Inspired by Frederic (“Fred”) S. Lee’s theoretical contribution to institutional-heterodox economics, I make the case that the neoclassical price mechanism is not only flawed, but also irrelevant for the study of actual coordination mechanisms, hence the price mechanism — as a theory as well as a way of thinking — should be discarded. While this position was addressed by early institutionalists, starting with Thorstein Veblen, later institutionalists have not completely rejected the price mechanism. The sympathy for the price mechanism has prevented institutionalists (and other heterodox economists) from fully developing an alternative theoretical framework concerning how actual economic activities are organized. I, therefore, provide an institutionalist-heterodox framework of the provisioning process focusing on business enterprise activities. This framework shows how institutional economics becomes more refined and useful when it is married to other traditions in heterodox economics, in particular, Marxian, social, and post-Keynesian economics. Such an integrative approach is what Fred Lee showed through his work toward producing a better theory and policy for the underlying population.Dr. Fredrick S. Lee Blog
What if there are no conventional price mechanisms?
Tae Hee Jo | associate professor in the Economics and Finance Department at the State University of New York, Buffalo
12 comments:
They might be on the right track ....
The losers use DSGE so like Mike says you have to fade a loser...
The "G" is for "General" so what you want to do is NOT a general theory...
seems like this guy is still trying to come up with a different theory BUT still general...
You instead want to be "specific"... ie analyze THE system that you are currently operating not some hypo "general" system...
eg if you try to explain gold standard era operations within the same "general" theory as you are trying to explain what we are doing today within our current numismatic system it isnt going to work ....
Maybe there could be a general theory to explain both the gold standard and the modern fiat era. Maybe in that theory there is an amount that measures the peg... 1 for total peg to a commodity and 0 for no peg at all. I can't rule out a model just because it is made to be general.
Aristotle said that the world of underwater had different laws from the world above what (where we live), so there was no single theory that could explain both. Maybe at that time he didn't have enough knowledgle to understand that maybe the physical laws were the sume but the fluids had different properties...
"above water" is the correct sentence
Well Andre we are not in charge of those laws but we are in charge of our laws...
We may not be in charge of our laws... Maybe our biology, our psychic, our genetic and cultural programming, and the nature are in charge of political and economic processes.
Maybe theses processes are too complex to grasp and to be turned to a general model. Maybe they aren't. But I can envision a model that encompass both float and pegged currency (based on Scott Fullwiler), for example. We do not need to restrict a model to a specific scenario to make it useful. Models that work only in a limited context are actually dangerous - we may not even understand that the scenario has changed and that the model is not valid anymore.
we may not even understand that the scenario has changed and that the model is not valid anymore.
Like most of those now who haven't yet made the conceptual switch from the previous monetary regime to the present one. How many years has it been?
How can you have a correct theory of the price mechanism when you are thinking in terms of the wrong monetary system?
The other problem with economic theory is that efficiency is a chief criterion. Efficiency is fine as long as there are no disruptive changes or shocks. Then the question becomes whether resilience was sacrificed to the efficiency god. Developed economies are a good example of this. Highly efficient but not so resilient. Less developed economies likely have more residence, for example, supply chains are not so stretched out or tightly tweaked so that everything arrives just on time — until it doesn't. Markets and price don't handle this well.
Andre it doenst "float" it is regulated...
MMT is wrong when it says "free floating, non-convertible"
Its not "free floating" it is regulated... reserves are assets at a bank and banks assets are regulated against capital... there is a regulatory "capital:assets ratio" that has to be maintained... the frequency responses of these two regulatory parameters are currently mis-matched so we end up in system default from time to time when asset prices demonstrate high volatility... and the capital parameter cannot respond with the same frequency...
In systems theory this is called 'mis-match error'...
And for 'non-covertible' you cannot define something with a negative like this its bad philosophy of science... its created by law so the Greeks used a derivation of the word for law 'nomos"...
and you can see here via Aristotle, our ancestors could differentiate between nature and human law very easily... and he didnt conflate them...
Aristotle:
"Nomisma by itself is a mere device which has value only by nomos (law) and not by nature; so that a change of convention between those who use it, is sufficient to deprive it of value and its power to satisfy our wants." — Aristotle, "Politica."
"By virtue of voluntary convention nomisma has become the medium of exchange. We call it nomisma, because its efficacy is due not to nature but to nomos (law), and because it is always in our power to control it." — Aristotle, " Ethica."
We already were thru this over 2,000 years ago and we figured it out and it was working perfectly... nobody was poor... nobody thought they were 'out of money!' the word 'money' didnt even have an equivalent in the Greek lexicon....
You dont conflate the natural laws and mankind's laws.... we're in charge of what we're in charge of and nature's laws stand apart from that...
Andre:Maybe there could be a general theory to explain both the gold standard and the modern fiat era.
There is. It is called "MMT" (or creditary or circuitist or institutional or Keynesian) economics. That is THE point of Mitchell-Innes. [Good comparison about Aristotle] There is only one system, which people can decorate with bells & whistles, or not.
They then confuse the bells & whistles with the system, with the explanation & fall into abject confusion, which they disguise to themselves by using ever more and ever bigger (ill-defined) words. This is the (omnipresent in modern times) pitfall of undersimplification, of becoming confused by self-created difficulties.
For "free floating" I mean that the currency is not convertible to gold, silver, copper, dollars, euros, yens, and any metal, commodity and foreign currency. That's it. No more and no less.
The law that regulates currency is the amount of taxes you can liquidate with the currency - and the punishments to the ones that do not pay the taxes. The government also regulates the kind and amounts of labour you have to supply to earn a unit of currency.
Government currency in the form of notes and coins is not "regulated against capital". You may have how many notes/coins you wish, independent of your wealth or capital levels - but you have to work to the government to earn it, or to someone that has already worked to the government and earned it before. In some countries this kind of currency is about 50% or more of the base currency, so it's important.
Government currency in the form of bank reserves is regulated against capital, but I don't understand your point. What you mean by "frequency responses" and "mis-matched regulatory parameters"?
Andre
The MMT people use "free floating" to mean that a currency can be observed changing in exchange rate vs. other currencies in the banking system.... as opposed to maintaining a fixed exchange rate vs. another state currency...
The "non-convertible" part is where they point out whether a nation will on demand convert the currency to some mass measure of one of the metals (or not)...
No , bank reserves are not regulated vs. capital, assets are regulated against capital...
Here is the concept of 'mismatch error' applied to transmission line/waveguide theory:
https://en.wikipedia.org/wiki/Mismatch_loss#Mismatch_error
and the concept of a "wave ratio" here:
https://en.wikipedia.org/wiki/Standing_wave_ratio
Think of the two sides of the bank balance sheet as a standing ratio.... since the balance sheet has to balance (debits=credits) the SWR is maintained (regulated) at 1:1 all the time...
So when one of the sides of the balance sheet exhibits a change in value, the other side has to adjust to "match" the other side... so what you have to do, (if you are competent) is analyse the time domain response characteristics of the two sides and make sure your time/frequency domain repsonse times of the two sides lead to acceptable response characteristics...
So what we have with the current system is a high frequency charateristic of the asset side and a low frequency response of the capital side and this is a classic "mismatch" error or mismatch loss scenario...
this is not generally understood in the academe of economics (unqualified people over there) so economist people come up with conspiracy theories, stochastic approaches, ex post analysis, or some just cant take it and just bail out into partisan politics...
"How can you have a correct theory of the price mechanism when you are thinking in terms of the wrong monetary system?"
Tom I keep trying to tell you they are stupid brother....
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