The CCC
Steven
present value of output equals the value of the machine expressed as: delta
K = (delta consumption/ rate of profit). In practice this seems not to
occur because capital goods do not substitute well one for the other
therefore the aggregation of capital that gives us different rates of profit
for a given quantity of capital in the CCC does not survive.
Aggregation is only possible if items are perfect complements or
substitutes. There's a special problem with the market value of capital
equipment and its value in service because if an additional unit of capital
is added its weighted value in the aggregate must correspond to its marginal
effect on output which may in practice be different than its market value.
These difficulties in calculating the market value of capital in order to
switch techniques of production make the CCC unable to yield any interesting
results. This is probably why the problem was dismissed as unworthy of
attention.
It is probably inappropriate to push Neoclassical Economics to do the
impossible as Robert tries to force it to do mathematical tricks it was
never intended to perform. NE is a useful way to get your thinking straight
about how the world works but it is not extensible in the way that Robert
wishes it to be. Perhaps Robert has some ideas on how to extend economic
reasoning that yields interesting results.
SUSUPPLY
Robert Vienneau
comments are not about empirical findings. So Steven disagrees
with Shawn Wilson.
Steven <sha...@pipeline.com> wrote:
> Reswitching conclusions only survive if capital is aggregated and the
> present value of output equals the value of the machine expressed as: delta
> K = (delta consumption/ rate of profit).
What are "reswitching conclusions"? Does this include capital
reversing? Economists have found that they can discuss capital
reversing without discussing measures of aggregate capital. That is,
in comparisons of long period positions, it is logically possible
that a lower interest rate is associated with less output per worker [1].
Notice this is how Samuelson puts it in that quote of his I recently
gave.
I don't know why Steven introduces aggregation above. A defining
property of a long period position that has lasted for some time
is that the market value of a capital good - that is, a produced
commodity to be used in additional production - is simultaneously
equal to the sum of the costs used in producing it (costed up using
the interest rate) and the present value of the additional value of
output that can be obtained by a marginal increment of that capital
good. (In short period equilibria, endowments are taken as given,
and there is not a common (own) rate of interest for calculating
present values independent of the numeraire.)
Perhaps Steven, like Burmeister, objects to an analysis based on
comparisons of long period positions. Burmeister points out that
an economy cannot move along a factor-price frontier. Thus, he
thinks economic analysis should be based on an analysis of paths
of "temporary equilibrium" [2], [3]. Is Steven's next comment
an objection that an economy cannot transition immediately from
one long period position to another?
> In practice this seems not to
> occur because capital goods do not substitute well one for the other
> therefore the aggregation of capital that gives us different rates of profit
> for a given quantity of capital in the CCC does not survive.
> Aggregation is only possible if items are perfect complements or
> substitutes. There's a special problem with the market value of capital
> equipment and its value in service because if an additional unit of capital
> is added its weighted value in the aggregate must correspond to its marginal
> effect on output which may in practice be different than its market value.
It is indeed a practical difficulty that prices are never equal to
their long run equilibrium values. But in accessing the coherence of
the theory, one should not be concerned with practical difficulties
in gathering data. If this is Steven's objection, it misses the point.
Notice, though, that Steven moves in the above remark from talking
about "capital equipment" to a "unit of capital." What is an unit
of capital?
Let's ignore the problems involved in aggregating consumption goods.
That is, assume there is a single consumption good. One traditional idea
is that the interest rate is a simple transformation of the price
of postponing consumption for a single period. So more "capital" is
supplied by increasing "waiting."
The problem comes in deciding how much waiting is represented by
a capital good. If waiting is increased, the interest
rate will change. Since this interest rate is used in determining
the present value of capital goods, the amount of "waiting"
represented by a given stock of capital good will change. That is,
an addition to capital, considered as waiting, results in a
re-evaluation of how much postponed consumption is represented
by the existing stock.
I think this effect leads to the possibilities of the other effects
brought out by the CCC. It becomes doubtful that one can combine
a physically specified trade-off with utility functions including
intertemporal preferences for consumption goods. There is no
technologically determined marginal product of social capital.
I don't think this is a matter of aggregation.
