What are the main issues leftists have with mainstream economics?

[inyourhouse]

I thought this would be a good place to ask.

[Zanthorus]

It assumes that everyone is totally rational and completely selfish and self-interested.

It assumes that private individuals all attempting to work in their own percieved "sel-interes" (Narrow selfishness) will create high levels of social welfare. That by some magical force called the market or the "invisible hand" large corporations will endeavour to improve the publics lot. Something which is refuted daily by reality.

It assumes the capitalist mode of production as a given and not a specific historical occurance. It thinks that capitalism can be regulated and softened, but never overthrown.

[IcarusAngel]

That's a very good question. I think part of the reason leftists are critical of mainstream econmics is because they do not view it as a rational science, which is correct, is not a rational nor logical science. They see it as a way to determine how capitalists can maximize profits, not as a way to determine what works best for everybody. Looking at economics from this broad view it is clear to see a lot of it is mostly a manner of opinion.

See "Section C" in my signature for an anarchist critique of economics.

Also, I recommend Franz Oppenheimer's A Critique of Political Economy (http://www.franz-oppenheimer.de/fo43a.htm) for some critiques on 'classical econmics' which has been discredtied.

Opeenheimer writes from a perspective that many people, not just leftists and socialists, have with economics.

And then you can read Marxist economics to see how capitalists exploit the worker.

[IcarusAngel]

It assumes that everyone is totally rational and completely selfish and self-interested.

It assumes that private individuals all attempting to work in their own percieved "sel-interes" (Narrow selfishness) will create high levels of social welfare. That by some magical force called the market or the "invisible hand" large corporations will endeavour to improve the publics lot. Something which is refuted daily by reality.

Aren't people self-interested though? I agrue for commune political systems not just because of a better social order for other people but for myself as well.

I believe much of economics could be accurate without assuming humans are inherently rational (whatever that is supposed to mean), but I guess to the extent economics is flawed it has to do with capitalist logic creeping into it. I prefer to look at the results of game theory and reformist economists, but probably the entire field could benefit from a new perspective.


It assumes the capitalist mode of production as a given and not a specific historical occurance. It thinks that capitalism can be regulated and softened, but never overthrown.

I agree completely. Most of the good stuff that is at least accurate is about how to regulate capitalism or make it more efficient.

[Zanthorus]

Aren't people self-interested though? I agrue for commune political systems not just because of a better social order for other people but for myself as well.

Yes people are self-interested, but to almost the same degree people tend to care about their surroundings as well. I'd personally rather raise the welfare of the entire working class by a small margin rather than raise just my own welfare by a large amount.

[Demogorgon]

This is a very broad question and would take a long time to answer thoroughly. Perhaps my biggest objection to it is that its models tend to be based on scenarios with close to perfect competition and particularly with perfect knowledge. It also fails to take into account non-rational behaviour and particularly the way advertising can cause it (JK Galbraith talked about this particular problem in some length).

There is a general presumption in a lot of the models that there will be a competitive market and where that is not the case, one will emerge, but in reality we see much oligopoly and other anti-competitive practices.

It also tends to ignore the wasteful way in which many firms operate, seeing no problem with top-down management, while criticising central planning in public matters.

As well as that I also have objections to several aspects of marginalism, particularly the assumption that the value of all workers is the marginal value of the last one but also because it tends to downplay the importance of cost of production.

[inyourhouse]

Pre-post note: this post contained a lot of links to support my arguments, but apparently I'm not able to post links until I have 25 posts, so I'll come back and edit this post in the future.


It assumes that everyone is totally rational and completely selfish and self-interested.

That's not entirely correct. Many models utilize something called "bounded rationality", which basically means that we assume people are only rational to a certain extent. There are also models that look at how altruism affects people's economic decisions. On the whole, though, you are correct that many economic models assume that people are rational and act to maximize utility or profit; this is not the same as assuming that people actually do act that way, however. Mainstream economists tend to follow a prediction based form of empiricism. In other words, economists generally believe that making such unrealistic assumptions is okay as long as the model generates accurate predictions. The unrealistic assumptions of rationality and selfishness are only maintained because in many cases they are the most predictively accurate assumptions. Is there anything wrong with that?


It assumes that private individuals all attempting to work in their own percieved "sel-interes" (Narrow selfishness) will create high levels of social welfare.

This is not an assumption, it's a conclusion, based on the fundamental theorems of welfare economics. Do you disagree with these theories? It's notable that many market socialists (e.g. Abba Lerner and Oskar Lange) actually had a large role in proving that competitive equilibriums lead to Pareto-optimal outcomes. It's for that reason that these economists wanted to emulate the market in a socialist economy.


That by some magical force called the market or the "invisible hand" large corporations will endeavour to improve the publics lot. Something which is refuted daily by reality.

I think it's confirmed daily by reality: just look at our technological achievements, and how much they have benefited human welfare. It's certainly true that individual businesses sometimes damage social welfare, but I think that our growing productivity, technological progress, and wealth shows that they act to improve it on aggregate.


It assumes the capitalist mode of production as a given and not a specific historical occurance. It thinks that capitalism can be regulated and softened, but never overthrown.

I don't think that's true, either. There are many economists who specialize in studying comparative systems, and this was particularly true when the Soviet Union was around. The entire existence of the "socialist calculation debate" (whether resources could be rationally allocated under socialism) is evidence of this.


That's a very good question. I think part of the reason leftists are critical of mainstream econmics is because they do not view it as a rational science, which is correct, is not a rational nor logical science.

I think economics is largely rational and logical. Of course, at any one time there many be some theories that are incorrect, and hopefully they will be replaced in the future, but the main corpus of thought is sound. The logic and evidence behind supply and demand, for example, is very strong. Do you have any specific examples of irrational/illogical theories?


They see it as a way to determine how capitalists can maximize profits, not as a way to determine what works best for everybody. Looking at economics from this broad view it is clear to see a lot of it is mostly a manner of opinion.

Economics is (in theory, at least) value-free. It is generally about analyzing what is, rather than what ought to be, and I think this is the only way that economics can be a rational and logic science. Areas like welfare economics do show how to maximize social welfare under various different rules, though.


See "Section C" in my signature for an anarchist critique of economics.

Wow, that's a lot of reading. However, skimming over the section about the validity of the concept of equilibrium leads me to bring up something I mentioned earlier in this post. Mainstream economists tend to follow a prediction based form of empiricism. In other words, economists generally believe that making such unrealistic assumptions is okay as long as the model generates accurate predictions. The seemingly unrealistic assumption of equilibrium is maintained because it is the most predictively accurate assumption in many cases. Where it isn't, economists use the concept of disequilibrium. Is there anything wrong with that?


Also, I recommend Franz Oppenheimer's A Critique of Political Economy for some critiques on 'classical econmics' which has been discredtied.

Even more reading! I note, however, that Oppenheimer spends a lot of time critiquing Marshall. Is this a critique of classical economics, or modern neo-classical economics, or a bit of both?


And then you can read Marxist economics to see how capitalists exploit the worker.

Are there any accessible introductory texts to Marxist economics? Most of Marx's work seems very dry and obfuscatory.

[Zanthorus]

On the whole, though, you are correct that many economic models assume that people are rational and act to maximize utility or profit; this is not the same as assuming that people actually do act that way, however. Mainstream economists tend to follow a prediction based form of empiricism. In other words, economists generally believe that making such unrealistic assumptions is okay as long as the model generates accurate predictions. The unrealistic assumptions of rationality and selfishness are only maintained because in many cases they are the most predictively accurate assumptions. Is there anything wrong with that?

Yes, it's about as scientific as saying that there are magical elves inside all matter that pull things towards themselves. Sure it might be a theory that explains the observation but it doesn't tell us anything new. The goal of science isn't to provide explanations that seem to fit the facts, it's to generate notions of cause and effect that help us understand the world around us better.


This is not an assumption, it's a conclusion, based on the fundamental theorems of welfare economics. Do you disagree with these theories? It's notable that many market socialists (e.g. Abba Lerner and Oskar Lange) actually had a large role in proving that competitive equilibriums lead to Pareto-optimal outcomes. It's for that reason that these economists wanted to emulate the market in a socialist economy.

Well as I understand it the conclusion is based on the idea that each individual will attempt to maximise her individual welfare and that this can be magnified up to the level of mass society.

The problems that I've heard mentioned are:

1) It assumes that everyone has similar tastes

It needs to because otherwise they would have to come to the conclusion that income distribution has an affect on total social welfare. The fact is that certain people are going to get higher utility out of certain goods than other people. The fact is also that income is determined by market forces as well. So it doesn't matter how high up of a social indifference curve we reach because at every stage the income distribution will be different and therefore there's no way of saying wether total welfare is actually greater.

2) It assumes that people with higher incomes will continue to have the same tastes as before

So if we increase the income of one group the only thing that will happen is they'll spend a larger amount one what they were before.


I think it's confirmed daily by reality: just look at our technological achievements, and how much they have benefited human welfare. It's certainly true that individual businesses sometimes damage social welfare, but I think that our growing productivity, technological progress, and wealth shows that they act to improve it on aggregate.

I'd say that says more about humanity than the greatness of the market system.


I don't think that's true, either. There are many economists who specialize in studying comparative systems, and this was particularly true when the Soviet Union was around. The entire existence of the "socialist calculation debate" (whether resources could be rationally allocated under socialism) is evidence of this.

:lol:

Hate to dissapoint you but the soviet union was no socialist country.

[anticap]

What are the main issues leftists have with mainstream economics?

"Leftists" is a bit broad, but Joan Robinson nicely sums up how Marxists might answer your question:


The fundamental differences between Marxian and traditional orthodox economics are, first, that the orthodox economists accept the capitalist system as part of the eternal order of Nature, while Marx regards it as a passing phase in the transition from the feudal economy of the past to the socialist economy of the future. And, second, that the orthodox economists argue in terms of a harmony of interests between the various sections of the community, while Marx conceives of economic life in terms of a conflict of interests between owners of property who do no work and workers who own no property. These two points of difference are not unconnected -- for if the system is taken for granted and the shares of the various classes in the social product are determined by inexorable natural law, all interests unite in requiring an increase in the total to be divided. But if the possibility of changing the system is once admitted, those who hope to gain and those who fear to lose by the change are immediately ranged in opposite camps.

Anarchists, while perhaps not accepting the Marxian analysis on the whole, would agree with the basic point: that economists under capitalism will almost invariably serve as its apologists. There will be a minority of valiant rogues, but they'll get no hearing. This is why Proudhon called economists "the enemies of society," and successive anarchists have tended to hold to that sentiment.

Unless an economist is actively working to expose and undermine capitalism, what possible good can s/he serve? Mainstream economists, by virtue of their being accepted as such, are by definition worthless.

[NecroCommie]

This is not an assumption, it's a conclusion, based on the fundamental theorems of welfare economics. Do you disagree with these theories? It's notable that many market socialists (e.g. Abba Lerner and Oskar Lange) actually had a large role in proving that competitive equilibriums lead to Pareto-optimal outcomes. It's for that reason that these economists wanted to emulate the market in a socialist economy.
Conclusion perhaps but very bad one at that. These "models", "market socialists" and "Pareto-optimal outcomes" (WTF?!) never ever calculate the impact of markets on the entire population they have an impact on. In english: they ignore imperialism, and the impact that markets (even welfare ones), have on the global scale.



I think it's confirmed daily by reality: just look at our technological achievements, and how much they have benefited human welfare. It's certainly true that individual businesses sometimes damage social welfare, but I think that our growing productivity, technological progress, and wealth shows that they act to improve it on aggregate.
I on the other think that you failed to read the original statement completely. These outrageous claims are being raped everyday in real life. And what do you mean "our" improving 'insert cool word here'? The most "wealthy" countries are generally the most barbarious ones, with high poverty and ridiculous income gaps. It is common knowledge that wealth and progress is done away with for 9/10 of the capitalist world.


I don't think that's true, either. There are many economists who specialize in studying comparative systems, and this was particularly true when the Soviet Union was around. The entire existence of the "socialist calculation debate" (whether resources could be rationally allocated under socialism) is evidence of this.
Capitalism is a system, not a collection of economists. The system most definately takes itself for granted, as do most of it's supporters.


I think economics is largely rational and logical. Of course, at any one time there many be some theories that are incorrect, and hopefully they will be replaced in the future, but the main corpus of thought is sound. The logic and evidence behind supply and demand, for example, is very strong. Do you have any specific examples of irrational/illogical theories?
My personal beef with capitalism is not that it is "illogical" for it most certainly maximizes profits to the extreme, there is no denying that. But then again that's all it ever can achieve. Humanity is so much more than profits, and society has so much more important priorities to tend to. For example, your very supply and demand as a phenomenon quarantees eternal unemployment and shortages. That is, if capitalism is allowed to live.

http://www.youtube.com/watch?v=4DgJZADHsyg



Wow, that's a lot of reading. However, skimming over the section about the validity of the concept of equilibrium leads me to bring up something I mentioned earlier in this post. Mainstream economists tend to follow a prediction based form of empiricism. In other words, economists generally believe that making such unrealistic assumptions is okay as long as the model generates accurate predictions. The seemingly unrealistic assumption of equilibrium is maintained because it is the most predictively accurate assumption in many cases. Where it isn't, economists use the concept of disequilibrium. Is there anything wrong with that?

This is all very nice, but as a system, capitalism is virtually incapable of using this knowledge for anything else than increasing profits... which is inhumane. People not profits I say!

[Skooma Addict]

Mainstream (neoclassical) microeconomics is pretty sound. It is in the field of macro where things get iffy. The main problems I have are the abuse of general equilibrium theorizing, the neglect of time, and the failure to fully recognize the heterogeneity of capital.

[jake williams]

I'm kind of an econ geek but this thread is almost unreadable for long posts so I'll try to post briefly.

Mainstream (neoclassical) microeconomics is pretty sound. It is in the field of macro where things get iffy.
It's almost the opposite. Macro at least pretends to be scientific; the right answer on a microeconomics exam I just wrote was something to the effect of, models with realistic assumptions are unwieldy and don't give the right results. Obviously that's not how it was worded, but it's a common theme. The arguments certainly maintain their internal logic, for the most part microeconomists aren't getting the math wrong (although you can talk about the effects of 'externalities' and emergent phenomena in complex systems, and some microeconomists even do so), but the assumptions are totally insane.

For example, if you distill concepts like 'allocative efficiency', a central thesis in microeconomics, you basically get the idea that the "right allocation of resources" is based on the extent to which rich people are allowed to buy what they want. It's based on the concept of economic surplus, which is in turn based on demand, which is itself based on how much folks are willing and able to buy products for. But rich people are willing to pay a lot more for luxury goods (over and above their realistic "value" in a normal human sense) than poor people are for food, so if you tax luxury goods to feed poor people it's reducing total economic surplus and thus allocative efficiency - it's a 'logical' argument based on totally idiotic assumptions.

Oh, also economics has a pretense of being amoral and positive and objective, as opposed to being subjective and normative. So it's also profoundly hypocritical.

It's really an error though to just write it off as a totally useless pseudoscience, the field as a whole. There's a reason that banks especially and other large corporations (not to mention governments, universities and think tanks) hire economists, and it's not at all just propaganda. A lot of what professional 'working' economists put out is totally unreadable to the general public. They can actually make analyses that are useful for profits.

[Demogorgon]

Mainstream (neoclassical) microeconomics is pretty sound. It is in the field of macro where things get iffy. The main problems I have are the abuse of general equilibrium theorizing, the neglect of time, and the failure to fully recognize the heterogeneity of capital.
Well as the above states, the opposite is closer to the truth. Microeconomics goes very wrong a lot of the time due to its unrealistic models, but macroeconomics is at least working with something closer to reality.

It has major problems too of course, but not concerning itself with Austrian hobby horses like time management is not something I would include amongst them.

[Skooma Addict]

It's almost the opposite. Macro at least pretends to be scientific; the right answer on a microeconomics exam I just wrote was something to the effect of, models with realistic assumptions are unwieldy and don't give the right results. Obviously that's not how it was worded, but it's a common theme. The arguments certainly maintain their internal logic, for the most part microeconomists aren't getting the math wrong (although you can talk about the effects of 'externalities' and emergent phenomena in complex systems, and some microeconomists even do so), but the assumptions are totally insane.

I wouldn't call neoclassical assumptions insane.

The Equilibrium Principle: Prices adjust until the amount that people demand of something is equal to the amount that is supplied.

The Optimization Principle: People try to choose the best patterns of consumption that they can afford.

Those are pretty good, although inferior to Austrian assumptions.

Noeclassical micro incorporates marginalism, opportunity cost, and the law of diminishing marginal utility. Neoclassical Macroeconomics discards Methodological Individualism. Neoclassical macro also has no satisfactory capital theory. Although criticizing neoclassical macro is difficult because there is no consensus among economists at all regarding what constitutes good macroeconomics.

[Kwisatz Haderach]

The Equilibrium Principle: Prices adjust until the amount that people demand of something is equal to the amount that is supplied.
Actually, this is problematic, because the demand and supply functions are never observed in real life. We may observe how much of a certain good is demanded or supplied at price P1, but we usually have no way of knowing how much would be demanded or supplied if the price changed to a hypothetical P2.

Since we do not know what the demand and supply functions are, we do not know when - or if - equilibrium is actually reached.


The Optimization Principle: People try to choose the best patterns of consumption that they can afford.
This is total bullshit. When was the last time you maximized your utility function?

[Skooma Addict]

Actually, this is problematic, because the demand and supply functions are never observed in real life. We may observe how much of a certain good is demanded or supplied at price P1, but we usually have no way of knowing how much would be demanded or supplied if the price changed to a hypothetical P2.

Since we do not know what the demand and supply functions are, we do not know when - or if - equilibrium is actually reached.The fact that they are not always observed in real life isn't the point. Neoclassical economists fully realize this. They are not trying to determine when or if equilibrium is reached, just that there is a tendency towards equilibrium.


This is total bullshit. When was the last time you maximized your utility function? Well the good Neoclassical economists don't use cardinal utility functions. Also I personally would replace the word "try" with "tend" and then I think the optimization principal holds more truth.

But I don't agree with neoclassical economics either, so I am not the best person to be defending it.

