Neoclassical Economics Decomposing
Robert Vienneau
This long post is another investigation of long period theory.
A general equilibrium model is investigated. Although issues of
the aggregation of capital may seem essential for the problem
highlighted here, no problems of macroeconomics or aggregate
production functions are explored. The point is that the
Wicksellian version of Neoclassical theory takes capital, as
measured in value, as simultaneously exogeneous and endogeneous.
Thus, this approach is incoherent, seeing how it relies on a
viscious circle. This criticism does not apply to, for instance,
labor. Capital presents problems for neoclassical theory
different than those in comparing different types of labor.
As usual, I demonstrate the incoherence of the examined
version of Neoclassical theory by working through a simple
example. In the example, the value of capital is supposed
to be given data, but its physical composition is taken
as endogeneous. Price Wicksell effects, in which the value
of a fixed basket of capital goods is different at different
interest rates, renders this approach incoherent. Despite
the nonsensical nature of this approach, it is the basis
for a wide range of 20th century Neoclassical theories,
including some still taught in mainstream North American
universities.
2.0 THE DATA
Suppose an omniscient observer sees an economy in a
disequilibrium configuration. The problem for this observer
is to note the parameters of the Neoclassical model and
to determine the equilibrium values of all variables.
2.1 UNPRODUCED FACTORS
This is a very simple economy. There are only two
unproduced commodities, land and labor. Assume 3.72
person-years of labor and 3.88 acres of land happen to
exist in the original configuration.
2.2 TECHNOLOGY
Labor and land can be combined to produce either of
two capital goods, steel and tin. The technology for
producing steel is specified by the following
Cobb-Douglas production function:
m = g( lm, bm )
= 5 (4/3)^(1/3) * ( lm )^(1/3) * ( bm)^(2/3) (1)
where m is tons steel produced and available at the
end of the year. lm and bm are person-years labor and
acres land, respectively, used as inputs throughout the
year in producing steel.
The technology for producing tin is also specified by
a Cobb-Douglas production function:
n = h( ln, bn )
= 5 (8/3)^(1/5) * ( ln )^(1/5) * ( bn )^(4/5) (2)
where n is tons tin produced and available at the end of
the year. ln and bn are person-years labor and acres land,
respectively, used as in inputs throughout the year in
producing tin.
Labor and land, in conjunction with steel and tin, can also
be used to produce the single consumption good, corn. The
technology for producing corn is given by the following
constant-returns-to-scale production function:
c = f( lc, bc, m, n )
= ( lc )^(1/4) * ( bc )^(1/4) * ( m )^(1/4) * ( n )^(1/4) (3)
where c is bushels corn produced and available at the end of
the year. lc, bc, m, and n are person-years labor, acres land,
tons steel, and tons tin, respectively, used as inputs
throughout the year in producing corn.
2.3 THE QUANTITY OF CAPITAL
The quantity of capital is the last parameter that needs to
be specified. Following Wicksell, capital is specified in value
units, that is, dollars. Assume that one observes that this
economy has (possibly disequilibrium) quantities of 7 tons steel
and 2 tons tin. Also, the prices of capital goods are initially
2/21 dollars per ton steel and 5/12 dollars per ton tin. Then the
supposedly exogeneous quantity of capital is 1 1/2 dollars.
3.0 THE WICKSELLIAN NEOCLASSICAL MODEL
Consider a competitive firm engaged in steel production. The firm
faces a given wage, w, land rent, r, and price of steel, pm. The firms
chooses the amount of labor, lm, and land, bm, used in the production
of steel to maximize pure economic profits:
Max pm g( lm, bm ) - w lm - r bm (4)
The value of the marginal product of labor is equated to the wage
for the solution quantities:
dg/d lm = w/pm (5)
Also, the value of the marginal product of land in steel production
is equal to the rent of land:
dg/d bm = r/pm (6)
Since the production function for steel exhibits constant returns
to scale, Euler's law applies. Some manipulation yields the
condition that the value of steel product exhausts the value of
factor inputs when they are paid their marginal products:
pm m = w lm + r bm (7)
Equation 7 is not an independent equation.
Firms engaged in tin production yield a similiar set of
marginal productivity conditions.
dh/d ln = w/pn (8)
dh/d bn = r/pn (9)
There is also a non-independent product exhaustation condition
in the tin industry:
pn n = w ln + r bn (10)
The corn industry yields the final four marginal productivity
equations:
df/d lc = w (11)
df/d bc = r (12)
df/dm = vm (13)
df/dn = vn (14)
where vm is the rental price for steel and vn is the rental price
for tin. Equation 15 gives the final product exhaustation condition:
c = w lc + r bc + vm m + vn n (15)
The model also has an equilibrium condition specifying that the
interest rate is the same in lending out each capital good:
i = ( vm - pm )/pm = ( vn - pn )/pn (16)
For ease in counting equations and variables, it's convenient to
break Equation 16 up into two equations:
( vm - pm )/pm = ( vn - pn )/pn (17)
i = ( vm - pm )/pm (18)
The final equations in the model constrain the equilibrium
demands for each factor not to exceed the given supplies. Since
only internal solutions are considered here, these constraints are
met with equality. Equation 19 specifies that the sum of labor
used in producing corn, steel, and tin does not exceed the
given quantity for labor:
lc + lm + ln = 3.72 person-years (19)
Equation 20 is the parallel constraint for land.
bc + bm + bn = 3.88 acres (20)
Finally, Equation 21 shows that the total value of capital goods
is equal to the given value of capital:
pm m + pn n = $3/2 (21)
Note that prices appear in Equation 21, but do not appear in
Equations 19 and 20.
4.0 RECAP
The independent equations in the model are summarized in
Table 1. Tables 2 and 3 show the solution quantities and
prices, respectively. Since corn is the numeraire, its price
is really not a variable determined by the model. So there
are 16 equations and 16 variables. So the model initially
appears formally consistent. Also, Tables 2 and 3 demonstrate
that the solution values, at least in this instance, are
economically meaningful (positive).
TABLE 1: MODEL SUMMARY
3 Production Functions 1, 2, 3
8 Marginal Productivity Equations 5, 6, 8, 9, 11, 12, 13, 14
2 Equations For Common Interest Rate 17, 18
3 Constraints On Factor Quantities 19, 20, 21
16 Total Equations
TABLE 2: EQUILIBRIUM QUANTITIES
Corn consumed: (3/2) 5^(1/2) bushels
= 3.4 bushels
Labor used in corn production: (9/8) 5^(1/2) person-years
= 2.52 person-years
Land used in corn production: (3/4) 5^(1/2) acres
= 1.68 acres
Steel used in corn production: 5 tons steel
Tin used in corn production: 2 tons tin
Labor used in steel production: 3/4 person-years
Land used in steel production: 1 acre
Labor used in tin production: 9/20 person-years
Land used in tin production: 6/5 acres = 1.2 acres
TABLE 3: EQUILIBRIUM PRICES
( Price of corn: $1 per bushel )
Wage: $1/3 per person-year
Rental price of land: $1/2 per acre-year
Price of steel: $ 3/20 per steel ton
Rental price of steel: $ (3/40) 5^(1/2) per steel ton-year
= $0.1677 per steel ton-year
Price of tin: $ 1/8 per ton
Rental price of tin: $ (1/16) 5^(1/2) per tin ton-year
= $0.1398 per tin ton-year
Interest rate: (1/2) 5^(1/2) - 1
= 11.8%
5.0 WHY NEOCLASSICAL THEORY IS MISTAKEN
The example allows one to make an interesting point. Notice that
if the initial disequilibrium quantities of capital goods, steel
and tin, are valued at the equilibrium prices in Table 3, the
initial quantity of capital is $1 3/10. This is different than the
$1 1/2 taken as a parameter in the model. The value of capital
is arbitrary, depending as it does on the chosen numeraire and on
whether initial disequilibrium or equilibrium prices are used in its
calculation. Hence, it cannot be taken legimately as a parameter of
the model. I claim no originality for this point, or even the
argument in terms of the above model:
"Let us first of all be clear that...it is not a formal
inconsistency of the mathematical model that one is talking
about: the inconsistency is between the data relative to the
endowment of capital, and the logic of economic explanation to
be based on the equilibrium determined by the model. In
long-period equilibria, mathematically there is no
contradiction caused by the introduction of a given (e.g.
the observed) value of capital into the model; the logical
inconsistency arises when one wants to argue that prices and
distribution will tend to (and their trend or average is,
because of this, explained by) those determined by the model:
this cannot be argued if some of the data of the model cannot
be presumed to remain unaltered as prices and distribution
change, and this is precisely what will happen to any observed
value of capital."
-- Fabio Petri
Professor Petri is one of several economists in the Sraffian
tradition making this point. Here's another:
"...John Green did a good paper on aggregation, but it was a bit
peripheral to the problems, especially if you think the critique
is not about aggregation but about the meaning of capital... Just
because it's hard to aggregate labour is neither here nor there,
because in real life you don't need to aggregate labour. If you're
going to have a comprehensive system you can have as many classes of
workers as you want, and all you're arguing is that the wage for any
one class in a competitive system will be the same, there'll be a
law of one price. But for capital you have to explain the return in
the economy as a whole, and therefore you have to have a theory of
the rate of profits in the economy as a whole. If you're going to
use a supply-and-demand analysis you have to know, before the analysis
starts, what a quantity of capital is, because it's one of the
exogeneous or determining variables. It's as simple as that. It's
got nothing to do with mutual determination or general equilibrium.
It's to do with what's inside and what's outside, and the trouble
with capital in a supply-and-demand approach is that it's
simultaneously exogeneous and endogeneous. That is, you're arguing
in a circle."
-- G. C. Harcourt
Is aggregation the issue? Neoclassical economics is defined to
be the study of the allocation of scarce resources among
alternative ends. For this definition to make sense, the quantities
of resources, including capital, must be among the givens of the
model. This post has shown, in the context of a disaggregated model,
that it is nonsensical to take the quantity of capital in value terms
as one of the givens in Neoclassical theory. The obvious alternative
is to take individual quantities of capital goods as given. One
then attempts to find equilibrium prices in a steady state where
all industries earn the same rate of return. This was Walras'
approach. Unfortunately, the resulting model is overdetermined
and formally inconsistent. The problem seems to be that capital
cannot logically be represented as a (given) scarce resource.
So much for the Neoclassical theory of value and distribution.
REFERENCES
J. E. King, _Converstions with Post Keynesians_, St. Martin's Press,
1995.
Fabio Petri, "Long-period versus short-period theories of distribution
and growth", _International School Of Economic Research: XII Workshop:
General Equilibrium: Problems, Prospects And Alternatives_, 1999,
<http://www.econ-pol.unisi.it/iser.html/abstract12.htm>
Colin Rogers, _Money, Interest, and Capital: A Study in the
Foundations of Monetary Theory_, Cambridge University Press, 1989.
--
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
Christopher Auld
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
--
Chris Auld
Department of Economics
University of Calgary
au...@ucalgary.ca
Mason Clark
I can recommend an excellent Search-and-Replace program.
