Sunday, January 8, 2017

Heterodox Session at ASSA: Marx, Rawls,Sraffa, and... Acemoglu

Yesterday morning I attended an URPE session at ASSA in Chicago titled,, "Marx, Rawls, and Sraffa, and the Limits of Mainstream Economics."  The Rawls person did not appear, but there was a paper on recent J.B. Clark award winners as reps of mainstream econ.  Lots of attention on Daron Acemoglu, with people arguing about whether what he is doing is good or not.  Wisecrack I heard was that "MIT economists are rediscovering insights of Marx, Kalecki, and Steindl, but not citing them."  This paper was presented by Robert Chenomas of U. of Manitoba.

The main debates came from presntations by Robin Hahnel and Michael Perelman.  The big whoop is that the archives of Piero Sraffa are now being made available.  This is engendering a massive search into his long secret writings with various proposed reinterpretations going on. A big issue is his relationship with Marx, with Hahnel claiming an FST vs an FMT, a Fundamental Sraffa Theorem vs a Fundamental Marx Theorem. The argument is that in a proper input-output Sraffa type system any commodity can be the "source of value," with the Marx argument being that it must be labor.  Well, all hell broke loose, and I shall not leak who was carrying on more than whom.

What is clear is that we are going to be hearing more  about this now that those long held archives have been opened.

Barkley Rosser


AXEC / E.K-H said...

Barkley Rosser

Heterodoxy is as dead as Orthodoxy. For details see ‘The futile attempt to recycle Sraffa’

Egmont Kakarot-Handtke

kevin quinn said...

Barkley: Robin (my mentor from way back bte) was just making the point that Sam and Herb made years ago, no? I have been making the point for years in the HET course I teach that if the system is "productive" than we can show that any basic commodity is exploited: the value of corn power, for example, is less than 1! As Sam and Herb presented it, it's an argument reductio against LTV. said...

Yes,Kevin, he made that point. But he had some people sharply countering him, such as Scott Carter, who argues that Sraffa held to the LTV despite this interpretation. Scott was also one arguing that the opening of the archives is going to trigger a lot of reevaluation of all this.

AXEC / E.K-H said...


The futile attempt to recycle Sraffa
Comment on Ajit Sinha on ‘Sraffa’s Revolution in Economic Theory’

Sraffa realized that there is something fundamentally wrong with neoclassical marginalism. Up to this point he was right, of course. But, like all other heterodox economists, he failed to produce a valid replacement. Because Sraffa, too, produced merely proto-scientific rubbish it is misleading to characterize his approach as a “revolution in economic theory”. Economic theory is false since Adam Smith and Sraffa is part of the overall scientific failure.

The lethal blunder of economics is the theory of profits. As the Palgrave Dictionary puts it: “A satisfactory theory of profits is still elusive.” (Desai, 2008). Economists have NO idea of the pivotal concept of their subject matter and because of this ALL orthodox and heterodox approaches are fundamentally flawed#1.

Sraffa starts with an “extremely simple society” which produces wheat and iron#2, p.3. In other words, he starts with a real model just like Ricardo#3, and this is the fundamental methodological error/mistake/blunder. Real models cannot capture profit and this fact is obscured by Sraffa’s false assertion that surplus (a real magnitude) is the same as profit#2, p.6.

Methodologically, Keynes was a bit more sophisticated than Sraffa because he clearly recognized that economic theory has to start with the “monetary theory of production”. The economy constitutes itself through the interaction of real AND nominal variables. From this follows that all real models are a priori false.

Sraffa defines the rate of profit without prior definition of profit#2, p.6. To clearly see the conceptual blunder, Sraffa’s elementary real economy has to be replaced by the elementary consumption economy.

In the elementary consumption economy#4 three configurations are logically possible: (i) consumption expenditures are equal to wage income, (ii) consumption expenditures are less than wage income, (iii) consumption expenditures are greater than wage income.

In case (i) wage income is assumed to be Ym=100 monetary units (e.g. trillion dollar/euro/yuan) and consumption expenditures are assumed to be C=100 monetary units. Then, the monetary saving of the household sector Sm≡Yw-C is zero and the monetary profit of the business sector Qm≡C-Yw, too, is zero.

In case (ii) wage income is assumed to be Ym=100 monetary units and consumption expenditures are assumed to be C=90 monetary units. Now, monetary saving is Sm=10, and the business sector makes a loss Qm=-10. The whole output is sold, i.e. O=X, and the market clearing price P is now lower than in case (i).

In case (iii) wage income is assumed to be Ym=100 monetary units and consumption expenditures are assumed to be C=110 monetary units. Now, monetary saving is Sm=-10=dissaving, and the business sector makes a profit Qm=10. The whole output is sold, i.e. O=X, and the market clearing price P is now higher than in case (i).

See part 2

AXEC / E.K-H said...

Part 2

It always holds Qm+Sm=0 or Qm=-Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the PROFIT LAW for the economy as a WHOLE.

It holds in particular:
• Overall profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit maximizing behavior. These subjective factors are IRRELEVANT. Profit for the economy as a whole is OBJECTIVELY determined.

• Profit/loss of the business sector is, in the simplest case, determined by the increase/decrease of household sector’s debt.
• Wage income is the factor remuneration of labor input. Profit is NOT a factor income.
• There is no relation at all between profit, capital, marginal or average productivity.
• Profit has NO real counterpart in the form of a piece of the output cake. Profit has a monetary counterpart. As a logical consequence, profit cannot appear in a real model.

Sraffa’s definition of the profit rate is utter methodological dilettantism. As a consequence, his entire analytical superstructure falls apart. The proper place of Sraffa’s book has always been the waste basket. It is a pointless exercise to recycle it as an alternative to the neoclassical approach. To fully replace Neoclassics requires the shift form false microfoundations to true macrofoundations. This, obviously, is absolutely beyond the horizon of incompetent scientists like Sinha.

Egmont Kakarot-Handtke

#1 See ‘The Profit Theory is False Since Adam Smith’
#2 Sraffa, Production of Commodities by Means of Commodities
#3 See ‘When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism’
#4 The correct macrofoundations are given with three systemic equations: A1 Yw=WL wage income Yw is equal to wage rate W times working hours L. A2 O=RL output O is equal to productivity R times working hours L. A3 C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

AXEC / E.K-H said...

ICYMI Economists’s real job problem