[inyourhouse]

This is a very broad question and would take a long time to answer thoroughly. Perhaps my biggest objection to it is that its models tend to be based on scenarios with close to perfect competition and particularly with perfect knowledge. It also fails to take into account non-rational behaviour and particularly the way advertising can cause it (JK Galbraith talked about this particular problem in some length).

There is a general presumption in a lot of the models that there will be a competitive market and where that is not the case, one will emerge, but in reality we see much oligopoly and other anti-competitive practices.

I disagree. Most undergraduate textbooks will talk about oligopoly/monopoly and oligopsony/monopsony) as well as perfect competition. At the scholarly level, this line of research is even more prevalent (a lot of game theory is used to investigate such market forms). I think it's rare in the modern era to find a model based on perfect competition, unless it's purely being used for the sake of example. Some undoubtedly are, of course, but as I said to another poster: if this is the most predictively accurate assumption, is there really a problem? Regarding non-rational behaviour, the same thing applies; there is work into things like "bounded rationality", but where assumptions of behaviour are predictively accurate, it seems to make sense to use them.


It also tends to ignore the wasteful way in which many firms operate, seeing no problem with top-down management, while criticising central planning in public matters.

I think there is a rational distinction: competition. The waste in the former can be minimized (not eliminated, of course), while the waste in the latter cannot. You may disagree with this, but I don't think it's the case that economists simply ignore these issues. Going back to something I mentioned earlier, there is also the issue of the socialist calculation debate. That's a bit too complicated to get into here, but it implies that the former scenario will be less wasteful because firms (unless they're fully vertically integrated monopolies) can use other prices to make decisions, whereas full-scale central planning doesn't have this information. Note that central planners could utilize world prices if there are other non-centrally planned economies, although this will likely be less efficient.


As well as that I also have objections to several aspects of marginalism, particularly the assumption that the value of all workers is the marginal value of the last one but also because it tends to downplay the importance of cost of production.

Marginalism is, in my opinion, the strongest aspect of mainstream economic theory. I think you're misinterpreted the concept when you say that "the value of all workers is the marginal value of the last one". I don't quite know what you're getting at there, because it's usually said that real total compensation (the largest part of which is the real wage) tends to equal a worker's marginal revenue product of labour. In other words, real total compensation tends to equal the amount the worker adds to the firms revenue. Information asymmetry, etc., leads to disequilibrium, but in the long run, this theory seems to be empirically successful. Do you dispute this?


Yes, it's about as scientific as saying that there are magical elves inside all matter that pull things towards themselves. Sure it might be a theory that explains the observation but it doesn't tell us anything new. The goal of science isn't to provide explanations that seem to fit the facts, it's to generate notions of cause and effect that help us understand the world around us better.

I disagree. Explaining cause and effect is certainly the end goal of science, but how do we verify these theories of cause and effect? The two primary methods are logical deduction and induction. Mainstream economic theory utilizes both, and the most common form of induction used is the prediction based empiricism I mentioned before (this really took off after a paper in the 1950s by Milton Friedman). Do you have any better suggestions for verification?


Well as I understand it the conclusion is based on the idea that each individual will attempt to maximise her individual welfare and that this can be magnified up to the level of mass society.

Not necessarily. There is usually no requirement for individuals to maximize their utility functions (and thus individual welfare) in most theories. Simply put, welfare economics usually just takes current overall utility as a given, and then asks questions like "does this make anybody better off without making anybody else worse off?". So, it's usually just analyzing changes between states rather than stating anything about the initial state itself.


1) It assumes that everyone has similar tastes

It needs to because otherwise they would have to come to the conclusion that income distribution has an affect on total social welfare.

It all depends on the type of social welfare function (and the corresponding social indifference curve) being analyzed. For example, the "maximin" social welfare function considers changes in the utility of societies least "happy" (for want of a better word) member to have a greater effect on overall social welfare than changing the utility of other members. Of course, as economics is value-free, it cannot say which social welfare function is the most ethical, but it can analyze the causes and effects involved with any given function. So, I think it's incorrect to say that welfare economics assumes that everyone has the same marginal utility of income (which is what you seemed to mean by "similar tastes").


2) It assumes that people with higher incomes will continue to have the same tastes as before

So if we increase the income of one group the only thing that will happen is they'll spend a larger amount one what they were before.

I don't think that's correct. I haven't seen anybody claim that the distribution of spending stays the same despite changes in income. Indeed, such a claim would directly contradict microeconomic theories of the income effect, inferior goods, etc.


I'd say that says more about humanity than the greatness of the market system.

It undoubtedly says something about humanity, but do you not agree that the profit motive has an effect (although you may think it is a negative effect) on technological progress?


:lol:

Hate to dissapoint you but the soviet union was no socialist country.

Perhaps not, but I'm not interested in getting into semantics; the Soviet Union was certainly a distinct form of economic organization, in any case. My point was simply that economists do not take current institutional structures as a given, and that things like the "socialist calculation debate" are evidence of this. It's evidence of economists analyzing different economic structures.


"Leftists" is a bit broad,

I agree, but I chose it because I wanted to get the perspectives of the various different ideologies that users on this board follow.


but Joan Robinson nicely sums up how Marxists might answer your question:

I disagree with the assertion mainstream economics accepts capitalism as "part of the eternal order of Nature". Mainstream economics usually tends to analyze capitalism because (for better or for worse) it is the most common form of economic organization, but I don't think there is usually a pronouncement on whether it can be changed. Indeed, as I said to another poster, things like the "socialist calculation debate" are evidence that mainstream economics does analyze other economic systems.

The second assertion is also incorrect, in my opinion, because it seems to conflate silence with agreement. It is true that most economists don't analyze class conflict, but this isn't because they don't think it exists (indeed, many socialist economist like Abba Lerner clearly thought it did exist); rather, it's because they don't think that it has any economic relevance. The implications of things like class conflict are more sociological; it doesn't affect, for example, the laws of supply and demand, and the implications of those laws.


Unless an economist is actively working to expose and undermine capitalism, what possible good can s/he serve? Mainstream economists, by virtue of their being accepted as such, are by definition worthless.

This is the wrong way of looking at things, in my opinion, because it doesn't answer the question of whether or not mainstream economics is valid. You've simply assumed that because it doesn't tend to support your ideology, it must be invalid, but that's fallacious. Unless you agree with mainstream economics, but want your ideology for some other reason (e.g. religious/moral reasons), I don't see how you can make such a claim.


Conclusion perhaps but very bad one at that. These "models", "market socialists" and "Pareto-optimal outcomes" (WTF?!) never ever calculate the impact of markets on the entire population they have an impact on. In english: they ignore imperialism, and the impact that markets (even welfare ones), have on the global scale.

I don't think that's true. There are many, many studies of the effects of international trade on global welfare (basically just applying standard welfare economics to the world market). Indeed, this is what most work in trade theory is about in the modern era.


I on the other think that you failed to read the original statement completely. These outrageous claims are being raped everyday in real life. And what do you mean "our" improving 'insert cool word here'? The most "wealthy" countries are generally the most barbarious ones, with high poverty and ridiculous income gaps. It is common knowledge that wealth and progress is done away with for 9/10 of the capitalist world.

I don't think that's correct. A common way of measuring inequality is the Gini coefficient, and that clearly shows that capitalism with a sufficient welfare state is the best way to minimize inequality (of course, economics cannot say that such a goal is objectively good). The human development index is a commonly used proxy for poverty, and that shows the same thing. As for the claim that wealth and progress is "done away with" for most of the capitalist world, I think that's just absurd. Clearly, the trend is for real GDP and productivity to rise in every capitalist country in the world.


Capitalism is a system, not a collection of economists. The system most definately takes itself for granted, as do most of it's supporters.

I don't really see how "the system" can take itself for granted, since it isn't a conscious being. If you mean that it takes itself for granted merely by existing, then surely everything takes itself for granted, which makes the entire phrase meaningless? As for most of its supporters taking it for granted, I expect that this is true. The average person probably thinks of reform rather than wholesale change. I don't see what this has to do with the topic, though; I'm asking about mainstream economic theory, which doesn't take capitalism for granted, as evident by its analysis of other forms of economic organization. Even if it did, I don't see how it invalidates the analysis of capitalism itself (e.g. whether it is allocatively efficient).


My personal beef with capitalism is not that it is "illogical" for it most certainly maximizes profits to the extreme, there is no denying that. But then again that's all it ever can achieve. Humanity is so much more than profits, and society has so much more important priorities to tend to.

So, are you saying that you agree with mainstream economic theory, but that you want to replace capitalism for moral reasons? That's a fair enough position, although I'm interested in whether you believe that the moral values you hold are objective, or whether you believe that it is perfectly legitimate to have other values. For example, I'm willing to tolerate a certain level of inequality for a certain increase in total wealth.


For example, your very supply and demand as a phenomenon quarantees eternal unemployment and shortages.

How so? Supply and demand seems to suggest that capitalism is the most efficient way to minimize unemployment and shortages, although both will always exist due to human error, transaction costs, etc.


This is all very nice, but as a system, capitalism is virtually incapable of using this knowledge for anything else than increasing profits... which is inhumane. People not profits I say!

What if the profit motive is the best way of increasing human welfare? Would this affect your conclusion?


Mainstream (neoclassical) microeconomics is pretty sound. It is in the field of macro where things get iffy. The main problems I have are the abuse of general equilibrium theorizing, the neglect of time, and the failure to fully recognize the heterogeneity of capital.

Macro is undoubtedly more muddled than micro, where everybody is in general agreement. I agree that the concept of general equilibrium has been overused in macro, when things like unemployment and recessions must reasonably be disequilibrium phenomenon. However, at higher levels, general equilibrium theorizing is no longer the norm; I would like to see this trickle down to the textbooks, but it might be too complicated.

As for the neglect of time, I think that may have been true in the first half of the 20th century, but modern economics is all about transaction costs, temporary frictions, etc. The arbitrariness of "short run" and "long run" does annoy me, though. Also, the heterogeneity of capital is usually common in high level models these days. It's a shame that this hasn't gone into the textbooks, because they do deal with heterogeneity of labour (the other main factor of production) and the effect this has on unemployment, output, etc. The heterogeneity of capital is just as important, in my opinion.


It's almost the opposite. Macro at least pretends to be scientific; the right answer on a microeconomics exam I just wrote was something to the effect of, models with realistic assumptions are unwieldy and don't give the right results. Obviously that's not how it was worded, but it's a common theme. The arguments certainly maintain their internal logic, for the most part microeconomists aren't getting the math wrong (although you can talk about the effects of 'externalities' and emergent phenomena in complex systems, and some microeconomists even do so), but the assumptions are totally insane.

I disagree. Microeconomics is more scientific because it takes a dual approach to most problems: logic and induction. Macroeconomics, on the other hand, tends to be much more induction based. This is a problem because a logical structure is necessary to properly evaluate theories. If we look over to the natural sciences, we can see that physics (from Newtonian mechanism to quantum mechanics) has always used both logic (ie. mathematical formalization) and induction. This is a good approach, because verifying/falsifying a theory obviously has implications beyond that immediate theory (ie. it affects the premises, their premises, and so on, as well as any other theories that rely on them). Logic (mainly in the form of mathematics) is the best way to trace these implications. Also, can you list which microeconomic assumptions are "totally insane"?


For example, if you distill concepts like 'allocative efficiency', a central thesis in microeconomics, you basically get the idea that the "right allocation of resources" is based on the extent to which rich people are allowed to buy what they want. It's based on the concept of economic surplus, which is in turn based on demand, which is itself based on how much folks are willing and able to buy products for. But rich people are willing to pay a lot more for luxury goods (over and above their realistic "value" in a normal human sense) than poor people are for food, so if you tax luxury goods to feed poor people it's reducing total economic surplus and thus allocative efficiency - it's a 'logical' argument based on totally idiotic assumptions.

I think this is a misinterpretation of the concept of allocative efficiency. It doesn't suggest that the "right" (an ethical concept) allocation of resources is "based on the extent to which rich people are allowed to buy what they want" (in your words). All allocative efficiency really boils down to is maximizing economic surplus (not the same thing as utility, which you seem to have conflated it with when you brought in the concept of value). Economics can't say whether this is right or wrong, in an ethical sense. It's perfectly rational to want a lower level of economic surplus if it means an increase in equality, but this is an ethical question, not an economic one.


Oh, also economics has a pretense of being amoral and positive and objective, as opposed to being subjective and normative. So it's also profoundly hypocritical.

In my opinion, economics is largely objective. Of course, human bias slips into any human activity, but this is minimal. Can you list some specific examples of mainstream economic theories that you think have subjective and/or normative components? The only area I can think of is welfare economics, but even there, economics doesn't make a judgement on which particular social welfare functions are right or wrong; it just analyzes the causes and effects involved with any given function.


Well as the above states, the opposite is closer to the truth. Microeconomics goes very wrong a lot of the time due to its unrealistic models, but macroeconomics is at least working with something closer to reality.

I've dispute the general theme of this post above, but I do disagree with your assertion that microeconomics goes wrong a lot of the time relative to macroeconomics. The empirical success of the former is why there is so little dispute in the field, compared to the empirical failure (which models predicted the recent financial crisis?) of the former. Also, it's generally the case that macroeconomic models involve a lot more unrealistic assumptions than microeconomic models, simply because the system is so much more complex.


Actually, this is problematic, because the demand and supply functions are never observed in real life. We may observe how much of a certain good is demanded or supplied at price P1, but we usually have no way of knowing how much would be demanded or supplied if the price changed to a hypothetical P2.

It's true that we can't observe supply and demand functions in real life, simply because there can't be multiple prevailing quantities demanded and supplied at any one time. This is an unfortunate limit of reality, but it's not really problematic. The theory is logically sound, and when we control for things like tastes and incomes, the theory is empirically successful. To make a somewhat tenuous analogy with physics, would you say that quantum mechanics is compromised due to the Heisenberg uncertainty principle? I don't think it is, because there are various ways of empirically controlling for the problem, and the logical structure behind quantum mechanics also helps.


This is total bullshit. When was the last time you maximized your utility function?

I think everybody tries to maximize their utility function with every action they take, but we have to keep in mind things like information problems and irrationality.

[Bud Struggle]

^^^ Taking on the entire Forum :D Good post.

[anticap]

... I chose [the broad term "Leftists"] because I wanted to get the perspectives of the various different ideologies that users on this board follow.

I figured as much; I just wanted you to know why I would have to split my reply.


... things like the "socialist calculation debate" are evidence that mainstream economics does analyze other economic systems.

Sure: mainstream (i.e., pro-capitalist) economists seek to debunk opposing views. This is to be expected: attacking anti-capitalists is part and parcel of defending capitalism. And of course this goes both ways.


It is true that most economists don't analyze class conflict, but this isn't because they don't think it exists ...; rather, it's because they don't think that it has any economic relevance.

Of course they don't: apologists for capitalism are forced to divorce it from its social implications (http://www-rohan.sdsu.edu/~rgibson/commodityfetishism.htm), in order to save it from those critiques. This, too, is to be expected.


You've simply assumed that because it doesn't tend to support your ideology, it must be invalid, but that's fallacious.

No: I'm simply daring to look beneath the surface, at the motivating factors, and insisting that others do the same. Further, I don't necessarily deny that mainstream economists may succeed in describing the phenomena that concern them; I simply claim that there's more to the story than they'd like to tell, and that there are better methods to describe both those limited phenomena as well as the bigger picture.

Anyway, I offered you what I think is a fairly accurate response to your question. It wasn't clear to me that you were only asking so that you might defend mainstream economics against those main Leftist objections. I'm not interested in rehashing these issues for the umpteenth time with yet another apologist for the ruling class.

[jake williams]

I think this is a misinterpretation of the concept of allocative efficiency. It doesn't suggest that the "right" (an ethical concept) allocation of resources is "based on the extent to which rich people are allowed to buy what they want" (in your words). ... Economics can't say whether this is right or wrong, in an ethical sense. It's perfectly rational to want a lower level of economic surplus if it means an increase in equality, but this is an ethical question, not an economic one.
Except that economists regularly say that we "should" maximize allocative efficiency, and almost never suggest that we might want to do otherwise. They frame it as an academic point, even though it clearly is precisely the sort of "normative" point that they say they don't make, at least in the course of their academic work. It's easy for them to then say afterward that here I was making a theoretical point and there I was expressing a personal opinion - but it's slimey and dishonest, because they don't ever make that clear at all unless they're really pushed.


All allocative efficiency really boils down to is maximizing economic surplus (not the same thing as utility, which you seem to have conflated it with when you brought in the concept of value).
My whole point is that economic surplus is misidentified with value. It's their error, not mine. I'm trying to remember if one of my profs has explicitly said that a goal of economists is to maximize allocative efficiency. He may have mispoken, but it's an ideological error and thus it's not really an excuse.

[Zanthorus]

I disagree. Explaining cause and effect is certainly the end goal of science, but how do we verify these theories of cause and effect? The two primary methods are logical deduction and induction. Mainstream economic theory utilizes both, and the most common form of induction used is the prediction based empiricism I mentioned before (this really took off after a paper in the 1950s by Milton Friedman). Do you have any better suggestions for verification?

No, I don't think anyone can say with absolute certainty what the best method for making scientific predictions is. However it does seem to me like the predictions of neo-classical economics aren't borne out in reality. How for example, do you explain the fact that Russia has been driven almost to the level of a third world country since it's neo-liberal reforms and that the wealth is now in the hands of a few ogliarchs? And on Milton Friedman, how exactly do you explain the catastrophic failure of Chile? Surely if Friedman's methods were the correct ones it wouldn't have been such a disaster for so many of the population.

Personally if I were analysing an economy I'd start by looking at the different classes withing that economy (determined by relations to production), how they interact, what their general interests are and think about what effect those social relations will have on the economy.


It all depends on the type of social welfare function (and the corresponding social indifference curve) being analyzed. For example, the "maximin" social welfare function considers changes in the utility of societies least "happy" (for want of a better word) member to have a greater effect on overall social welfare than changing the utility of other members. Of course, as economics is value-free, it cannot say which social welfare function is the most ethical, but it can analyze the causes and effects involved with any given function. So, I think it's incorrect to say that welfare economics assumes that everyone has the same marginal utility of income (which is what you seemed to mean by "similar tastes").

By similar tastes, I mean similar tastes with regard to commodities. And stop kidding yourself that economics is "value-free", economists are consulted on proposals and such all the time.


