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Reminder: Wages, Employment Not Determined By Supply, Demand

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Robert Vienneau

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May 25, 2003, 2:32:14 PM5/25/03
to
"I was delighted to find in a dictionary the word MUMPSIMUS,
which means stubborn persistence in an error that has been
exposed."
-- Joan Robinson

1.0 INTRODUCTION

If you take a class on economics, your teacher might tell you that
wages and employment are determined by the demand and supply of
labor, abstracting from price and wage stickiness, rigidities,
information asymmetries, etc. Your teacher might tell you that the
demand function for labor is necessarily a declining function of
wages, given profit-maximizing firms and standard assumptions about
technology. And the teacher might say, incorrectly, that this theory
applies in both the short and long run. The teacher teaching this
incorrect theory might tell you that the labor-demand function is
more elastic in the long run and that those elements abstracted from
in the theory are often less important in the long-run.

Here is a simple set of questions, with postulated answers, that you
can ask that will expose this theory as the incoherent nonsense that
it is:

Q: When one draws a demand function for labor, D(w), are the workers
hired assumed to be employed in only one (non-vertically) integrated
industry, or is it possible that some hired workers might be
producing commodities different from others?

A: The latter. The demand for labor is the demand by firms across
industries.

Q: Can some of these commodities be consumption goods?

A: Sure.

Q: Can some of these commodities also be capital goods, that is,
produced goods used in the production of other goods?

A: Yes.

Q: Under the assumptions of perfect competition, would the firm
be profit-maximizing at each point on the labor demand curve?

A: Yes. That is how the function is derived.

Q: If the data under which the curve is derived remains unchanged
(e.g., technology) and the wage and prices for a given point
on the long run labor demand curve actually prevailed, would
there be forces within firms moving firms away from that point.

A: No.

Q: And does the labor demand function show that firms will not
want to hire more labor at a lower wage, all else constant.

A: Yes.

An economist giving those answers cannot explain the possibility
of the numerical example presented in this post. This example shows
a case in which higher wages are associated with firms choosing to
employ more workers per unit output produced. I have an Excel
spreadsheet that permits you to experiment with the numerical values
behind this model:

<http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/ChoiceOfTechnique
.xls>

So, as good economists have long recognized, the theory I am attacking
is incorrect, as a matter of mathematics and logic.

For some reason, very few economists posting here will acknowledge
this simple truth. I once again give economists a chance to agree
with arithmetic.

2.0 DATA ON TECHNOLOGY

Consider a very simple vertically-integrated firm that produces a
single consumption good, corn, from inputs of labor, iron, and (seed)
corn. All production processes in this example require a year to
complete. Two production processes are known for producing corn. These
processes require the following inputs to be available at the beginning
of the year for each bushel corn produced and available at the end of
the year:

TABLE 1: INPUTS REQUIRED PER TON CORN PRODUCED

Process A Process B

1 Person-Year 1 Person-Year
2 Tons Iron 1/2 Tons Iron
2/5 Bushels Corn 3/5 Bushels Corn

Apparently, inputs of iron and corn can be traded off in producing
corn outputs.

Iron is also produced by this firm. Two processes are known for
producing iron:

TABLE 2: INPUTS REQUIRED PER TON IRON PRODUCED

Process C Process D

1 Person-Year 275/464 Person-Years
1/10 Tons Iron 113/232 Tons Iron
1/40 Bushels Corn 0 Bushels Corn

Inputs of corn and iron can be traded off in producing iron. The
process that uses less iron and more corn, however, also requires
a greater quantity of labor input.

2.1 PRODUCTION FUNCTIONS

The data above allow for the specification of two well-behaved
production functions, one for corn and the other for iron. For
illustration, I outline how to construct the production function
for corn.

Let L be the person-years of labor, Q1 be tons iron, and Q2 be
bushels corn available for inputs for corn-production during the
production period (a year). Let X1 be the bushels corn produced
with Process A, and X2 be the bushels corn produced with Process B.
The production function for corn is the solution of an optimization
problem in which as much corn as possible is produced from the
given inputs. Accordingly, the production function for corn is
found as the solution to the Linear Program in Display 1:

Max X = X1 + X2

X1 + X2 <= L
2*X1 + (1/2)*X2 <= Q1 (1)
(2/5)*X1 + (3/5)*X2 <= Q2

X1 >= 0, X2 >= 0

Let f(L, Q1, Q2) be the solution of this LP, that is, the production
function for corn. (This production function is not Leontief.) The
production functions constructed in this manner exhibit properties
typically assumed in neoclassical economics. In particular, they
exhibit Constant Returns to Scale, and the marginal product, for
each input, is a non-increasing step function. The production
functions are differentiable almost everywhere.

The point of this example, that sometimes a vertically integrated
firm will want to hire more labor per unit output at higher wages,
is compatible with the existence of many more processes for producing
each commodity. As more processes are used to construct the production
functions, the closer they come to smooth, continuously-differentiable
production functions. The point of this example seems to be compatible
with smooth production functions. It also does not depend on the
circular nature of production in the example, in which corn is used
to produce more corn.

2.2 TECHNIQUES

A technique consists of a process for producing iron and a process
for producing corn. Thus, there are four techniques in this example.
They are defined in Table 3.

TABLE 3: TECHNIQUES AND PROCESSES

Technique Processes

Alpha A, C
Beta A, D
Gamma B, C
Delta B, D


3.0 QUANTITY FLOWS

I want to consider a couple of different levels at which this
firm can operate the processes comprising the techniques. First,
suppose Process A is used to produce 1 41/49 Bushels corn, and
Process C is used to produce 4 4/49 Tons iron. The quantity flows
shown in Table 4 result.

TABLE 4: THE ALPHA TECHNIQUE PRODUCING CORN NET

INPUTS Process C Process A
Labor 4 4/49 Person-Years 1 41/49 Person-Years
Iron 20/49 Tons Iron 3 33/49 Tons Iron
Corn 5/49 Bushels Corn 36/49 Bushels Corn

OUTPUTS 4 4/49 Tons Iron 1 41/49 Bushels Corn

LABOR-INTENSITY: 5 45/49 Person-Years Per Bushel

When the firm operates these processes in parallel, it requires
a total of 41/49 Bushels corn as input. The output of the
corn-producing process can replace this input, leaving a net
output of one Bushel corn. Notice that the total inputs of
iron are 20/49 + 3 33/49 = 4 4/49 Tons iron, which is exactly
replaced by the output of Process C. So Table 4 shows a technique
in which 5 45/49 Person-Years labor are used to produce a net
output of one Bushel corn. The firm, when operating this technique
can produce any desired output of corn by scaling both processes
equally.

Table 5 shows the application of the same sort of arithmetic to
the Beta technique. The labor-intensity of the Beta technique is
listed.


TABLE 5: THE BETA TECHNIQUE PRODUCING CORN NET

INPUTS Process D Process A
Labor 3 304/357 Person-Years 1 2/3 Person-Years
Iron 3 59/357 Tons Iron 3 1/3 Tons Iron
Corn 0 Bushels Corn 2/3 Bushel Corn

OUTPUTS 6 178/357 Tons Iron 1 2/3 Bushel Corn

LABOR-INTENSITY: 5 185/357 Person-Years Per Bushel

Neither the Gamma nor the Delta technique are profit-maximizing
for the prices considered below.