I used it to search my hard disk for all "neoclassical" and
replaced them with "contemporary" -- upon doing this, many of the
policy recommendations changed. It will take time to analyze
these.
While at it, I replaced all the "infinity"s with "a large number chosen
by your worst enemy" -- this, however, has not caused any
discernible changes otherwise.
(You can find the economics reviser program at http://www.funduc.com .)
Mason did you read Karl Popper on "economics"?
John Weatherby
Wicksell died in 1926. Economics has come a long way since then. This was
prior to Samuelson and if remember correctly not long after the marginalist
revolutionized economics. Surely Rob doesn't think contemporary economics is
the same as economics prior to the Margianlist does he?
"Robert Vienneau" <rv...@see.sig.com> wrote in message
news:rvien-420384....@news.dreamscape.com...
alexandre delaigue
"Christopher Auld" <au...@acs.ucalgary.ca> a écrit dans le message de news:
a6p0d6$3n...@acs1.acs.ucalgary.ca...
Another way of telling that is using Franck Hahn's definition :
"1- I am a reductionnist in that I attempt to locate explanations in the
actions of individual agents.
2- In theorising about the agents I look for some axioms of rationality.
3- I hold that some notion of equilibrium is required and that the study of
equilibrium states is useful.
If a historian of thought considers these to be sufficient elements in the
making of neo-classical economist then that is what I am."
With this definition, all economists today can be qualified as neoclassical.
And neoclassical economics is a method, a way of thinking, rather than the
caricature criticized by heterodoxy.
A.D.
Burkhard C. Schipper
"alexandre delaigue" <pasd...@wanadoo.fr> wrote in message
news:a6spn5$duk$1...@wanadoo.fr...
>
> "Christopher Auld" <au...@acs.ucalgary.ca> a écrit dans le message de news:
> a6p0d6$3n...@acs1.acs.ucalgary.ca...
> > 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
>
> Another way of telling that is using Franck Hahn's definition :
>
> "1- I am a reductionnist in that I attempt to locate explanations in the
> actions of individual agents.
Any science I know it in one way or another reductionistic. Reducing the
complexity of reality is very useful.
> 2- In theorising about the agents I look for some axioms of rationality.
> 3- I hold that some notion of equilibrium is required and that the study
of
> equilibrium states is useful.
>
> If a historian of thought considers these to be sufficient elements in the
> making of neo-classical economist then that is what I am."
>
> With this definition, all economists today can be qualified as
neoclassical.
I am not sure whether you can generalize it to ALL economists.
> And neoclassical economics is a method, a way of thinking, rather than the
> caricature criticized by heterodoxy.
Let me re-phrase what I would agree with:
1. I like to locate useful explanations of aggregate and individual economic
behavior in the individuum itself, the interaction among individuals and the
structure of the aggregation problem.
2. In theorising about agents I looks for determinants of agents behavior.
Moreover, I like to gather an empricial account of agents behavior by
carefully designed and controlled experiments.
3. I hold that the study of some of equilibrium as well as some notions of
evolution is useful.
Anaximander
> version of Neoclassical theory by working through a simple
> example.
With this method all theories are incoherent. And so what?
If neoclassical theory of value and distribution is mistaken, why
don't you suggest a better theory so that we can see which one is the
more useful to understand reality?
Anaximander.
Robert Vienneau
"John Weatherby" <jjwea...@earthlink.net> wrote:
> "Robert Vienneau" <rv...@see.sig.com> wrote in message
> news:rvien-420384....@news.dreamscape.com...
> > 1.0 INTRODUCTION
> > This long post is another investigation of long period theory.
> > A general equilibrium model is investigated. Although issues of
> > the aggregation of capital may seem essential for the problem
> > highlighted here, no problems of macroeconomics or aggregate
> > production functions are explored. The point is that the
> > Wicksellian version of Neoclassical theory takes capital, as
> > measured in value, as simultaneously exogeneous and endogeneous.
> > Thus, this approach is incoherent, seeing how it relies on a
> > viscious circle
> It is funny that Rob uses Wicksell's work to damn contemporary economics.
> Wicksell died in 1926.
Maybe John Weatherby ought to let Chris Auld know.
> Economics has come a long way since then. This was
> prior to Samuelson and if remember correctly not long after the
> marginalist revolutionized economics.
> Surely Rob doesn't think contemporary economics is
> the same as economics prior to the Margianlist does he?
The above, of course, is not a rational argument. Here's an obscure
reference exhibiting the problem discussed in my post:
"In the conventional specification, total capital K is
implicitly defined as being proportional to the sum of all
different types of capital. This definition implies that
all capital goods are perfect substitutes. One additional
dollar of capital in the form of a truck has the same
effect on the marginal productivity of mainframe computers
as an additional dollar's worth of computers. Equation (1)
expresses output as an additively seperable function of all
the different types of capital goods so that one additional
dollar of trucks has no effect on the marginal productivity
of computers."
-- Paul Romer (1990)
Notice Romer's use of monetary measures for capital. Is he
ignorant of the theory of Wicksell effects? The problems arise,
I think, whether one is willing or unwilling to add together
a dollar's worth of trucks and a dollar's worth of computers.
Robert Vienneau
<pasd...@wanadoo.fr> wrote:
> Another way of telling that is using Franck Hahn's definition :
>
> "1- I am a reductionnist in that I attempt to locate explanations in the
> actions of individual agents.
> 2- In theorising about the agents I look for some axioms of rationality.
> 3- I hold that some notion of equilibrium is required and that the study
> of equilibrium states is useful.
>
> If a historian of thought considers these to be sufficient elements in
> the
> making of neo-classical economist then that is what I am."
>
> With this definition, all economists today can be qualified as
> neoclassical.
> And neoclassical economics is a method, a way of thinking, rather than
> the
> caricature criticized by heterodoxy.
I cannot make any sense out of the above. Is the claim that all
economists follow methods embodying the above numbered points?
Then what becomes of heterodox economists, such as Geoff Hodgson,
who explicitly reject some of these points?
Or is the point to define as non-economists those recognized as
existing in that line about the "heterodoxy".
Robert Vienneau
Vienneau <rv...@see.sig.com> wrote:
I meant to observe that Alexandre failed to discuss whether there is a
coherent neoclassical account of value and distribution that can handle
produced commodities used in producing other commodities.
John J. Weatherby
> In article <M68k8.15501$P4.13...@newsread2.prod.itd.earthlink.net>,
> Notice Romer's use of monetary measures for capital. Is he
> ignorant of the theory of Wicksell effects? The problems arise,
> I think, whether one is willing or unwilling to add together
> a dollar's worth of trucks and a dollar's worth of computers.
>
tried to find the paper. Now read it. Look at the production function and
the growth of technology. You will find monetary value of capital is not an
issue in the model. Romer puts the example in money to make it easily
understandable. Here is how the capital enters the production function.
Y= A (sum over i 0 to n xi^(1/e))^(e/e-1)
Where A is technology and x are capital goods.
A dot = b At Hr
Where b is a constant At is the technology stock at time t and Hr is the
amount of human capital used in the research sector. Now Jones takes this a
step further in the social planners problem as
K= int 0 to n xi di. In neither case is the value of capital an issue nor in
either case is capital homogenous. In both cases, capital goods are
heterogenous and of different varities. This varities add up to the capital
stock when you use the social planner's problem to show market failures.
Now where do problems with measuring the value of capital come into
these functions? Read Romer then read it again.
Furthermore Solow and others now show the value of capital as the rental
defined by the interest not a price for capital. If you look at Romer 1990
or Jones 1995 you see something similar.
John J. Weatherby
>> > Economics has come a long way since then. This was
> > prior to Samuelson and if remember correctly not long after the
> > marginalist revolutionized economics.
> > Surely Rob doesn't think contemporary economics is
> > the same as economics prior to the Margianlist does he?
>
> The above, of course, is not a rational argument. Here's an obscure
> reference exhibiting the problem discussed in my post:
>
what is rational is the reason why you can't effectively argue about
economics. You try to use a dead issue that no longer applies to damn
contemporary theory. That is like saying physics is fundementally flawed
because Aristotle got some things wrong. Tell that a physicist and you will
get a good luagh out of him.
John
geezer@nospamatmynursinghome.com Old Croc
Old Croc......
alexandre delaigue
"Robert Vienneau" <rv...@see.sig.com> a écrit dans le message de news:
rvien-B70B1B....@news.dreamscape.com...
snip
> > Another way of telling that is using Franck Hahn's definition :
> >
> > "1- I am a reductionnist in that I attempt to locate explanations in the
> > actions of individual agents.
> > 2- In theorising about the agents I look for some axioms of rationality.
> > 3- I hold that some notion of equilibrium is required and that the study
> > of equilibrium states is useful.
> >
> > If a historian of thought considers these to be sufficient elements in
> > the
> > making of neo-classical economist then that is what I am."
> >
> > With this definition, all economists today can be qualified as
> > neoclassical.
> > And neoclassical economics is a method, a way of thinking, rather than
> > the
> > caricature criticized by heterodoxy.
>
> I cannot make any sense out of the above. Is the claim that all
> economists follow methods embodying the above numbered points?
> Then what becomes of heterodox economists, such as Geoff Hodgson,
> who explicitly reject some of these points?
>
reject explicitly these points.
> Or is the point to define as non-economists those recognized as
> existing in that line about the "heterodoxy".
No, the point is to get a definition of neo-classical economics. Chris Auld
quoted D. Colander explaining that "neo-classical economics" has no real
meaning when we see what contemporary real-life economists do. In fact they
can all (IMSHO) be called neo-classical with Hahn's definition.
A.D.
alexandre delaigue
"Robert Vienneau" <rv...@see.sig.com> a écrit dans le message de news:
rvien-62506C....@news.dreamscape.com...
snip
> I meant to observe that Alexandre failed to discuss whether there is a
> coherent neoclassical account of value and distribution that can handle
> produced commodities used in producing other commodities.
Well, is it really of any interest? (this is a serious question).
A.D.
alexandre delaigue
"Burkhard C. Schipper" <bcsch...@hotmail.com> a écrit dans le message de
news: a6tlfd$ung$1...@news.huji.ac.il...
snip
> > > 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
> >
> > Another way of telling that is using Franck Hahn's definition :
> >
> > "1- I am a reductionnist in that I attempt to locate explanations in the
> > actions of individual agents.
>
> Any science I know it in one way or another reductionistic. Reducing the
> complexity of reality is very useful.
>
Sure.
> > 2- In theorising about the agents I look for some axioms of rationality.
> > 3- I hold that some notion of equilibrium is required and that the study
> of
> > equilibrium states is useful.
> >
> > If a historian of thought considers these to be sufficient elements in
the
> > making of neo-classical economist then that is what I am."
> >
> > With this definition, all economists today can be qualified as
> neoclassical.
>
> I am not sure whether you can generalize it to ALL economists.
>
To all contemporary economists? hard to find real exceptions with such a
broad definition.
> > And neoclassical economics is a method, a way of thinking, rather than
the
> > caricature criticized by heterodoxy.
>
> Let me re-phrase what I would agree with:
>
> 1. I like to locate useful explanations of aggregate and individual
economic
> behavior in the individuum itself, the interaction among individuals and
the
> structure of the aggregation problem.