I don't think that's correct. I haven't seen anybody claim that the distribution of spending stays the same despite changes in income. Indeed, such a claim would directly contradict microeconomic theories of the income effect, inferior goods, etc.

As I understand it neo-classicals theorise about the existence of certain "representative goods" i.e where the proportion of consumption in relation to income remains the same as income rises. Except no such goods exist, because consumer preferences change over time and with income.


It undoubtedly says something about humanity, but do you not agree that the profit motive has an effect (although you may think it is a negative effect) on technological progress?

It doesn't seem to have had as much effect as the government funded programs and state-sponsored academics that seem to have contributed more to technological development than the all powerful market with it's profit motives and such.


Perhaps not, but I'm not interested in getting into semantics; the Soviet Union was certainly a distinct form of economic organization, in any case. My point was simply that economists do not take current institutional structures as a given, and that things like the "socialist calculation debate" are evidence of this. It's evidence of economists analyzing different economic structures.

My point wasn't about forms of "economic organisation", or whatever. My point was about modes of production i.e the social relations of production. The social relations of production under capitalism consist of capitalists paying wages to workers for the use of their labour-power for a certain time or for the production of a certain quota of goods. The capitalist then takes what the worker has produced and sells it on for a profit.

The social relations of production under socialism consist of workers managing the economy themselves through either the democratic state as theorised by state socialists or through federating systems of worker councils as theorised by anarchists.

Feudalism, primitive communism and all other historical phases of society are characterised by certain social relations of production and by failing to take these into account and assuming capitalist relations of production as a given mainstream economics exposes the hollowness of it's claims of being "value-free".

[Skooma Addict]

Macro is undoubtedly more muddled than micro, where everybody is in general agreement. I agree that the concept of general equilibrium has been overused in macro, when things like unemployment and recessions must reasonably be disequilibrium phenomenon. However, at higher levels, general equilibrium theorizing is no longer the norm; I would like to see this trickle down to the textbooks, but it might be too complicated.

As for the neglect of time, I think that may have been true in the first half of the 20th century, but modern economics is all about transaction costs, temporary frictions, etc. The arbitrariness of "short run" and "long run" does annoy me, though. Also, the heterogeneity of capital is usually common in high level models these days. It's a shame that this hasn't gone into the textbooks, because they do deal with heterogeneity of labour (the other main factor of production) and the effect this has on unemployment, output, etc. The heterogeneity of capital is just as important, in my opinion.I still don't really think most neoclassical economists have fully integrated the concept of time into their theories. They really don't recognize "time preference" for the most part. I don't know, maybe this has changed in recent years. I don't think a lot of neoclassical macro is as coherent as Austrian macro. Austrian capital theory is far more advanced. The way it builds up from marginal utility theory all the way to price theory is more coherent than anything taught in neoclassical economics.

Overall though, I think neoclassical economics is pretty good, especially when it comes to micro.

[The Red Next Door]

exploitation, unfair trade, and greed and no consideration for people wellbeing and willingness to go far to earn a buck as to damage the environment, remove people from their lands to make more space for their corporation.

[jake williams]

It's worth pointing out that the whole concept of Das Kapital was as a refutation of common beliefs by then-contemporary, now-classical economists.

[REVLEFT'S BIEGGST MATSER TROL]

I thought this would be a good place to ask.

Heres Sraffa:

http://homepage.newschool.edu/het//texts/sraffa/sraffa26.htm

Surprised nobody has posted this already. Anyway - thats the supply curve gone.

[inyourhouse]

^^^ Taking on the entire Forum :D Good post.

It's quite difficult to write such long replies, but I'm hanging in there.


Sure: mainstream (i.e., pro-capitalist) economists seek to debunk opposing views. This is to be expected: attacking anti-capitalists is part and parcel of defending capitalism. And of course this goes both ways.

I don't think that's correct. Abba Lerner and Oskar Lange were both mainstream economists (they accepted principles like marginalism, etc.), but they were also socialists; they defended socialism against the charge that economic calculation was not possible in such a system. Socialists need not reject mainstream economic theory.


Of course they don't: apologists for capitalism are forced to divorce it from its social implications, in order to save it from those critiques. This, too, is to be expected.

They divorce it from its social implications only where those social implications are irrelevant to economics. Economics is (broadly speaking) the study of the allocation of resources; it won't comment on things like alienation, which are covered by areas like sociology. Those things would be covered by economics if they affected economic theory (e.g. the laws of supply and demand), but as far as I know, they don't.

It is perfectly rational to believe that mainstream economic theory is entirely correct, but that the social implications of capitalism nevertheless render it unethical as an economic system. It is irrational, though, to ignore economics simply because it doesn't cover the things covered by sociology. It would be like ignoring physics because it doesn't cover the things covered by chemistry. Clearly, the most rational course of action is to look at all the information.


No: I'm simply daring to look beneath the surface, at the motivating factors, and insisting that others do the same.

What bearing do the motivating factors of economists have on the validity of economic theory? To dismiss/criticize economic theory because of that is fallacious (appeal to motive). Also, isn't it equally true that the motivating factors of leftists lead them to "divorce [their theories] from [their] social implications", etc.? Would it be fair for people to dismiss leftist theories because of the motivations of their proponents?


Further, I don't necessarily deny that mainstream economists may succeed in describing the phenomena that concern them; I simply claim that there's more to the story than they'd like to tell, and that there are better methods to describe both those limited phenomena as well as the bigger picture.

There is certainly more to the story of society than economics tells, just as there is more to the story of the universe than is covered by physics alone (ie. chemistry, biology, etc., are also important). It's important, though, that economics is not simply ignored. If mainstream economic theory is correct, then it provides valuable insights that shouldn't be ignored.


It wasn't clear to me that you were only asking so that you might defend mainstream economics against those main Leftist objections. I'm not interested in rehashing these issues for the umpteenth time with yet another apologist for the ruling class.

I'm sorry you feel that way. I feel that these sort of debates enhance my own understanding of certain issues.


Except that economists regularly say that we "should" maximize allocative efficiency, and almost never suggest that we might want to do otherwise. They frame it as an academic point, even though it clearly is precisely the sort of "normative" point that they say they don't make, at least in the course of their academic work. It's easy for them to then say afterward that here I was making a theoretical point and there I was expressing a personal opinion - but it's slimey and dishonest, because they don't ever make that clear at all unless they're really pushed.

I don't doubt that many (perhaps most) economists say that we should maximize allocative efficiency; economists, like all people, have their own ethical values. What's important is that although economic theory can analyze the implications of various things on allocative efficiency, it cannot prove that maximizing allocative efficiency is the right thing to do. Ergo, I don't think the personal beliefs of economists have any bearing on the validity of economic theory. Out of interest, though, can you point to a peer-reviewed journal article where an economist has conflated normative and positive analysis? Every time that I've read a normative conclusion, it's always made clear that it is, indeed, a normative conclusion.


My whole point is that economic surplus is misidentified with value. It's their error, not mine. I'm trying to remember if one of my profs has explicitly said that a goal of economists is to maximize allocative efficiency. He may have mispoken, but it's an ideological error and thus it's not really an excuse.

Perhaps some economists do make that mistake, but that's a problem with economists, not economic theory. Economic surplus is expressed in monetary terms, rather than the utility terms that value is expressed in, so it is clearly a mistake to conflate the two.


No, I don't think anyone can say with absolute certainty what the best method for making scientific predictions is.

We can say very little with absolute certainty, but that doesn't mean that we shouldn't even attempt to find the best method for understanding cause and effect. Even in the natural sciences, we can't say most of our conclusions with absolute certainty, but that doesn't mean that we should abandon the scientific method. In my view, prediction based empiricism is the method that gives us the most understanding of cause and effect. If you dispute this, you must have an alternative method (even if you're not absolutely certain that it is the best method), unless you're suggesting that we shouldn't try to prove our theories at all.


However it does seem to me like the predictions of neo-classical economics aren't borne out in reality. How for example, do you explain the fact that Russia has been driven almost to the level of a third world country since it's neo-liberal reforms and that the wealth is now in the hands of a few ogliarchs? And on Milton Friedman, how exactly do you explain the catastrophic failure of Chile? Surely if Friedman's methods were the correct ones it wouldn't have been such a disaster for so many of the population.

The problem here is that you're looking at a collection of "neo-liberal reforms", rather than individual policies. Economic theory deals with the effect of, say, a price floor on the price, quantity, quality, etc. of a certain good. It doesn't deal with the effect of a vague bundle of policies that we can label "neo-liberal reforms". Perhaps some of the policies in this bundle were helpful, and perhaps some of them were harmful; we can only tell by looking at individual policies.

Regarding Russia, the fact that the wealth is mostly in the hands of a few oligarchs seems to be more down to the transition from central planning to capitalism (although it's still far from a free market) than down to capitalism itself. Corruption in Russia meant that state businesses were given to a select few individuals. Suppose, though, that the method of privatization had been different; for example, the government could have given every worker a certain share in the newly privatized business. That's still privatization and "neo-liberal", but it would have undoubtedly resulted in much less inequality.

Nevertheless, note that inequality in Russia is declining; in the very long run (a few decades) the method of transition will have no bearing on the inequality at that moment in time. A better method of privatization could have avoided such a long transitional period, of course. As for Chile, I don't quite know which "catastrophic failure[s]" you're referring to. It was arguably a failure politically, but that isn't relevant to economic theory. Also, Chile hardly did everything Friedman would have wanted (particularly politically, but also in the area of monetary policy).


Personally if I were analysing an economy I'd start by looking at the different classes withing that economy (determined by relations to production), how they interact, what their general interests are and think about what effect those social relations will have on the economy.

Okay, that seems reasonable. However, all those things are going to require some method by which to verify your theories; which method would you used? You earlier commented that the mainstream prediction based form of empiricism is perhaps flawed, but you haven't offered a viable alternative. Without any method of testing your theories, how are we supposed to evaluate their validity? Also, how do you deal with the subjectivity that seems (in my opinion) to be inherent in your analysis? Defining classes, for example, must involve some subjective judgments (e.g. is a self-employed person a capitalist or a worker?).


By similar tastes, I mean similar tastes with regard to commodities.

Oh, well that's incorrect. There is no assumption that different individuals have similar tastes.


And stop kidding yourself that economics is "value-free", economists are consulted on proposals and such all the time.

Economists are consulted in proposals to comment on the effects of certain policies. They aren't consulted to say whether a policy is good or bad, in an ethical sense.


As I understand it neo-classicals theorise about the existence of certain "representative goods" i.e where the proportion of consumption in relation to income remains the same as income rises. Except no such goods exist, because consumer preferences change over time and with income.

Standard theory considers three types of goods with regard to income: inferior goods (proportion of consumption decreases as income rises), normal goods (proportion of consumption unchanged as income rises), and superior goods (proportion of consumption increases as income rises). Of course, all goods must be one of those three. As far as I know, though, welfare economics doesn't make any use of these concepts.


It doesn't seem to have had as much effect as the government funded programs and state-sponsored academics that seem to have contributed more to technological development than the all powerful market with it's profit motives and such.

The state has certainly been responsible for a lot of technological progress (e.g. packet switching, which was important for the development of the internet), perhaps even more than the private sector. Nevertheless, the private sector has been responsible for much technological progress, no? The telephone is an example.


Feudalism, primitive communism and all other historical phases of society are characterised by certain social relations of production and by failing to take these into account and assuming capitalist relations of production as a given mainstream economics exposes the hollowness of it's claims of being "value-free".

Okay, but I don't see how these social relations have any bearing on economic theory. If workers owned the means of production through workers councils, then they would simply receive both returns to labour (wages) and returns to capital (profits). Current economic theory would still apply, so I don't see how economics takes current social relations as a given; it's sufficiently generalized to apply to many different forms of social relations.


I still don't really think most neoclassical economists have fully integrated the concept of time into their theories. They really don't recognize "time preference" for the most part. I don't know, maybe this has changed in recent years.

Most modern models usually incorporate time, as evident by dynamic stochastic general equilibrium models now being the most common type of economic model.


I don't think a lot of neoclassical macro is as coherent as Austrian macro. Austrian capital theory is far more advanced. The way it builds up from marginal utility theory all the way to price theory is more coherent than anything taught in neoclassical economics.

That's probably true. Neoclassical capital theory was also compromised in the "Cambridge capital controversy", but unfortunately, the textbooks still ignore this development. Going back to what I said to another poster, though, mainstream economic theory is more empirical than Austrian theory, so they're willing to put up with unrealistic assumptions if they results in accurate predictions. If Austrians were willing to present their capital theory mathematically and empirically (even if only for the sake of argument), I think it would be incorporated into the mainstream.


exploitation, unfair trade, and greed and no consideration for people wellbeing and willingness to go far to earn a buck as to damage the environment, remove people from their lands to make more space for their corporation.

Exploitation has no bearing on economics, so it is rightly studied by sociologists, not economists. "Unfair" trade is an ethical concept, so it can't legitimately be studied by economists (although economics can tell us the economic implications of different trade policies). I don't know what you're getting at with "greed". As for people's wellbeing, this is studied by welfare economics. The environment is studied in environmental economics, and in the context of things like externalities. If by "remove people from their lands" you mean eminent domain, then there are a few studies on the economic implications of such a policy.


It's worth pointing out that the whole concept of Das Kapital was as a refutation of common beliefs by then-contemporary, now-classical economists.

Das Kapital had it's own problems, though, from what I've read; the labour theory of value is probably the most well known.


Surprised nobody has posted this already. Anyway - thats the supply curve gone.

Sraffa is criticizing the use of partial equilibrium analysis, which was common at the time. Economists now use general equilibrium analysis, and Sraffa himself admits that this is a solution, but rejects it simply due to its complexity, which I see as a poor reason:

"When we proceed to a further approximation, while keeping to the path of free competition, the complications do not arise gradually, as would be convenient; they present themselves simultaneously as a whole. If diminishing returns arising from a "constant factor" are taken into consideration, it becomes necessary to extend the field of investigation so as to examine the conditions of simultaneous equilibrium in numerous industries: a well-known conception, whose complexity, however, prevents it from bearing fruit, at least in the present state of our knowledge, which does not permit of even much simpler schemata being applied to the study of real conditions."

[IcarusAngel]

Austrian economics teaches that there are certain fundamental principles of human nature that are a priori, and these lead into market based systems as the most effective way to trade. Where is the evidence for this? If you look at their arguments, they cite mathematics as an example of an a priori science, being reducible to logic and not 'depending on the senses' unlike science. They generally cite basic theorems like the pythagorean theorem as evidence, but where is the evidence that, say, the concept of the limit is 'apriori,' which is based on a mathematical study that comes from observations about the real world and is a highly abstract tool designed to support calculus. Mathematics hasn't been considered a solely a priori science.

Also, where is your evidence that economic calculation has disproven cooperative means of production. We know from empirical evidence that the government often outcompetes and invents more frequently than the market, and is able to conduct research into a wide area of fields that are profitable to people but not necessarily to markets.

To post links just separate the link using the space bar.

[anticap]

Abba Lerner and Oskar Lange were both mainstream economists (they accepted principles like marginalism, etc.), but they were also socialists; [...] Socialists need not reject mainstream economic theory.

As I said before, a mainstream economist (even a marginalized one who utilizes mainstream economic doctrine) who works to expose and undermine capitalism is serving as a force for good. Remember that the labor theory of value only became the scourge of capitalists after it was turned against them by such blasphemers.


They divorce it from its social implications only where those social implications are irrelevant to economics. Economics is (broadly speaking) the study of the allocation of resources; it won't comment on things like alienation, which are covered by areas like sociology. Those things would be covered by economics if they affected economic theory (e.g. the laws of supply and demand), but as far as I know, they don't.

The reasons for this sad state of affairs in economics are given in the link you were forced by your low post count to redact. Now that I'm certain you're aware of it, I really do hope you'll read it.


It is irrational [...] to ignore economics simply because it doesn't cover the things covered by sociology.

It isn't irrational to object when a discipline is drawn, quartered, and stripped of the bulk of its explanatory power for reasons that are clearly ideological.

Economics itself is essentially a branch of sociology. The issues you claim are irrelevant to economics were once inextricably linked to it and studied hand-in-hand with it, and for good reason: because they are goddamn relevant.


Clearly, the most rational course of action is to look at all the information.

I could not possibly agree more. Cheers!


What bearing do the motivating factors of economists have on the validity of economic theory?

As I said before (is there an echo in here?), I don't necessarily deny the "validity" of mainstream economics insofar as it achieves what it sets out to do... (and you can scroll up or click back for the rest).


Would it be fair for people to dismiss leftist theories because of the motivations of their proponents?

The motivations are NOT morally equivalent. One is a system of apologetics for the vampire class; the other seeks to defend the working class (who produce all wealth) against capitalist tyranny. (My ire is now raised. Fuck.)


If mainstream economic theory is correct, then it provides valuable insights that shouldn't be ignored.

Proponents of mainstream economics are in no position to make such an appeal. There were plenty of insights to be had before these studiously neutral folks reduced the discipline to a myopic exercise in justifying existing economic relations. These insights were worse than useless to such folks: they were dangerous. So they were not only ignored: they were buried (alive, I'm happy to say; you see, freedom -- a.k.a. "socialism" -- is like a virus that just keeps adapting and coming back for another attempt at propagating itself among the whole population. Let tyrants tremble!).


I feel that these sort of debates enhance my own understanding of certain issues.

Yes, well, I'd really rather not assist you in that, for reasons I'm sure you'll understand. The quest for freedom, and all that. :)

[Zanthorus]

The problem here is that you're looking at a collection of "neo-liberal reforms", rather than individual policies. Economic theory deals with the effect of, say, a price floor on the price, quantity, quality, etc. of a certain good. It doesn't deal with the effect of a vague bundle of policies that we can label "neo-liberal reforms". Perhaps some of the policies in this bundle were helpful, and perhaps some of them were harmful; we can only tell by looking at individual policies.

Regarding Russia, the fact that the wealth is mostly in the hands of a few oligarchs seems to be more down to the transition from central planning to capitalism (although it's still far from a free market) than down to capitalism itself. Corruption in Russia meant that state businesses were given to a select few individuals. Suppose, though, that the method of privatization had been different; for example, the government could have given every worker a certain share in the newly privatized business. That's still privatization and "neo-liberal", but it would have undoubtedly resulted in much less inequality.