> These difficulties in calculating the market value of capital in order to
> switch techniques of production make the CCC unable to yield any interesting
> results.
> This is probably why the problem was dismissed as unworthy of
> attention.
This is one of those Orwellian attempts to deny the existence of certain
communities of scholars. The CCC was *not* dismissed as unworthy of
attention by all economists. In fact, many groups have concluded from
the CCC that there is no coherent long period neoclassical theory of
value and distribution [4].
> It is probably inappropriate to push Neoclassical Economics to do the
> impossible as Robert tries to force it to do mathematical tricks it was
> never intended to perform.
That is sufficiently cryptic to be incomprehensible. As a matter of fact,
neoclassical economists from about 1870 to 1930 did use neoclassical
economics for long period analysis. Some economists, e.g. J. B. Clark,
did think there was such a thing as the marginal productivity theory
of distribution. Long period analysis is still used today in new
classical macroeconomics and new growth theory. If Steven thinks
all of these approaches are theoretically untenable, perhaps he will
say so.
> NE is a useful way to get your thinking straight
> about how the world works but it is not extensible in the way that Robert
> wishes it to be.
More gnosticism. As a matter of fact, neither Frank Hahn nor Leon
Walras (as interpreted by William Jaffe) think their versions of
neoclassical economics is about "how the world works." Rather, the
theory is of a ideal world to serve as a comparison with the actual
world. For example, given claims that markets ensure Pareto optimality,
Hahn would probably note the conditions of the theorems
that are not met in practice, e.g. the absence of appropriate
futures markets [5].
Notice Steven does not comment on my opinion that the point of the
CCC was to demonstrate that prices do not function as scarcity indices.
Rather, he concentrates on aggregation issues. I think that misses
the point. A summary in the secondary literature, perhaps originally
due to Joan Robinson, is that the CCC is about the meaning of capital,
not its measurement.
> Perhaps Robert has some ideas on how to extend economic
> reasoning that yields interesting results.
This is another manifestation of a common method some economists have
of avoiding intellectual seriousness, in my opinion. There are numerous
theoretical and empirical problems with neoclassical economics. It
is not the exclusive responsibility of those pointing out the
problems - perhaps heterodox economists - to find solutions. Rather,
it is the responsibility of economists of all schools to candidly
describe problems and address them. Of course, a certain division
of labor is acceptable, e.g. by fields or between theoreticians,
statisticians, and experimentalists.
Those who have explored the literature I often cite will have found
other ways of doing economics. (It helps to have an open mind.) In
fact, once you have absorbed these other ways, you may find the
whole style of models in both neoclassical economics and the CCC
uninteresting. I suspect some here may have that opinion.
I will give just one suggestion. When extended to
fixed capital and joint production, Sraffian models have certain
problems. It is not always clear a unique solution to the price
equations exist. Even when a unique solution does exist, it seems
incredible that firms will calculate depreciation correctly. One
might then think of depreciation as a problem of the evolution
of accounting norms. One might also be interested in changing
patterns of industrial structure between the start of the industrial
revolution and now. The hypothesis is that fixed capital and
these difficulties in determining depreciation have become important.
These considerations suggest that one turn to the literature of
the American Institutionalists. For example, John Maurice Clark
discussed the issue of fixed overhead costs and their implications
for industrial organization.
But, as I said, I don't feel any questions along the lines of
Steven's statement justifies ignoring problems.
NOTES:
[1] The mistaken intuition here is that more "capital" per head will
lead to a lower interest rate. More capital per head is also supposed
to be associated with more output per head. The latter proposition
is true in the models in which I am interested.
[2] Interestingly, Joan Robinson agrees with Burmeister that comparisons
of long period positions are "unimportant". Robinson, though, would
probably think Burmeister's analysis is set in logical time, not
historical time.
