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