Nevertheless, note that inequality in Russia is declining; in the very long run (a few decades) the method of transition will have no bearing on the inequality at that moment in time. A better method of privatization could have avoided such a long transitional period, of course. As for Chile, I don't quite know which "catastrophic failure[s]" you're referring to. It was arguably a failure politically, but that isn't relevant to economic theory. Also, Chile hardly did everything Friedman would have wanted (particularly politically, but also in the area of monetary policy).

There was an increased divide between classes in chile. And I don't like the sound of that "looking at individual reforms." Seems like another attempt at isolation and abstraction rather than observing things in totality.


Okay, that seems reasonable. However, all those things are going to require some method by which to verify your theories; which method would you used? You earlier commented that the mainstream prediction based form of empiricism is perhaps flawed, but you haven't offered a viable alternative. Without any method of testing your theories, how are we supposed to evaluate their validity? Also, how do you deal with the subjectivity that seems (in my opinion) to be inherent in your analysis? Defining classes, for example, must involve some subjective judgments (e.g. is a self-employed person a capitalist or a worker?).

Defining classes doesn't require any level of subjectivity and I think Marx managed to cover pretty much all the bases. With regard to your example a self-employed person is neither bourgeois (Capitalist) nor proletariat (Worker) they're a third class known as the "petit-bourgeois" and are examined as such.

These theories are tested empirically just like most economic theories, the point is that we start from what's actually happening instead of vague generalisations.


Oh, well that's incorrect. There is no assumption that different individuals have similar tastes.

I was under the impression that it was necessary in order to get a downard sloping demand curve.


Economists are consulted in proposals to comment on the effects of certain policies. They aren't consulted to say whether a policy is good or bad, in an ethical sense.

Yeah, I'm sure as good automotons there isn't a hint of bias in the proposals given by any economist ever. It's all just amoral commentating from a totally objective standpoint...


Standard theory considers three types of goods with regard to income: inferior goods (proportion of consumption decreases as income rises), normal goods (proportion of consumption unchanged as income rises), and superior goods (proportion of consumption increases as income rises). Of course, all goods must be one of those three. As far as I know, though, welfare economics doesn't make any use of these concepts.

Well according to Steve Keen:


The shapes show how demand for a given commodity changes as a function of income and four broad classes of commodity result... 'representative goods' where consumption remains a constant proportion of income as income rises.


The state has certainly been responsible for a lot of technological progress (e.g. packet switching, which was important for the development of the internet), perhaps even more than the private sector. Nevertheless, the private sector has been responsible for much technological progress, no? The telephone is an example.

Fine, I'll concede that the profit motive has an effect on innovation. But what about the broader social consequences of seeking profit in an unregulated market such as externalities. And an explanation for how any of those third world sweatshops is improving anyone's lives...


Okay, but I don't see how these social relations have any bearing on economic theory. If workers owned the means of production through workers councils, then they would simply receive both returns to labour (wages) and returns to capital (profits). Current economic theory would still apply, so I don't see how economics takes current social relations as a given; it's sufficiently generalized to apply to many different forms of social relations.

Well if you read Marx, you'll see how he derives economic conclusions from the social relations of production.


Das Kapital had it's own problems, though, from what I've read; the labour theory of value is probably the most well known.

The Labour Theory isn't a problem...

[Skooma Addict]

Austrian economics teaches that there are certain fundamental principles of human nature that are a priori, and these lead into market based systems as the most effective way to trade. Where is the evidence for this?

Not all Austrian economists have the same assumptions about human nature. So it depends on the person. One of the main assumptions is that people act to substitute a more satisfactory state of affairs for a less satisfactory state of affairs. Another is that all other things being equal, people prefer a good sooner rather than later.


Also, where is your evidence that economic calculation has disproven cooperative means of production. We know from empirical evidence that the government often outcompetes and invents more frequently than the market, and is able to conduct research into a wide area of fields that are profitable to people but not necessarily to markets.

Saying that the government "outcompetes" a private firm makes no sense. The government can obtain money through taxation and inflation. More importantly, it is not subject to the same profit/loss test as private firms are. The money that went into government research projects is money the would have gone elsewhere.


The Labour Theory isn't a problem...


Yea it is. For the most part, the only people who adhere to the LTV are utopians who are desperate to cling to their ideology. The value of something exists solely in the minds of individuals. Just like there is no standard measurement of friendship or love, there is no measurement for the value of commodities.

[anticap]

The value of something exists solely in the minds of individuals.

:laugh: It's fookin' magic, says 'e!


Just like there is no standard measurement of friendship or love, there is no measurement for the value of commodities.

At this point, having had the terms "use-value" and "exchange-value" thrown at you perhaps hundreds of times, and having had them explained in detail perhaps dozens of times, it is transparently obvious that you are a troll. That's not to say that you have to accept the distinction or its implications; but it does mean that it's reasonable for us to expect you to acknowledge that we operate under the distinction, and to stop carrying on as though you'd never heard of the distinction. By continuing to carry on this way, you make it clear that you have zero interest -- none, whatsoever -- in participating in an exchange of ideas. Rather, you are here to sow discord and spread FUD, and should by all rights be banned for your continual disruptions. Nothing is served by trolls like you repeating your mantras like broken records. All it does is keep us tied up in repeating ourselves back at you, whereas the goal ought to be to make incremental progress as issues are resolved -- even if only for the sake of discussion -- so that they can be built upon in the next stage of the cordial exchange of ideas. This, evidently, is not what you and your lot are here for. Please go away.

[Skooma Addict]

It's fookin' magic, says 'e!

But value does exist solely in the minds of individuals.


At this point, having had the terms "use-value" and "exchange-value" thrown at you perhaps hundreds of times, and having had them explained in detail perhaps dozens of times, it is transparently obvious that you are a troll. That's not to say that you have to accept the distinction or its implications; but it does mean that it's reasonable for us to expect you to acknowledge that we operate under the distinction, and to stop carrying on as though you'd never heard of the distinction. By continuing to carry on this way, you make it clear that you have zero interest -- none, whatsoever -- in participating in an exchange of ideas. Rather, you are here to sow discord and spread FUD, and should by all rights be banned for your continual disruptions. Nothing is served by trolls like you repeating your mantras like broken records. All it does is keep us tied up in repeating ourselves back at you, whereas the goal ought to be to make incremental progress as issues are resolved -- even if only for the sake of discussion -- so that they can be built upon in the next stage of the cordial exchange of ideas. This, evidently, is not what you and your lot are here for. Please go away.

What are you bringing up use-value and exchange-value for? All I said was "Just like there is no standard measurement of friendship or love, there is no measurement for the value of commodities." All I did was briefly state my beliefs concerning value. The rest of your temper tantrum is one giant red herring.

[anticap]

But value does exist solely in the minds of individuals.

:laugh: It never gets old, I tells ye!


What are you bringing up use-value and exchange-value for? All I said was "Just like there is no standard measurement of friendship or love, there is no measurement for the value of commodities." All I did was briefly state my beliefs concerning value. The rest of your temper tantrum is one giant red herring.

No, see, this is what my "temper tantrum" was all about; and you're still doing it, immediately after being called on it. You're completely ignoring the distinction drawn by most of us at this site -- the people you are ostensibly here to try to understand, which means that you must be willing to listen -- between use-value and exchange-value. You're conflating the two, as your lot are wont to do. Since repeating this over and over doesn't get us anywhere, one may be excused for asking: Why exactly are you here? But of course, the answer is all too clear: you're trolling. This will be our last "exchange." Toodle-oo, Troll-e-pooh!

[Kwisatz Haderach]

Well, here is my attempt at an equally long reply to your long replies, inyourhouse:


I disagree. Most undergraduate textbooks will talk about oligopoly/monopoly and oligopsony/monopsony) as well as perfect competition. At the scholarly level, this line of research is even more prevalent (a lot of game theory is used to investigate such market forms). I think it's rare in the modern era to find a model based on perfect competition, unless it's purely being used for the sake of example.
Heh. You begin your post by conceding that perfect competition is an unrealistic model which hardly ever exists in the real world, and then, in the rest of your post, you make several arguments which rely on the assumption of perfect competition. I will point them out for you.

This is not really a flaw with neoclassical economics as such, but it is certainly an error of judgment that neoclassical economists seem to make all the time: they admit that Model X is unrealistic or inadequate, and then they proceed to use it anyway.

For example, most neoclassical macro textbooks introduce GDP in chapter 3 or 4, explain all the flaws of using GDP as a measure of welfare, and then ignore their own warnings and use GDP as a measure of welfare for the next 20 chapters.


I think there is a rational distinction: competition. The waste in the former can be minimized (not eliminated, of course), while the waste in the latter cannot.
Competition? I am not sure if you are referring to perfect competition here, but even if you are not, it sounds like you are saying that any degree of competition, no matter how small, is enough to produce the same wonderfully efficient outcomes as perfect competition.

Also - and this is another common problem affecting all of neoclassical economics - you fail to take into account the possibility of non-monetary incentives and non-monetary ways to reduce waste. For example, in a planned economy, the incentive to reduce waste is political: economic decisions are made by elected representatives of the people, and those representatives can only expect to keep their jobs as long as they provide satisfactory economic results.


Going back to something I mentioned earlier, there is also the issue of the socialist calculation debate. That's a bit too complicated to get into here, but it implies that the former scenario will be less wasteful because firms (unless they're fully vertically integrated monopolies) can use other prices to make decisions, whereas full-scale central planning doesn't have this information.
So now you're taking the Austrian side in the calculation debate? Do I need to remind you that neoclassical economics was employed by the socialist side?


Perhaps not, but I'm not interested in getting into semantics; the Soviet Union was certainly a distinct form of economic organization, in any case. My point was simply that economists do not take current institutional structures as a given, and that things like the "socialist calculation debate" are evidence of this. It's evidence of economists analyzing different economic structures.
Yes, except that the calculation debate was mostly between Marxist and Austrian economists. Neoclassical economics was cited by the Marxist side in its defence, but no mainstream economists got involved in the debate.

You are defending the mainstream by making reference to a debate that the mainstream largely ignored.


I disagree. Explaining cause and effect is certainly the end goal of science, but how do we verify these theories of cause and effect? The two primary methods are logical deduction and induction. Mainstream economic theory utilizes both, and the most common form of induction used is the prediction based empiricism I mentioned before (this really took off after a paper in the 1950s by Milton Friedman). Do you have any better suggestions for verification?
If some of the other comrades actually object to prediction-based empiricism, then I disagree with them. I fully endorse empiricism as the proper way to do science.

The problem with mainstream economics is not empiricism in general, but rather the particular things that mainstream economics predicts, and the question of whether those predictions are, in fact, accurate in the real world.


I disagree with the assertion mainstream economics accepts capitalism as "part of the eternal order of Nature". Mainstream economics usually tends to analyze capitalism because (for better or for worse) it is the most common form of economic organization, but I don't think there is usually a pronouncement on whether it can be changed.
Mainstream economics usually operates on the assumption that people's economic behaviour in the market is separate from their behaviour in other spheres of life. You provide a perfect example of this attitude, with your continual insistence that topic X or Y can be ignored in a discussion of economics.

I suggest you read Karl Polanyi's The Great Transformation. The market is not separate from society, and economics should not be separated from sociology.


I don't think that's correct. A common way of measuring inequality is the Gini coefficient, and that clearly shows that capitalism with a sufficient welfare state is the best way to minimize inequality (of course, economics cannot say that such a goal is objectively good).
Excuse me? I must remind you that the lowest recorded Gini coefficients were in Soviet-style societies, not in "capitalism with a sufficient welfare state".


The human development index is a commonly used proxy for poverty, and that shows the same thing. As for the claim that wealth and progress is "done away with" for most of the capitalist world, I think that's just absurd. Clearly, the trend is for real GDP and productivity to rise in every capitalist country in the world.
The trend is for real GDP and productivity to rise in (almost) every country that has ever measured real GDP and productivity. You are praising capitalism for doing what every other modern economic system has also been able to do.


For example, I'm willing to tolerate a certain level of inequality for a certain increase in total wealth.
What about the issue of property? As you should know, equality is only half of what concerns us. The other half is property over the means of production. Have you considered the possibility that a change in the dominant forms of property would fundamentally change the terms of the problem of increasing wealth?

As a side note, this is the main reason why we find any discussion of Pareto optimality to be completely irrelevant. We are not interested in maintaining the current property relations; in fact, we are determined to change them. That means that some people - the capitalists - will lose out. Tough.


How so? Supply and demand seems to suggest that capitalism is the most efficient way to minimize unemployment and shortages, although both will always exist due to human error, transaction costs, etc.
Here you are using the model of perfect competition, after admitting in the same post that it is a highly unrealistic model.

Also, even if capitalism could "minimize" unemployment, you should remember that socialism can eliminate unemployment entirely.


What if the profit motive is the best way of increasing human welfare? Would this affect your conclusion?
Define "welfare."


It's true that we can't observe supply and demand functions in real life, simply because there can't be multiple prevailing quantities demanded and supplied at any one time. This is an unfortunate limit of reality, but it's not really problematic.
Hahahahahahaha!!! An unfortunate limit of reality! This is exactly the kind of attitude that makes us dismiss neoclassical economics.

No, my friend, this is not a limitation of reality. This is a major limitation of your theory. And it undermines your claims to empiricism.


The theory is logically sound, and when we control for things like tastes and incomes, the theory is empirically successful.
I'm sorry, but what do tastes and incomes have to do with the fact that you cannot empirically verify demand and supply functions?

And how can the theory be empirically successful if there is no empirical test to determine when equilibrium has been reached?


To make a somewhat tenuous analogy with physics, would you say that quantum mechanics is compromised due to the Heisenberg uncertainty principle? I don't think it is, because there are various ways of empirically controlling for the problem, and the logical structure behind quantum mechanics also helps.
As far as I'm aware, physics does not attempt to make predictions which rely on knowing something that is unknowable due to the Heisenberg uncertainty principle.


I think everybody tries to maximize their utility function with every action they take, but we have to keep in mind things like information problems and irrationality.
I think that explaining people's behaviour with utility functions is like explaining gravity with magical elves that make pieces of matter attract each other. There are no utility functions in real life. This is blatantly obvious. People do not make an effort to maximize anything when they go shopping.

So, a theory based on utility functions may be capable of making accurate predictions, but it is obviously based on false premises.


Economics is (broadly speaking) the study of the allocation of resources; it won't comment on things like alienation, which are covered by areas like sociology. Those things would be covered by economics if they affected economic theory (e.g. the laws of supply and demand), but as far as I know, they don't.
When an entire field of science is devoted to finding the best way to achieve X, it is laughable for you to claim that people working in that field are not particularly inclined to believe that X is desirable. Of course they think it's desirable, otherwise they would not be spending all their time trying to find the best path to X.

Investing time and energy in studying the optimal allocation of resources carries the implicit assumption that the optimal allocation of resources is a very important thing to study. Thus, mainstream economics has an implicit bias in favour of optimal allocation of resources as the most important goal of society.


Perhaps some economists do make that mistake, but that's a problem with economists, not economic theory. Economic surplus is expressed in monetary terms, rather than the utility terms that value is expressed in, so it is clearly a mistake to conflate the two.
Correct me if I'm wrong, but isn't the notion of "economic surplus" based on the weird idea of taking the difference between the actual price of a product and some hypothetical price that buyers or sellers might be willing to accept under some counterfactual conditions?


We can say very little with absolute certainty, but that doesn't mean that we shouldn't even attempt to find the best method for understanding cause and effect. Even in the natural sciences, we can't say most of our conclusions with absolute certainty, but that doesn't mean that we should abandon the scientific method.
I completely agree with this.

Olaf, take note. This is the proper response to your Austrian voodoo methodology.


Nevertheless, note that inequality in Russia is declining; in the very long run (a few decades) the method of transition will have no bearing on the inequality at that moment in time. A better method of privatization could have avoided such a long transitional period, of course.
Yes, and the Soviet Union continued to experience economic growth all the way up to 1986. This means that, in the very long run, the Soviet system could have reached any particular level of prosperity that you might care to choose as an arbitrary target. So, if the "very long run" is the only thing we care about, then there was no need for any kind of transition at all - and in fact the transition was extremely harmful.


Also, how do you deal with the subjectivity that seems (in my opinion) to be inherent in your analysis? Defining classes, for example, must involve some subjective judgments (e.g. is a self-employed person a capitalist or a worker?).
We use simplifying assumptions, just as you do. In the basic Marxist models of capitalism, there are only workers and capitalists. Self-employed people and other social categories can be added as complicating factors in more complex models. But, as long as such people represent a small enough part of the population, they do not make much of a difference in the final conclusion.


Nevertheless, the private sector has been responsible for much technological progress, no? The telephone is an example.
You should be aware that Marxism does not deny the ability of capitalism to produce technological progress. On the contrary, we have said from the very beginning that capitalism is superior to feudalism and to all pre-industrial modes of production. But capitalism is inferior to socialism.


If by "remove people from their lands" you mean eminent domain, then there are a few studies on the economic implications of such a policy.
Actually, he probably means the Enclosure of the Commons, which played a major role in the birth of capitalism.


Exploitation has no bearing on economics, so it is rightly studied by sociologists, not economists.
You are mistaken. In Marxist economics, exploitation is absolutely central. Marxist economics concerns itself with things like surplus value, the rate of exploitation, and the rate of profit - all of which depend on the realization that workers produce a certain amount of value and some of that value is appropriated by the capitalists. In other words, exploitation occurs.

[Skooma Addict]

I completely agree with this.

Olaf, take note. This is the proper response to your Austrian voodoo methodology.

You mean methodological individualism? Look at this and tell me where you disagree...

"Menger thought the best method of studying economics was through reason and finding general theories which applied to broad areas. Menger, as did the Austrians, concentrated upon the subjective, atomistic nature of economics. He emphasized the subjective factors. He said the grounds for economics were built upon self-interest, evaluation on the margin, and incomplete knowledge. He said aggregative, collective ideas could not have adequate foundation unless they rested upon individual components."

As for voodoo, that title belongs to historical materialism. I think Karl Popper among others did a great job refuting the doctrine. Also, are you a strict logical positivist? Because logical positivism has been clearly refuted.

[Kwisatz Haderach]

You mean methodological individualism?
I was actually thinking of a priori rationalism, which, when applied to the study of the physical universe, is little more than mental masturbation. Methodological individualism is deeply flawed, but it is not utterly ridiculous.