> 2. In theorising about agents I looks for determinants of agents behavior.
> Moreover, I like to gather an empricial account of agents behavior by
> carefully designed and controlled experiments.
> 3. I hold that the study of some of equilibrium as well as some notions of
> evolution is useful.
I don't think that what you agree with is really different from Hahn's
definition. You add elements, but they are not really a contradiction.
A.D.
Burkhard C. Schipper
"Old Croc" <old gee...@nospamatmynursinghome.com> wrote in message
news:ZYal8.13282$KM2.5...@news-binary.blueyonder.co.uk...
> Bad analogy - physics is a science - economics can never be such.
>
How would you define science?
Burkhard C. Schipper
>
> "Burkhard C. Schipper" <bcsch...@hotmail.com> a écrit dans le message de
> news: a6tlfd$ung$1...@news.huji.ac.il...
> snip
>
> >
> > 1. I like to locate useful explanations of aggregate and individual
> economic
> > behavior in the individuum itself, the interaction among individuals and
> the
> > structure of the aggregation problem.
> > 2. In theorising about agents I looks for determinants of agents
behavior.
> > Moreover, I like to gather an empricial account of agents behavior by
> > carefully designed and controlled experiments.
> > 3. I hold that the study of some of equilibrium as well as some notions
of
> > evolution is useful.
>
> I don't think that what you agree with is really different from Hahn's
> definition. You add elements, but they are not really a contradiction.
You are right. Actually, I did not intent to contradict Hahn. I wanted to
complement it and probably also shift a bit the focus.
Mason Clark
I can't resist volunteering:
A science can predict. When its prediction is falsified,
the refuted science is changed.
Economics can predict. When its prediction is false,
the refuted world is blamed. (Economics can't be falsified.)
Mason C
Burkhard C. Schipper
"Mason Clark" <mas...@ix.netcom.com> wrote in message
news:e49f9uolp7r6uj241...@4ax.com...
This definition sounds intutive. Indeed I think it spells out features which
are commonly thought to define science.
I guess you agree that Physics is a science. Now, take Newton's law of
gravitation. Clearly it is false and Einstein's Theory of Relativity
replaced it. But in what sense did it replace the law of gravitation? E.g.
at the missions to the moon and other operations in space, Newton's law of
gravitation is used heavily for prediction with obvious success. So in what
sense did the invention of the Theory of Relativity change Physics applied
to Cosmonautics?
After this introductory example here some more general remarks:
1. Why should science predict? Is this the purpose of science? To postulate
that science should predict implies that science can be used to predict. It
implies that science is an instrument to predict. It implies that science is
somehow useful. Why should science be useful? Suppose scientists where
allowed only to work on projects that are directly useful. Many inventions
were made in non-directed, non-intentionally useful research (e.g. thousands
of years research on ''useless'' number theory lead to cryptography, very
useful nowadays for security issues at the internet). To allow only useful
science would rule out any basic research.
2. Why do predictions appear to be false?
a) the theory is inconsistent
b) the data do not relate to the theory and vice versa
c) a prediction was made
...
Let me focus on (c), since it is a bit unusual to present it as a cause for
a prediction be false. Clearly, no prediction rules out that the prediction
is false. Indeed we should not make predictions if we are unable to do it.
This is expecially the case if we have already problems to create a theory
that explains and describes the phenomena we want to predict. Certainly
scientist facing such problems blame the difficulty of the problem - the
complexity of the world. Indeed, problems in economics are by far more
complex than problems faced in Physics and unfortunately we attract less
attention from other sciences and mathematics that probably could help us to
solve those problems. E.g. make a theory about human behavior and publish
and teach it, and make a theory about behavior of an atom and publish and
teach it. The theory of human behavior gets absorbed by the object of the
theory - the human being. As such economic theory has an effect on the
object it studies. The theory of atom's behavior has not an effect of the
atom's behavior. Fromer effect can be self-confirming, self-destroying and
neutral in the regard to the theory. But if it works self-destroying, then
we should see economic theories getting falsified empirically not because
they are wrong but because they had an effect on the economy. This is just
an example why economics is probably more complicated than the established
sciences.
What I suggest is following:
1. Do more basic research on economics.
2. Challenge outdated theories of science and epistemologies such as
Popper's Falsificationism, that were motivated mainly at the beginning of
this century by the pathbreaking developments in natural sciences, and
replace it by a modern theory of sciences addressing problems faced today.
3. Be honest and do away with quick Mickey-Mouse economy models, data
fitting and ambitious policy recommendations just for the sake of
publishing.
Robert Vienneau
> "Robert Vienneau" <rv...@see.sig.com> wrote in message
> news:rvien-8B8E1C....@news.dreamscape.com...
> > Here's an obscure
> > reference exhibiting the problem discussed in my post:
> First Romer 1990 is far from obscure.
It's called irony.
> Second the fact you do realize
> what is rational is the reason why you can't effectively argue about
> economics.
Who can argue with that?
> > > The problems [of Wicksell effects] arise,
> > > I think, whether one is willing or unwilling to add together
> > > a dollar's worth of trucks and a dollar's worth of computers.
> [ Balderdash deleted. ]
> Look at the production function and
> the growth of technology. You will find monetary value of capital is not
> an
> issue in the model. Romer puts the example in money to make it easily
> understandable. Here is how the capital enters the production function.
> Y= A (sum over i 0 to n xi^(1/e))^(e/e-1)
> Where A is technology and x are capital goods.
And each xi is a capital good measured in dollars.
It is true that I don't claim to have fully absorbed the literature
on endogeneous growth, either the recent mainstream strand or more
broad literatures.
Some might understood the problem highlighted by my original
post on this thread. Some might understand production functions.
I think those who understand both might see why using value
measures of capitalS in a production function might be
considered simply bad theory.
> Now Jones takes this a
> step further in the social planners problem.
> In neither case is the value of capital an issue
Of course, mere assertion is not an argument.
> nor in
> either case is capital homogenous. In both cases, capital goods are
> heterogenous and of different varities. This varities add up to the
> capital
> stock.
> Now where do problems with measuring the value of capital come into
> these functions?
In models in which prices and interest rates are found by
solving the model.
"...John Green did a good paper on aggregation, but it was a bit
peripheral to the problems, especially if you think the critique
is not about aggregation but about the meaning of capital... Just
because it's hard to aggregate labour is neither here nor there,
because in real life you don't need to aggregate labour....
...But for capital you have to explain the return in
the economy as a whole, and therefore you have to have a theory of
the rate of profits in the economy as a whole. If you're going to
use a supply-and-demand analysis you have to know, before the analysis
starts, what a quantity of capital is, because it's one of the
exogeneous or determining variables. It's as simple as that. It's
got nothing to do with mutual determination or general equilibrium.
It's to do with what's inside and what's outside, and the trouble
with capital in a supply-and-demand approach is that it's
simultaneously exogeneous and endogeneous. That is, you're arguing
in a circle."
-- G. C. Harcourt
--
Bill Ryan
that the sole purpose of science is to predict. It is also to learn
and understand, and to satisfy our curiosity. Certainly if a
prediction is proven false you revamp the science. It is the
fundamental basis of hypothesis and experimentation. To say otherwise
is either plain nonsense or blind faith. Take your pick. Economics,
with some exceptions, is a morass of "scientistic" incantations. The
textbooks are full of them. It is very much in the pre-scientific
era, that is to say, the time before Galileo, in terms of its
development. Just take a look at Professor Auld's definition of
"dynamic model," if you want illustration.
For that matter, Newton's law of gravitation was not proven "false" by
general relativity. For that we have Einstein's own testimony.
How does the fact that a particular scientific endeavor may or may not
turn out to be "useful" have anything to do with Mason's comment?
"Burkhard C. Schipper" <bcsch...@hotmail.com> wrote in message news:<a7a355$fm7$1...@news.huji.ac.il>...
alexandre delaigue
"Bill Ryan" <william...@hotmail.com> a écrit dans le message de news:
45bb7944.02032...@posting.google.com...
> What a muddled response. Mason said that science can predict, not
> that the sole purpose of science is to predict. It is also to learn
> and understand, and to satisfy our curiosity. Certainly if a
> prediction is proven false you revamp the science. It is the
> fundamental basis of hypothesis and experimentation. To say otherwise
> is either plain nonsense or blind faith.
Well then, you have probably lots of examples of situations in which an
experimentation proving a prediction wrong was used to revamp a science. In
fact, science never worked this way. There are lots of examples in the
history of sciences of discoveries made against experiments. Today in
particle physics virtually all models are based on the assumption that Higgs
Boson exists. Nobody has ever seen one. Moreover, if what defines a science
is the ability to predict, then evolutionnary biology is not a science. An
example : after Darwin presented his theory of evolution of species, Pasteur
tried to prove that it was wrong. He took some dirt, boiled it, and showed
that nothing happened (no development of micro-organisms). Spontaneous
generation (a Darwin hypothesis to explain random mutations of species) did
not happen. So he claimed Darwin was wrong, and Lamarck was right : only
acquired characteristics can explain the evolution of species.
Take your pick. Economics,
> with some exceptions, is a morass of "scientistic" incantations. The
> textbooks are full of them.
Like what?
>It is very much in the pre-scientific
> era, that is to say, the time before Galileo, in terms of its
> development.
Galileo, good example. To prove that earth was not the center of the
universe and that it was turning around the sun, he used what he saw in his
optic lenses. The problem is, he had made maps of the moon with this lense,
and his maps were wrong. Kepler, using his bare eyes (and who did not see
very well) had made better maps. So "experience" proved that what was seen
with a telescope was wrong. According to experiments, Galileo could not be
right.
> Just take a look at Professor Auld's definition of
> "dynamic model," if you want illustration.
>
> For that matter, Newton's law of gravitation was not proven "false" by
> general relativity. For that we have Einstein's own testimony.
>
Einstein, another good example. After Eddington's experiment (designed to
prove that relativity theory was right), asked what he would have said if
the experiment has proven him wrong, answered : "God forgive me, but the
theory is right, reality is wrong". BTW, Eddington's Experiment was probably
flawed. Nobody ever managed to do it again.
> How does the fact that a particular scientific endeavor may or may not
> turn out to be "useful" have anything to do with Mason's comment?
The nature of science is not to predict (astrology does it) but to
understand reality. The problem of prediction can not be used to define
science, because every science has its own problems due to what it studies.
Some sciences can not predict anything at all and are sciences anyway
(evolutionnary biology again). The process by which scientists choose theory
A rather than theory B is far more complicated :
- theory A is easier to use;
- theory A is based on more realistic hypothesis;
- to teach in a famous university it's better to defend theory A;
- theory A is more useful than theory B, because it considers more elements;
etc, etc.
A.D.
Christopher Auld
>era, that is to say, the time before Galileo, in terms of its
>development. Just take a look at Professor Auld's definition of
>"dynamic model," if you want illustration.
Wow. One sentence describing what is meant by a "dynamic"
model proves all of economics is unscientific!