[3] Burmeister's approach does not avoid difficulties
pointed out by the Cambridge Capital Controversy. Schefold has
recently shown that the "paradoxes" of the CCC are manifested
in intertemporal equilibrium by paths that lead from, say,
low wages-low labor intensity techniques to high wages-high
labor intensity techniques. See Shefold's paper "Paradoxes of
Capital and Counterintuitive Changes of Distribution in an
Intertemporal Equilibrium Model," available at:
<http://www.wiwi.uni-frankfurt.de/professoren/schefold/bsdocs.html>
[4] I don't know much about geography, but I pick out this quote
from some other discussion group a couple of years ago:
<begin quote>
> >Posted on 15 Mar 1995 at 06:58:51 by TELEC List Distributor (011802)
> >
> >RE: dollars & sense
> >
> >Date: Tue, 14 Mar 1995 13:27:46 -0500 (EST)
> >From: "BILL WOOLSEY (2-5161)" <WOOL...@Citadel.edu>
> >Reply-To: tch-...@vax1.elon.edu
> >To: tch-...@vax1.elon.edu
> >
> >
> >>As an "outsider" I've watched this exchange with amusement. Charged
> >>with teaching economic geography and economic development to planning
> >>students, I do something akin to what Bill Woolsey does. However, I
> >>do it with the opposite conclusion. Instead of using North American
> >>economists as my reference group, I use the international community of
> >>social scientists, and tell my students a small minority in this
> >>community actually believes neoclassical parables.
> >
> > This might be an appropriate approach to teaching "your planning
> >students about economic geography and economic development." Perhaps
> >your should just drop off the term "economic" however. Most of us on
> >the list, however, teach "economics." I don't give too much weight
> >to the views of sociologists, social psychologists, political scientists,
> >etc. in determining what is appropriate to teach in my courses.
> >
>
> Well, then it would be just "geography and development," but the courses
> focus on such things as industrial location, labor markets, and public
> policies intended to influence job generation, taxes, etc. I think
> economic, if not economics, is central. Moreover, since planning is
> a multidisciplinary field, when our students learn about labor markets,
> for example, we make a point of including work by economists, sociologists,
> etc. One of the common threads among social scientists, if not
> economists, today is that disciplinary boundaries are often more
> distorting than enlightening.
>
> >>However, I go
> >>beyond turning science into a popularity contest through a few devices:
> >
> >>1) I give them a "vulgar" summary of the Cambridge Capital debate, positing
> >>the following:
> >
> >>Suppose a capitalist economy has N commodities, capital, and labor. Let
> >>p sub i be the price of commodity i, k be the profit rate, and w be the
> >>wage rate. Also let there be a system of technical coefficients, A for
> >>using commodities i to product commodity j. I then set up a system of
> >>simultaneous equations in which each equation has the following form:
> >
> > How much time do you use in your course in bashing "neoclassical
> >economics"? Does it really help students with their careers in planning?
>
> My primary concern in these courses is presenting a coherent and
> balanced understanding of the phenomena under consideration and the
> literature on the subject. If helping students with their careers
> were the main issue, I'd probably spend more time on power dressing,
> writing memos, and playing golf with mayors. But, I do spend one class
> session "bashing" neoclassical economics because 1) if neoclassical
> economics is wrong, many planning tools like cost-benefit analysis
> make no sense (see current discussion on PLANET list), 2) most of my
> students have taken at least one economics course (some were even econ.
> majors), and I assume they've been exposed to neoclassical economics without
> any counterpoint, 3) the texts I use, which come mostly from economic
> geography and sociology, talk about "neoclassical economics" the same way
> they talk about "positivism" -- i.e. the same way you and I would talk about
> the divine right of kings, as something we should all know about but not
> believe -- since many of my students equate neoclassical economics with
> economics per se, thanks to their one-sided undergraduate economics
> "education", I need to explain the difference to them in order for them
> to understand the textbooks.
>
> >I'm especially interested in how the claim that capital reswitching makes
> >it impossible for supply and demand to determine prices exactly plays a
> >role in economic geography. It sounds like you would rather be
> >teaching something else.
>
> See Sheppard and Barnes' book, _The Capitalist Space Economy_, they
> discuss reswitching and its relation to economic geography in detail.
>
> It sounds like you would rather that what I teach would be something else,
> but, as Sheppard and Barnes illustrates, what I teach is what the subject
> IS.
>
> > Does your school offer a course on alternative approaches to economic
> >theory? It seems that this is what you would be happiest teaching.
> >Students who chose to take such a course would then get their money's
> >worth.