Look at this and tell me where you disagree...

"Menger thought the best method of studying economics was through reason and finding general theories which applied to broad areas. Menger, as did the Austrians, concentrated upon the subjective, atomistic nature of economics. He emphasized the subjective factors. He said the grounds for economics were built upon self-interest, evaluation on the margin, and incomplete knowledge. He said aggregative, collective ideas could not have adequate foundation unless they rested upon individual components."
I disagree with pretty much everything in that paragraph:

1. Human behaviour in general - and economic behaviour in particular - is governed by variable laws which depend on the mode of production. Very few things are constant and unchanging. Looking for "general theories which apply to broad areas" is unhelpful.
2. Individuals are not independent agents. Looking at society through an atomistic lens is stupid.
3. Self-interest is indeed very important to economics, but not in the narrow sense of trying to maximize one's personal monetary gain. Rather, self-interest should be understood as a general tendency to do things that will benefit oneself in some way or other.
4. Evaluation on the margin is applicable in some circumstances, but not in others.
5. Incomplete knowledge is a problem that can be fixed.
6. The whole is greater than the sum of its parts. All social structures, including economic ones, may have emergent properties.


As for voodoo, that title belongs to historical materialism. I think Karl Popper among others did a great job refuting the doctrine.
Karl Popper claimed that historical materialism made unfalsifiable predictions, which is not true.


Also, are you a strict logical positivist?
No. Although, to be fair, I never studied positivism, so I can't be sure to what extent I may agree or disagree with it.

[Skooma Addict]

I was actually thinking of a priori rationalism, which, when applied to the study of the physical universe, is little more than mental masturbation. Methodological individualism is deeply flawed, but it is not utterly ridiculous.

I see. I don't entirely agree, but I am not going to discuss this right now because otherwise we will be arguing too many things at once. So I will just leave that as it stands.


1. Human behaviour in general - and economic behaviour in particular - is governed by variable laws which depend on the mode of production. Very few things are constant and unchanging. Looking for "general theories which apply to broad areas" is unhelpful.
2. Individuals are not independent agents. Looking at society through an atomistic lens is stupid.
3. Self-interest is indeed very important to economics, but not in the narrow sense of trying to maximize one's personal monetary gain. Rather, self-interest should be understood as a general tendency to do things that will benefit oneself in some way or other.
4. Evaluation on the margin is applicable in some circumstances, but not in others.
5. Incomplete knowledge is a problem that can be fixed.
6. The whole is greater than the sum of its parts. All social structures, including economic ones, may have emergent properties.

1. I don't think human behavior will vary according to the mode of production. Beginning from the dawn of mankind to today, people have always acted to substitute a more satisfactory state of affairs for a less satisfactory state of affairs.
2.Well strictly speaking, individuals are independent agents. Society is just a collection of individuals, and we can see how a society will form looking solely at the motives of individuals.
3. I agree, and so does Menger.
4. As far as economic goods go, marginalism holds true. Where do you think it fails?
5. How on earth would we fix the "problem" of incomplete knowledge?
6. What do you mean by this? What emergent properties?


Karl Popper claimed that historical materialism made unfalsifiable predictions, which is not true.


Unless Popper strawmanned historical materialism, I am not sure where he went wrong. But there are other very good arguments against historical materialism. I just mentioned Popper specifically since I recently read a book of his which gives a critique of historical materialism.


No. Although, to be fair, I never studied positivism, so I can't be sure to what extent I may agree or disagree with it.

Logical Positivism holds on to the principle of "verification"; namely that you can translate all 'meaningful' statements into statements about sense data, or immediate observable data. Now if you agree with this, then you will likely have a faulty methodology when it comes to economics.

[anticap]

I suggest you read Karl Polanyi's The Great Transformation.

Thanks, Kwisatz. I've added that to my future reading list. It sounds great. Incidentally, the WP article (http://en.wikipedia.org/wiki/The_Great_Transformation) has a link to a critique by the toad Rothbard (I refuse to link it here), which I had scarcely begun to skim when my monitor spat this ball of phlegm at me: "... ignorant, fear-ridden, quasi-animalistic savages...." This is the way he describes so-called "primitive tribes." What an absolutely despicable little piece of viciously racist human garbage. And this is the primary hero of the "libertarian"-right. It's no wonder I encountered such open racism (including African-American slurs that probably hadn't been uttered since the 1950s) when I used to lurk their chat room.

[anticap]

Karl Popper claimed that historical materialism made unfalsifiable predictions, which is not true.

Rosa would have a thing or two to say about Popper.

[Zanthorus]

Yea it is. For the most part, the only people who adhere to the LTV are utopians who are desperate to cling to their ideology. The value of something exists solely in the minds of individuals. Just like there is no standard measurement of friendship or love, there is no measurement for the value of commodities.

That's only true in small isolated situations of barter between two people or the production of something for immediate consumption. In an advanced capitalist economy market forces drive price toward value.

[Zanthorus]

Also RE: Sraffa

Funnily enough some other people came to the same conclusions of Sraffa not by economics but by actually asking firms how they decided on prices. Apparently no-one bothered to actually ask the firms about how they actually operated before they came up with marginal productivity theory :laugh:

More on that here (http://www.debunkingeconomics.com/Value/Actual/Index.htm).

Just one more instance in which conventional economic analysis is divorced from reality.


Sraffa is criticizing the use of partial equilibrium analysis, which was common at the time. Economists now use general equilibrium analysis, and Sraffa himself admits that this is a solution, but rejects it simply due to its complexity, which I see as a poor reason:

"When we proceed to a further approximation, while keeping to the path of free competition, the complications do not arise gradually, as would be convenient; they present themselves simultaneously as a whole. If diminishing returns arising from a "constant factor" are taken into consideration, it becomes necessary to extend the field of investigation so as to examine the conditions of simultaneous equilibrium in numerous industries: a well-known conception, whose complexity, however, prevents it from bearing fruit, at least in the present state of our knowledge, which does not permit of even much simpler schemata being applied to the study of real conditions."

Yes but now problems arise. If you're analysing supply and demand in terms of an entire industry it becomes impossible to seperate supply and demand since you've gotten to a large enough point where supply is going to effect demand unlike analysing single firms and such.

[inyourhouse]

Note: the following posts were all originally one big post, but it kept saying that I was posting links when I put spaces between each one, so sorry for the next load of posts.


Austrian economics teaches that there are certain fundamental principles of human nature that are a priori, and these lead into market based systems as the most effective way to trade. Where is the evidence for this?

Yes, I disagree with that sort of strict Austrian methodology, but I do have some sympathy with it. I think that economists should construct economic theories through logic (mainly in the form of mathematics) based on certain premises (which need not be a priori). From this, a hypothesis should be generated, and then that hypothesis should be tested against our data. The data will either be consistent with the theory or it will be consistent. If the former, there is little problem. If the latter, there are only two possibilities: either the data/econometrics is incorrect or the theory is incorrect.

We should only take the data/econometrics as incorrect if a "better" (larger sample size, more controls), etc., study contradicts it. Even if the data/econometrics is flawed, that usually (unless the data is fraudulent or something) shouldn't be a sufficient reason for disregarding it if it is still the "best" study available. Now, if the data/econometrics is correct, then naturally the theory must be incorrect. It is not the case, though, that the data merely disproves the generated hypothesis, for if the theory is logically constructed, the data must also disprove some of its premises (and their premises, etc.). This should generate more areas of research.

That's my favoured method, anyway: logic and empiricism (not to be confused with logical empiricism!). I'd describe my philosophy as a combination of scientific naturalism and falsificationism, with an emphasis on the holistic nature of knowledge. Austrians rely too heavily on logic, and usually in its weaker form (linguistic as opposed to mathematical). Some mainstream economists also rely too heavily on logic, and some rely too heavily on empiricism. The main corpus of economic thought is justified by both logic and empiricism, though.


If you look at their arguments, they cite mathematics as an example of an a priori science, being reducible to logic and not 'depending on the senses' unlike science. They generally cite basic theorems like the pythagorean theorem as evidence, but where is the evidence that, say, the concept of the limit is 'apriori,' which is based on a mathematical study that comes from observations about the real world and is a highly abstract tool designed to support calculus. Mathematics hasn't been considered a solely a priori science.

Well, the dispute over whether logic and mathematics are empirical is not something I know much about. I think it's reasonable to say, though, that even if logic and mathematics are empirical, they're structurally different from other empirically justified theories. I mean this in the sense that the empirical justifications of mathematical and logical axioms are not "theory-laden" (ie. they don't presuppose any theory beyond the trustworthiness of our own perception), which makes them somewhat unique. In my whole life, I've only taken a two semester course on the philosophy of science, so I'm not going to claim that my position is totally solid.


Also, where is your evidence that economic calculation has disproven cooperative means of production. We know from empirical evidence that the government often outcompetes and invents more frequently than the market, and is able to conduct research into a wide area of fields that are profitable to people but not necessarily to markets.

I didn't take a position on whether it's correct that economic calculation is impossible under socialism in this topic, mainly because I don't know enough about the debate. I merely used it as evidence that economists consider different forms of economic organization and as an example of economists distinguishing between central planning and top-down management. My own personal view is that economic calculation is possible under socialism, but that it is more inefficient than capitalism due to information problems. I will point out, though, that government out-competing and being more innovative than the private sector (whether that's correct or not, I couldn't say) is irrelevant, because the debate is all about price information, and governments in a market economy still have price information.


To post links just separate the link using the space bar.

Okay, I'll do that in future posts. It's not against the rules, is it?

[inyourhouse]

As I said before, a mainstream economist (even a marginalized one who utilizes mainstream economic doctrine) who works to expose and undermine capitalism is serving as a force for good.

Okay, fair enough. It's worth pointing out, though, that these mainstream economists didn't merely accept concepts like marginalism for the sake of argument; they did agree with such concepts. This does have important consequences, because it led the likes of Lerner and Lange to support a form of "market socialism", which is quite distinct from communism or other forms of socialism.


Remember that the labor theory of value only became the scourge of capitalists after it was turned against them by such blasphemers.

I don't think that's correct. There is evidence of economists adopting a marginalist theory of value against the labour theory of value as early as the 18th century (e.g. Turgot*). Also, the first marginalist work of the "marginal revolution" was published in 1863, written by Jevons**. This was before Das Kapital (1867), although I'm not sure about what other socialist works on the labour theory of value were written before then. It's probably true that marginalism didn't become the dominant theory in economics until a few years after the first volume of Das Kapital (Menger's work was published in 1871, and Walras' was published in 1874). Nevertheless, even if this was down to a dislike of socialism, that doesn't really have any bearing on whether or not marginalism is the correct theory.

* homepage.newschool.edu/het//profiles/turgot.htm
** socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/jevons/mathem.txt


The reasons for this sad state of affairs in economics are given in the link you were forced by your low post count to redact. Now that I'm certain you're aware of it, I really do hope you'll read it.

Sorry, I've just gone back and read that. It doesn't seem to directly contradict me, though. The author seems to have a problem with economists who claim that "economics has replaced political economy", and I would agree that such a claim is incorrect, because the two fields deal with different things. The former deals with "scarcity, prices, and resource allocation", while the latter deals with "production relations which are established among people in the process of production". I have no problem with this view.

The author then goes on to claim that political economic theory does have some impact on economic theory, which is something I said should be incorporated into our economic theories if true. However, I don't think the author has successfully demonstrated his thesis. For example, the author claims that Marx's theory of alienation justifies his value theory ("[t]he product of labour is labour which has been embodied in an object"). Yet when we actually try to find a rule to transform this labour embodiment into market prices, we end up with the transformation problem. It can be mathematically demonstrated that there is no function that can transform "embodied labour" into market prices*. That appears to show that there must be some error in Marx's value theory, and if that value theory is the logical conclusion of his theory of alienation, then it shows some error in that too.

I think this is not so much a problem with the field of political economy, but with the methodology of many political economists: verbal analysis with many poorly defined variables. It is easy for contradictions, mistakes, and fallacies to slip into such a form of analysis. I'm interested in whether there is a mathematical statement of Marxist economics, and theories like alienation, exploitation, etc.; do you know of any?

* jstor.org/fcgi-bin/jstor/listjournal.fcg/00220515/.1-.10


It isn't irrational to object when a discipline is drawn, quartered, and stripped of the bulk of its explanatory power for reasons that are clearly ideological.

Even if it is stripped of "the bulk of its explanatory power" (something I don't agree with), that doesn't mean that it has no explanatory power. It is still useful to study "scarcity, prices, and resource allocation", because at least two of those issues will exist under any form of economic organization.


Economics itself is essentially a branch of sociology. The issues you claim are irrelevant to economics were once inextricably linked to it and studied hand-in-hand with it, and for good reason: because they are goddamn relevant.

Can you give me a clear, concise (and preferably mathematical and empirical) statement of a standard economic theory that is contradicted by a theory from sociology or political economy? I've already pointed out the problem the theory of alienation and the resulting labour theory of value.


I could not possibly agree more. Cheers!

I'm glad we're in agreement.


As I said before (is there an echo in here?), I don't necessarily deny the "validity" of mainstream economics insofar as it achieves what it sets out to do... (and you can scroll up or click back for the rest).

Okay, but the problem I had with your response is that it seems to claim that there are "better methods" for studying society rather than complementary methods. If you agree with the statement "standard economic theory is one of many tools necessary to fully understand society", then we have no dispute. If, on the other hand, you agree with the statement "standard economic theory should be replaced by other methods (e.g. sociology) to give us a full understanding of society", then we are in disagreement.


The motivations are NOT morally equivalent. One is a system of apologetics for the vampire class; the other seeks to defend the working class (who produce all wealth) against capitalist tyranny. (My ire is now raised. Fuck.)

The motives may not be the same, and they may not be morally equivalent, but the point is that they exist. I'm wondering whether you believe that somebody can rationally ignore your theories about alienation, etc., because your motive is "to defend the working class", which necessitates those theories. I'd say that they can't, but you seem to think that motives should be relevant when choosing between theories.


Proponents of mainstream economics are in no position to make such an appeal. There were plenty of insights to be had before these studiously neutral folks reduced the discipline to a myopic exercise in justifying existing economic relations.

I'd still like to see an example of an economic theory that would be incorrect under a different system of economic/social relations.


These insights were worse than useless to such folks: they were dangerous.

Maybe so, but suppressing scientific knowledge because it may be "dangerous" doesn't seem like a rational or reasonable thing to do. Galileo's theories were dangerous to the Vatican; does that justify their persecution of him and their attempts to bury those theories? Note that I'm not asking you about the validity of Catholicism; I'm simply asking whether the fact that a theory is dangerous to an ideology can justify it be suppressed.


Yes, well, I'd really rather not assist you in that, for reasons I'm sure you'll understand. The quest for freedom, and all that.

That's your prerogative, but who knows, I could be a potential revolutionary!

[inyourhouse]

There was an increased divide between classes in chile.

Do you have any evidence for this assertion? I'm not denying it; in fact, it's probably true, but I would put it more down to the nature of dictatorships than the nature of capitalism (hence why the same pattern doesn't exist in democratic countries). Nevertheless, I would like to see some empirical measurements of class divides in Chile, as well as other countries.


And I don't like the sound of that "looking at individual reforms." Seems like another attempt at isolation and abstraction rather than observing things in totality.

It's not looking at policies in isolation, but looking at the relevant factors. For example, suppose a government ruled that workers now owned the businesses where they worked. I'm guessing that a socialist would see this as an improvement over capitalism, although perhaps not as good as pure socialism. Suppose also, though, that the government limited working hours to 10 minutes per day (extreme just for the sake of example). I think you'll agree that productivity would drop by a massive amount, but would it be right for somebody to say that it was because of "socialist reforms" (ie. both policies) that productivity dropped? Probably not, because the dominant factor was certainly that extreme limiting of work hours.


Defining classes doesn't require any level of subjectivity and I think Marx managed to cover pretty much all the bases. With regard to your example a self-employed person is neither bourgeois (Capitalist) nor proletariat (Worker) they're a third class known as the "petit-bourgeois" and are examined as such.

Okay, fair enough. Having read some more things about Marxism over the past day, though, it seems that there are still some subjective elements. For example, the concept of "surplus product" (output of products in excess of the level necessary to maintain current standard of living) seems to necessitate some objective metric for standard of living. Yet, as far as I know, we don't have such a metric, and all standard of living indices (e.g. the human development index) involve some level of subjectivity when it comes to what variables to use.


These theories are tested empirically just like most economic theories, the point is that we start from what's actually happening instead of vague generalisations.

I'm glad we agree on the need for empirical testing, but it's important that there is a logical structure behind empiricism. In my opinion, Marxism is much more vague than mainstream economics. Perhaps it's simply because I'm not familiar with it, but Marxism seems to use mostly verbal analysis with very loose definitions of variables. That makes errors in reasoning more likely, and it makes it more difficult to analyze. I think the fact that there are many different interpretations of Marx is evidence of this. A standard undergraduate economics textbook, of course, is usually very clear and concise with its definitions, and utilizes a helpful amount of mathematics to prove accompany verbal analysis. In most peer reviewed studies, papers are more mathematics than words.


I was under the impression that it was necessary in order to get a downard sloping demand curve.

This is a slight misunderstanding of abstraction in economics, I think. The theory of demand curves applies where individuals have the same tastes; this isn't the same as saying that people do have the same tastes. The market demand curve is basically just produced by adding up all individual demand curves for a good. For example, suppose I rank my demand for 100g of butter in relation to my demand for holding onto my money:

- 1st 100g of butter
- $0.80
- 2nd 100g of butter
- $0.40
- 3rd 100g of butter
- $0.10

In other words, I'm willing to pay up to $0.80 for 100g of butter, and given that 100g, I'm only willing to pay up to $0.40 for another 100g, and given those two 100g packs of butter, I'm only willing to pay up to $0.10 for another 100g. In other words, given a market price, this is what I'm willing to buy (I wish you could do tables):


Market price ...|... Quantity demanded (sets of 100g of butter)
--------------------------------------------------------
$1.00 ...|... 0
$0.90 ...|... 0
$0.80 ...|... 1
$0.70 ...|... 1
$0.60 ...|... 1
$0.50 ...|... 1
$0.40 ...|... 2
$0.30 ...|... 2
$0.20 ...|... 2
$0.10 ...|... 3
$0.00 ...|... a lot!Clearly, if you plot price against quantity, you get a downward sloping demand curve. Now, the market demand curve for the good "100g of butter" will be the sum of the demand curves of all individuals for that good. In other words, the market demand curve is made up of every individual demand curve for any given good; this is not the same as saying that everybody has the same tastes, because even if I was the only person who wanted that good, there would still be a downward sloping market demand curve for it (and it would be equal to my individual demand curve in that case).


