What are the Questions and Other Essays

Further Contributions to Modern Economics

Robert K Robinson

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315496313
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

A study of environmental degradation, this work presents the environmental problems of South Korea. The effects of rapid industrialisation and modernisation are documented along with the choices and actions which are available to the country.

Analysis

1
What are the Questions?

1 INTRODUCTION

THE 1930s have been described as the years of high theory, but all the great mass of work that has been done since and the proliferation of academic economic teaching has been very little illuminated by the ideas that emerged at that time, and there are no consistent and accepted answers to the questions that were then raised.

One reason for this lack of progress is connected with the origin of the new ideas themselves. George Shackle¹ treated ‘high theory’ as a purely intellectual movement, but in fact it arose out of the actual situation of the thirties – the breakdown of the world market economy in the great slump. Kalecki, Keynes, and Myrdal were trying to find an explanation for unemployment; the exploration of imperfect and monopolistic competition set afoot by the challenge, from opposite directions, of Piero SrafFa² and Allyn Young³ to the orthodox theory of value, though it proved to be a blind alley, arose from the observation that, in a general buyers’ market, it could not be true that prices are equal to marginal costs. The movement of the thirties was an attempt to bring analysis to bear on actual problems. Discussion of an actual problem cannot avoid the question of what should be done about it; questions of policy involve politics (laisser faire is just as much a policy as any other). Politics involve ideology; there is no such thing as a ‘purely economic’ problem that can be settled by purely economic logic; political interests and political prejudice are involved in every discussion of actual questions. The participants in every controversy divide into schools – conservative or radical – and ideology is apt to seep into logic. In economics, arguments are largely devoted, as in theology, to supporting doctrines rather than testing hypotheses.

Here, the radicals have the easier case to make. They have only to point to the discrepancy between the operation of a modern economy and the ideals by which it is supposed to be judged, while the conservatives have the well-nigh impossible task of demonstrating that this is the best of all possible worlds. For the same reason, however, the conservatives are compensated by occupying positions of power, which they can use to keep criticism in check.

Benjamin Ward observes:

The power inherent in this system of quality control within the economics profession is obviously very great. The discipline’s censors occupy leading posts in economics departments at the major institutions…. The lion’s share of appointment and dismissal power has been vested in the departments themselves at these institutions. Any economist with serious hopes of obtaining a tenured position in one of these departments will soon be made aware of the criteria by which he is to be judged … the entire academic program, beginning usually at the undergraduate level but certainly at the graduate, consists of indoctrination in the ideas and techniques of the science….⁴

These inside instruments of control are accompanied by outside instruments exercised by members of the larger society. Probably the most important of these is control of funds for research and, to a lesser extent, teaching. Consciences are not much troubled by such practices because economics has mixed its ideology into the subject so well that the ideologically unconventional usually appear to appointment committees to be scientifically incompetent.⁵

For this reason, the conservatives do not feel obliged to answer radical criticisms on their merits and the argument is never fairly joined.

Moreover, with the best will in the world, it is excessively difficult to find an agreed answer to any question concerned with reality. Economists cannot make use of controlled experiments to settle their differences; they have to appeal to historical evidence, and evidence can always be read both ways.

The laboratory sciences proceed by isolating a question and testing hypotheses about possible answers to it, one by one. In economics, questions cannot be isolated because every aspect of human society interacts with every other; hypotheses can be put forward only in the form of a ‘model’ of the whole economy. Before a model can be confronted with empirical tests, it has to be examined for internal consistency and for the a priori plausibility of its assumptions. There is a whole branch of the subject – that which carries the highest prestige – which is concerned simply with criticizing and defending hypotheses. The ‘high theory’ of the thirties consisted of advancing alternative hypotheses to replace those, derived from the theory of supply and demand for labour, which had been too much discredited in the slump.

Even when it is possible to mark off some element in such a way that it can be confronted with evidence, the collection of evidence from available statistics is enormously laborious. To establish the simplest of statistical ‘facts’ requires years of patient toil. Since it is so laborious, there is a powerful temptation to take short cuts, to overlook awkward details and favour evidence that supports an attractive theory. No doubt natural scientists are also subject to such temptations, but the experimental method provides a sieve to keep out error which has a much finer mesh than any that can be produced by an appeal to history.

There is a still more baffling difficulty in applying an economic model to statistical evidence. It may be possible to find evidence of the relationships within the model over a certain period of time and then to predict what they will be, say over the following years; but when it is found that the relationships turned out to be different, there is no way of telling whether it is because there was a mistake in specifying the model in the first place or because circumstances have changed meanwhile. And when they turn out the same, it is possibly by accident.⁶

Difficult as it is to collect good physical data, it is far more difficult to collect long runs of economic or social data so that the whole of the run shall have a uniform significance. The data of the production of steel, for instance, change their significance not only with every invention that changes the technique of the steelmaker but with every social and economic change affecting business and industry at large, and in particular, with every technique changing the demand for steel or the supply and nature of the competing materials. For example, even the first skyscraper made of aluminium instead of steel will turn out to affect the whole future demand for structural steel, as the first diesel ship did the unquestioned dominance of the steamship.