+------------------------------------------+
| THE FIRM |
| |
| Inventory <--------------------------+ |
| | | |
Labor | | Steel+Corn+Labor -> Steel -->+ |
Market | \|/ /|\ /|\ |
------->+-------------+ | | Corn
(wage | \|/ | | Market
given) | Steel+Corn+Labor -> Corn --->+------->
| | (price
+------------------------------------------+ given)
FIGURE 1: A VERTICALLY INTEGRATED FIRM

4.0 PRICES

Which technique will the firm adopt, if any? The answer
depends, in this analysis, on which is more profitable. So one
has to consider prices. I assume throughout that inputs of iron,
corn, and labor are charged at the start of the year. Corn is
the numeraire; its price is unity throughout. Two different
levels of wages are considered.

4.1 PRICES WITH LOW WAGE

Accordingly, assume wages are initially 3/2780 Bushels per
Person-Year. By assumption, the firm neither buys nor sells iron on
the market. The firm produces iron solely for its own use. Still,
the firm must enter a price of iron on its books. I assume an
initial price of 55/1112 Bushels per Ton.

Table 6 shows accounting with these prices. The column labeled
"cost" shows the cost of the inputs needed to produce one unit
output, a bushel corn or a ton iron, depending on the process.
Accounting profits for a unit output are the difference between
the price of a unit output and this cost. The rate of (accounting)
profits, shown in the last column, is the ratio of accounting
profits to the cost. The rate of profits is independent of
the scale at which each process is operated.

TABLE 6: COSTS, WAGE 3/2780 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 55/1112 BUSHELS PER TON

INDUSTRY PROCESS COST PROFITS

Corn A 2*(55/1112) + (2/5)*1
+ 1*(3/2780) = 1/2 100%
Corn B (1/2)*(55/1112) + (3/5)*1
+ 1*(3/2780) = 6959/11120 60%
Iron C (1/10)*(55/1112) + (1/40)*1
+ 1*(3/2780) = 69/2224 59%
Iron D (113/232)*(55/1112) + 0
+ (275/464)*(3/2780) = 55/2224 100%

These prices are compatible with the use of the Beta technique
to produce a net output of corn. The Beta technique specifies that
Process A be used to produce corn and process D be used to produce
iron. Notice that Process B is more expensive than Process A, and
that process C is more expensive than Process D. These prices do
not provide signals to the firm that processes outside the Beta
technique should be adopted. The vertically-integrated firm is
making a rate of profit of 100% in producing corn with the Beta
technique. The same rate of profits are earned in producing corn
and in reproducing the used-up iron by an iron-producing process.

4.2 ONE SET OF PRICES WITH HIGHER WAGE

Suppose this firm faces a wage more than 20 times higher, namely
109/4040 Bushels per Person-Year. Consider what happens if the firm
doesn't revalue the price of iron on its books. Table 7 shows this
case. Since labor enters into each process, the rate of profits
has declined for all processes. The ratio of labor to the costs of
the other inputs is not invariant across processes. Thus, the
rate of profits has declined more in some processes than in
others. Notice especially, than the rate of profits is no longer
the same in the processes, A and D, that comprise the Beta
technique.

TABLE 7: COSTS, WAGE 109/4040 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 55/1112 BUSHELS PER TON

INDUSTRY PROCESS COST PROFITS

Corn A 2*(55/1112) + (2/5)*1
+ 1*(109/4040) = 0.5259 90.1%
Corn B (1/2)*(55/1112) + (3/5)*1
+ 1*(109/4040) = 0.6517 53.4%
Iron C (1/10)*(55/1112) + (1/40)*1
+ 1*(109/4040) = 0.05693 -13.1%
Iron D (113/232)*(55/1112) + 0
+ (275/464)*(109/4040) = 0.04008 23.4%

This accounting data does not reveal the firm's rate of return
in operating the Beta technique. The firm cannot be simultaneously
making both 23% and 90% in operating that technique. Furthermore,
this data provides a signal to the firm to withdraw from iron
production and make only corn. So this data says that something
must change.

4.3 ANOTHER SET OF PRICES

Perhaps all that is needed is to re-evaluate iron on the
firm's books. Higher wages have made iron more valuable. Table
8 shows costs and the rate of profits when iron is
evaluated at an accounting price of 0.106 Bushels per Ton.


TABLE 8: COSTS, WAGE 109/4040 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 0.10569123726 BUSHELS PER TON

INDUSTRY PROCESS COST PROFITS

Corn A 2*(0.106) + (2/5)*1
+ 1*(109/4040) = 0.6384 56.65%
Corn B (1/2)*(0.106) + (3/5)*1
+ 1*(109/4040) = 0.6798 47.10%
Iron C (1/10)*(0.106) + (1/40)*1
+ 1*(109/4040) = 0.06255 68.97%
Iron D (113/232)*(0.106) + 0
+ (275/464)*(109/4040) = 0.06747 56.65%

This revaluation of iron reveals that the firm makes a rate
of profits of 57% in operating the Beta technique. The firm makes
the same rate of profits in producing corn and in producing its
input of iron. But the manager of the iron-producing process would
soon notice that the cost of operating process C is cheaper.


4.4 FINAL EQUILIBRIUM PRICES

So the firm would ultimately switch to using process C
to produce iron. The price of iron the firm would enter on its
books would fall somewhat. Table 9 shows the accounting with a
price of iron of 10/101 Bushels per Ton. The firm has adopted
the cheapest process for producing iron, and the rate of profits
is the same in both corn-production and iron-production. The
accounting for this vertically-integrated firm is internally
consistent.

TABLE 9: COSTS, WAGE 109/4040 BUSHELS PER PERSON-YEAR,
PRICE OF IRON 10/101 BUSHELS PER TON

INDUSTRY PROCESS COST PROFITS

Corn A 2*(10/101) + (2/5)*1
+ 1*(109/4040) = 5/8 60%
Corn B (1/2)*(10/101) + (3/5)*1
+ 1*(109/4040) = 2553/4040 58%
Iron C (1/10)*(10/101) + (1/40)*1
+ 1*(109/4040) = 25/404 60%
Iron D (113/232)*(10/101) + 0
+ (275/464)*(109/4040) = 24,075/374,912
54%

5.0 CONCLUSIONS

Table 10 summarizes these calculations. The ultimate result of
a higher wage is the adoption of a more labor-intensive technique.
If this firm continues to produce the same level of net output
and maximizes profits, its managers will want to employ more workers
at the higher of the two wages considered.

TABLE 10: PROFIT-MAXIMIZING FIRM ADOPTS MORE LABOR-INTENSIVE
TECHNIQUE AT HIGHER WAGE

LABOR-INTENSITY OF
WAGE CORN-PRODUCING TECHNIQUE

3/2780 Bushels Per Person-Year 5 185/357 Person-Years Per Bushel
109/4040 Bushels Per Person-Year 5 45/49 Person-Years Per Bushel

So much for the theory that wages and employment are determined
by the interaction of well-behaved supply and demand curves on the
labor market.