Hi Bill. Welcome to the Usenet contingent of economist-hating
net kooks. You'll fit right in. Enjoy!
Bill Ryan
science. In fact, science never worked that way...
----------
Of course it has. For example, Galileo's experiments with the
inclined plane where he disproved the pre-scientific theory of
impetus. Galileo determined that the instantaneous velocity of a
falling object is proportional to the time it has fallen, not the
distance it has fallen. It was truly a revolutionary moment that
marked the beginning of science. It formed the basis of dynamical
analysis that was codified into mathematics by Newton a generation
later.
Economics is replete with pre-scientific assumptions.
"alexandre delaigue" <pasd...@wanadoo.fr> wrote in message news:<a7koc2$qjf$1...@wanadoo.fr>...
[cut]
Mason Clark
>
>"Bill Ryan" <william...@hotmail.com> a écrit dans le message de news:
>45bb7944.02032...@posting.google.com...
>> What a muddled response. Mason said that science can predict, not
>> that the sole purpose of science is to predict. It is also to learn
>> and understand, and to satisfy our curiosity. Certainly if a
>> prediction is proven false you revamp the science. It is the
>> fundamental basis of hypothesis and experimentation. To say otherwise
>> is either plain nonsense or blind faith.
>
>Well then, you have probably lots of examples of situations in which an
>experimentation proving a prediction wrong was used to revamp a science.
This is joke, right?
Mason C
Mason Clark
>Bill Ryan <william...@hotmail.com> wrote:
>
>>era, that is to say, the time before Galileo, in terms of its
>>development. Just take a look at Professor Auld's definition of
>>"dynamic model," if you want illustration.
>
>Wow. One sentence describing what is meant by a "dynamic"
>model proves all of economics is unscientific!
Hey, Chris! Give us an *one* example of scientific economics.
Mason C
Bill Ryan
> Bill Ryan <william...@hotmail.com> wrote:
>
> >era, that is to say, the time before Galileo, in terms of its
> >development. Just take a look at Professor Auld's definition of
> >"dynamic model," if you want illustration.
>
> Wow. One sentence describing what is meant by a "dynamic"
> model proves all of economics is unscientific!
>
> Hi Bill. Welcome to the Usenet contingent of economist-hating
> net kooks. You'll fit right in. Enjoy!
Chris, I'll take your word that you're an economist. One thing is for
sure, you're no logician. I know logicians, and you ain't one of
them. That fact that I said your definition is muddled certainly was
not intended to "prove" that "all economics is unscientific."
And your personal insults are reflective of the assumption of priestly
authority, not in demonstration of superior knowledge.
The lack of that speaks for itself.
You said Keen was in error when he said that economists don't use
dynamic models. If your definition is a reasonable definition of
"dynamic model," then of course Keen was wrong. I am quite sure that
many economists agree with your definition.
Keen is himself an economist, with a Ph.D. from a respected
institution. He is moreover employed in a teaching position teaching
economics at a respected institution. He is, in fact, a professor of
economics.
It kind of hinges on your personal definition of dynamic model,
doesn't it?, as to who is right and who is wrong, you or Keen, in
respect of Keen's assertion regarding the utilization of dynamic
models, or lack of, by economists.
Would you not agree?
Chasna1
>Keen is himself an economist, with a Ph.D. from a respected
>institution. He is moreover employed in a teaching position teaching
>economics at a respected institution. He is, in fact, a professor of
>economics.
>
Keen has made a freshman error, he has mixed levels of abstraction and deluded
himself into thinking he has properly refuted certain basic assumptions of
neo-classical economics.
>It kind of hinges on your personal definition of dynamic model,
>doesn't it?, as to who is right and who is wrong, you or Keen, in
>respect of Keen's assertion regarding the utilization of dynamic
>models, or lack of, by economists.
We never did get your definition, did we.
Christopher Auld
>au...@acs.ucalgary.ca (Christopher Auld) wrote:
>Chris, I'll take your word that you're an economist. One thing is for
>sure, you're no logician. I know logicians, and you ain't one of
>them. That fact that I said your definition is muddled certainly was
>not intended to "prove" that "all economics is unscientific."
Oh, I'm sorry Bill. You merely asserted that my sentence was
an "illustration" of the "scientistic incantations" economics
uses in its "pres-scientific era." How could I possibly have
so misreprented your perfectly reasonable assertion?
>And your personal insults are reflective of the assumption of priestly
>authority, not in demonstration of superior knowledge.
Does everyone else enjoy Bill following up on several posts full
of insults with a sentence complaining about insults that --
here's the cool part -- manages to also contain an insult? Well
done Bill! You'll like it here on sci.econ.
>It kind of hinges on your personal definition of dynamic model,
>doesn't it?, as to who is right and who is wrong, you or Keen, in
>respect of Keen's assertion regarding the utilization of dynamic
>models, or lack of, by economists.
>
>Would you not agree?
No, Bill, I would not agree. Please try to remember that
I have already pointed out numerous times that Keen gives
an example of precisely the type of dynamic model he would
like to see economists use: It is the type of model that
has been routinely used by economists, so much so that it
is commonly taught to undergrads, for decades. Keen then
goes on to demonstrate he is unfamiliar with the relevant
mathematical techniques to solve such models. What is more,
if you were correct that semantics can rescue his position,
surely Keen would have noted that the journals are full of
"dynamic" models, but he means something else by "dynamic."
And, as noted several times, Keen himself retracted the
argument after the huge literature discussing such models
was brought to his attention. Why would anyone nonetheless
try to continue arguing his case? Bill?
Burkhard C. Schipper
> 45bb7944.02032...@posting.google.com...
I miss this posting by Bill Ryan. It does not show in my system.
> > What a muddled response. Mason said that science can predict, not
> > that the sole purpose of science is to predict. It is also to learn
> > and understand, and to satisfy our curiosity. Certainly if a
> > prediction is proven false you revamp the science. It is the
> > fundamental basis of hypothesis and experimentation. To say otherwise
> > is either plain nonsense or blind faith.
I agree that Mason did not say that the sole purpose of science is to
predict. However, prediction was the dominant feature of his definition.
Hence I focused on it. BTW, in my argument I also did not assume that Mason
say that the sole purpose of science is to predict.
I also question that if a prediction is false you revamp the science. You
may also consider to revamp the science of scienes, or may find out why you
think the prediction is proven false (such as having a faulty experimental
design etc.). After all the science of experimental economics is just in an
initial stage. It is sometimes very hard to come up with some good designs,
and experimental economists often disagree about how to interpret a certain
finding. What appears false in one's context may be not so false in some one
else's context (who says that the law of excluded middle has to hold
anyway).
I would question to some extent that the revamption of predictions is the
fundamental basis of experimentation. Experimentation can be also used for
explorations of fields not well understood enough to have a testable theory
on hand. (Note, that I do not argue for induction.)
> Well then, you have probably lots of examples of situations in which an
> experimentation proving a prediction wrong was used to revamp a science.
In
> fact, science never worked this way. There are lots of examples in the
> history of sciences of discoveries made against experiments. Today in
> particle physics virtually all models are based on the assumption that
Higgs
> Boson exists. Nobody has ever seen one. Moreover, if what defines a
science
> is the ability to predict, then evolutionnary biology is not a science. An
> example : after Darwin presented his theory of evolution of species,
Pasteur
> tried to prove that it was wrong. He took some dirt, boiled it, and showed
> that nothing happened (no development of micro-organisms). Spontaneous
> generation (a Darwin hypothesis to explain random mutations of species)
did
> not happen. So he claimed Darwin was wrong, and Lamarck was right : only
> acquired characteristics can explain the evolution of species.
I agree.
> Take your pick. Economics,
> > with some exceptions, is a morass of "scientistic" incantations. The
> > textbooks are full of them.
Almost every today's textbook is an account of a certain part of economics
about 20 years ago. I find it rather exciting.
> Like what?
>
> >It is very much in the pre-scientific
> > era, that is to say, the time before Galileo, in terms of its
> > development.
>
> Galileo, good example. To prove that earth was not the center of the
> universe and that it was turning around the sun, he used what he saw in
his
> optic lenses. The problem is, he had made maps of the moon with this
lense,
> and his maps were wrong. Kepler, using his bare eyes (and who did not see
> very well) had made better maps. So "experience" proved that what was seen
> with a telescope was wrong. According to experiments, Galileo could not be
> right.
In terms of empirical observation, I think the idea that the earth is a flat
disk, the sky is a bell, and the sun is moving on the sky is very appealing.
How independent are our emperical observations from our thoughts? Perhaps
reality is subjectively constructed (which does not mean that there might
not exist a reality without a subject - I do not argue for the Solpisims).
> > Just take a look at Professor Auld's definition of
> > "dynamic model," if you want illustration.
> >
> > For that matter, Newton's law of gravitation was not proven "false" by
> > general relativity. For that we have Einstein's own testimony.
May be we should define false in this context before we argue about it.
> Einstein, another good example. After Eddington's experiment (designed to
> prove that relativity theory was right), asked what he would have said if
> the experiment has proven him wrong, answered : "God forgive me, but the
> theory is right, reality is wrong". BTW, Eddington's Experiment was
probably
> flawed. Nobody ever managed to do it again.
>
> > How does the fact that a particular scientific endeavor may or may not
> > turn out to be "useful" have anything to do with Mason's comment?
I thought that I demostrated this link.
> The nature of science is not to predict (astrology does it) but to
> understand reality. The problem of prediction can not be used to define
> science, because every science has its own problems due to what it
studies.
> Some sciences can not predict anything at all and are sciences anyway
> (evolutionnary biology again). The process by which scientists choose
theory
> A rather than theory B is far more complicated :
> - theory A is easier to use;
> - theory A is based on more realistic hypothesis;
> - to teach in a famous university it's better to defend theory A;
> - theory A is more useful than theory B, because it considers more
elements;
> etc, etc.
I agree.
Burkhard C. Schipper
How could he? We still disagree on what is scientific economics.
Burkhard C. Schipper
"Bill Ryan" <william...@hotmail.com> wrote in message
news:45bb7944.02032...@posting.google.com...
> "Well then, you have probably lots of examples of situations in which
> an expedrimentation proving a prediction wrong was used to revamp a
> science. In fact, science never worked that way...
> ----------
>
> Of course it has. For example, Galileo's experiments with the
> inclined plane where he disproved the pre-scientific theory of
> impetus. Galileo determined that the instantaneous velocity of a
> falling object is proportional to the time it has fallen, not the
> distance it has fallen. It was truly a revolutionary moment that
> marked the beginning of science. It formed the basis of dynamical
> analysis that was codified into mathematics by Newton a generation
> later.
I agree that you find examples of important experiments proving certain
predictions wrong. But does science only work this way?
> Economics is replete with pre-scientific assumptions.
May be you should present us your definition of science and pre-science.
alexandre delaigue
"Mason Clark" <mas...@ix.netcom.com> a écrit dans le message de news:
tjds9uor8jaktns11...@4ax.com...
If it's a joke, you have probably lots of example to prove it wrong.
BTW, read this :
http://www.amazon.com/exec/obidos/ASIN/0860916464/qid=1017081525/sr=2-1/ref=
sr_2_1/104-6120593-4935909
A.D.
