Magpie — Getting all Tied Up (2)

Magpie critiques Paul Mason's criticism of MMT from the POV of a Marxist.

Magpie's Asymmetric Warfare
Getting all Tied Up (2)

Magpie

David F. Ruccio — Utopia and value theory

Mainstream economists refer to it as price theory, everyone else value theory. But whatever it’s called, it’s at the center of economists’ differing explanations of what happens in (and alongside) markets.

As I see it, price/value theory serves as the framework to explain a wide range of phenomena, from how and for how much commodities are exchanged in markets through the determinants of the distribution of incomes to the outcomes—for the economy and society as a whole—of the allocation of resources and commodities through markets.

And each price/value theory has a utopian dimension. It’s not just an accounting for and an explanation of the conditions and consequences of commodity exchange; it’s also a way of thinking about the fairness and justice of markets. It therefore informs (and is informed by) a utopian horizon within and beyond markets.

Let me explain.…

Excellent short explanation of a key economic idea that functions as a political weapon in the class war.

The differences between neoclassical price theory and Marxian value theory couldn’t be more stark. The differences are even more dramatic when we compare their utopian horizons. Whereas neoclassical price theory leads to a utopian celebration of capitalist markets, Marxian value theory both informs and is informed by a utopian critique of capitalist exploitation—and therefore a movement beyond capitalism.

The question is how surplus value is created. Surplus value becomes profit (owners' share by fact of ownership), which is income that is not earned since it is the difference between proceeds and wages.

In both cases—neoclassical price and Marxian value theory—the story about commodity exchange, and therefore the analysis of the form that wealth takes under capitalism, has a utopian dimension. The two theories have that in common. Where they differ is the form that utopian dimension takes....

Occasional Links & Commentary
Utopia and value theory
David F. Ruccio | Professor of Economics, University of Notre Dame

See also

Michael Roberts Blog
Inequality and exploitation
Michael Roberts

See also

Monthly Review
The Multiple Meanings of Marx’s Value Theory

Riccardo Bellofiore

Brad DeLong — Must-Read: Steve Roth: The Pernicious Prison of the Price Theory Paradigm

Cuts to the chase.

WCEG — The Equitablog
Must-Read: Steve Roth: The Pernicious Prison of the Price Theory Paradigm
Brad DeLong

Lord Keynes — Keynes on Marginal Cost and Price

Keynes notes that the whole concept of marginal cost as the main cause of price determination is grossly exaggerated:

“Indeed, it is rare for anyone but an economist to suppose that price is predominantly governed by marginal cost. Most business men are surprised by the suggestion that it is a close calculation of short-period marginal cost or of marginal revenue which should dominate their price policies. They maintain that such a policy would rapidly land in bankruptcy anyone who practised it.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Keynes on Marginal Cost and Price
Lord Keynes

Lord Keynes — Keynesians, Austrians, Demand, and Production

Austrians emphasize price signaling, while Keynesians emphasize quantity signaling.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Keynesians, Austrians, Demand, and Production
Lord Keynes

Lord Keynes — Why Hayek’s Theory of Prices and Knowledge is Flawed

Frederic S. Lee explains in the passage below from insights by the British economist George Richardson....

Social Democracy For The 21St Century: A Post Keynesian Perspective
Why Hayek’s Theory of Prices and Knowledge is Flawed
Lord Keynes

Lord Keynes — A Bibliography On Austrian Price Theory

Since I have been concerned with Post Keynesian price theory in recent months, here below is a short bibliography of Austrian price theory for the interested reader.

Social Democracy For The 21St Century: A Post Keynesian Perspective

A Bibliography On Austrian Price Theory

Lord Keynes

Lord Keynes — Lavoie on Mark-up Pricing in Neoclassical Theory

The lesson is to beware of neoclassical re-interpretations of administered pricing.

One must not confuse the neoclassical concept of marginal costs with average costs of production per unit. The two are not the same thing.

And, above all, the administered pricing behaviour of many firms is inconsistent with the idea of profit-maximisation in neoclassical theory.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Lavoie on Mark-up Pricing in Neoclassical Theory
Lord Keynes

Lord Keynes — Lee on Post Keynesian Price Theory in The Oxford Handbook of Post-Keynesian Economics

Frederic S. Lee has a useful and up-to-date chapter on Post Keynesian price theory in The Oxford Handbook of Post-Keynesian Economics. Volume 1: Theory and Origins (Oxford, 2013). I summarise the main points below...

Social Democracy For The 21St Century: A Post Keynesian Perspective
Lee on Post Keynesian Price Theory in The Oxford Handbook of Post-Keynesian Economics
Lord Keynes

Lord Keynes — Lee’s Post Keynesian Price Theory: Chapter 6

Short account of why marginalism is wrong. Business does not operate in terms of marginal price since it is inefficient, contrary to what neoclassical economics, which is defined by marginalism, holds, as well as to Hayek's market approach to information economics.

Social Democracy For The 21St Century: A Post Keynesian Perspective

Lee’s Post Keynesian Price Theory: Chapter 6

Lord Keynes

Ajit Sinha - Piero Sraffa's Price Theory Without Equilibrium

Piero Sraffa's classic work Production of Commodities by Means of Commodities has been variously interpreted as a special case of modern neoclassical general equilibrium or a foundation stone for the revival of the classical tradition of Smith and Ricardo.