Thus the economic game is a game where the rules are subject to important revisions, say, every ten years, and bears an uncomfortable resemblance to the Queen’s croquet game in Alice in Wonderland. … Under the circumstances, it is hopeless to give too precise a measurement to the quantities occurring in it. To assign what purports to be precise values to such essentially vague quantities is neither useful nor honest, and any pretense of applying precise formulae to these loosely defined quantities is a sham and a waste of time.⁷

Evading these difficulties, a great part of current teaching is conducted in terms of models that are evidently not intended to be taken seriously as hypotheses about reality but are used rather to inculcate an orthodox ideology. For a model to be taken seriously, the assumptions must be carefully specified, while a doctrine can appeal to a general body of received ideas. This distinction is illustrated below in terms of the contention that market prices provide an efficient mechanism for allocating scarce means between alternative uses, expressed in the proposition that ‘a competitive equilibrium is a Pareto optimum’.

2 MARKET EQUILIBRIUM

In current teaching, a sharp distinction is usually made between micro- and macroeconomic problems, each being treated in terms of quite different concepts. It is necessary, of course, as the subject grows more complex, to focus upon particular questions one at a time, but a general theory cannot be split into these two parts. Micro questions – concerning the relative prices of commodities and the behaviour of individuals, firms, and households – cannot be discussed in the air without any reference to the structure of the economy in which they exist, and to the processes of cyclical and secular change. Equally, macro theories of accumulation and effective demand are generalizations about micro behaviour: the relation of income to expenditure for consumption, of investment to the pursuit of profit, of the management of placements in which financial wealth is held to rates of interest, and of wages to the level of prices result from the reactions of individuals and social groups to the situations in which they find themselves. Even the artificial conception of a stationary state has to be specified in terms of the behaviour of its inhabitants. Supposing all natural and technical conditions are constant, we still have to describe the individual and social behaviour which is conceived to make total consumption exactly equal to net output, neither more nor less, so that net saving and net investment are exactly zero. If there is no micro theory, there cannot be any macro theory either.

The analysis of markets is treated under the heading of micro theory, but it cannot be understood without some indication of the macro setting in which it operates. A prisoner-of-war camp, a village fair, and the shopping centre of a modern city cannot all be treated in exactly the same terms.

The macro setting of the analysis of‘scarce means with alternative uses’ is very vaguely sketched. It appears to rely upon Say’s Law, for the scarce means are always fully utilized.⁸ The central concept is the production-possibility surface showing the combinations of quantities of a list of specified commodities that could be produced by various combinations of the given resources.

Nothing much is usually said about the inhabitants of the model. The ancestry of Adam Smith is often claimed for it, but his world was inhabited by workers, employers, and gentlemen. Here there are only ‘transactors’ or ‘economic subjects.’ To borrow Michio Morishima’s trope, the people in this model are like the conventionally invisible property men of the Kabuki theatre, and only the commodities have speaking parts.

The ‘scarce means’ consist of ‘labour’, that is, workers who can be employed in various occupations, privately-owned land providing various kinds of natural resources, and the produced means of production (buildings and industrial equipment) that have already been accumulated. Thus, it purports to deal with a capitalist economy that has a future and a past, but the analysis applies rather to a once-over meeting of independent peasants at a rural market or to the prisoner-of-war camp where parcels were occasionally received from the Red Cross.

As Nikolay Bukharin observed when he was in exile in the West, there is almost no discussiçn of how scarce means are organized to yield outputs; the whole emphasis is on exchanges of ready-made goods.⁹Robert Clower subsumes production under exchange:

An ongoing exchange economy with specialist traders is a production economy since there is no bar to any merchant capitalist acquiring labour services and other resources as a ‘buyer’ and transforming them (repackaging, processing into new forms, etc.) into outputs that are unlike the original inputs and are ‘sold’ accordingly as are commodities that undergo no such transformation. In short, a production unit is a particular type of middleman or trading specialist.¹⁰

And he supports the view ‘that “capitalists” are just individuals who have the wit and forethought to exploit profit opportunities by accumulating trade capital and engaging in the “production” of both trading services and new types of commodities.’

It is true, of course, that industrial capitalism developed out of commercial capitalism, but the process of exchange does not explain why there are so many (presumably dull-witted) individuals who are available to sell labour services.

There are various brands of micro theory; Clower has been critical of others, but all share the characteristic of stressing exchange and neglecting production.

Even the process of marketing commodities is not much discussed. Since the tastes of individuals are hard and fast, there is no scope for advertisement and salesmanship to affect them. Indeed there is no scope for competition at all. To quote Oskar Morgenstern:

Competition means struggle, fight, maneuvering, bluff, hiding of information – and precisely that word is used to describe a situation in which no one has any influence on anything, where there is ni gain, ni perte where everyone faces fixed conditions, given prices, and has only to adapt himself to them so as to attain an individual maximum…,¹¹

There is a large number of sellers of each kind of commodity, and though they are all assumed to be ‘maximizing profits’, none of then ever forms a group which could increase proceeds for each member above what they could get individually.¹² On the demand side, the market is made up of transactors each with a certain amount of purchasing power, in terms of some numeraire, which he spends on a selection from among the commodities offered, according to his tastes and their prices. Here the argument does correspond to Adam Smith’s treatment of the subject, for when he speaks of appealing to the self interest of the butcher, the brewer, and the baker to get us our dinner, he is evidently thinking of a gentleman with independent means spending money on the tradesmen, rather than of their competitive struggle to make a living.

At an equilibrium position on the production-possibility surface, the prices and flows of sales of the various commodities determine the earnings of various types of resources so that the income of each transactor depends upon the specific resources that he commands. An ob...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• CONTENTS
• Introduction
• ANALYSIS
• CONTROVERSY
• TRIBUTES
• ASPECTS OF MARXISM