Inasmuch as prices differ from Sraffa's prices, agents are finding
that their plans need to be changed. But one cannot say in a
mechanical model what those changed plans will be. Perhaps that's
all that there is to price theory.