Bill Ryan
> >authority, not in demonstration of superior knowledge.
>
> Does everyone else enjoy Bill following up on several posts full
> of insults with a sentence complaining about insults that --
> here's the cool part -- manages to also contain an insult? Well
> done Bill! You'll like it here on sci.econ.
>
My sentence above does not contain a complaint, it contains merely the
observation on my part of the assumption of priestly authority on your
part, which is amply demonstrated by the tone of your postings. If
you take my observation to be itself an insult, so be it. That's the
point of Keen's book, isn't it? Except that Keen's point makes the
more general case, against "most economists" in THEIR assumption of
priestly authority.
au...@acs.ucalgary.ca (Christopher Auld) wrote in message news:<a7najh$5d...@acs1.acs.ucalgary.ca>...
[cut]
Christopher Auld
>My sentence above does not contain a complaint, it contains merely the
>observation on my part of the assumption of priestly authority on your
>part, which is amply demonstrated by the tone of your postings.
Does everyone else enjoy the "merely" as much as I do?
> If
>you take my observation to be itself an insult, so be it. That's the
>point of Keen's book, isn't it?
Bill's excuse for writing a sequence of offensive, zero-
content posts is that Steve Keen is offensive. Indeed,
that is "the point of Keen's book."
Bill, on the off chance that you actually wish to maintain
a reasonable discussion about economics, you should realize
that being disrespectful and insulting is unlikely to
result in anything except your dismissal. But I don't
think you have any intent of attempting reasoned discourse,
I think you came to sci.econ to harangue economists. I
don't see why you should expect a response of any sort
other than that which you have received, so spare us the
mock indignation.
Bill Ryan
> >you take my observation to be itself an insult, so be it. That's the
> >point of Keen's book, isn't it?
>
> Bill's excuse for writing a sequence of offensive, zero-
> content posts is that Steve Keen is offensive. Indeed,
> that is "the point of Keen's book."
>
Very clever, indeed. Or perhaps it isn't clever. Perhaps you really
think that's what I meant by these two sentences pulled out of
context. You can make anything mean anything by this technique if
that is your intention. Was it?
The point was about a dogmatic priesthood, and its arrogance.
au...@acs.ucalgary.ca (Christopher Auld) wrote in message news:<a7od52$6o...@acs1.acs.ucalgary.ca>...
[cut]
Robert Vienneau
<pasd...@wanadoo.fr> wrote:
> BTW, read this :
> http://www.amazon.com/exec/obidos/ASIN/0860916464/qid=1017081525/sr=2-1/re
> f=sr_2_1/104-6120593-4935909
An interesting book, well worth reading.
John Weatherby
> In article <rj7l8.27418$Vx1.2...@newsread1.prod.itd.earthlink.net>,
> In models in which prices and interest rates are found by
> solving the model.
>
"right" you need to find prices and interest rates from solving for the rate
of profits. So which way does it go? Furthermore anyone who has even
cuasally looked at Romer can see that finding the rate of profits is
essential to solving the model. In fact the representive firm gives the
profit function and rate of profits as a whole. Anyone who has read past the
introduction sees this. Not saying I agree with the quotation but you
flubbed this bad as usual.
Robert Vienneau
"John Weatherby" <jjwea...@earthlink.net> wrote:
> "Robert Vienneau" <rv...@see.sig.com> wrote in message
> news:rvien-6323B1....@news.dreamscape.com...
> > In models in which prices and interest rates are found by
> > solving the model.
> Sorry to burst you bubble but the following quote implies to do it
> "right" you need to find prices and interest rates from solving for the
> rate
> of profits. So which way does it go?
Mr. Weatherby,
You simply don't understand the issues being discussed, as far as I can
tell.
John J. Weatherby
Rob again contridicts himself, suddenly they do not understand the issues. I
would suggest to Rob to read with an open mind and kill the search engine.
It seems Rob uses his Java compiler to find a sentence or a paragraph to
support his contention then fails to read the rest of the paper. I beleive
this is why he doesn't have a clue to what the issues are nor will he ever.
Again he results to insult rather than analysis hardly scientific. I guess
this is why he thinks Mr. "We now know everything there is to know about
economics (said ca. 1968 just prior to the fall of the Keynesian theory)"
Galibraith stands head shoulders above other economist. Both Rob and
Galbraith tend to make large statements without the substance to back them
up.
John
"Robert Vienneau" <rv...@see.sig.com> wrote in message
news:rvien-D59B10....@news.dreamscape.com...
Robert Vienneau
>A very rational enlightening answer. As usual when someone points
>out that Rob again contridicts himself, suddenly they do not
> understand the issues.
>[ Silliness deleted. ]
Let's go slowly. I do not contradict myself. Nor is Mr. Weatherby's
lack of understanding sudden.
Mr. Weatherby asked (about production functions in which some arguments
are capital goods measured in monetary units):
"Now where do problems with measuring the value of capital come into
these functions?" (JJW)
I answered:
"In models in which prices and interest rates are found by solving the
model." (RV)
Mr. Weatherby agreed that the interest rate is found in the model in
Romer (1990) by solving the model:
"the following quote implies to do it 'right' you need to find
prices and interest rates from solving for the rate of profits....
Furthermore anyone who has even cuasally looked at Romer can see
that finding the rate of profits is essential to solving the model.
In fact the representive firm gives the profit function and rate
of profits as a whole." (JJW)
He also falsely asserted that he was not agreeing with me:
"Sorry to burst you bubble...Anyone who has read past the
introduction sees this...but you flubbed this bad as usual." (JJW)
So above Mr. Weatherby demonstrates he does not understand what is
being said.
But, as I say, this confusion is not sudden. Let's step back to his
first post on this thread:
"It is funny that Rob uses Wicksell's work to damn contemporary
economics. Wicksell died in 1926. Economics has come a long way
since then. This was prior to Samuelson and if remember correctly
not long after the marginalist revolutionized economics. Surely
Rob doesn't think contemporary economics is the same as economics
prior to the Margianlist does he?"
Notice that Mr. Weatherby recognizes that Wicksell's work comes after
the marginalist revolution, but before contemporary economics. So
Weatherby's concluding question seems a complete non-sequitur. (It,
of course, does not suggest a valid argument either.)
Furthermore, I have often praised Sraffa and his followers here. As
Burmeister knows, this implies a view that there's lots of worth in
the economics predating the marginalist revolution.
Let's go even further back:
--------------------------------------------------------------------
On Sat, 15 May 1999 01:47:22 -0500, "JOHN J WEATHERBY"
<JOH...@prodigy.net> wrote:
>
>> Paul Davidson, Alfred Eichner, Richard Goodwin, Nicholas
>> Kaldor,
>> Michal Kalecki, Jan Kregel, Luigi Pasinetti, Piero Sraffa,
>> Joan Robinson, G. L. S. Shackle, Sidney Weintraub
>>
>With the exception of Joan Robinson who was a good micro economist,
>never heard of any of them.
------------------------------------------------------------------
I don't know if Mr. Weatherby now realizes what sort of impression
the above makes, especially from somebody specializing in growth
theory.
I do not claim that there are no interesting ideas in Romer (1990). I
think anybody who understands Garegnani (1970) can see the model in
Romer (1990) is arguably bad theory. There's other reasons why it's
arguably bad theory. For example, it uses a representative agent
maximizing utility intertemporally. (Kirman has a good article
explaining this point; Hahn and Solow are scathing on the use of
Ramsey-like models for describing capitalist economies.)
Here's a survey of some growth models that might have something to do
with economies on this planet:
<http://growthconf.ec.unipi.it/papers/Panico-panel.pdf>
That article can be read by those who don't like equations. I assume
I get more out of it than somebody who hasn't read any of the
non-neoclassical literature included in the survey.
John Kenneth Galbraith's height does not seem to have much to do with
this thread.
"on the largest and most important questions facing the governments
of the industrial countries the economics profession--I choose my
words with care--is intellectually bankrupt. It might as well not
exist."
-- John Kenneth Galbraith, as quoted in:
Michael Albert, "Neoclassical Micro And Macro Economics -
Science Or Silliness?"
<http://www.parecon.org/writings/neoclasseco.htm>
And, no, my java compiler was not useful in noticing the above quote.
John J. Weatherby
> I answered:
>
> "In models in which prices and interest rates are found by solving the
> model." (RV)
>
three sectors, final goods, intermediate goods, and research. Prices on
capital goods are determined by the profit maximizing function of the
intermediate good manufacturer, who takes into account the demand for
capital goods set by the final goods producer. Note Rob is wrong here there
is no intemporal consumer maximization problem in Romer. It is not needed.
In fact all you need is a static demand for final goods. The intertemporal
consumer maximization problem only comes into play if you wish to solve for
the social planners problems so that you have a baseline to compare to the
decentralized solution.
As far as the decentralized solution is concerned the interest rate is
exogenous but important. Again solving for the consumer's problem is only
important in finding out how the interest rate is determined so you
substitute out the discount rate in the social planner's problem. Romer does
not solve for the social planner's problem reading the entire paper will
show this. Jones 1995 does but Romer 1990 does not.
Now back to the process given the static prices set by the static profit
optimization, the represent firm then dynamically optimizes in this case
technology changes over time according to human capital employed in the
sector and the stock of public knowledge. The result gives you a level of
research for the decentralized economy. The static problem gives you prices
and quantity at time t. Note capital goods are not measured in dollars for
the theoritical portion. Empirical studies often use the idea of price *
capital units as a measured that can be found.
Again it is Rob who still has not read Romer 1990 fully and does not
understand the process.
> Mr. Weatherby agreed that the interest rate is found in the model in
> Romer (1990) by solving the model:
>
> "the following quote implies to do it 'right' you need to find
> prices and interest rates from solving for the rate of profits....
> Furthermore anyone who has even cuasally looked at Romer can see
> that finding the rate of profits is essential to solving the model.
> In fact the representive firm gives the profit function and rate
> of profits as a whole." (JJW)
>
> He also falsely asserted that he was not agreeing with me:
>
> "Sorry to burst you bubble...Anyone who has read past the
> introduction sees this...but you flubbed this bad as usual." (JJW)
>
> So above Mr. Weatherby demonstrates he does not understand what is
> being said.
>
No here I am saying that you are contridicting yourself. You state Romer
1990 fails due to price Wicksell effects then give a quotation that states
solving for the rate of profits for the whole economy solves this. This is
what Romer 1990 does is shows a representative firm's profit function. He
doesn't go as far as Grossman and Helpman and use the rate of profits as an
important determinate to the model but it is there.
> >With the exception of Joan Robinson who was a good micro economist,
> >never heard of any of them.
> ------------------------------------------------------------------
>
> I don't know if Mr. Weatherby now realizes what sort of impression
> the above makes, especially from somebody specializing in growth
> theory.
>
It gives the impression that I was trained after 1960 after Joan
Robinson's arguments had been refuted. Mrs. Robinson's work in the micro
area does survive. I do remember being assigned not only "What is perfect
competition?" but also "The rising price of Supply" as well. Here micro
contributions are still very well known. The whole controversy over
aggregate production functions were settled by Samuelson and Solow a long
time ago and now are part of economic history. Kaldor's stylized facts are
still used as well although his model is not.