APPENDIX A: A FORMAL MODEL

Let
Xa = Bushels corn produced (gross) by process A
Xb = Bushels corn produced by process B
Xc = Tons iron produced by process C
Xd = Tons iron produced by process D
p = the accounting price of iron (corn is numeraire)
w = wage
r = rate of (accounting) profits
Q1 = Tons iron in firm's inventory at start of period
Q2 = Bushels corn in firm's inventory at start of period

The profit-maximizing firm solves the following program:

Given p, w, Q1, and Q2
Choose Xa, Xb, Xc, and Xd
To Maximize (1 - w - 2 p - (2/5)) Xa
+ (1 - w - (1/2) p - (3/5)) Xb
+ (p - w - (1/10) p - (1/40)) Xc
+ (p - (275/464) w - (113/232) p) Xd
Such that
(w + 2 p + (2/5)) Xa
+ (w + (1/2) p + (3/5)) Xb
+ (w + (1/10) p + (1/40)) Xc
+ ((275/464) w + (113/232) p) Xd <= Q1 p + Q2
Xa, Xb, Xc, Xd >= 0

The dual Linear Program is:

Given p, w, Q1, and Q2
Choose r
To Minimize (Q1 p + Q2) r
Such That
(w + 2 p + (2/5)) r >= 1 - w - 2 p - (2/5)
(w + (1/2) p + (3/5)) r >= 1 - w - (1/2) p - (3/5)
(w + (1/10) p + (1/40)) r >= p - w - (1/10) p - (1/40)
((275/464) w + (113/232) p) r >= p - (275/464) w - (113/232) p
r >= 0

Or:

Given p, w, Q1, and Q2
Choose r
To Minimize (Q1 p + Q2) r
Such That
(w + 2 p + (2/5))(1 + r) >= 1
(w + (1/2) p + (3/5))(1 + r) >= 1
(w + (1/10) p + (1/40))(1 + r) >= p
((275/464) w + (113/232) p)(1 + r) >= p
r >= 0

If a constraint in the dual is met with inequality in the solution, the
corresponding process in the primal will be operated at a level of zero.

For firms to continue production unaltered from period to period, both
corn and iron must be produced each period. For corn to be produced,
either the first or the second constraint in the dual must be met with
equality. Likewise, for iron to be produced, the third or the fourth
constraint in the dual must be met with equality. Hence, for the
analyzed firms to be in equilibrium, the vertically-integrated industry
must be on the so-called factor-price frontier for that industry.

Nothing guarantees that the firms will be able to sell their output
at any given location on the factor-price frontier. Whether prices that
allow firms to be in equilibrium are realized is a question that is
not addressed by this formal model.

--
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

Robert Vienneau

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May 28, 2003, 5:20:45 AM5/28/03
to
Notice I have received no response to this thread.

Perhaps no economist who has read it feels able to adequately
defend textbook teaching.

Or perhaps all economists who have read it see that I, echoing the
literature, have shown that tradional intro and intermediate
teaching in economics is crap. But none have felt courageous
enough to say so.

I can understand both attitudes.

jonah thomas

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May 28, 2003, 9:57:55 AM5/28/03
to
Robert Vienneau wrote:

> Notice I have received no response to this thread.

> Perhaps no economist who has read it feels able to adequately
> defend textbook teaching.

> Or perhaps all economists who have read it see that I, echoing the
> literature, have shown that tradional intro and intermediate
> teaching in economics is crap. But none have felt courageous
> enough to say so.

> I can understand both attitudes.

Compare this to physics. Intro and intermediate physics teaching
isn't crap. But it's special cases at best. An intermediate-level
physics student is in no shape to understand at all what's going on
with the work of the leading researchers. He might think he has a
better idea what's going on than a complete layman, and in a
qualitative sense he might. But likely he'll have a bunch of
misunderstandings that leave him even worse off -- he thinks he
understands much more than he actually does.

Beginning physics students get some fundamental useful ideas. Like,
there's the idea that some things are conserved, and if you measure
and they're disappearing then you should look for where they went or
what they turned into.

Maybe beginning econ students get some similar useful ideas. There's
the idea that things tend toward some sort of equilibrium, and that
tendency can be predicted, that even if you can't measure quite where
you are or how fast it's changing you can at least estimate to better
than random guess which direction you're heading.

It would be good for the world if we found better ways to teach
physics and economics. But that isn't particularly what economists or
physicists get rewarded for.

Robert Vienneau

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May 29, 2003, 4:17:09 AM5/29/03
to
In article <3ED4C063...@cavtel.net>, jonah thomas
<j2th...@cavtel.net> wrote:

[ snip ]

Notice I received no substantial on-topic response on this thread.

Perhaps no economist who has read this thread feels able to adequately
defend textbook teaching.

Or perhaps all economists who have read it see that I, echoing the
literature, have shown that tradional intro and intermediate
teaching in economics is crap. But none have felt courageous
enough to say so.

I can understand both attitudes.

--

jonah thomas

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May 29, 2003, 5:27:04 AM5/29/03
to
Robert Vienneau wrote:
> jonah thomas <j2th...@cavtel.net> wrote:

> [ snip ]

> Notice I received no substantial on-topic response on this thread.

;)

Thomas Blankenhorn

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May 29, 2003, 1:15:50 PM5/29/03
to
Robert Vienneau <rv...@see.sig.com> wrote in message news:<rvien-B883C2....@news.dreamscape.com>...

> Notice I have received no response to this thread.
>
> Perhaps no economist who has read it feels able to adequately
> defend textbook teaching.
>
> Or perhaps all economists who have read it see that I, echoing the
> literature, have shown that tradional intro and intermediate
> teaching in economics is crap. But none have felt courageous
> enough to say so.

Or perhaps the premise of your accusation against mainstream economics
is false, and you never bothered to give it a reality check. To the
best of my knowledge, the best-selling college textbook in economics
is Samuelson/Nordhaus, as it has been for 50 years. They explicitly
discuss backward bending supply curves in the labor market.
(Samuelson, Nordhaus: _Economics_, 16th edition, Chapter 12:
"Determination of factor prices by supply and demand" -- note the two
graphs on page 219, both of which show backward-bending labor supply
curves.)

On the Web, one of the most prominent resources is David Friedman's
textbook _Price Theory_. It, too, mentions the backward-bending supply
curve for labor in several chapters. In particular, it is quite
prominently discussed in Chapter 5, in a section titled "Income
effects in production and the backward-bending supply curve for
labor". How could you miss it?



> I can understand both attitudes.

Quite frankly, I don't understand the attitude that caused you to
voice such utterly incorrect accusations. With just 20 minutes of
research, you could have avoided making a fool of yourself in front of
the whole Usenet population. Why didn't you?

Puzzled

-- Thomas

Robert Vienneau

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May 29, 2003, 4:24:06 PM5/29/03
to
In article <3245b7d7.03052...@posting.google.com>,
Thomas.Bl...@gmx.net (Thomas Blankenhorn) wrote:

> Or perhaps the premise of your accusation against mainstream economics
> is false, and you never bothered to give it a reality check. To the
> best of my knowledge, the best-selling college textbook in economics
> is Samuelson/Nordhaus, as it has been for 50 years. They explicitly
> discuss backward bending supply curves in the labor market.