Yeah, I'm sure as good automotons there isn't a hint of bias in the proposals given by any economist ever. It's all just amoral commentating from a totally objective standpoint...

I'm not denying that economists are biased; like every human, they have their own biases. Rather, I'm saying that they are not consulted to say whether a policy is good or bad (because politicians have their own biases, after all), but are consulted to say what effect a policy will have on certain things.


Well according to Steve Keen:

Interesting; can you post the full quote? I'm interested because he has specified four types of goods in relation to income, rather than the three I did (which seemed to me to be the only possible types). Also, he seems to be calling normal goods "representative goods", but I've never heard anybody else use that term, and a Google search seems to show that. In any case, my main point was that these theories weren't relevant to welfare economics; welfare economics simply makes the (implicit) assumption that aggregate demand increases positively with increases in total income. This is merely because (as per the National Income accounting identity) aggregate demand is by definition equal to total income (in other words, every expenditure is somebody else's income).


Fine, I'll concede that the profit motive has an effect on innovation. But what about the broader social consequences of seeking profit in an unregulated market such as externalities. And an explanation for how any of those third world sweatshops is improving anyone's lives...

Externalities are a standard part of economic theory. The usual suggestion is either more well defined property rights (for example, privatizing common resources), or otherwise implementing a Pigovian tax, such that the private demand/supply is made to match social demand/supply. That seems to cover all possible broader social consequences. As for sweatshops, the main argument that they're improving people's lives is that they're much better than the alternatives: not working (and thus starving or not receiving an education, etc.) or agricultural work. The expectation is that conditions and wages will improve over time, as they did in Europe during the Industrial Revolution. Here's an example of that view, penned by Paul Krugman: web.mit.edu/krugman/www/smokey.html?re


Well if you read Marx, you'll see how he derives economic conclusions from the social relations of production.

See some of my responses above for a more full analysis of this claim. In short, it seems to me that Marx's reasoning is flawed, largely due to his loose definitions and sweeping verbal analysis, as opposed to a more measured and mathematical analysis.


The Labour Theory isn't a problem...

As mentioned above in reply to another poster, if the labour theory of value is correct, then there should be some mathematical rule to transform labour embodiment into market prices. However, it can be mathematically demonstrated that there is no function that can transform "embodied labour" into market prices*; this is known as the "transformation problem".

* jstor.org/fcgi-bin/jstor/listjournal.fcg/00220515/.1-.10

[inyourhouse]

Not all Austrian economists have the same assumptions about human nature. So it depends on the person. One of the main assumptions is that people act to substitute a more satisfactory state of affairs for a less satisfactory state of affairs. Another is that all other things being equal, people prefer a good sooner rather than later.

I think (although you may know him better than I do) the poster has more of a problem with the claim that these assumptions are independent of experience, rather than any problem with the assumptions themselves. Certainly, the idea that people act to "substitute a more satisfactory state of affairs for a less satisfactory state of affairs" seems to be true empirically, even if one disagrees that it can be true a priori. The same applies to the assumption of positive time preference.


It's fookin' magic, says 'e!

I don't think it's controversial to say that people value things based on their own mental evaluation of those things.


At this point, having had the terms "use-value" and "exchange-value" thrown at you perhaps hundreds of times, and having had them explained in detail perhaps dozens of times

From what I understand, "use value" is how much utility a good brings somebody, and "exchange value" is what that good could be exchanged for relative to its labour input. Am I right in saying that Marx held that a good's "exchange value" is independent of its "use value"? Am I also right in saying that Marx thought that there was a logical relation between a good's "exchange value" and its market price? If so, the transformation problem (see my other responses) arises: it has been mathematically demonstrated that there is no rule to transform "embodied labour" into market prices*.

* jstor.org/fcgi-bin/jstor/listjournal.fcg/00220515/.1-.10

[inyourhouse]

Note: I found the link, I think


Heh. You begin your post by conceding that perfect competition is an unrealistic model which hardly ever exists in the real world, and then, in the rest of your post, you make several arguments which rely on the assumption of perfect competition. I will point them out for you.

This is not really a flaw with neoclassical economics as such, but it is certainly an error of judgment that neoclassical economists seem to make all the time: they admit that Model X is unrealistic or inadequate, and then they proceed to use it anyway.

Please do point out where I have assumed perfect competition, but note that I didn't say that perfect competition is never used; where it is empirically predictive, it should be used. I have no problem with apparently unrealistic assumptions if they are have more predictive power than apparently realistic ones. This is the position of most economists, as far as I know.


For example, most neoclassical macro textbooks introduce GDP in chapter 3 or 4, explain all the flaws of using GDP as a measure of welfare, and then ignore their own warnings and use GDP as a measure of welfare for the next 20 chapters.

Really? My neoclassical macro undergraduate textbook was Mankiw's Macroeconomics, and I don't recall him ever using GDP as a measure of welfare. Many economists think that there is a relationship between GDP and welfare (hence why it is included in things like the human development index), but it is far from the whole story.


Competition? I am not sure if you are referring to perfect competition here, but even if you are not, it sounds like you are saying that any degree of competition, no matter how small, is enough to produce the same wonderfully efficient outcomes as perfect competition.

I should elaborate on my previous response: it is not only competition, but also potential competition that encourages efficiency (this is the theory of contestable markets*). In any case, I am not referring to perfect competition; I merely saying that the greater the degree of competition/potential competition (I'm hesitant in saying this because there is no objective way to measure competition), the more economically efficient the outcome. This isn't the same as saying that any degree of competition will be as efficient as perfect competition. A centrally planned economy faces no competition and no potential competition, so I would say that it would be much more inefficient than even an economy dominated by oligopolies.

* en.wikipedia.org/wiki/Contestable_market


Also - and this is another common problem affecting all of neoclassical economics - you fail to take into account the possibility of non-monetary incentives and non-monetary ways to reduce waste.

Neo-classical economics does take into account non-monetary incentives; it merely points out that these incentives actions are constrained by monetary incentives. In undergraduate textbooks, it's true that little attention is paid to these non-monetary incentives (the income/leisure tradeoff is an example of some attention being paid to it), but this is purely to allow concepts to be illustrated more clearly. All we need to do is make simple linear adjustment to any theory based on constrained optimization in order to account for non-monetary incentives. This is usually done when "calibrating" empirical models (although the adjustment takes into account all sorts of other things like rationality, unobserveable/unknown phenomenon, information, etc.).


For example, in a planned economy, the incentive to reduce waste is political: economic decisions are made by elected representatives of the people, and those representatives can only expect to keep their jobs as long as they provide satisfactory economic results.

Hypothetically, if such a system would lead to the most satisfactory economic results, wouldn't it lead to capitalism if (note the "if", since you'll probably disagree) capitalism does in fact provide the most satisfactory economic results?


So now you're taking the Austrian side in the calculation debate? Do I need to remind you that neoclassical economics was employed by the socialist side?

I wasn't taking any side (I don't know enough about the debate). I was simply using it as an example of economists distinguishing between central planning and top-down management. I think, though, that I would take a middle ground position: economic calculation under central planning is possible, but it cannot be as efficient as capitalism due to informational problems.


Yes, except that the calculation debate was mostly between Marxist and Austrian economists. Neoclassical economics was cited by the Marxist side in its defence, but no mainstream economists got involved in the debate.

You are defending the mainstream by making reference to a debate that the mainstream largely ignored.

I don't think that's correct. First of all, at the time of the debate, there was no distinct Austrian school; it was only really after the Keynesian revolution that Austrian economics became self-consciously different to neoclassical economists. Secondly, most of the economists on the socialist side were not Marxists; Abba Lerner and Oskar Lange were probably the two most influential economists on the socialist side, and they agreed with most of mainstream theory (e.g. marginalism), published in mainstream journals (e.g. the Review of Economic Studies), etc. Here's a good summary of the debate: homepage.newschool.edu/het//essays/paretian/social.htm


If some of the other comrades actually object to prediction-based empiricism, then I disagree with them. I fully endorse empiricism as the proper way to do science.

The problem with mainstream economics is not empiricism in general, but rather the particular things that mainstream economics predicts, and the question of whether those predictions are, in fact, accurate in the real world.

You might be interested in what I wrote in response to another poster regarding my own philosophy. In any case, I'm glad that we have some methodological agreement. If it is the case that some elements of mainstream economic theory are not empirically successful, then please point them out.


Mainstream economics usually operates on the assumption that people's economic behaviour in the market is separate from their behaviour in other spheres of life. You provide a perfect example of this attitude, with your continual insistence that topic X or Y can be ignored in a discussion of economics.

As I've said before, my position (and what I think is the position of most economists) is not that people's economic behaviour is separate from their behaviour in other spheres of life; it is merely that people's behaviour in other spheres of life is only relevant to economics when it affects people's economic behaviour. As far as I know, what is relevant/potentially relevant is included, or is at least being researched. If you disagree, please provide a specific example (clear, concise, preferably mathematical and with empirical evidence) of an economic theory that is compromises by some sociological theories.


I suggest you read Karl Polanyi's The Great Transformation. The market is not separate from society, and economics should not be separated from sociology.

I'll add that to my reading list. Does he directly critique economic theory, or is this more of an ethical critique of capitalism?


Excuse me? I must remind you that the lowest recorded Gini coefficients were in Soviet-style societies, not in "capitalism with a sufficient welfare state".

Do you have any evidence for that? I don't know whether it's true (hard to find older Gini coefficients), but the recent Gini coefficients of China, Cuba, North Korea, etc., seem to suggest that it's unlikely. Also, were these Gini coefficients released by the state (likely to be unreliable), or were they estimated by third parties?


The trend is for real GDP and productivity to rise in (almost) every country that has ever measured real GDP and productivity. You are praising capitalism for doing what every other modern economic system has also been able to do.

I know. I wasn't comparing capitalism with any other system in that post; I was just refuting the claim made by the poster that wealth and progress is "done away with" for most of the capitalist world.


What about the issue of property? As you should know, equality is only half of what concerns us. The other half is property over the means of production. Have you considered the possibility that a change in the dominant forms of property would fundamentally change the terms of the problem of increasing wealth?

I've considered it, but I don't think it would be a better way of increasing wealth, although perhaps it would result in a more equal distribution of wealth. I'd like to see a theory as to why it would be better than capitalism. Evidence from countries like the Soviet Union seems to show that it would be worse, because I think average real GDP growth in the west was higher than average real GDP growth in communist countries*. If you disagree with GDP as a proxy for wealth, then you could suggest an alternative, but I think we'd see the same result.

* iaas.msu.ru/pub_on/vamel/comparative.htm


As a side note, this is the main reason why we find any discussion of Pareto optimality to be completely irrelevant. We are not interested in maintaining the current property relations; in fact, we are determined to change them. That means that some people - the capitalists - will lose out. Tough.

Is it completely irrelevant, though? The issue of optimum resource allocation still occurs under centrally planned systems, and Pareto optimality (ie. making a person/a set of people better off without making anybody else worse off) seems like a criteria worth investigating. Ethically, it seems to me that making some people worse off to make others better off should be the last resort, shouldn't it?


Here you are using the model of perfect competition, after admitting in the same post that it is a highly unrealistic model.

The laws of supply and demand do not require the assumption of perfect competition (although that assumption would affect the price elasticity of demand for labour).


Also, even if capitalism could "minimize" unemployment, you should remember that socialism can eliminate unemployment entirely.

I disagree. Frictional unemployment (moving from one job to another) must surely always exist, unless people are going to remain in the same job from the point they enter the labour force until the point that they leave it. Also, structural unemployment (moving from one industry to another) is likely to exist as long as people's tastes/preferences are still changing and the central planners want to try and change production to meet that.


Define "welfare."

I left the definition open ended because I wanted that poster's own definition. My own idea of maximized welfare is where total real income is maximized subject to income distribution forming a Gaussian function (bell curve).


Hahahahahahaha!!! An unfortunate limit of reality! This is exactly the kind of attitude that makes us dismiss neoclassical economics.

No, my friend, this is not a limitation of reality. This is a major limitation of your theory. And it undermines your claims to empiricism.


As far as I'm aware, physics does not attempt to make predictions which rely on knowing something that is unknowable due to the Heisenberg uncertainty principle.

I've linked these two parts of your post together because my response involves both of them. It is an unfortunate limit of reality that we can't see a parallel universe with the exact same conditions bar a change in demand/supply. This doesn't mean that the theory is not logically and empirically sound, though. To make an analogy with physics, the Heisenberg uncertainty principle means that we can't know accurately measure position and momentum simultaneously. This means that we can't test the extent to which momentum/position deviate when measured (because we can't see the initial state), which means we can't test the idea of wave function collapse, which in turn means that we can't test our theories of the evolution of quantum systems.

Does this mean that we should abandon quantum mechanics? No, for two reasons. First of all, quantum mechanics is logically coherent. In other words, the theory fits together (although there are different "interpretations", each different interpretation is internally consistent). Secondly, although we cannot directly test the aforementioned things, we can indirectly test them, by using the theories to make hypotheses about things that we can observe (e.g. studying particle acceleration in the Large Hadron Collider).

Going back to the laws of supply and demand, although we cannot measure supply and demand curves, we do know two things. First of all, the theory is logically coherent, and thus fits together with our principles of marginalism, etc. Secondly, we can (and have) indirectly tested the laws of supply and demand. For example, "shocks" (sudden changes in supply/demand) are useful because the change in supply/demand is often greater than any change in the determinants of the curves (income, tastes, etc.), so we can see clear, unambiguous affects on price and quantity. More ambitious studies control for all possible variables that could affect the curves across time, and then study changes in one particular variable. Tjalling Koopmans and the Cowles Commission are responsible for most of our empirical knowledge in this area*.

* homepage.newschool.edu/het//schools/metric.htm


I'm sorry, but what do tastes and incomes have to do with the fact that you cannot empirically verify demand and supply functions?

Tastes and incomes are some of the determinants of supply/demand curves. Controlling for changes in some of them allows us to statistically estimate the impact of changes in another variable. The aim is not to verify the existence of supply and demand functions, but to attempt to falsify our hypotheses derived from those functions. For example, we would try to falsify the hypothesis that a decrease in the supply of a good increases its price.


And how can the theory be empirically successful if there is no empirical test to determine when equilibrium has been reached?

The equilibrium is just the market clearing price (ie. where the quantity supplied equals the quantity demanded). You can test whether that has been reached just by looking at things like inventories; the economy will usually be in disequilibrium, of course.


I think that explaining people's behaviour with utility functions is like explaining gravity with magical elves that make pieces of matter attract each other. There are no utility functions in real life. This is blatantly obvious. People do not make an effort to maximize anything when they go shopping.

I think you're looking too deeply into the idea of utility functions; a utility function is really just a set of preferences. Surely you agree with the idea that people have preferences? It's sort of implicit in the whole concept of decision making. Just now, I was thinking about whether I should finish writing this post later, whether I should watch TV, or whether I should watch the DVD of Summer of '42 that I bought recently. The generalized form of the utility function is:


u : X -> RWhere X is the "consumption set", which in my case is the following:


X = ("write this post", "watch TV", "watch DVD")So my specific utility function is:


u("write this post") = 1
u("watch TV") = 2
u("watch DVD") = 3Thus, I chose to write this post. I know it seems like a strange way of writing a simple concept, but I think it's obviously correct, and the mathematics makes it useful for proving lots of theories.


So, a theory based on utility functions may be capable of making accurate predictions, but it is obviously based on false premises.

Well, as I said above, I think the idea of utility functions is perfectly sound. Nevertheless, I have no problem with it even if it is false, simply because it is the most predictively accurate assumption that we have. If you have a better assumption, please post it.


When an entire field of science is devoted to finding the best way to achieve X, it is laughable for you to claim that people working in that field are not particularly inclined to believe that X is desirable. Of course they think it's desirable, otherwise they would not be spending all their time trying to find the best path to X.

Most probably do think it's desireable, but that doesn't mean that their theories are incorrect. This goes back to something I said to another poster: the motivations of economists shouldn't matter if the theory is logically and empirically sound.


Correct me if I'm wrong, but isn't the notion of "economic surplus" based on the weird idea of taking the difference between the actual price of a product and some hypothetical price that buyers or sellers might be willing to accept under some counterfactual conditions?

Sort of. Consumer surplus is the difference between the highest price that a consumer in that market is willing to pay and the actual price. Producer surplus is the difference between the lowest price that a producer in that market is willing to sell for and the actual price. Economic surplus is equal to consumer surplus added to producer surplus, which is the difference between the highest price that a consumer in that market is willing to pay and the lowest price that a producer in that market is willing to sell for.


Yes, and the Soviet Union continued to experience economic growth all the way up to 1986. This means that, in the very long run, the Soviet system could have reached any particular level of prosperity that you might care to choose as an arbitrary target. So, if the "very long run" is the only thing we care about, then there was no need for any kind of transition at all - and in fact the transition was extremely harmful.

The Soviet Union was growing at a slower and slower rate across time. I don't think it's true that the transition was harmful. Regardless, that is besides the point. I was saying that the method of transition to capitalism is a significant determinant of current inequality, but that this doesn't show a problem with capitalism, per se.


We use simplifying assumptions, just as you do. In the basic Marxist models of capitalism, there are only workers and capitalists. Self-employed people and other social categories can be added as complicating factors in more complex models. But, as long as such people represent a small enough part of the population, they do not make much of a difference in the final conclusion.

Okay, that seems fair enough.


You should be aware that Marxism does not deny the ability of capitalism to produce technological progress. On the contrary, we have said from the very beginning that capitalism is superior to feudalism and to all pre-industrial modes of production.

Okay.


But capitalism is inferior to socialism.

Do you have any empirical evidence for this?


Actually, he probably means the Enclosure of the Commons, which played a major role in the birth of capitalism.

Oh, well in that case, I think he's wrong. Enclosure was only a problem because of the feudal system, which meant that serfs were unable to own property.