>
> Yes, but we're a two-year graduate program, and our students don't have time
> to take many electives. What electives they do take tend to be focused on
> things like transportation or geographic information systems. I'm not
> really interested in teaching comparative economics, but I am interested
> in teaching a coherent account of how the space economy really works. So,
> I must slay a few dragons.
>
> > By the way, my special interest is in free banking and indirect
> >convertibility. I manage to teach my introductory courses without
> >focusing on my special interests.
>
> You're assuming that the literature on economic geography and economic
> development does not do what I do in my class. Besides the book by
> Sheppard and Barnes, you might want to look at:
>
> Dicken and Lloyd, _Location in Space_ (latest edition)
> Knox, Paul _Urbanization_
> Knox, Paul _The Geography of the World Economy_
> Walker and Storper, _The Capitalist Imperative_
> Clark, Gertler, and Whiteman, _Regional Dynamics_
> Blakely, _Planning Local Economic Development_
>
> In my field, neoclassical economics is moribund, to understate the matter.
>
> Marsh Feldman
> Community Planning Phone: 401/792-5953
> 204 Rodman Hall FAX: 401/792-4395
> University of Rhode Island Internet: ma...@uriacc.uri.edu
> Kingston, RI 02881-0815
<end quote>
[5] As usual, I don't think Hahn's position is fairly summarized by
saying he is arguing about (the realism of) assumptions.
--
Robert Vienneau
r
v
i
e m
n o Whether strength of body or of mind, or wisdom,
@ c or virtue, are always found...in proportion to
d . the power or wealth of a man [is] a question
r e fit perhaps to be discussed by slaves in the
e p hearing of their masters, but highly unbecoming
a a to reasonable and free men in search of the
m c truth.
s -- Rousseau
Shawn Wilson
Robert Vienneau wrote:
>
> I find Steven's comments unclear. Notice, though, that Steven's
> comments are not about empirical findings. So Steven disagrees
> with Shawn Wilson.
How would YOU know? So far you've demonstrated zero ability to
comprehend discussions with economic content.
How ya comin' with that other post, BTW?
SUSUPPLY
>This is one of those Orwellian attempts to deny the existence of certain
>communities of scholars. The CCC was *not* dismissed as unworthy of
>attention by all economists.
Has there ever been anything ALL economists agreed upon? What does the phrase
"unworthy of attention" even mean.
I am reminded of what Mark Blaug had to say about Sraffa's work. That he was
sort of a "Rip Van Winkle" who awakened 150 years after Ricardo posed a
problem--which might not even have had significance in Ricardo's day--and began
trying to solve it.
The only reason Blaug's remark isn't applicable to you, Robert, is that I don't
think it fair to say, in any meaningful sense, that you are awake.
Patrick
Robert Vienneau
> How ya comin' with that other post, BTW?
From the post Shawn is supposedly responding to:
> > The problem comes in deciding how much waiting is represented by
> > a capital good. If waiting is increased, the interest
> > rate will change. Since this interest rate is used in determining
> > the present value of capital goods, the amount of "waiting"
> > represented by a given stock of capital good will change. That is,
> > an addition to capital, considered as waiting, results in a
> > re-evaluation of how much postponed consumption is represented
> > by the existing stock.
Shawn's comment refers to a post written in English that also used
high school math. He assumes his incomprehension says something
about the clarity of my explanation of "price Wicksell effects."
That post contained the following quote:
[the divergence between the marginal product of capital and the rate
of interest] "is attributable to the fact that it is impossible to
find an invariant unit in which to measure the social quantity of
capital.
To put the matter another way, we may say that a change in the supply
of capital - arising, for example, from new voluntary savings - alters
the units in which all the previously existing capital is measured;
and it is therefore incorrect to say that the supply of capital as a
whole has increased by the amount of the voluntary saving. It is
important to emphasize that this problem of measuring the quantity
of capital is not an index-number problem. There are, to be sure,
numerous index-number problems of the greatest complexity in the
theory of capital. But the problem to which I now refer would exist
even in the simplest economy in which all output consisted of a single
type of consumer's good and firms were exactly alike."
-- L. A. Metzler, "The Rate of Interest and the Marginal Product of
Capital," _Journal of Political Economy_, Vol. 53, 1950, pp. 284-306.