I had nothing to say about backward-bending labor supply curves. I
am quite aware of them. For example, J. R. Hicks discusses them
in Value and Capital, an important work in forming post-war
mainstream Anglo-American economics.

Here was my argument, again:

1.0 INTRODUCTION

A: Sure.

A: Yes.

A: No.

A: Yes.

2.0 DATA ON TECHNOLOGY

Process A Process B

Process C Process D

2.1 PRODUCTION FUNCTIONS

2.2 TECHNIQUES

Technique Processes


3.0 QUANTITY FLOWS

4.0 PRICES

INDUSTRY PROCESS COST PROFITS

INDUSTRY PROCESS COST PROFITS

INDUSTRY PROCESS COST PROFITS


4.4 FINAL EQUILIBRIUM PRICES

INDUSTRY PROCESS COST PROFITS

5.0 CONCLUSIONS

Or:

--

Thomas Blankenhorn

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May 29, 2003, 5:34:57 PM5/29/03
to
Okay, I have now officially made a semi-fool out of myself.

Fool, because I misunderstood you to be saying that the supply curve
for labor necessarily slopes upward, when you were really saying that
the demand curve for labor necessarily slopes downward. So I
definitely owe you an apology for my snide remarks.

Nevertheless, mainstream economist's do have a solution to the
challenge you posed in the following lines:

> An economist giving those answers cannot explain the possibility
> of the numerical example presented in this post. This example
> shows a case in which higher wages are associated with firms
> choosing to employ more workers per unit output produced.

The solution is that while the demand curve for labor is "well
behaved", the supply curve is not. Labor supply curves can slope
backward, and when they do, rising wages can increase employment. If
you have read a fair number of introductory level college textbooks,
you must have come across these backward bending supply curve. You
neglected to mention them in your analysis, and this lead you to
condemn mainstream economists for a failure that wasn't theirs.

And that's why I think I only made a semi-fool out of myself. Feel
free to return the snideness of my remarks anyway ;-)

-- Thomas

Thomas Blankenhorn

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May 29, 2003, 7:18:09 PM5/29/03
to
Robert --

I am not an economist, let alone a mainstream economist, but let me
play one in this thread anyway. Having discovered my earlier
misunderstanding, I read your initial post again, this time with more
attention. I now suspect that the weird outcome produced by your
simulation depends on (at least) one of two oddities you've assumed
into your model. I would challenge you to reproduce your outcome with
these oddities removed. My prediction is you can't do it.

Oddity #1: There's no supply curve for labor in your model.

If I understand you correctly, you assume that labor comes at a fixed
wage, and that the company can recruit any quantity it wants at that
wage. In the real world, workers can respond to prices by adjusting
their supply of labor. I would predict that you can't reproduce the
weirdness of your simulation with an upward-sloping labor supply
curve, as measured in wheat and steel. You might be able to reproduce
it if you allow the curve to bend backward though -- as predicted by
mainstream economics.

Oddity #2: Your economy can't run multiple processes simultaneously

In your setup, there's only one firm. It has the choice of running one
out of four processes, but it doesn't have the choice of running a
combination of processes. In any real (free) economy, you have a
competition between processes, all of which are employed by some
company at any given time. To account for this, let me suggest the
following experiment:

Instead of having one firm, run a simulation with 100 firms. For
initialization, randomly assign one of your four processes to each
company. Then iterate. In each iteration step, make a random firm
switch to the process that maximizes its profit, leaving the other 99
companies unchanged. Mainstream economics predicts that things
converge towards a distribution of processes at which all factor
prices reflect their marginal productivity. Do they?

Curious

-- Thomas

Christopher Auld

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May 29, 2003, 7:40:10 PM5/29/03
to
Thomas Blankenhorn <Thomas.Bl...@gmx.net> wrote:

>I am not an economist, let alone a mainstream economist, but let me
>play one in this thread anyway. Having discovered my earlier
>misunderstanding, I read your initial post again, this time with more
>attention. I now suspect that the weird outcome produced by your
>simulation depends on (at least) one of two oddities you've assumed
>into your model.

Mr. Vienneau is sci.econ's most notorious kook. He didn't
get an answer to this post not becuase no one can address
it but rather because it's the zillionth time he's spammed
it, he never understands or addresses counterarguments, and
he's unbearably obnoxious. This particular bit o' spam is
riddled with mathematical and conceptual errors; factor
demand curves cannot slope up.

--
Chris Auld
Department of Economics
University of Calgary
au...@ucalgary.ca

Jeremy Boden

unread,
May 29, 2003, 7:51:53 PM5/29/03
to
In message <rvien-B03284....@news.dreamscape.com>, Robert
Vienneau <rv...@see.sig.com> writes
...

> Accordingly, assume wages are initially 3/2780 Bushels per
>Person-Year. By assumption, the firm neither buys nor sells iron on
>the market. The firm produces iron solely for its own use. Still,
>the firm must enter a price of iron on its books. I assume an
>initial price of 55/1112 Bushels per Ton.
....
Surely this is some kind of joke?

--
Jeremy Boden

David Lloyd-Jones

unread,
May 29, 2003, 10:46:46 PM5/29/03
to
Christopher Auld wrote:
>
> Mr. Vienneau is sci.econ's most notorious kook.


Takes one to know one, Chris.

At least Robert has never been caught doctoring message quotes to make
them say the opposite of their original meaning.

-dlj.

ro...@telus.net

unread,
May 30, 2003, 12:23:46 AM5/30/03
to

Yes.

-- Roy L

David Lloyd-Jones

unread,
May 30, 2003, 12:30:20 AM5/30/03
to

Look who's talking.

-dlj.

susupply

unread,
May 30, 2003, 9:27:21 AM5/30/03
to

"Jeremy Boden" <jer...@jboden.demon.co.uk> wrote in message
news:4RIkO1BZ...@jboden.demon.co.uk...

One that everyone but Robert is in on.


David Lloyd-Jones

unread,
May 30, 2003, 10:42:49 AM5/30/03
to
susupply wrote:
> "Jeremy Boden" <jer...@jboden.demon.co.uk> wrote in message
> news:4RIkO1BZ...@jboden.demon.co.uk...
>> Robert Vienneau <rv...@see.sig.com> writes

>>
>>> Accordingly, assume wages are initially 3/2780 Bushels per
>>>Person-Year. By assumption, the firm neither buys nor sells iron on
>>>the market. The firm produces iron solely for its own use. Still,
>>>the firm must enter a price of iron on its books. I assume an
>>>initial price of 55/1112 Bushels per Ton.
>>....
>>Surely this is some kind of joke?
>
> One that everyone but Robert is in on.


Patrick & Jeremy,

I think you're roughly half or 60% right. Robert's slightly manic model
building is more than a little odd.

On the other hand it's a very peculiar kind of joke. Robert has spent
roughly the past eight years educating himself in a very orthodox way in
very orthodox economics, and he's done a throroughly competent job of it.

There was a time, a couple of years ago, when a pompous and ordinary soi
disant "professor" like Chris Auld could make fun of Robert if they
wanted to. That's no longer the case. Robert has passed the pack and
Chris ends up with mud on his face every time he tries it these days.