> For example, it uses a representative agent
> maximizing utility intertemporally. (Kirman has a good article
> explaining this point; Hahn and Solow are scathing on the use of
> Ramsey-like models for describing capitalist economies.)
>
Again you have not read Romer 1990 there is no representative agent
maximizing utility there is an upstream firm and a downstream firm. Perhaps
reading Aghion and Howitt's 1991 model will make this clear, also note Romer
and Jones are the only two major models where capital is even used.
> Here's a survey of some growth models that might have something to do
> with economies on this planet:
>
> <http://growthconf.ec.unipi.it/papers/Panico-panel.pdf>
>
Really and what do mainstream growth models study the Mars economy?
> "on the largest and most important questions facing the governments
> of the industrial countries the economics profession--I choose my
> words with care--is intellectually bankrupt. It might as well not
> exist."
> -- John Kenneth Galbraith, as quoted in:
> Michael Albert, "Neoclassical Micro And Macro Economics -
> Science Or Silliness?"
I find this very strange coming from the devoted Keynesian who announced
in the 1960's "we now everything there is to know about economics". I
suppose Galbraith had finally come to realize the serious fallacies in
Keynesian economics, too bad he never read anything about rational
expectations or real business cycles.
John
Robert Vienneau
> "Robert Vienneau" <rv...@see.sig.com> wrote in message
> news:rvien-900463....@news.dreamscape.com...
> > I answered:
> > "In models in which prices and interest rates are found by solving
> > the
> > model." (RV)
> I suppose you mean any model.
Romer presents a production function for final output. One set of
arguments in this function consists of capital (intermediate) goods.
The capital goods that enter this production function are measured
in dollars. This is an error.
Romer also says "it takes" eta "units of foregone consumption to
create one unit of any type of durable". (My greek is probably
wrong here.) As far as I can see, eta is a given constant, a
parameter of the model. This, too, is an error in a multi-commodity
model.
> ...Prices on
> capital goods are determined by the profit maximizing function of the
> intermediate good manufacturer, who takes into account the demand for
> capital goods set by the final goods producer.
> Note Rob is wrong here
> there
> is no intemporal consumer maximization problem in Romer. It is not
> needed.
> In fact all you need is a static demand for final goods. The
> intertemporal
> consumer maximization problem only comes into play if you wish to solve
> for
> the social planners problems so that you have a baseline to compare to
> the
> decentralized solution.
Romer presents an equation, on page S88, for "Ramsey consumers with
discounted, constant elasticity preferences". He uses "the implied
intertemporal optimization condition" "to close the model". Once
again, I don't claim to fully understand the model.
> As far as the decentralized solution is concerned the interest rate
> is
> exogenous but important. Again solving for the consumer's problem is only
> important in finding out how the interest rate is determined so you
> substitute out the discount rate in the social planner's problem. Romer
> does
> not solve for the social planner's problem reading the entire paper will
> show this. Jones 1995 does but Romer 1990 does not.
Romer uses intertemporal optimization to derive equation 13, "an
expression for g", the rate of balanced growth, "in terms of the
fundamentals of the model". It is true that the following verbal
discussion emphasizes Equation 11, "which summarizes the technological
side of the model".
> ... The static problem gives you
> prices
> and quantity at time t. Note capital goods are not measured in dollars
> for
> the theoritical portion.
That's odd. No portion of this paper strikes me as being other than
theoretical. Perhaps Mr. Weatherby can clarify exactly where Romer
moves away from his mistake.
> Empirical studies often use the idea of price *
> capital units as a measured that can be found...
One should note that Romer's prices are "rental prices".
I would think presenting a model in which the arithmetic is
inconsistent with the definitions of the variables is an
error.
> > Mr. Weatherby agreed that the interest rate is found in the model in
> > Romer (1990) by solving the model:
> >
> > "the following quote implies to do it 'right' you need to find
> > prices and interest rates from solving for the rate of profits....
> > Furthermore anyone who has even cuasally looked at Romer can see
> > that finding the rate of profits is essential to solving the model.
> > In fact the representive firm gives the profit function and rate
> > of profits as a whole." (JJW)
> >
> > He also falsely asserted that he was not agreeing with me:
> >
> > "Sorry to burst you bubble...Anyone who has read past the
> > introduction sees this...but you flubbed this bad as usual." (JJW)
> >
> > So above Mr. Weatherby demonstrates he does not understand what is
> > being said.
> No here I am saying that you are contridicting yourself. You state
> Romer
> 1990 fails due to price Wicksell effects then give a quotation that
> states
> solving for the rate of profits for the whole economy solves this.
That's not what Harcourt is saying. (As far as I can see, Hahn
agrees with Harcourt on substance. Hahn objects to characterizing
the problem as "arguing in a circle".)
> This is
> what Romer 1990 does is shows a representative firm's profit function. He
> doesn't go as far as Grossman and Helpman and use the rate of profits as
> an
> important determinate to the model but it is there.
[>>> Paul Davidson, Alfred Eichner, Richard Goodwin, Nicholas ]
[>>> Kaldor, ]
[>>> Michal Kalecki, Jan Kregel, Luigi Pasinetti, Piero Sraffa, ]
[>>> Joan Robinson, G. L. S. Shackle, Sidney Weintraub ]
> > >With the exception of Joan Robinson who was a good micro economist,
> > >never heard of any of them.
> > ------------------------------------------------------------------
> > I don't know if Mr. Weatherby now realizes what sort of impression
> > the above makes, especially from somebody specializing in growth
> > theory.
> It gives the impression that I was trained after 1960 after Joan
> Robinson's arguments had been refuted.
Mr. Weatherby's editing suggests that he does understand what kind of
impression his comment of several years ago makes. That impression
is reinforced by his mistaken assertion about what had been resolved/
refuted by 1960.
> Mrs. Robinson's work in the micro
> area does survive. I do remember being assigned not only "What is perfect
> competition?" but also "The rising price of Supply" as well. Here micro
> contributions are still very well known.
There was some talk in the late 1970s that she would get the "Nobel"
prize for her work in micro on imperfect competition. But it would
have been an embarassment for the "Nobel" committee if she used her
platform to repudiate that work.
> The whole controversy over
> aggregate production functions were settled by Samuelson and Solow a long
> time ago and now are part of economic history. Kaldor's stylized facts
> are
> still used as well although his model is not.
Samuelson has explicitly and recently said he sides with the Sraffians
on certain issues. This is in addition to his statements in the mid-1970s
and late 1960s. Burmeister has recently expressed displeasure that this
controversy and other literature is ignored. Fisher has said that
certain opinions commonplace nowadays are "simply and plainly wrong".
Solow has said that his growth model does not have strong theoretical
backing.
None of the above say that neoclassical theory, considered as
a disaggregated theory, is incoherent. There's still disagreement
between Sraffians and these neoclassicals. But the USA Cambridge
side of the controversy definitely ended up far away from the
point Mr. Weatherby says they settled on.
> > Here's a survey of some growth models that might have something to do
> > with economies on this planet:
> >
> > <http://growthconf.ec.unipi.it/papers/Panico-panel.pdf>
> >
> Really and what do mainstream growth models study the Mars economy?
Obviously my comment offers an opinion. But Mr. Weatherby might
thank me for bringing this literature to his attention.
The issues between those advocating one or another set of these
models and those advocating mainstream models do NOT
turn solely on the legitimacy of aggregate production functions.
Mr. Weatherby changed the topic.
> > "on the largest and most important questions facing the governments
> > of the industrial countries the economics profession--I choose my
> > words with care--is intellectually bankrupt. It might as well not
> > exist."
> > -- John Kenneth Galbraith, as quoted in:
> > Michael Albert, "Neoclassical Micro And Macro Economics -
> > Science Or Silliness?"
>
> I find this very strange coming from the devoted Keynesian who
> announced
> in the 1960's "we now everything there is to know about economics". I
> suppose Galbraith had finally come to realize the serious fallacies in
> Keynesian economics,
That's a bad interpretation of the remark quoted by Albert, I think,
although I don't know its original context.
Joan Robinson and her colleagues had developed a theory of stagflation
by the early 1960s. It was also clear by, say, 1970 that they
distinguished their approach from what many were calling "Keynesian
economics".
"One should now ask how the present mess came into being. For
macroeconomics today is in a state which astronomy would be if
Ptolemaic theory once again came to dominate the field. There
can in fact be few instances in other disciplines of such a
determined turning back of the clock. A great deal of what is
written today as well as the policy recommendations which have
been made would be thoroughly at home in the twenties. So
something needs explaining and I hope that some good intellectual
historian will attempt to do so soon."
-- Frank Hahn (as quoted by Mirowski)
> too bad he never read anything about rational
> expectations or real business cycles.
Galbraith's novel "A Tenured Professor" is amusing.
John Weatherby
> in dollars. This is an error.
>
S78-S79
" Capital is measured in units of consumption goods." Capital is not
measured as a dollar value of capital but as "units" of consumption goods.
> Romer also says "it takes" eta "units of foregone consumption to
> create one unit of any type of durable". (My greek is probably
> wrong here.) As far as I can see, eta is a given constant, a
> parameter of the model. This, too, is an error in a multi-commodity
> model.
>
Lets look at Romer's explanation. Note Romer does state that these are
extreme assumptions. This is one thing readers often harp on. Please do note
he realizes it. Although I like Jones' work I wish he would not that the
main contention relies on a simplifing assumption from Romer where he notes
that the parameter Jones calls phi may not be equal to 1. Form Romer 1990
S79 "Assuming that capital can be acculumated as foregone output is
equivalent to assuming that capital goods are produced in a seperate sector
that has the same technology as the final-output sector. Foregoing
consumption is therefore equivalent to shifting to shifting resources from
the consumption consumption sector to the output sector."
Given the extreme assumption, identical technology, it means that there is a
direct tradeoff between consumption and capital. This is where the equation
on S82 comes from. It is simply putting capital in terms of consumption
goods. Each unit of Consumption equals eta* a unit of capital summing this
gives the aggregate capital stock.
Note this is really important for the general equilibrium portion. Final
goods are produced by a CRS production function, this allows perfect
competition. Intermediate goods are subject to imperfect competition and the
optimization problem is decided by each firm. For simplicity one can assume
symmetry among the intermediate good producers to solve the model.
> Romer presents an equation, on page S88, for "Ramsey consumers with
> discounted, constant elasticity preferences". He uses "the implied
> intertemporal optimization condition" "to close the model". Once
> again, I don't claim to fully understand the model.
>
The purpose of this is to relate grow rates to consumer preferences and
growth rates. Why this is important is also to show the relation with the
growth rate of consumption. Generally growth economist use the growth rate
of per capita consumption as the measure of growth. The tradition does come
from Ramsey in which optimization implies maximizing consumption.
Furthermore this also describe how the interest rate is set. By using this
one can substitute out the interest rate and see how the intemporal
elasicitiy of substitution can change growth rates. See S94 for the
discussion of how preferences and interest rates effect growth.