I'm not surprised Shawn didn't notice the English-language explanation
of price Wicksell effects in the post he was ignoring. Personally, I
think my longer explanation was clearer.
BTW, it dawns on me I don't understand what Steven was trying to say
when he wrote:
"therefore the aggregation of capital that gives us different rates of
profit for a given quantity of capital in the CCC does not survive."
I earlier made the point capital reversing does not depend on aggregation.
But neither does reswitching. Suppose all techniques are specified in
terms of disaggregated physical flows. Reswitching shows that the same
technique can be chosen at different distributions of income, with
some other technique being chosen at points in between. This suggests
that one cannot correctly argue that a competitive equilibrium rewards
factors for their contribution to production. After all, a different
distribution might be equally compatible with the same choice of
technique and the same physical quantity flows in production.
Given certain assumptions about endowments, their distribution, and
preferences, a long period equilibrium can also be a (special case)
of an intertemporal equilibrium. Can a technique be chosen in an
intertemporal equilibrium that would also be cost-minimizing for
some other intertemporal equilibriua? The answer would seem to
depend on preferences. Perhaps the same intertemporal
quantity flows in production would be be compatible with two
different distributions of initial endowments under certain
conditions on preferences. For example, one may need to assume
preferences differ among agents. Since preferences do not impose
hardly any restrictions on equilibria, I assume that the answer is
yes.
Consider the implications of this result. Hahn and Burmeister's
preferred neoclassical model is Arrow-Debreu intertemporal equilibrium
paths. This means that if some god redistributed endowments at the
initial time, this redistribution might not change the cost minimizing
technique. The cost-minimizing choices of the firm would be the
same. Wages and rental prices would differ. Likewise, the prices
of outputs would differ. Consider a distribution of the value of
output consistent with marginal productivity theory under competitive
conditions. Because of this nonuniqueness in factor prices, it is
meaningless in general to assert that this distribution rewards factors
by paying them the value of their contributions to output. More than one
such distribution may be possible.
This result is not a matter of aggregation. Nor is it a basis for
a practical policy proposal. I certainly do not think a central
government agency can determine the data such that they can
redistribute property rights at one point in time and have no
disturbing effect on production. Rather, this result demonstrates
that those who use economics for the ideological purposes dismissed
in my sig quote are mistaken in their logic.
As far as I know, economists have used neoclassical economics
for these mistaken purposes. The usual example is John Bates Clark.
I do not see how my comments are not about legimate uses
of the Arrow-Debreu model. The Arrow-Debreu model has been a
central concern of neoclassical economists for a number of
decades. If anybody has an argument against these propositions,
I would be interested in hearing it.
Shawn Wilson
Robert Vienneau wrote:
>
> In article <363485FA...@uic.edu>, swi...@uic.edu wrote:
>
> > How ya comin' with that other post, BTW?
>
> From the post Shawn is supposedly responding to:
>
> > > The problem comes in deciding how much waiting is represented by
> > > a capital good. If waiting is increased, the interest
> > > rate will change. Since this interest rate is used in determining
> > > the present value of capital goods, the amount of "waiting"
> > > represented by a given stock of capital good will change. That is,
> > > an addition to capital, considered as waiting, results in a
> > > re-evaluation of how much postponed consumption is represented
> > > by the existing stock.
>
> Shawn's comment refers to a post written in English that also used
> high school math.
Mendacious to the last, aren't you, Robert? Yes, the post was written
in english. And, yes, the math was of the high school level. But those
weren't the basis for my objections, were they? You used obscure and
difficult to understand notation in an attempt to carry your point
through confusion rather than through its merits. Now, ten posts later,
you STILL haven't managed to express your point in an easier to
understand format, have you? The problem being that your understanding
of economics is woefully lacking, yet you take it upon yourself to
accuse those who've spent much of their lives studying the subject of
mencacity, foolishness, ignorance, and stupidity. Well, what goes
around comes around.
He assumes his incomprehension says something
> about the clarity of my explanation of "price Wicksell effects."
> That post contained the following quote:
And, while attempting to defend yourself, you don't dare actually quote
the specific parts I called you on. There's a message in itself.
(snip, irrelevant)