One aspect of the humor is that Robert is playing a very ordinary
economics game: he is building artificial models to prove artificial
points. He has shown, with rather too straight a face, imho, that with
sufficiently contrived assumptions you can disprove any of the rules
that apply to the conomics of the real world, where such assumptions
don't operate.

This always has been a part of economics education -- though not usually
with the degree of grim determination and relentless intelligence that
Robert brings to the task.

Thus I'm not sure that Robert is aware of it, but what he succeeds in
doing every time he builds one of these creations is satirising
conventional model-building economics. That's the peculiar joke he has
achieved, it seems to me.

-dlj.

Thomas Blankenhorn

unread,
May 30, 2003, 3:32:09 PM5/30/03
to
David Lloyd-Jones <da...@rogers.com> wrote in message news:<3ED76DE9...@rogers.com>...

> Thus I'm not sure that Robert is aware of it, but what he succeeds in
> doing every time he builds one of these creations is satirising
> conventional model-building economics. That's the peculiar joke he has
> achieved, it seems to me.

Aha -- thanks for letting me in on that one, David!

It sure seemed to me as if Robert was honestly attempting to
understand labor economics -- and lashing out at mainstream economists
a bit too while he was at it. Now that I've read your post, it seems
kind of obvious that when someone builds a model without a labor
supply curve, and then finds out employment isn't determined by supply
and demand for labor, that must be some kind of in-joke.

Again, thanks!

-- Thomas

Robert Vienneau

unread,
May 31, 2003, 4:09:54 AM5/31/03
to
In article <3245b7d7.03052...@posting.google.com>,
Thomas.Bl...@gmx.net (Thomas Blankenhorn) wrote:

> I am not an economist, let alone a mainstream economist, but let me
> play one in this thread anyway.

I have no degree in economics either.

> Having discovered my earlier
> misunderstanding, I read your initial post again, this time with more
> attention.

In your post before this - the semi-fool one - you did not
restate my argument correctly either.

> I now suspect that the weird outcome produced by your
> simulation depends on (at least) one of two oddities you've assumed
> into your model. I would challenge you to reproduce your outcome with
> these oddities removed. My prediction is you can't do it.

You are mistaken. See, for example:

<http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf>

I am no longer committed to calling any curve in any graph in that paper
"demand".



> Oddity #1: There's no supply curve for labor in your model.
>
> If I understand you correctly, you assume that labor comes at a fixed
> wage, and that the company can recruit any quantity it wants at that

> wage...

This is "perfect competition", as defined by mainstream economists
and used in their introductory textbook stories.

> Oddity #2: Your economy can't run multiple processes simultaneously
>
> In your setup, there's only one firm. It has the choice of running one
> out of four processes, but it doesn't have the choice of running a
> combination of processes.

The above is incorrect. The example illustrates prices at which
a firm will choose to run one corn-producing process and one one
iron-producing process. That's two processes.

There are points (called "switch points" in the literature) at
which the firm will be indifferent between two of the, say,
corn-producing processes. Switch points arise in the example.

> Instead of having one firm, run a simulation with 100 firms. For
> initialization, randomly assign one of your four processes to each
> company. Then iterate. In each iteration step, make a random firm
> switch to the process that maximizes its profit, leaving the other 99
> companies unchanged.

There's issues of stability here. But, generally, my example
illustrates equilibria of the firm under perfect competition. My
example does not depend on there being only one firm. It does not
even depend on the firms being vertically integrated.

> Mainstream economics predicts that things
> converge towards a distribution of processes at which all factor
> prices reflect their marginal productivity. Do they?

In the discrete technology illustrated in my example, the value
of marginal products are generally defined to be a closed interval
bounded by quantities calculated from the right-hand and left-hand
derivatives of the production functions and from prices.

It is incorrect to say "factor prices reflect their marginal
productivity" as if marginal productivity is defined prior to
prices. But, in my example, the prices of labor (wage), corn inputs,
and iron inputs, are in the intervals defined above, when the
firm has chosen the cost-minimizing processes.

By the way, "capital" is not a factor, and the equilibrium interest
(profit) rate is generally not equal to the marginal product of
capital, even in the interval sense referred to above. This
inequality results from "price Wicksell effects", to use the jargon.

Robert Vienneau

unread,
May 31, 2003, 4:10:38 AM5/31/03
to
In article <4RIkO1BZ...@jboden.demon.co.uk>, Jeremy Boden
<jer...@jboden.demon.co.uk> wrote:

Do you find humorous the intellectual bankrupty of mainstream economic
teaching in North America?

Robert Vienneau

unread,
May 31, 2003, 4:15:37 AM5/31/03
to
In article <3245b7d7.03053...@posting.google.com>,
Thomas.Bl...@gmx.net (Thomas Blankenhorn) wrote:

> it seems
> kind of obvious that when someone builds a model without a labor
> supply curve, and then finds out employment isn't determined by supply
> and demand for labor, that must be some kind of in-joke.

You misunderstand. One does not need a supply curve in examining the
derivation of the demand curve. The two curves are independent.

Notice no mainstream economist has yet shown the intellectual
honesty to admit my original post in this thread is correct. Nor
has any economist pointed out any errors in it.

Robert Vienneau

unread,
May 31, 2003, 6:20:06 AM5/31/03
to
In article <bb65oq$o...@acs4.acs.ucalgary.ca>, au...@acs.ucalgary.ca
(Christopher Auld) wrote:

> [Silliness deleted] He didn't


> get an answer to this post not becuase no one can address
> it but rather because it's the zillionth time he's spammed
> it,

Poor Chris Auld defines "spam" to mean "a substantial argument he
cannot answer". I have never previously posted the post with which
I began this thread.

> [Silliness deleted] This particular bit o' spam is


> riddled with mathematical and conceptual errors;

Poor Chris Auld cannot name one.

> factor demand curves cannot slope up.

Although some literature does refer to the effect I am describing
as an upward-sloping factor demand curve, my post explicitly
does not say that factor demand curves can slope up.

"But, as economic theory has learned since the 1930s, the
pattern of activities adopted in the face of long-run
factor-price changes can be complicated and counterintuitive.
Consequently, the long-run demand for factors can be badly
behaved functions of factor prices... The principle of
variation works as an argument for long-run determinancy insofar
as the set of zero-profit activities shift in response to factor
price changes; it is not necessary that newly adopted activities
use cheaper factors more intensively..."
-- Michael Mandler, 1999.

jonah thomas

unread,
May 31, 2003, 8:32:54 AM5/31/03
to
Robert Vienneau wrote:
> Jeremy Boden <jer...@jboden.demon.co.uk> wrote:

>>Surely this is some kind of joke?

> Do you find humorous the intellectual bankrupty of mainstream economic
> teaching in North America?

Yes, certainly. Don't you?