>
> That's odd. No portion of this paper strikes me as being other than
> theoretical. Perhaps Mr. Weatherby can clarify exactly where Romer
> moves away from his mistake.
>
Excuse me I meant generally dollar values are only used for empirical
studies. I should have said most theory does not imply dollar values for
capital while most econometric works do.
> Samuelson has explicitly and recently said he sides with the Sraffians
> on certain issues.
Wrong. I want to see this quotation and not some impluasible parameter
substituted in his model to turn the model around to your point. As recently
as the 1980's or 1990's Samuelson published a paper saying that although he
has rarely mentioned Sraffa directly he is easily refuted. Look at Sraffa's
one leg where Samuelson calls this one legged analysis. I know you think
there is a mistake there but I have yet to see a quotation where Samuelson
says he agrees with Sraffa on anything major.
> Solow has said that his growth model does not have strong theoretical
> backing.
>
Along with every other economist. The problem with the Solow model is
not the aggregate production function rather the fact it gives no policy
implications and assuming an exogenous saving rate that drives the model. I
have heard Solow called the last devoted follower of John Maynard Keynes
when his model was presented.
> None of the above say that neoclassical theory, considered as
> a disaggregated theory, is incoherent.
There is nothing to indicate this "neo-classical theory" exist.
>There's still disagreement
> between Sraffians and these neoclassicals.
Just who are the neoclassicals. Do you mean people like Mankiw, Romer,
and Weil who tried to revive Solow's neo-classical growth model? Do you mean
all mainstream economist? The biggest problem in your arguments is that you
use this term neo-classical loosely. It is not clear what you are attacking
or even what body of work you refer to. I assume you really have issues with
the Solow model but so do 90% of economist today. Sometimes however the
discussion shifts to micro or game theory it is hard to tell what you mean
by neo-classical.
> But the USA Cambridge
> side of the controversy definitely ended up far away from the
> point Mr. Weatherby says they settled on.
>
Perhaps but the literature of the 1960's shows a different outcome. Some
people will never admit they are wrong.
John
Robert Vienneau
"John Weatherby" <jjwea...@earthlink.net> wrote:
> "Robert Vienneau" <rv...@see.sig.com> wrote in
> > The capital goods that enter this production function are measured
> > in dollars. This is an error.
> Romer 1990
> S78-S79
> " Capital is measured in units of consumption goods." Capital is not
> measured as a dollar value of capital but as "units" of consumption
> goods.
This is an error in a multisector model.
> > Romer also says "it takes" eta "units of foregone consumption to
> > create one unit of any type of durable". (My greek is probably
> > wrong here.) As far as I can see, eta is a given constant, a
> > parameter of the model. This, too, is an error in a multi-commodity
> > model.
> Lets look at Romer's explanation.... Form Romer 1990
> S79 "Assuming that capital can be acculumated as foregone output is
> equivalent to assuming that capital goods are produced in a seperate
> sector
> that has the same technology as the final-output sector. Foregoing
> consumption is therefore equivalent to shifting to shifting resources
> from
> the consumption consumption sector to the output sector."
Which is why Romer 1990 is not a true multisector model. It is open
to Cambridge criticism.
Romer 1990 needs to be redone in light of the Cambridge critique.
Perhaps Kurz and Salvadori have already done this.
> > That's odd. No portion of this paper strikes me as being other than
> > theoretical. Perhaps Mr. Weatherby can clarify exactly where Romer
> > moves away from his mistake.
> Excuse me I meant generally dollar values are only used for empirical
> studies. I should have said most theory does not imply dollar values for
> capital while most econometric works do.
It's common in these models to assume a single consumption good, and
to use that good as numeraire. So if a unit of the consumption good
costs $1, measuring capital goods in terms of dollars is no different
from measuring capital goods in terms of foregone consumption.
It is an error in multisector models to insert capital goods measured
in either unit into production functions. This is apparent to
people who understand Wicksell effects.
> > Samuelson has explicitly and recently said he sides with the Sraffians
> > on certain issues.
> Wrong...As
> recently
> as the 1980's or 1990's Samuelson published a paper saying that although
> he
> has rarely mentioned Sraffa directly he is easily refuted. Look at
> Sraffa's
> one leg where Samuelson calls this one legged analysis.
I don't think you understand what that paper was about and what are
the issues being discussed. Anyways...
"The phenomenon of switching back...shows that the simple tale
told by Jevons, Bohm-Bawerk, Wicksell and other neoclassical
writers - alleging that, as the interest rate falls in consequence
of abstention from present consumption in favor of future,
technology must become in some sense more 'roundabout', more
'mechanized' and 'more productive' - cannot be universally valid...
...The fact of possible reswitching teaches us to suspect the
simplest neoclassical parables...
...Such an unconventional behavior of the capital-output ratio
is seen to be definitely possible. It can perhaps be understood
in terms of so-called Wicksell and other effects. But 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...
...If all this causes headaches for those nostalgic for the old
time parables of neoclassical writing, we must remind ourselves
that scholars are not born to live an easy existence. We must
respect and appraise, the facts of life."
-- Paul A. Samuelson, 1966.
"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.
"Something precious I gained from Robinson's work and that of her
colleagues working in the Sraffian tradition. As I have described
elsewhere, prior to 1952 when Joan began her last phase of capital
research, I operated under an important misapprehension concerning
the curvature properties of a general Fisher-von Neumann technology.
What I learned from Joan Robinson was more than she taught. I learned,
not that the general differentiable neoclassical model was special
and wrong but that a general neoclassical technology does not
necessarily involve a higher steady-state output when the interest
rate is lower. I had thought that such a property generalized from
the simplest one-sector Ramsey-Solow parable to the most general
Fisher case. That was a subtle error and, even before the 1960
Sraffa book on input-output, Joan Robinson's 1956 explorations in
_Accumulation of Capital_ alerted me to the subtle complexities of
general neoclassicism.
These complexities have naught to do with *finiteness* of the number
of alternative activities, and naught to do with the phenomenon in
which, to produce a good like steel you need directly or indirectly
to use steel itself as an input. In other words, what is wrong and
special in the simplest neoclassical or Austrian parables can be
completely divorced from the basic critique of marginalism that Sraffa
was ultimately aiming at when he began in the 1920s to compose his
classic: Sraffa (1960). To drive home this fundamental truth, I
shall illustrate with the most general Wicksell-Austrian case that
involves time-phasing of labor with no production of any good by means
of itself as a raw material.
As in the 1893-1906 works of Knut Wicksell, translated in Wicksell
(1934, Volume I), let corn now be producible by combining labor
yesterday, labor day-before-yesterday, etc):
Q( t ) = f( L(t - 1), L(t - 2), ..., L(t - T) ) = f( L ) (1)
Q = f( L(1), L(2), ..., L(T) ) in steady states (2)
Q = L(1) * f( 1, L(2)/L(1), ..., L(T)/L(1) ),
1st-homogeneous and concave (3)
Q = L(1) * del f( L )/del L(1) + ...
+ L(T) * del f( L )/del L(T), Euler's theorem (4)
del f/del L( j ) = fj( L ),
del del f/(del L(i) * del L(j) ) = fij( L )
exist for L >= 0 (5)
fj > 0, (z1, ..., zT)[ fij( L ) ](z1, ..., zT)' < 0
for zj <> b*L( j ) > 0 (6)
[Symbols are somewhat changed because of ASCII limitations - RLV ]
Nothing could be more neoclassical than (1)-(6). *If* it obtained
in the real world, a Sraffian critique could not get off the ground.
Yet it can involve (a) the qualitative phenomena much like
'reswitching', (b) so-called perverse 'Wicksell effects', (c) a
locus between steady-state *per capita* consumption and the interest
rate, a ( i, c ) locus, which is *not* necessarily monotonically
negative once we get away from very low i rates. This cannot
happen for the 2-period case where T = 2. But for T >= 3, all
these 'pathologies' can occur, and there is really nothing
pathological about them. No matter how much they occur, the marginal
productivity doctrine does directly apply here to the general
equilibrium solution of the problem of the distribution of income...
...This monotone relation between ( W/Pj, i ) was obscurely glimsped
by Thunen and other classicists and by Wicksell and other
neoclassicists. But the *factor-price trade-off frontier* did not
explicitly surface in the modern literature until 1953, as in
R. Sheppard (1953), P. Samuelson (1953), and D. Champernowne (1954).
One can prove it to be well-behaved for (1)-(3), or any
convex-technology case, by modern duality theory. Before Robinson
(1956), I wrongly took for granted that a similar monotone-decreasing
relation between ( i, Q/( L(1) + ... + L(T) ) ) must also follow
from mere concavity - just as does the relation
- del del C( t + 1 )/( del C( t ) )^2 = del i(t)/del C(t) > 0. But
this blythe expectation is simply wrong! I refer readers to my
summing up on reswitching: Samuelson (1966).
I realize that there are many economists who tired of Robinson's
repeated critiques of capital theory as tedious and sterile naggings.
I cannot agree. Beyond the effect of rallying the spirits of
economists disliking the market order, these Robinson-Sraffa-
Pasinetti-Garegnani contributions deepen our understanding of how a
time-phased competitive microsystem works."
-- Paul A. Samuelson, "Remembering Joan", in _Joan Robinson and
Modern Economic Theory_ (edited by G. R. Feiwel), New York
University Press, 1989.
"The Nobel Prize of Piero Sraffa and Joan Robinson that Stockholm
never awarded might have pleased at least one of them. Its citation
would have included: 'Their investigations uncovered a fatal
normative flaw in Bohm-Bawerkian and modern mainstream capital
theory.'
Just prior to Alfred Marshall's 1890 ascendancy as leading world
economist, Eugen von Bohm Bawerk (1851-1914) perhaps wore that
crown thanks to his three-volume treatise on the history and
fundamentals of interest theories. Bohm (1884, 1889, 1909, 1912)
somewhat independently followed in the footsteps of Stanley
Jevons (1871) and himself strongly stimulated Knut Wicksell (1893),
Irving Fisher (1906, 1907, 1930) and Friedrich Hayek (1931, 1941).
Pugnacious and somewhat incoherent, Bohm and his disciples battled
cogently the competing school of John Bates Clark (1899) and Frank
Knight (1934, 1935a, 1935b), which idealized a permanent *scalar*
capital alleged to be virtually permanent and with a marginal
productivity determining its interest rate in much the same way
that primary labor's marginal productivity determines its real
wage rate and primary land's marginal productivity determines its
real rent rate(s). The Clark-Knight paradigm - and for that matter
Frank Ramsey's 1928 mathematical clone - shares the Bohm-Hayek
vital normative flaw...
...Theorem 1: In the general Bohm circulating capital model
of Equation 3 above, there is invariably a negative-sloped
tradeoff between stationary-state wage and interest:
d[W/P(Q)]/di < 0. (5)
...By 1956, fifteen years after Robinson's first study of Marx,
she began cogently to separate - as I believe Bohm and Hayek
never did - Equation (5)'s (correct) inverse tradeoff between i
and w from the different stationary-state tradeoff between i and
consumption per capita. Her doubt that this too was a valid
inverse relation, even with neglectable land, was arrived at
independently of Sraffa's published classic (1960), whose contents
for reasons that anal Isaac Newton would understand, Piero was
not willing to divulge to Joan.