You are mistaken. In Marxist economics, exploitation is absolutely central. Marxist economics concerns itself with things like surplus value, the rate of exploitation, and the rate of profit - all of which depend on the realization that workers produce a certain amount of value and some of that value is appropriated by the capitalists. In other words, exploitation occurs.

Are there any accessible introductions to Marxist economics? I'm most interested in finding a mathematical statement of Marxism, because I tend to find mathematics easy than verbal reasoning.

[inyourhouse]

Also RE: Sraffa

Funnily enough some other people came to the same conclusions of Sraffa not by economics but by actually asking firms how they decided on prices. Apparently no-one bothered to actually ask the firms about how they actually operated before they came up with marginal productivity theory

More on that here.

Just one more instance in which conventional economic analysis is divorced from reality.

I think this is a misinterpretation of economics. Economics is not the same as business studies; it is not about how businesses function, but about the allocation of resources. Economists do not believe (as far as I know) that businesses will actually calculate their marginal costs, and then set the price based on that. That's absurd, because we know that businesses do things like cost-plus pricing. What economics reveals, however, is that all of these pricing methods will result in a price that tends towards marginal cost. This is because the profit from, for example, cost-plus pricing will be affected by competition, and the profit maximization point will tend to be where price equals marginal cost. So, even though businesses don't aim to set prices as equal to marginal cost, by pursuing profit they push the market price towards marginal cost.


Yes but now problems arise. If you're analysing supply and demand in terms of an entire industry it becomes impossible to seperate supply and demand since you've gotten to a large enough point where supply is going to effect demand unlike analysing single firms and such.

I don't quite understand what you mean; please elaborate.

[Muzk]

I thought this would be a good place to ask.



I havn't read the rest of this thread, but here is what my main concern with mainstream economics is:

They deny exploitation!
They say the value of commodities are only the effects of supply and demand! As such, every struggle for higher wages is actually useless because, as the market value of commodities go up and down, workers just have to bend to the law of supply and demand, and hence why there is no class struggle anymore. Lol.

Wikipedia even says the labour of theory is wrong and the subjective theory of value is right, which actually says that the same thing as the supply & demand rule(which is only part of the puzzle), it's simply hidden behind big words, like "scarcity", "usefulness" etc. which is, still, the simple supply & demand thing.

So, the value of goods is determined by how many there are (supply & demand) and the usefulness? Tell me, isn't a table much more usefull than 50g of fish eggs? Now tell me, which of these cost more, and which of these take more time to produce. Yeah, there you have it, the labour theory of value.

Oh god marxian economics... are awesome... they know everything, it's like a hidden science...

[Skooma Addict]

I think (although you may know him better than I do) the poster has more of a problem with the claim that these assumptions are independent of experience, rather than any problem with the assumptions themselves. Certainly, the idea that people act to "substitute a more satisfactory state of affairs for a less satisfactory state of affairs" seems to be true empirically, even if one disagrees that it can be true a priori. The same applies to the assumption of positive time preference.
If people were at a perfect state of ease, then they would have no reason to act. If everyone were perfectly content, nobody would do anything. So we act in order to achieve a better state of affairs. I don't need to rely on experience, only logic.


Yes, I disagree with that sort of strict Austrian methodology, but I do have some sympathy with it. I think that economists should construct economic theories through logic (mainly in the form of mathematics) based on certain premises (which need not be a priori). From this, a hypothesis should be generated, and then that hypothesis should be tested against our data. The data will either be consistent with the theory or it will be consistent. If the former, there is little problem. If the latter, there are only two possibilities: either the data/econometrics is incorrect or the theory is incorrect.

We should only take the data/econometrics as incorrect if a "better" (larger sample size, more controls), etc., study contradicts it. Even if the data/econometrics is flawed, that usually (unless the data is fraudulent or something) shouldn't be a sufficient reason for disregarding it if it is still the "best" study available. Now, if the data/econometrics is correct, then naturally the theory must be incorrect. It is not the case, though, that the data merely disproves the generated hypothesis, for if the theory is logically constructed, the data must also disprove some of its premises (and their premises, etc.). This should generate more areas of research.

That's my favoured method, anyway: logic and empiricism (not to be confused with logical empiricism!). I'd describe my philosophy as a combination of scientific naturalism and falsificationism, with an emphasis on the holistic nature of knowledge. Austrians rely too heavily on logic, and usually in its weaker form (linguistic as opposed to mathematical). Some mainstream economists also rely too heavily on logic, and some rely too heavily on empiricism. The main corpus of economic thought is justified by both logic and empiricism, though.Or the more likely scenario is that there is no data which can be used. Or that it is impossible to conduct the required experiments. If the Austrians principals are logically sound and logically valid, then their conclusions will be true. Also, a very picky person would say that there is no single Austrian methodology. For example, Mises, Hayek, and Menger all differed when it came to methodology. However, they did all have things in common which made them distincly Austrian.

Edit: As for math, it needs to be used very carefully, especially when using numbers. For example trying to use cardinal rank to represent ordinal ranks does not work. To quote Murphy.

"Mainstream economists have tried to use cardinal rank to represent ordinal rank; thus, they arbitrarily assign numbers to ordinal rankings:


e.g.,
A -- 95
B -- 85
C -- 75
However, as Austrians note, A, B, and C are not like grades, but are states of mind.
Cardinal numbers are not a representation of ordinal rank: they are a representation plus a quantitative difference between the rankings.
The mainstream response was to do linear transformations, which don't change the function, but only the gap-size.
The Austrians responded that linear transformations don't change the ratios. The only way to represent ordinal ranks would be through all cardinal functions."

Similar problems apply to the concept of "indifference."

[Zanthorus]

Do you have any evidence for this assertion? I'm not denying it; in fact, it's probably true, but I would put it more down to the nature of dictatorships than the nature of capitalism (hence why the same pattern doesn't exist in democratic countries). Nevertheless, I would like to see some empirical measurements of class divides in Chile, as well as other countries.

Check out this part of the AFAQ: Who Benefited from Chile's "Economic Miracle"? (http://www.infoshop.org/faq/secC11.html#secc111)


It's not looking at policies in isolation, but looking at the relevant factors. For example, suppose a government ruled that workers now owned the businesses where they worked. I'm guessing that a socialist would see this as an improvement over capitalism, although perhaps not as good as pure socialism. Suppose also, though, that the government limited working hours to 10 minutes per day (extreme just for the sake of example). I think you'll agree that productivity would drop by a massive amount, but would it be right for somebody to say that it was because of "socialist reforms" (ie. both policies) that productivity dropped? Probably not, because the dominant factor was certainly that extreme limiting of work hours.

Right but that's an extreme example. When examining policies it's important to examine the effects of that policy combined with the effects of other policies. A certain group of policies might look good in isolation, but when combined have catastrophic effects for reasons that you didn't foresee.


Okay, fair enough. Having read some more things about Marxism over the past day, though, it seems that there are still some subjective elements. For example, the concept of "surplus product" (output of products in excess of the level necessary to maintain current standard of living) seems to necessitate some objective metric for standard of living. Yet, as far as I know, we don't have such a metric, and all standard of living indices (e.g. the human development index) involve some level of subjectivity when it comes to what variables to use.

Not sure that's really central to the Marxian analysis. Anyway if you want an idea of Marxian methodology you might wanna check out Marx's piece:

The Method of Political Economy (http://www.marxists.org/archive/marx/works/1859/critique-pol-economy/appx1.htm#205)


I'm glad we agree on the need for empirical testing, but it's important that there is a logical structure behind empiricism. In my opinion, Marxism is much more vague than mainstream economics. Perhaps it's simply because I'm not familiar with it, but Marxism seems to use mostly verbal analysis with very loose definitions of variables. That makes errors in reasoning more likely, and it makes it more difficult to analyze. I think the fact that there are many different interpretations of Marx is evidence of this. A standard undergraduate economics textbook, of course, is usually very clear and concise with its definitions, and utilizes a helpful amount of mathematics to prove accompany verbal analysis. In most peer reviewed studies, papers are more mathematics than words.

Loose definitions? Evidence? Marx seems to define everything pretty clearly and in detail, It's one of the reasons why some of his work is so daunting to read.

As for mathematics, the claim that Marx and Marxism are mathematically deficient is simply false, see for example:

Marx's Mathematical Manuscripts (http://www.marxists.org/archive/marx/works/1881/mathematical-manuscripts/index.htm)


This is a slight misunderstanding of abstraction in economics, I think. The theory of demand curves applies where individuals have the same tastes; this isn't the same as saying that people do have the same tastes. The market demand curve is basically just produced by adding up all individual demand curves for a good. For example, suppose I rank my demand for 100g of butter in relation to my demand for holding onto my money:

- 1st 100g of butter
- $0.80
- 2nd 100g of butter
- $0.40
- 3rd 100g of butter
- $0.10

In other words, I'm willing to pay up to $0.80 for 100g of butter, and given that 100g, I'm only willing to pay up to $0.40 for another 100g, and given those two 100g packs of butter, I'm only willing to pay up to $0.10 for another 100g. In other words, given a market price, this is what I'm willing to buy (I wish you could do tables):


Market price ...|... Quantity demanded (sets of 100g of butter)
--------------------------------------------------------
$1.00 ...|... 0
$0.90 ...|... 0
$0.80 ...|... 1
$0.70 ...|... 1
$0.60 ...|... 1
$0.50 ...|... 1
$0.40 ...|... 2
$0.30 ...|... 2
$0.20 ...|... 2
$0.10 ...|... 3
$0.00 ...|... a lot!Clearly, if you plot price against quantity, you get a downward sloping demand curve. Now, the market demand curve for the good "100g of butter" will be the sum of the demand curves of all individuals for that good. In other words, the market demand curve is made up of every individual demand curve for any given good; this is not the same as saying that everybody has the same tastes, because even if I was the only person who wanted that good, there would still be a downward sloping market demand curve for it (and it would be equal to my individual demand curve in that case).

Right, but income is determined by the market mechanism as well. So the demand for a product is going to have some effect on the amount of income of certain members of society. In practice you aren't going to get a perfectly downard sloping demand curve. In fact it's entirely possible that the curve could slope upwards at some points.


Interesting; can you post the full quote? I'm interested because he has specified four types of goods in relation to income, rather than the three I did (which seemed to me to be the only possible types). Also, he seems to be calling normal goods "representative goods", but I've never heard anybody else use that term, and a Google search seems to show that. In any case, my main point was that these theories weren't relevant to welfare economics; welfare economics simply makes the (implicit) assumption that aggregate demand increases positively with increases in total income. This is merely because (as per the National Income accounting identity) aggregate demand is by definition equal to total income (in other words, every expenditure is somebody else's income).

Well the quote is from Keen's book "Debunking Economics" which is about the failures he percieves in mainstream economics. Keen is a Post-Keynesian who predicted the financial crisis, so obviously there's something correct in his analysis. The full quote is:


So far we've looked at how economists analyse the impact of a change in prices on a consumers behaviour. But the key flaw of the economic theory of consumer demand manifests itself in the analysis of how spending on any given commodity changes as income changes.

As with all other issues economic theory uses indifference curves to handle this topic. The relevant commodity is placed on the horizontal axis, all other commodities on the vertical, and the budget constraint is 'moved out'. This represents an increase in income with relative prices held constant - unlike a pivot which represents a change in prices with income held constant. Economists say the resulting plot - known as an 'Engels Curve' (ZanEdit: "Engels curves" in mainstream economics? Ironic no? :lol: ) - shows a consumer maximising her utility as income rises.

One key point that is essential to the approaching critique is that Engels curves can take any shape at all. The shapes show how demand for a given commodity changes as a result of income, and four broad classes of commodity result: necessities which take up a diminishing share of spending as income grows; 'inferior' or 'Giffen' goods who's actual consumption declines as income rises; luxuries, whose consumption takes up an increasing share of income as it increases; and what economists term 'representative goods' where consumption remains a constant proportion of income as income rises.

You can find some of Keens other critiques of Neo-Classical theories of consumption here (http://www.debunkingeconomics.com/Hedonism/More/).


Externalities are a standard part of economic theory. The usual suggestion is either more well defined property rights (for example, privatizing common resources), or otherwise implementing a Pigovian tax, such that the private demand/supply is made to match social demand/supply. That seems to cover all possible broader social consequences. As for sweatshops, the main argument that they're improving people's lives is that they're much better than the alternatives: not working (and thus starving or not receiving an education, etc.) or agricultural work. The expectation is that conditions and wages will improve over time, as they did in Europe during the Industrial Revolution. Here's an example of that view, penned by Paul Krugman: web.mit.edu/krugman/www/smokey.html?re

Conditions didn't improve in the industrial revolution or afterwards until the introduction of social welfare into the UK. And as for sweatshops, I really can't understand how you think it's for their benefit, it's probably one of the most blatant examples of exploitation of the workforce in the modern world.


As mentioned above in reply to another poster, if the labour theory of value is correct, then there should be some mathematical rule to transform labour embodiment into market prices. However, it can be mathematically demonstrated that there is no function that can transform "embodied labour" into market prices*; this is known as the "transformation problem".

What transformation problem? (http://kapitalism101.wordpress.com/what-transformation-problem/)


I think this is a misinterpretation of economics. Economics is not the same as business studies; it is not about how businesses function, but about the allocation of resources. Economists do not believe (as far as I know) that businesses will actually calculate their marginal costs, and then set the price based on that. That's absurd, because we know that businesses do things like cost-plus pricing. What economics reveals, however, is that all of these pricing methods will result in a price that tends towards marginal cost. This is because the profit from, for example, cost-plus pricing will be affected by competition, and the profit maximization point will tend to be where price equals marginal cost. So, even though businesses don't aim to set prices as equal to marginal cost, by pursuing profit they push the market price towards marginal cost.

Yet the evidence suggests otherwise.


I don't quite understand what you mean; please elaborate.

Each point on your supply curve is going to have a different demand curve because your analysis is large enough to have a substantial effect on the economy in areas that affect demand such as income.

[REVLEFT'S BIEGGST MATSER TROL]

It's quite difficult to write such long replies, but I'm hanging in there.



I don't think that's correct. Abba Lerner and Oskar Lange were both mainstream economists (they accepted principles like marginalism, etc.), but they were also socialists; they defended socialism against the charge that economic calculation was not possible in such a system. Socialists need not reject mainstream economic theory.



They divorce it from its social implications only where those social implications are irrelevant to economics. Economics is (broadly speaking) the study of the allocation of resources; it won't comment on things like alienation, which are covered by areas like sociology. Those things would be covered by economics if they affected economic theory (e.g. the laws of supply and demand), but as far as I know, they don't.

It is perfectly rational to believe that mainstream economic theory is entirely correct, but that the social implications of capitalism nevertheless render it unethical as an economic system. It is irrational, though, to ignore economics simply because it doesn't cover the things covered by sociology. It would be like ignoring physics because it doesn't cover the things covered by chemistry. Clearly, the most rational course of action is to look at all the information.



What bearing do the motivating factors of economists have on the validity of economic theory? To dismiss/criticize economic theory because of that is fallacious (appeal to motive). Also, isn't it equally true that the motivating factors of leftists lead them to "divorce [their theories] from [their] social implications", etc.? Would it be fair for people to dismiss leftist theories because of the motivations of their proponents?



There is certainly more to the story of society than economics tells, just as there is more to the story of the universe than is covered by physics alone (ie. chemistry, biology, etc., are also important). It's important, though, that economics is not simply ignored. If mainstream economic theory is correct, then it provides valuable insights that shouldn't be ignored.




Sraffa is criticizing the use of partial equilibrium analysis, which was common at the time. Economists now use general equilibrium analysis, and Sraffa himself admits that this is a solution, but rejects it simply due to its complexity, which I see as a poor reason:

"When we proceed to a further approximation, while keeping to the path of free competition, the complications do not arise gradually, as would be convenient; they present themselves simultaneously as a whole. If diminishing returns arising from a "constant factor" are taken into consideration, it becomes necessary to extend the field of investigation so as to examine the conditions of simultaneous equilibrium in numerous industries: a well-known conception, whose complexity, however, prevents it from bearing fruit, at least in the present state of our knowledge, which does not permit of even much simpler schemata being applied to the study of real conditions."

Okay - I'm not familar with any of this!

But am I right to say that you think economists accept Sraffas criticisms of diminishing marginal utility, but don't think they apply to an analysis on the entire economy at once?

But then how could you draw a supply curve from that?

Perhaps i'm misunderstanding.


And Olaf, for the last time; the Labour theory of value doesn't posit an objective "value" for commodities in the sense you are speaking of. Marx_clearly_states that the value he speaks of his a social thing. It exists in the minds of individuals_but_there_are_general_rules_about_it.

Once again, you prove you know nothing, even about the things you think are nonsense. You Austrians are so laughable, with anything you "critique", it more than likely turns out you *simply didn't understand it.*

[Skooma Addict]

And Olaf, for the last time; the Labour theory of value doesn't posit an objective "value" for commodities in the sense you are speaking of. Marx_clearly_states that the value he speaks of his a social thing. It exists in the minds of individuals_but_there_are_general_rules_about_it.

Once again, you prove you know nothing, even about the things you think are nonsense. You Austrians are so laughable, with anything you "critique", it more than likely turns out you *simply didn't understand it.

Do you know how to read? Nowhere in this discussion did I say that value is objective according to the LTV.

[IcarusAngel]

Yes, I disagree with that sort of strict Austrian methodology, but I do have some sympathy with it. I think that economists should construct economic theories through logic (mainly in the form of mathematics) based on certain premises (which need not be a priori). From this, a hypothesis should be generated, and then that hypothesis should be tested against our data.

You started explaining why economics should be "logic based" and then went on to outline the scientific method, which is based on empirical evidence. Of course there is an inherent logic to science, but pure logic isn't necessarily empirical. Logic also leads to conclusions and theorems that can be shown to be true.

Since Miseans do not use their "logical principles" and "axioms" to prove anything we can only assume that their axioms are invalid and thus their entire field is pseudo-science.


I think (although you may know him better than I do) the poster has more of a problem with the claim that these assumptions are independent of experience, rather than any problem with the assumptions themselves. Certainly, the idea that people act to "substitute a more satisfactory state of affairs for a less satisfactory state of affairs" seems to be true empirically, even if one disagrees that it can be true a priori. The same applies to the assumption of positive time preference.

Yes, I disagree with the claim by Miseans that their principles exist "a priori" and I disagree that they even have assumptions that are correct.