Jeremy Boden

unread,
May 31, 2003, 9:45:51 AM5/31/03
to
In message <rvien-C070A5....@news.dreamscape.com>, Robert
Vienneau <rv...@see.sig.com> writes
>In article <4RIkO1BZ...@jboden.demon.co.uk>, Jeremy Boden
><jer...@jboden.demon.co.uk> wrote:
>
>> In message <rvien-B03284....@news.dreamscape.com>, Robert
>> Vienneau <rv...@see.sig.com> writes
>
>> ...
>> > Accordingly, assume wages are initially 3/2780 Bushels per
>> >Person-Year. By assumption, the firm neither buys nor sells iron on
>> >the market. The firm produces iron solely for its own use. Still,
>> >the firm must enter a price of iron on its books. I assume an
>> >initial price of 55/1112 Bushels per Ton.
>> ....
>
>> Surely this is some kind of joke?
>
>Do you find humorous the intellectual bankrupty of mainstream economic
>teaching in North America?
>
I found it amusing that you use an archaic unit of volume with which to
measure value.

Is it just the USA or the USA and Canada which are intellectual
bankrupt?

--
Jeremy Boden

jonah thomas

unread,
May 31, 2003, 11:26:50 AM5/31/03
to
Robert Vienneau wrote:

> Notice no mainstream economist has yet shown the intellectual
> honesty to admit my original post in this thread is correct. Nor
> has any economist pointed out any errors in it.

I thought some of them said that your model doesn't fit the real
world; that it has some fundamental flaws, notably the assumption of
equilibrium.

As you pointed out, intro economy books often make very similar
assumptions. No mainstream economist has defended the intro economics
teaching. They have also failed to heap scorn on intro economics
teaching, though.

jonah thomas

unread,
May 31, 2003, 11:34:15 AM5/31/03
to
Jeremy Boden wrote:
> Robert Vienneau <rv...@see.sig.com> writes

>> Do you find humorous the intellectual bankrupty of mainstream economic
>> teaching in North America?

> I found it amusing that you use an archaic unit of volume with which to
> measure value.

That is certainly defensible. Rather than considering money directly,
he picks a key commodity and prices things in terms of that commodity.

Nothing at all wrong with doing that. And he modified his model from
a traditional one, that used those measures.

Thomas Blankenhorn

unread,
May 31, 2003, 4:27:23 PM5/31/03
to
Robert Vienneau <rv...@see.sig.com> wrote in message news:<rvien-A074E3....@news.dreamscape.com>...

> You misunderstand. One does not need a supply curve in examining the
> derivation of the demand curve. The two curves are independent.

So far I agree. But remember that the title of your thread is "Wages,
employment not determined by supply, demand." To convince me that this
claim is true, you would have to present some economical situation,
tell me what the supply and demand for labor is, tell me what [neo-]
classical economics would predict, and demonstrate a result that
differs from that. Your model tells me what the demand for labor is --
it pops out of the processes your economy uses, if I understand
correctly. Your model does not tell me what the supply of labor is.
What doesn't convince me about your argument is that if your model
ignores supply, the conclusion that wages aren't determined by supply
and demand is meaningless even if it's true within your model. Of
course you are under no obligation to convince me, but I suspect
economists' objections would be fairly similar to mine.

> Notice no mainstream economist has yet shown the intellectual
> honesty to admit my original post in this thread is correct. Nor
> has any economist pointed out any errors in it.

Nevertheless, at least one claim in your original post is *not*
correct, and you haven't addressed its incorrectness yet. You claimed
that economists have no way of explaining how a rise in wages can
correlate with a rise in employment. Your claim is false because
economists do have a way of explaining such a correlation. It's called
a backward bending supply curve, and you are familiar with them, if
you say so yourself.

-- Thomas

Christopher Auld

unread,
May 31, 2003, 4:14:27 PM5/31/03
to
Robert Vienneau <rv...@see.sig.com> wrote:
>(Christopher Auld) wrote:

>> [Silliness deleted] He didn't
>> get an answer to this post not becuase no one can address
>> it but rather because it's the zillionth time he's spammed
>> it,

>Poor Chris Auld defines "spam" to mean "a substantial argument he
>cannot answer". I have never previously posted the post with which
>I began this thread.

LOL!!! What, did RV make another "new" essay by changing the numbers
from 113/743rds of a bushel of corn to 113/217ths?


>> [Silliness deleted] This particular bit o' spam is
>> riddled with mathematical and conceptual errors;

>Poor Chris Auld cannot name one.

Where to start? Just for kicks, let's go through this yet again. Start
with a firm which hires one input, labor, denoted L, and faces competive
markets. Its profits are f(L) - wL, where f() is the production function
and w the wage rate. Maximizing over L yields a schedule L(w), the labor
demand schedule. It cannot slope up and slopes down if f() is at least
eventually decreasing. In a previous version of this same spam
(charmingly titled "Mainstream economists teach bosh"), Vienneau wrongly
blathers

>The labor-demand
>function is supposed to be downward-sloping because higher
>wages induce profit-maximizing firms to substitute relatively
>cheaper factors of production for labor.

This is of course wrong: *one* reason factor demand curves slope down
is substitution. Even when substitution is not possible because, for
example, there're no other factors to substitute, factor demand curves do
not slope up and generally slope down.

Vienneau consider a different question. Suppose a firm faces a constant
wage rate but exists over time, hiring labor in each each period. It
would certainly be troubling if his claim that total labor hired over some
interval can be an increasing function of the wage rate --- since
"periods" exist in logical time, the result from the static model would
hold much less force. But we needn't be troubled because Vienneau's math
is, as usual, wrong (maybe he screwed up the "deteminate" of a matrix!).

Suppose a firm doesn't discount, exists T periods, hires labor in each
period, and has a production technology which isn't necessarily seperable
in time (because, for example, it produces a non-traded capital good).
This is a general statement of the problem RV purports to consider with
his weirdness about 119/237ths of a bushel of corn. If the firm faces the
same wage over time (as RV assumes) its profits are

f(L) - w \sum_i L_i

where L is now a T-vector of labor inputs, f() is the production function.
Let L_i(w) denote the T response schedules describing the solution to this
problem. The greatest profits the firm can make as a function of w are by
definition f(L(w)) - w\sum_i L_i(w), the "profit function." Differentiate
twice with respect to w, invoke the envelope theorem and use the convexity
of the profit function to find:

\partial \sum_i L_i(w)
---------------------- \le 0.
\partial w

That is, total labor hired is a non-increasing function of the wage in
the model in which RV describes. This is hardly surpising, as all it
really says is that an increase in marginal costs induces the firm to
produce less (technically, not more) output.

Where does RV go wrong? Many, many places. RV's assumption of constant
returns implies the problem is poorly posed because total labor demanded
is either zero, undefined, or (at a unique wage) undetermined. Posing the
problem this way then varying the wage rate and asking what happens "if
the firm does not change its output" is dishonest and mathematically
mistaken. Notice that if even one does hold output constant RV's result
is impossible, as the solution to minimizing w(sum_i L_i) subject to
f(L)=K does not depend on w. That is, holding output constant the firm
would change nothing at all in response to changes in the wage rate. Most
notably, there is no need to make assumptions about the "accounting price"
of an intermediate good. RV pulls numbers out of thin air to make his
example work --

> Still, the firm must enter a price of iron on its books. I assume an
> initial price of 55/1112 Bushels per Ton.

pathetically, weirdly, and profoundly wrong as either economics or
mathematics.