One cannot match a proof like that of Equation (5) by finding a
valid proof for the stationary state conjecture
d(C/L)/di <= 0. (6)
Why not? Because, as the next section will illustrate with numerical
examples, such a conjecture is simply not true! ...
...Austrian novices and Nassau Senior's readers trumpet (in my
paraphrase): 'Time itself is productive. Roundaboutness can be
substituted for labor. The price of time is the interest rate.
Aristotle, the Bible, the Koran, and St. Thomas Aquinas are
wrong: competitive interest rate is not exploitation. The
capitalist gets and needs to get the reward of positive interest
rate. And to assuage him for his pains of (a) *waiting* to
consume and (b) *abstaining* from eroding his capital by
consuming more now rather than replacing the capital already in
existence, he is properly being given part of the extra social
product that *his* activity makes possible. It is a good bargain
for the laborer: his wage product is fructified by what the
capitalist provides *as the real wage rate always rises when
thrift and accumulation succeed in lowering the interest rate*.'
But suppose time itself is not productive. Suppose the technical
choices were between seven of labor two periods back and ten of
labor three periods back. Incautious writings of Bohm's
contemporaries declare, Humpty Dumpty-like: that is impossible;
it contradicts a valid (a priori?) law of returns that more
time means more product for the same total labor; read Jevons,
read Bohm.
This is not cogent argumentation, as Hayek understands (1941,
p. 60). In a timeless world more labor on the same acreage of
land does usually raise output. But too much L/A can come to
to lower Q. However, under free competition, no equilibrium
will occur in a rent-collecting market in which firms will pay
a positive wage to hire workers who lower their production. All
Bohm needs to say is this: If ten of labor three periods back
does indeed bring less product now than seven of labor two
periods back does, then at a positive market interest rate,
the latter will surely be out-competed by the former and never
be used.
However, this defense does not validate an inverse (i, C/L)
tradeoff in Equation (6) above. Adam Smith's Invisible Hand
does ensure Equation (5) above but cares nought for Equation (6).
This is why books entitled Economics in One Lesson must evoke
from us the advice: 'Go back for the second lesson.'
Bohm was understandably tempted to say things like: 'Among the
viable competitive time-phasing techniques, the technological
law holds: Using more time, more roundaboutness, more complexity -
when a lower interest rate motivates that competitively - must
surely bring society a higher output from the same steady-state
primary inputs of labor and land. Adam Smith's Invisible Hand
must [sic] surely ensure that.'
Even if Sraffa were wrong in his empirical critique about the
relevance of 'genuine margins', even if f( L(t-1), L(t-2), L(t-3) )
had smooth partial derivatives that served fully, along with
other supply-and-demand manifestations of tastes and time
preferences, to solve the riddle of laissez faire distribution of
incomes - a task 1960 Sraffa never even tackles or gives hints
about - I can give functional examples for f( L(t-1), L(t-2), L(t-3) )
which would negate the truth of Equation (6). However, in my
dialogue with Sraffians, out of noblesse oblige I let them choose
their weapons. By three well-chosen numerical examples, which
Fisher (1907) might easily have fabricated, I SIDE WITH SRAFFIANS
to show how and why there can be no universal measure of 'depth or
duration of time-phased produced inputs' that can serve as simple
apologetics for mainstream theories of interest. Unequivocal
'capital deepening' just cannot be defined..."
-- Paul Samuelson, "A Modern Post-Mortem on Bohm's Capital
Theory: Its Vital Normative Flaw Shared By Pre-Sraffian
Mainstream Capital Theory". Journal of the History of
Economic Though. V. 23, N. 3. 2001. (emphasis added.)
> > None of the above say that neoclassical theory, considered as
> > a disaggregated theory, is incoherent.
> There is nothing to indicate this "neo-classical theory" exist.
Mr. Weatherby does not understand the position of the MIT boys.
> >There's still disagreement
> > between Sraffians and these neoclassicals.
> Just who are the neoclassicals. Do you mean people like Mankiw,
> Romer,
> and Weil who tried to revive Solow's neo-classical growth model?
No, I refer to people who emphasize disaggregated neoclassical theory.
For example, Bliss, F. Hahn, F. Fisher.
> Do you
> mean
> all mainstream economist? The biggest problem in your arguments is that
> you
> use this term neo-classical loosely. It is not clear what you are
> attacking
> or even what body of work you refer to. I assume you really have issues
> with
> the Solow model but so do 90% of economist today. Sometimes however the
> discussion shifts to micro or game theory it is hard to tell what you
> mean by neo-classical.
I hope I have never called game theory "neoclassical economics". I think
there is no coherent neoclassical micro theory of value. I distinguish
between value theory, which will support generalizations about
substitution, say, and a bunch of mathematics. I follow, e.g., Chase
or Cohen here. Notice my first post on this thread was about
disaggregated theory.
Capital raises issues that are not raised by questions of aggregate
labor. What does it mean to take a value quantity of capital as
a given parameter in models in which prices are determined
endogeneously?
> > But the USA Cambridge
> > side of the controversy definitely ended up far away from the
> > point Mr. Weatherby says they settled on.
> Perhaps but the literature of the 1960's shows a different outcome.
> Some people will never admit they are wrong.
The latter sentence shows more self-awareness from Mr. Weatherby than
I expect. He's just wrong about what was concluded in the 1960s.
John Weatherby
"Robert Vienneau" <rv...@see.sig.com> wrote in message
news:rvien-7E3B00....@news.dreamscape.com...
> In article <7bJr8.22387$ml2.1...@newsread1.prod.itd.earthlink.net>,
> It's common in these models to assume a single consumption good, and
> to use that good as numeraire. So if a unit of the consumption good
> costs $1, measuring capital goods in terms of dollars is no different
> from measuring capital goods in terms of foregone consumption.
>
good can not be the numeraire as well. You can have one or the other but not
both. Where does the price of consumption enter the model? It does not
rather the price of capital goods x(i) does. Again capital is measured in
units of consumption C not PC which imply the value of consumption. In fact
prices on final goods and the final goods sector is ignored becuase there
are perfectly competitive meaning they have no assets and earn zero profits.
The monopolist sets the price of the capital good. In this model there is a
constant markup so the elasticity of demand for capital goods determines the
price of capital goods.
Is this true of every R&D no. Grossman and Helpman, Paretto, and others
often use Either's interpertation that the Dixit-Stiglitz preference can be
used as an utility or a production. This models often deal in using final
goods. In these cases consumers use the Dixit-Stiglitz preferences and
prices of final goods are determined in the static problem while firms
optimize over R&D over the dynamic problem. Also note in this models and
those of Aghion and Howitt there are no capital goods. Aghion and Howitt did
devise a model when capital goods are added and it is in their book however,
I am not very fimilar with it.
John J. Weatherby
From: "Robert Vienneau" <rv...@see.sig.com>
Newsgroups: sci.econ,alt.politics.economics
Sent: Sunday, April 07, 2002 9:31 AM
Subject: Re: Neoclassical Economics Decomposing
> One cannot match a proof like that of Equation (5) by finding a
> valid proof for the stationary state conjecture
>
> d(C/L)/di <= 0. (6)
>
> Why not? Because, as the next section will illustrate with numerical
> examples, such a conjecture is simply not true! ...
>
What does this have to do with modern theory. Look at the big result from
Ramsey-Cass-Koopmans. The growth rate of per capita consumption is equal to
the interest rate minus the discount rate. This implies that a increase in
the rate of consumption growth holding the discount rate constant. Does this
not imply d (C/L)/ d i > 0 and not <0. Perhaps older models did not assume
this however it looks models past 1956, (eg. Ramsey-Cass-Koopmans) do
incorporate this aspect. Under the Solow model as capital increases the
interest drops increases due to the fact Y is increasing (C=Y -sY is getting
bigger becuase y is larger dc/y = 1-s). So perhaps the critique applies to
Solow but I don't see how it applies to the Ramsey-Cass-Koopmans model or
Romer and others who use this result.
Also on another note it seems Samuelson is saying that examples can be
given where the condition does not hold. So how do we apply this to a
specific model? The truth is you do not. As stated before each model has
implications for this derivative that are derived from the model not
assumption. In general the assumption may not hold under all examples,
however when looking at modern models this is no assumption. Look at any of
them, perhaps other Solow where he does not address the issue although the
tools are there, and you will results of how the interest rate affects per
capita consumption are derived from the model. Note that Samuelson says that
it is wrong to generalize that this holds simply from looking at one or two
models not that any model which derives the previous result is wrong rather
that it is not something to be automaticly assumed.
> But suppose time itself is not productive. Suppose the technical
> choices were between seven of labor two periods back and ten of
> labor three periods back.
What modern models assume this? Solow does not the increase in output
comes from capital increases. The capital makes labor more productive not
time. In fact if you save too much productivity will drop over time until
you reach steady state again. Under Romer time alone does not mean that the
economy becomes more productive. In fact growth rates are directly realted
to investment in technology which is related to the interest rate. High
rates of interest decrease technology which lowers consumption growth, note
consumption still increases but at a slower pace.
> Bohm was understandably tempted to say things like: 'Among the
> viable competitive time-phasing techniques, the technological
> law holds: Using more time, more roundaboutness, more complexity -
> when a lower interest rate motivates that competitively - must
> surely bring society a higher output from the same steady-state
> primary inputs of labor and land.
> Adam Smith's Invisible Hand
> must [sic] surely ensure that.'
>
Although Romer 1990 may say something similiar that is a decrease in the
interest rate will cause higher growth rates, it is not just the invisible
hand that ensures. The Romer explanation is that the decrease in the
interest rate lowers the cost of financing new technology. Therefore
increases in technology will occur when the interest rate drops.
Another interesting note from Romer 1990 is that this model is different
from Romer 1986 and the AK models. Under these models the rate of capital
growth and technology were the same (eg. Romer 1986, Arrow 1992). Romer
notes that " On the basis of an intutition developed for the one sector
model, economist often identify the marginal product of physical capital
with the market interest rate. If they were the same, anything that
increases the capital stock and reduces the the marginal product of physical
capital would have the same growth enhancing effect as a reduction in the
interest rate. " Romer notes here that the research decision is uncoupled
from physical capital. In essence the price of the capital good is not the
market interest rate. Subsidies to capital therefore do not lower the
interest rate nor necessarily change the growth rate.
Why is this important? Well the reason is that we get the result mention
but for very very different reasons.
> Capital raises issues that are not raised by questions of aggregate
> labor. What does it mean to take a value quantity of capital as
> a given parameter in models in which prices are determined
> endogeneously?
>
Where does Romer 1990 take a value quantity of capital as a given
parameter. Capital is endogenous. The value of the patent is endogenous. The
price of capital is endogenous. The interest rate could be given exogenously
since it is not the price of capital but then you don't the get effect of
preferences which in fact are exogenous. I think the misunderstanding is the
assumption that the price of capital goods is the market interest rate this
is simply not the case.
John