The idea that people act solely to "substitute a more satisfactory state of affairs for a less satisfactory one" is not borne out by the facts. Our brains are wired to react instinctually towards certain things because of the process of evolution. This means that fear and emotions often play a big role in our decision making, and the areas of the brain that are based on fear and emotion often dominate the areas of the brain that deal with reason, although the reverse is not true at all: reasoning rarely plays a role in the structures of the brain that deal with fear. This is so we can react instantly when confronted with threats, and given our ability to reason and imagine, we often end up creating threats that only exist in our heads (this is emphasized by statist and capitalist propaganda, such as in regards to foreign enemies and the need to go to war).

As one of the world's leading neuroscientists put it:

"Our mental life is governed mainly by a cauldron of emotions, motives and desires which we are barely conscious of, and what we call our conscious life is usually an elaborate post hoc rationalization of things we really do for other reasons." Dr. Vilayanur S. Ramachandran

So, our actions are actually post hoc rationalizations of events in our life, which means that the Misean statement about "substituting affairs" is even less applicable to humans than it is to say a robot who acts only according to logical principles, do x instead of y.

Cognitive science is a hard science and so where there is a discrepency between hard science like cognitive science and social science or psuedoscience (in the case of Misean economics) you probably want to err on the side or science.

As for the claim that "humans are naturally rationaly" this too has been questioned. Scientist Charles Taber noted that since the structures that govern feelings and emotions have a greater impact on decision making than logic and reason, "the Enlightenment model of dispassionate reason as the duty of citizenship is empirically bankrupt."

Since fear and illogic often have such a huge role in our decision making it's clear to see how advertising and so on, which emphasize illogic, fear, etc., instead of reason, often play into our emotions more than our reason.

Only democratic processes like intellectual discussions emphasize reason. If humans solely were rational then things like advertising wouldn't exist. We are designed to hunt, kill, make sacrifices, and react to threats, not analyze two different television sets.

[REVLEFT'S BIEGGST MATSER TROL]

Do you know how to read? Nowhere in this discussion did I say that value is objective according to the LTV.

Heres you earlier in this thread:

"Yea it is. For the most part, the only people who adhere to the LTV are utopians who are desperate to cling to their ideology. The value of something exists solely in the minds of individuals. Just like there is no standard measurement of friendship or love, there is no measurement for the value of commodities."

" The value of something exists solely in the minds of individuals."

"exists solely in the minds of individuals."

This obviously implies that you feel people who "cling" to the LTV feel that value exists outside of the minds of individuals. Or did you forget you wrote that?

[Skooma Addict]

Heres you earlier in this thread:

"Yea it is. For the most part, the only people who adhere to the LTV are utopians who are desperate to cling to their ideology. The value of something exists solely in the minds of individuals. Just like there is no standard measurement of friendship or love, there is no measurement for the value of commodities."

" The value of something exists solely in the minds of individuals."

"exists solely in the minds of individuals."

This obviously implies that you feel people who "cling" to the LTV feel that value exists outside of the minds of individuals. Or did you forget you wrote that?

No, I was getting at two things. First, adherents of the LTV seem to imply that value is determined more by social standards than by the conditions of the individual. Secondly, that there is no way to measure value.

[Skooma Addict]

You started explaining why economics should be "logic based" and then went on to outline the scientific method, which is based on empirical evidence. Of course there is an inherent logic to science, but pure logic isn't necessarily empirical. Logic also leads to conclusions and theorems that can be shown to be true.I would like to know what methodology you apply to science. I assume it isn't strict logical positivism, since that doctrine is self-contradictory. I also should note that contrary to popular opinion, the methodology is of Austrian economics (specifically methodological individualism) is in no way in opposition with critical rationalism; one of the most adhered to methodologies of science.


Since Miseans do not use their "logical principles" and "axioms" to prove anything we can only assume that their axioms are invalid and thus their entire field is pseudo-science.I am not a Misean, so I don't want to speak for them. But Austrians do use their logical principals to prove things.


Yes, I disagree with the claim by Miseans that their principles exist "a priori" and I disagree that they even have assumptions that are correct.

The idea that people act solely to "substitute a more satisfactory state of affairs for a less satisfactory one" is not borne out by the facts. Our brains are wired to react instinctually towards certain things because of the process of evolution. This means that fear and emotions often play a big role in our decision making, and the areas of the brain that are based on fear and emotion often dominate the areas of the brain that deal with reason, although the reverse is not true at all: reasoning rarely plays a role in the structures of the brain that deal with fear. This is so we can react instantly when confronted with threats, and given our ability to reason and imagine, we often end up creating threats that only exist in our heads (this is emphasized by statist and capitalist propaganda, such as in regards to foreign enemies and the need to go to war).

As one of the world's leading neuroscientists put it:

"Our mental life is governed mainly by a cauldron of emotions, motives and desires which we are barely conscious of, and what we call our conscious life is usually an elaborate post hoc rationalization of things we really do for other reasons." Dr. Vilayanur S. Ramachandran

So, our actions are actually post hoc rationalizations of events in our life, which means that the Misean statement about "substituting affairs" is even less applicable to humans than it is to say a robot who acts only according to logical principles, do x instead of y.

Cognitive science is a hard science and so where there is a discrepency between hard science like cognitive science and social science or psuedoscience (in the case of Misean economics) you probably want to err on the side or science.

As for the claim that "humans are naturally rationaly" this too has been questioned. Scientist Charles Taber noted that since the structures that govern feelings and emotions have a greater impact on decision making than logic and reason, "the Enlightenment model of dispassionate reason as the duty of citizenship is empirically bankrupt."

Since fear and illogic often have such a huge role in our decision making it's clear to see how advertising and so on, which emphasize illogic, fear, etc., instead of reason, often play into our emotions more than our reason.
You obviously don't understand the Austrians claims. I fully accept the materialist/functionalist worldview as extrapolated by people like Dennett and Metzinger. Nothing that you mentioned has anything to do with the topic, or they are assertions are not arguments against Austrian claims. An action that you cannot consciously control does not qualify as a meaningful action. So if you instinctively run in fear as you instinctively breath, then this would not qualify as a meaningful action. Even if it were true that emotions had more to do with decision making (there is no consensus among scientists on this), this would prove absolutely nothing.

You should also know that AE did not start and end with Mises. Most Austrians do not agree with Mises on methodology or many of his conclusions. And for the last time, there is no such thing as Misean economics.

[REVLEFT'S BIEGGST MATSER TROL]

No, I was getting at two things. First, adherents of the LTV seem to imply that value is determined more by social standards than by the conditions of the individual. Secondly, that there is no way to measure value.

But then it would turn out I was being generous too you. I thought you had simply misunderstood what Marx said.

Now it turns out you have trouble making sense at all.

First off, what is the difference between "social standards" and "conditions of the individual?" Surely the conditions of the individual are determined by social standards?

But regardless; thats not even relavant to the LTV because it distinguishes between use - value and exchange - value. Unless you think that exchange value is determined by "conditions of the individual" - in that, you can, as a general rule, modify the exchange value of a commodity by taking a different view on how valuable it is too you? Surely not?

What do you mean there is no way to measure value? Clearly there is no easy way to measure use - value, but prices can be measured, and it makes sense that they would orbit around exchange value (Which would necessarily, in regards to reproducible commodities sold in general conditions be based around the socially necessary average labour time it took to create something.)

[Skooma Addict]

But regardless; thats not even relavant to the LTV because it distinguishes between use - value and exchange - value. Unless you think that exchange value is determined by "conditions of the individual" - in that, you can, as a general rule, modify the exchange value of a commodity by taking a different view on how valuable it is too you? Surely not?I see no point in distinguishing between use value and exchange value. If I had to come up with a definition, then I would simply define exchange value as the price a product can be sold for on the market. But this is misleading since it implies that value can be measured.


What do you mean there is no way to measure value? Clearly there is no easy way to measure use - value, but prices can be measured, and it makes sense that they would orbit around exchange value (Which would necessarily, in regards to reproducible commodities sold in general conditions be based around the socially necessary average labour time it took to create something.)Value is ordinal, so all that I can say is that I value X more than Y. I will just disregard the fact that I do not accept your distinction between use and exchange value for the sake of argument. Exchange value is not based around socially necessary average labor time. If I find a diamond on a beach, I can sell it for a very high price even though I put no labor into acquiring it. Nobody cares about how much labor time went into a product. As long as the supply remained the same, diamonds would not lose any of their value if all of them were found by people walking along a beach. If I spend 1 hour of labor time to make a machine that can supply unlimited energy, it will have a high use and exchange value even though very little labor time went into producing it.

Edit: Also, saying that money is a measure of value is incorrect. Value is an attitude we take towards things. Money itself is simply another thing that we value (based on its adequacy as a medium of exchange).

[MarxSchmarx]

Mainstream economics has very, very, VERY little evidence in the real world that it's theories are valid. The marginal value theory and other advances, well, that can be perfectly cogently rephrased within marxian terms with almost no insights lost. So I ask again, apart from advancing class interests, what precisely is it that "mainstream" economics adds? Isn't the whole "behavioral economics" rediscovery just a reformulation of traditional critiques of teh efficient market hypothesis? I guess you can put lipstick on a pig...

To be fair, maintream economics, eg., the Chicago school stufff, applies very well to certain exceptional fields like financial speculation, but beyond that it really is just speculative philosophy. And for that, I prefer being assigned NP-P completeness problems and Habermas, thank you very much.

[REVLEFT'S BIEGGST MATSER TROL]

I see no point in distinguishing between use value and exchange value. If I had to come up with a definition, then I would simply define exchange value as the price a product can be sold for on the market. But this is misleading since it implies that value can be measured.

Whether you do or don't is irrelevant to the point I was making.


Value is ordinal, so all that I can say is that I value X more than Y. I will just disregard the fact that I do not accept your distinction between use and exchange value for the sake of argument. Exchange value is not based around socially necessary average labor time. If I find a diamond on a beach, I can sell it for a very high price even though I put no labor into acquiring it. Nobody cares about how much labor time went into a product. As long as the supply remained the same, diamonds would not lose any of their value if all of them were found by people walking along a beach. If I spend 1 hour of labor time to make a machine that can supply unlimited energy, it will have a high use and exchange value even though very little labor time went into producing it.


1: Socially necessarily labour time.
2: They wouldn't as long as there was a restricted supply. Which is why one of the conditions for the labour theory of value to apply is that a commodity is freely reproducible.
3: It would have a high exchange value at first. Then, other capitalists would move to this profitable sector, and supply would increase, pushing the machines exchange value down, necessarily towards its cost of production.

You simply don't know enough about the LTV to critique it. You should attempt to understand the basics.

[Skooma Addict]

1: Socially necessarily labour time.
2: They wouldn't as long as there was a restricted supply. Which is why one of the conditions for the labour theory of value to apply is that a commodity is freely reproducible.
3: It would have a high exchange value at first. Then, other capitalists would move to this profitable sector, and supply would increase, pushing the machines exchange value down, necessarily towards its cost of production.1. I don't know what portion of my post this is a response to. Anyways, the fact is that value cannot be measured because it is nothing more than a private disposition a person takes towards a good. As was mentioned earlier, money is not a measure of value. I would also drop the term "socially necessary."

2. You have a lot of qualifiers. Anyways, it is good that you realize that people do not value diamonds for the amount of labor that goes into extracting them. Nobody cares about how much labor went into producing a product. Neither use nor exchange value has anything to do with labor inputs. I would like to note that by now you have violated Occams Razor. The STV is simpler and more in line with our current understanding of nature.

3. Right, and this high exchange value has nothing to do with labor inputs. The price would drop though, your right.

Also, if you are going to say that the value of a chair is determined by the amount of labor that went into producing that chair, then how do you determine the value of that labor? It would be circular if you tried to explain the value of a good by the amount of labor required to produce it and then value of labor by the goods that it produces.

How about I briefly summarize Mengers STV, and you can say if you disagree.

Value is completely subjective, and it is something a person determines on a purely private scale. It is a disposition we take towards a good, and so it is not intrinsic in the sense that we can objectively measure it by any means whatsoever. Value is not a property of goods themselves, it is a disposition towards a good. This means that consumers do not care how much effort went into producing a good, they only care about the satisfaction they will receive from the good.

[REVLEFT'S BIEGGST MATSER TROL]

1. I don't know what portion of my post this is a response to. Anyways, the fact is that value cannot be measured because it is nothing more than a private disposition a person takes towards a good. As was mentioned earlier, money is not a measure of value. I would also drop the term "socially necessary."

2. You have a lot of qualifiers. Anyways, it is good that you realize that people do not value diamonds for the amount of labor that goes into extracting them. Nobody cares about how much labor went into producing a product. Neither use nor exchange value has anything to do with labor inputs. I would like to note that by now you have violated Occams Razor. The STV is simpler and more in line with our current understanding of nature.

3. Right, and this high exchange value has nothing to do with labor inputs. The price would drop though, your right.

Also, if you are going to say that the value of a chair is determined by the amount of labor that went into producing that chair, then how do you determine the value of that labor? It would be circular if you tried to explain the value of a good by the amount of labor required to produce it and then value of labor by the goods that it produces.

How about I briefly summarize Mengers STV, and you can say if you disagree.

Value is completely subjective, and it is something a person determines on a purely private scale. It is a disposition we take towards a good, and so it is not intrinsic in the sense that we can objectively measure it by any means whatsoever. Value is not a property of goods themselves, it is a disposition towards a good. This means that consumers do not care how much effort went into producing a good, they only care about the satisfaction they will receive from the good.

1: It was in response to your claim that finding a diamond on a beach and selling it refutes the LTV.

2: Regardless of "Occam's razor", my response showed that you clearly don't know the basics about the LTV, which you pretended was invalidated by the examples you gave - I showed it could address them.

However, you've ignored yet another blatant refutation of your "arguments" and moved on without a word, so:

Yes, no consumer (not "nobody") cares how much labour went into making something. What is your point?

Occam's razor only applies to theories which offer the same explanation of something. Clearly, there is more to the LTV than this example you offered.

3: So I have showed that you were mistaken to think that the LTV couldn't deal with that example? Good.

As for the claim of circularity, you are looking at things in the wrong way. We don't try to "measure" the value of labour, we simply accept that labour is the source of value because its the only thing that can be and not be absurd.

"subjectivism" has the same "problem."

Q: What explains price?
A: The marginal utility of a commodity.
Q: what determines marginal utility?
A: subjective psychology.
Q: How can subjective psychology be quantified?
A: In price.


As for what Menger says; in that quote he and Marx basically agree with the qualification of "value" as "completely subjective" in the sense Menger speaks of it. (Although certainly Marx wouldn't be so idiotic as to use the term "completely subjective", as if people value goods in some form of social vacum). Marx just went futher and tried to find a general rule from this.

One thing that annoys me about "marginalism", is that they don't seem to of bought anything new to the dissucssion that classical economists didn't already realise but try and expand on. It seems they're conclusions were just jumped apon by a desperate bourgeois.

[Skooma Addict]

I will just skip to the important parts.



As for the claim of circularity, you are looking at things in the wrong way. We don't try to "measure" the value of labour, we simply accept that labour is the source of value because its the only thing that can be and not be absurd.

Labor is not the source of value. Value is a disposition. Its source is in the minds of individuals. Also, I don't know how I am looking at things the wrong way since Marx himself tried to solve this very problem by resorting to the concept of "socially useful" labor.


"subjectivism" has the same "problem."

Q: What explains price?
A: The marginal utility of a commodity.
Q: what determines marginal utility?
A: subjective psychology.
Q: How can subjective psychology be quantified?
A: In price.

You are completely misinterpreting the STV while you criticize me of misinterpreting the LTV.



As for what Menger says; in that quote he and Marx basically agree with the qualification of "value" as "completely subjective" in the sense Menger speaks of it. (Although certainly Marx wouldn't be so idiotic as to use the term "completely subjective", as if people value goods in some form of social vacum). Marx just went futher and tried to find a general rule from this.

There could be 1 person on the earth, and he would value goods exactly like people do today. Would you consider that a social vacuum?


One thing that annoys me about "marginalism", is that they don't seem to of bought anything new to the dissucssion that classical economists didn't already realise but try and expand on. It seems they're conclusions were just jumped apon by a desperate bourgeois.

Huh? The marginal revolution was begun by Menger, Walrus, and Jevons. The classical economists had a completely different theory of value.

[Muzk]

This means that consumers do not care how much effort went into producing a good, they only care about the satisfaction they will receive from the good.

That's, of course, true, but you forget that they have to pay for these things. And if they don't have the (abstract labour, in capitalism) to pay for the value of this good... well, they have to look for something different.

The LTV is right, compare the price of kaviar to bread, then compare the neccessary labour time to produce each...

btw Olaf get MSN and add me

[REVLEFT'S BIEGGST MATSER TROL]

I will just skip to the important parts.



Labor is not the source of value. Value is a disposition. Its source is in the minds of individuals. Also, I don't know how I am looking at things the wrong way since Marx himself tried to solve this very problem by resorting to the concept of "socially useful" labor.



You are completely misinterpreting the STV while you criticize me of misinterpreting the LTV.



There could be 1 person on the earth, and he would value goods exactly like people do today. Would you consider that a social vacuum?



Huh? The marginal revolution was begun by Menger, Walrus, and Jevons. The classical economists had a completely different theory of value.

Read my post again!

[anticap]

Further evidence that economists suck:


Economists long have studied "free riders," the sort of people who take more than their fair share of something when circumstances permit. Think of the person who orders the most expensive entr[eacute]e at a restaurant, knowing that the check will be shared equally among companions.

University of Wisconsin sociologists Gerald Marwell and Ruth Ames, in a 1981 paper, found that in experiments, economics students showed a much higher propensity to free ride than other students. In questioning after the experiment, the sociologists found that for many of the economics students, the concept of investing fairly "was somewhat alien."

Cornell University economist Robert Frank, working with a pair of psychologists, mailed questionnaires to college professors asking them to report the annual amount they gave to charity. Their 1993 paper reported that 9.1% of the economists gave no money at all -- more than twice as many holdouts as in any other field.

The professors also ran an experiment in which participating Cornell undergraduate students could get a higher payoff if they agreed to have their partner get less. Economics majors were more likely to go for the higher payoff, they found.

http://online.wsj.com/article/SB126238854939012923.html