>> factor demand curves cannot slope up.

>Although some literature does refer to the effect I am describing
>as an upward-sloping factor demand curve, my post explicitly
>does not say that factor demand curves can slope up.

LOL! What a weasel. Apparently one is not supposed to conclude from, for
example,

>Q: And does the labor demand function show that firms will not
> want to hire more labor at a lower wage, all else constant.

>A: Yes.

> An economist giving those answers cannot explain the possibility


>of the numerical example presented in this post

that the "numerical example presented in this post" shows an example of a
labor demand curve that slopes up. This rivals the hilarious time Robert
spammed his essay with the subject header "Upward-sloping labor demand
curves," then announced he never claimed to be demonstrating the
existence of upward-sloping labor demand curves.

Of course, while it's entertaing to point out the numerous errors Vienneau
makes in his dour economic creationism, it's also beside the point. There
are lots of models in which "wages, employment are not determined by
supply and demand" even in the evil mainstream literature, and even taught
by evil professors to poor impressionable freshmen. I guess it's not as
satisfying to a kook to say something like "hey, what about monopsony
power?" as it is it spam and spam and spam about the vast conspiracy to
suppress the kook's noble truths.

Robert Vienneau

unread,
Jun 1, 2003, 2:08:47 PM6/1/03
to
In article <3245b7d7.03053...@posting.google.com>,
Thomas.Bl...@gmx.net (Thomas Blankenhorn) wrote:

> Nevertheless, at least one claim in your original post is *not*
> correct, and you haven't addressed its incorrectness yet. You claimed
> that economists have no way of explaining how a rise in wages can
> correlate with a rise in employment.

That's not what I claimed. I claim an economist with the
understanding of labor demand exhibited in my imaginary
dialog "cannot explain the possibility of the numerical
example".

In my first sentence, I exhibited an awareness of some
other ways ("price and wage stickiness, rigidities,
information asymmetries, etc.") of explaining how a rise


in wages can correlate with a rise in employment.

Poor Chris Auld has provided empirical evidence for my
claim. You might reply it is unfair of me to generalize
from one economist going on and on, and on, and still
on, and on, in blissful ignorance.

Robert Vienneau

unread,
Jun 1, 2003, 2:08:53 PM6/1/03
to
In article <3ED8C9BA...@cavtel.net>, jonah thomas
<j2th...@cavtel.net> wrote:

> Robert Vienneau wrote:
>
> > Notice no mainstream economist has yet shown the intellectual
> > honesty to admit my original post in this thread is correct. Nor
> > has any economist pointed out any errors in it.

> I thought some of them said that your model doesn't fit the real
> world; that it has some fundamental flaws, notably the assumption of
> equilibrium.

No, nobody has said that here.

By the way, just because somebody follows up one of my posts does
not imply they are making a substantial, relevant, and on-topic
point.

What would be an on-topic response? One possibility would be
to contrast the assumptions of the textbook story of supply and
demand with my example. For example, one might name some
special-case assumption, if there were one, that the textbooks
make and that rules out the data of my example. Or one might
draw, if it were possible, a downward-sloping textbook labor
demand function for the data of my example.

> As you pointed out, intro economy books often make very similar
> assumptions. No mainstream economist has defended the intro economics

> teaching...

Yes, I noticed.

"The view which is adopted here however is that there is
insufficient robust theoretical ground to support the
notion, underlying virtually all economic discussions of
employment, that real wages and employment are related in a
systematically inverse way. In other words,the view is
adopted here that no clear economic reasoning can be provided
by which to suppose that in general a fall in real wages would
lead to an increase in labour employment.

Some, particularly economists, might find this rather
confronting, since the real wage-employment nexus has been a
part of economic folklore for so long, that, to use the words
of one economist, this notion is no longer seen as a theory of
employment, but as an 'immediate reflection of the facts'."
-- Graham White, "The Poverty of Conventional Economic
Thinking and the Search for Alternative Economic and
Social Policies". November 2001.
<http://www.econ.usyd.edu.au/drawingboard/journal/0111/white.pdf>

Robert Vienneau

unread,
Jun 1, 2003, 2:08:59 PM6/1/03
to
In article <bbb2f3$1b...@acs4.acs.ucalgary.ca>, au...@acs.ucalgary.ca
(Christopher Auld) wrote:

> Robert Vienneau <rv...@see.sig.com> wrote:
> >(Christopher Auld) wrote:
>
> >> He didn't
> >> get an answer to this post not becuase no one can address
> >> it but rather because it's the zillionth time he's spammed
> >> it,

> >Poor Chris Auld defines "spam" to mean "a substantial argument he
> >cannot answer". I have never previously posted the post with which
> >I began this thread.

> LOL!!! What, did RV make another "new" essay by changing the numbers
> from 113/743rds of a bushel of corn to 113/217ths?

It is pointed out to poor Chris Auld that his statement is incorrect.
Does he graciously retract it? Of course not.

> Vienneau consider a different question. Suppose a firm faces a constant
> wage rate but exists over time, hiring labor in each each period.

Time supposedly enters the textbook presentation. The quantity axis in
a supply and demand graph is the flow of labor inputs per unit time.
If the conditions taken as exogeneous in drawing the demand curve
(e.g., technology) persist, the demand curve should persist.

Firms are supposed to be in equilibrium at each point on the labor
demand schedule. Suppose the managers of a firm:

o Choose the cost-minimizing processes for producing a certain
commodity.

o Require inputs of certain produced commodities in their
production processes.

o Observe that they are drawing down inventories.

o Do not produce some of these produced inputs themselves (because
it is not as profitable as producing the commodities that
they do produce)

o Observe that no other firm, responding to the current configuration
of prices, will produce those inputs.

Is such a firm in equilibrium? I would say not. It is obvious that
there are endogeneous forces within the firms that will change
their quantity decisions. The textbook labor demand schedule
cannot be drawn, as poor Chris Auld wants to draw it, in such a
case. My example illustrates.

The above was part of the point of the Q and A dialog in my
original post. Naturally, poor Chris Auld had nothing substantial
to say about that dialog:

> >Although some literature does refer to the effect I am describing
> >as an upward-sloping factor demand curve, my post explicitly
> >does not say that factor demand curves can slope up.

> Apparently one is not supposed to conclude from, for example,

> >Q6: And does the labor demand function show that firms will not


> > want to hire more labor at a lower wage, all else constant.
>
> >A: Yes.
>
> > An economist giving those answers cannot explain the possibility
> >of the numerical example presented in this post

> that the "numerical example presented in this post" shows an example of a
> labor demand curve that slopes up.

It is pointed out to poor Chris Auld that my text explicitly does not
say that factor demand curves can slope up. Does he graciously
retract his incorrect suggestion otherwise? Of course not.

As for a formal treatment of my example, consider the appendix in
my original post. I think of Linear Programming and of duality
theory as fairly sophisticated mathematics. No wonder poor Chris
Auld did not address it, preferring to distract the reader with
mathematics he does not and cannot apply to my example.