Ajit Sinha breaks new ground by viewing the book through the eyes of Sraffa himself, using archival resources to uncover the philosophical underpinnings of the book in the work of Wittgenstein and others.

Sinha argues that Sraffa's framework doesn't require equilibrium conditions to work - while most other theories of price do - allowing for an empirical understanding to economics that is closer to the real-world situation of market disequilibrium

According to Sraffa, the prices we observe in the world are simply the way the economic system achieves a given distribution of income at a given moment in time. This new interpretation opens up the revolutionary possibility of a microeconomic foundation in price theory that's compatible with the macroeconomics of Keynes.

INET
Ajit Sinha - Piero Sraffa's Price Theory Without Equilibrium
(h/t Tschäff Reisberg on FB)

Lord Keynes — Gardiner Means on Administered Prices

Gardiner’s conclusions are worth quoting:

“... the actual behavior of administration-dominated prices … tends to differ so sharply from the behaviour to be expected from classical theory as to challenge the basic conclusions of that theory. However well the theory may apply to market-dominated prices, it would not seem to apply to the bulk of the administration-dominated prices in the sample or to that part of the industrial world which they typify. Until economic theory can explain and take into account the implications of this nonclassical behavior of administered prices, it provides a poor basis for public policy. The challenge which administered prices make to classical economics is as fundamental as that made by the quantum to classical physics.” (Means 1972: 304).

Administered price behaviour in real world economies really does lead to revolutionary conclusions for economic theory: so much of neoclassical economics and Austrian economic theory simply collapses and must be abandoned once one understands its implications.

Disequilibrium prices are deliberately created and maintained by fixprice enterprises in a vast swathe of the economy, simply because they prefer it that way. Such businesses are not generally in the habit of using flexible prices as their normal method of clearing supply, or equating demand with supply.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Gardiner Means on Administered Prices
Lord Keynes

Steve Keen — Is Capitalism Inherently Unstable? (3)

But it does seem to decide the case in favour of the classicals for the real world: prices must be set by a mark-up on costs, rather than by the ‘twin blades’ supply and demand.

That’s the opinion I held, until a crucial step in generalising my model of Minsky’s Financial Instability Hypothesis implied that, at a macro level, the two models are identical. I’ll get on to that – and the role of prices in economic instability – in the next post in this series.

Steve Keen's Debtwatch

Is Capitalism Inherently Unstable? (3)

Steve Keen | Associate Professor of Economics & Finance at the University of Western Sydney

Lars P. Syll — Neoclassical “Walt Disney” economics

Price rigidities of all kinds are common in real economies. The nodal point in the macroeconomics, however, is not their existence, but rather that even if they did not exist, our economies would not turn into the kind of Panglossian full employment equilibrium Walt-Disney-fiction-world that neoclassical macroeconomists seems to take more or less for granted....

Lars P. Syll's Blog
Neoclassical “Walt Disney” economics
Lars P. Syll | Professor, Malmo University

My comment there:

Representative agent modeling is based on methodological atomism, which treats individuals as atoms in a physical system. This is overly simplistic in biological and social systems, which are complex adaptive systems rather than mechanical. Such modeling can never serve as anything more than a simple heuristic device.

Modeling based on the assumption of a representational rational agent pursuing maximum utility involves the further assumption of Bentham’s hedonistic utility theory based on a calculus of “utility” defined as material satisfaction. J. S. Mill pointed out the insufficiency of that stance in Utilitarianism: “It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different opinion, it is because they only know their own side of the question.”

See The Romantic Economist: Imagination in Economics by Richard Bronk, London School of Economics and Political Science, published by Cambridge University

Ajit Sinha - Piero Sraffa's Price Theory Without Equilibrium

Piero Sraffa’s classic work "Production of Commodities by Means of Commodities" has been variously interpreted as a special case of modern neoclassical general equilibrium or a foundation stone for the revival of the classical tradition of Smith and Ricardo.

Ajit Sinha breaks new ground by viewing the book through the eyes of Sraffa himself, using archival resources to uncover the philosophical underpinnings of the book in the work of Wittgenstein and others.

Sinha argues that Sraffa’s framework doesn’t require equilibrium conditions to work - while most other theories of price do - allowing for an empirical understanding to economics that is closer to the real-world situation of market disequilibrium.

According to Sraffa, the prices we observe in the world are simply the way the economic system achieves a given distribution of income at a given moment in time. This new interpretation opens up the revolutionary possibility of a microeconomic foundation in price theory that’s compatible with the macroeconomics of Keynes.

INET
Piero Sraffa's Price Theory Without Equilibrium

Ajit Sinha |  author of Theories of Value from Adam Smith to Piero Sraffa

Robert Vienneau — Reproducing Civil Society

There exist at least two approaches to economics:

• One focused on the allocation of given scarce resources among alternative ends.
• One focused on the conditions for the reproduction of society.

The first is the approach of the so-called neoclassical theory [in which the focus is on price theory], and the second is the approach of classical political economy [where the focus is on political theory].

Thoughts on Economics
Reproducing Civil Society
Robert Vienneau