As far as I can tell, poor Chris Auld's attempt to list my
supposed mistakes boils down to this:

o I can add fractions.

o I make the textbook assumption of Constant Returns to
Scale.

o An incorrect assertion that he has proven that my
numerical example must be wrong, even if he cannot
say where, because my example shows the profit-maximizing
firm chooosing different mixes of inputs at different
levels of the wage, given its (net) output.

o An incorrect assertion that I choose the price of iron
from the air.

By the way, this sort of stuff is just stupid:

> ... wrongly blathers ... his weirdness ... dishonest ...
> ... pathetically, weirdly, and profoundly wrong as either economics
> or mathematics... What a weasel ... the hilarious time ...
> numerous errors ... dour economic creationism ...

A string of adjectives and abuse is not an argument. Poor Chris Auld
has yet to find a mistake in my mathematics, despite all his
whining.

And contrast the first sentence of my first post on this thread:

If you take a class on economics, your teacher might tell you that
wages and employment are determined by the demand and supply of

labor, abstracting from price and wage stickiness, rigidities,
information asymmetries, etc.

with poor Chris Auld's distortions and personalities:

> There
> are lots of models in which "wages, employment are not determined by
> supply and demand" even in the evil mainstream literature, and even taught
> by evil professors to poor impressionable freshmen. I guess it's not as
> satisfying to a kook to say something like "hey, what about monopsony
> power?" as it is it spam and spam and spam about the vast conspiracy to
> suppress the kook's noble truths.

Obviously, nothing poor Chris Auld says should be believed.

"The idea of an inverse relation between wages and employment is
central to the marginalist or neoclassical wage theory. In that
context it depends on the possibility of substitution between
production factors (direct substitution) and consumer goods
(indirect substitution) following changes in distribution. It is
argued that when, for example, the labor supply increases, the
fall in wages due to competition among workers will make it
advantageous for employers to use more labour-intensive production
techniques, and this, other things being equal, will bring an
increase in employment (and vice versa if wages rise).

In addition, it is argued that (in the same situation) a drop in
wages will reduce the prices of those goods whose production
requires relatively more labour. On the basis of the marginalist
theory of consumer behavior this will lead to an increase in demand
for such goods compared to those whose production is less labour-
intensive. This will result in increased employment in the economy
as a whole.

[Footnote 16:] Both of these substitution mechanisms are subject
to serious difficulties and criticisms, which I shall not go into
here; suffice it to mention that both direct and indirect
mechanisms fail because, as was shown by Sraffa and then during
the 1960s in the debate on capital theory, relative prices do not
necessarily change in the direction predicted by marginalist
theory following variations in distribution: if wages fall the
prices of more labour-intensive products may actually go up
rather than down, and the more labour-intensive techniques may
become *less* advantageous. The marginalist theory of demand
also meets serious problems in demonstrating that changes in
relative prices really do lead to substitution in consumption
favoring goods whose relative price has fallen; on the latter
point see Kirman, 1989."
-- Antonella Stirati, _The Theory of Wages in Classical
Economics_, Edward Elgar, 1994.

jonah thomas

unread,
Jun 1, 2003, 3:49:05 PM6/1/03
to
Robert Vienneau wrote:
> jonah thomas <j2th...@cavtel.net> wrote:
>>Robert Vienneau wrote:

>>>Notice no mainstream economist has yet shown the intellectual
>>>honesty to admit my original post in this thread is correct. Nor
>>>has any economist pointed out any errors in it.

>>I thought some of them said that your model doesn't fit the real
>>world; that it has some fundamental flaws, notably the assumption of
>>equilibrium.

> No, nobody has said that here.

OK, sorry. I thought I remembered a claim that this type of model is
inadequate, whether you do it or whether the oldfashioned economists
who used this sort of model did it, and inadequate even though it
still gets used for teaching purposes.

> By the way, just because somebody follows up one of my posts does
> not imply they are making a substantial, relevant, and on-topic
> point.

> What would be an on-topic response? One possibility would be
> to contrast the assumptions of the textbook story of supply and
> demand with my example. For example, one might name some
> special-case assumption, if there were one, that the textbooks
> make and that rules out the data of my example. Or one might
> draw, if it were possible, a downward-sloping textbook labor
> demand function for the data of my example.

You are choosing what sort of response is acceptable to you. But we
have a sort of market of posts here. Since we don't get money for
posting, for most of us the reward is fun. (Maybe there are a few
people here who hope to demonstrate their competence enough to improve
their chances of getting jobs. Or possibly they might get ideas they
could turn into publishable papers etc. But I think for most of us
the currency is enjoyment.) If you aren't getting the responses you
want, perhaps those responses wouldn't be enough fun for the people
who would make them.

One way people have fun is to prove you wrong. Perhaps you should
give them some chances to do that. But if it's too easy to prove you
wrong then it stops being fun.

If you find some established economists you can defer to, they might
find it rewarding to praise you for your insight and tell you you're
right. They get to be the authority who tells you that you're right,
that can be even better than being the competitor who proves you're wrong.

If nobody answers you, look at what's in it for them. There's a
chance that you're providing novel ideas that are just too
challenging. What fun is it to follow very complex thinking when the
reward at the end if the thinking is right, is that you can share some
arcane ideas that hardly anybody else understands. Much more pleasant
to do that when you're the one who gets to have the ideas in the first
place, rather than following somebody else.

>>As you pointed out, intro economy books often make very similar
>>assumptions. No mainstream economist has defended the intro economics

>>teaching....

> Yes, I noticed.


Say they defend the intro teaching. What does that get them even if
it's defensible?

Say they agree that it's rotten. What does that get them?

Look at who benefits. For a lot of people the benefit of recognising
pure truth that somebody else presents is a lot less than that of
having fun.

Christopher Auld

unread,
Jun 1, 2003, 6:45:48 PM6/1/03
to
Robert Vienneau <rv...@see.sig.com> wrote:

[ irrelevancies ]

> o An incorrect assertion that he has proven that my
> numerical example must be wrong, even if he cannot
> say where, because my example shows the profit-maximizing
> firm chooosing different mixes of inputs at different
> levels of the wage, given its (net) output.

I noted in my initial post to this thread that Vienneau never responds to
criticism of his spam partially because he doesn't understand it. The
post he's responding to clearly points out several mathematical/conceptual
errors and demonstrates quite simply the result the spam purports to show
must be wrong. True to form, Vienneau's response is to snip that out of
his response, insist it wasn't there in Orwellian fashion, and favor us
with the irrelevant crap in this post. Explaining economics to Robert
Vienneau has all the same impact, and for all the same reasons, as
explaining evolutionary biology to a "creation scientist."

I guess we'll see this same spam another few more dozen times.

[ snip -- more irrelevancies ]

Christopher Auld

unread,
Jun 1, 2003, 7:26:48 PM6/1/03
to
Robert Vienneau <rv...@see.sig.com> wrote:

>What would be an on-topic response? One possibility would be
>to contrast the assumptions of the textbook story of supply and
>demand with my example. For example, one might name some
>special-case assumption, if there were one, that the textbooks
>make and that rules out the data of my example. Or one might
>draw, if it were possible, a downward-sloping textbook labor
>demand function for the data of my example.

Too funny. Robert Vienneau is aware of the fact -- because it's been
pointed out to him a zillion times -- that there is a simple axiomatic
argument showing that factor demand curve