Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited — Yair Kaldor

Value theory in economics.

Economic Sociology and Political Economy

Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited

Yair Kaldor | PhD candidate in the sociology department at the University of Wisconsin-Madison, and a member of Koah LaOvdim (“Power to the Workers”), an Israeli labor union.

Economic valuation — Links

The nature of value and the methods of valuation as some of the trickiest areas of economics, social theory and psychology, as well as philosophical logic, ethics and action theory in philosophy as foundational studies.

For example, both Adam Smith and Marx were trained philosophers that specialized in "moral philosophy, which pivots on value theory. Smith adopted a labor theory of value in The Wealth of Nations, which set the tone for classical economics. Ricardo followed suit. Marx did not have a labor theory of value in the same sense but rather criticized the classical LTV, showing how value was expropriated from labor in a monetary production economy through profit conceived of as "surplus value" in Marx's theory of valuation. This encompasses what we now call "financial rent" and "monopoly-monopoly" rent.

Here are a couple of links on such issues in economics, the first regarding land value and the second the economic valuation of human life.

Classical economics was about preventing capture of land rent, which had been the basis of feudalism.

In putting numbers on the value of life, the risk is rent-extraction resulting from factors not considered in the scope and scale of the model — and usually not admitted.

Decisions, Decisions, Decisions
How to Capture Land Values under the Current Rules
Andrew Lainton

Econospeak

The Value of Life and the Metaphor of Choice

Peter Dorman | Professor of Political Economy, The Evergreen State College

Brad DeLong — The extremely intelligent Martin Wolf reviews Maria Mazzucato

I would post a link to Martin Wolf's article but it is behind a paywall at the Financial Times. So this will have to do unless you have access.

Somewhat embarrassingly, Brad DeLong gets Mariana Mazzacuto's name wrong. Oh, well, I make mistakes like that, too, on occasion.

Wolf review poses a very pregnant question, "… she forces us to ask ourselves what adds value to society and how to create an economic and social order that promotes that."

WCEG
The extremely intelligent Martin Wolf reviews Maria Mazzucato.

Brad DeLong
Crossposted at Grasping Reality

Umar Haque — Americans Are Dying For Healthcare

Yet there’s a logic — however absurd — to it. It’s a case of income maximization gone extreme. Repealing healthcare will maximize incomes for healthcare providers, Congressmen, lobbyists, pharmaceutical companies. And repealing healthcare will maximize incomes for households, by lowering taxes. Never mind that it shrinks life expectancy, which is to say: never mind the long-term benefits of such investments — in this paradigm, all that matters is income, right now.

Thus, the overarching paradigmatic goal — increasing GDP , which is the underlying and understated assumption of all the above — will be accomplished. GDP doesn’t care if you don’t have healthcare — in fact, the more you pay for healthcare, the higher GDP rises. If we all break each other’s legs, GDP rises, because now we have to pay for healthcare — and if there’s only one doctor in town, who charges us a fortune, so much the better, because we’ll have to pay more. (And if you want to get political, of course we can trace slavery and segregation back to the idea of maximizing income at the expense of life, too).

If all that sounds bananas, that’s because it is. It’s all a tiny case study in just how broken the old paradigm of human organization is, which suggests the sole purpose of all life on the planet is maximizing the income we can wring out of it this nanosecond. Now let’s ask: what happens when a society obeys that paradigm in every sphere of life?
Well, you get the thoroughly weird and tragic situation America’s in today: its economics appear to be grossly fine— but its eudaimonics are dismal, declining, and failing. By “eudaimonics”, I mean whether lives are flourishing or not.

The is the problem with equating value with price and measuring utility (satisfaction) based on prices as an reliable indicator of preferences.

This is amplified by assuming macro to be scaled up micro and viewing macro in terms of aggregates rather than in terms of systems and networks.

The result is economics as fantasy intellectually, and, worse, the result is a horror show in actuality.

If there’s a recipe for how not to create eudaimonia, this old, busted paradigm — maximize income at the expense of life itself — is it.

Like I keep saying, capitalism is about putting ownership first and socialism is about putting society, you know, all the people, first. Capitalism is naturally suited to oligarchy of the plutocratic sort. Socialism in naturally fitted to democracy as government of the people, by the people, and for the people.

It's matter of getting priorities straight. Letting economic liberalism dictate social and political liberalism is a fool's errand.

Incidentally, viewing "capitalism versus socialism" as being black and white falls into the fallacy of the excluded middle. There are many forms of capitalism and socialism along the range between the extremes. However, much of the discussion assumes an excluded middle. This is unsound reasoning, usually for persuasion rather than being based on inquiry using methods of creative and critical thinking.

Designing Eudaimonia —The Art of Creating Better Lives

Americans Are Dying For Healthcare

Umar Haque

Sandwichman — Post Post Work Post

What Karl Marx really meant. And therefore why most of what goes by the name "economics" is a crock. It's actually a story gussied up in math that is used to dupe the rubes.

EconoSpeak

Post Post Work Post
Sandwichman

John Michael Greer — Dark Age America: The Hoard of the Nibelungs

John Michael Greer tackles money and the dark side of chartal.

Money is a system of arbitrary tokens used to facilitate exchange, but it’s also a good deal more than that. It’s the framework of laws, institutions, and power relationships that creates the tokens, defines their official value, and mandates that they be used for certain classes of economic exchange. Once the use of money is required for any purpose, the people who control the framework—whether those people are government officials, bankers, or what have you—get to decide the terms on which everyone else gets access to money, which amounts to effective control over everyone else. That is to say, they become the primary intermediaries, and every other intermediation depends on them and the money system they control.

This is why, to cite only one example, British colonial administrators in Africa imposed a house tax on the native population, even though the cost of administering and collecting the tax was more than the revenue the tax brought in. By requiring the tax to be paid in money rather than in kind, the colonial government forced the natives to participate in the money economy, on terms that were of course set by the colonial administration and British business interests. The money economy is the basis on which nearly all other forms of intermediation rest, and forcing the native peoples to work for money instead of allowing them to meet their economic needs in some less easily exploited fashion was an essential part of the mechanism that pumped wealth out of the colonies for Britain’s benefit.

Watch the way that the money economy has insinuated itself into every dimension of modern life in an industrial society and you’ve got a ringside seat from which to observe the metastasis of intermediation in recent decades. Where money goes, intermediation follows: that’s one of the unmentionable realities of political economy, the science that Adam Smith actually founded, but was gutted, stuffed, and mounted on the wall—turned, that is, into the contemporary pseudoscience of economics—once it became painfully clear just what kind of trouble got stirred up when people got to talking about the implications of the links between political power and economic wealth.

There’s another side to the metastasis just mentioned, though, and it has to do with the habits of thought that the money economy both requires and reinforces. At the heart of the entire system of money is the concept of abstract value, the idea that goods and services share a common, objective attribute called “value” that can be gauged according to the one-dimensional measurement of price.

It’s an astonishingly complex concept, and so needs unpacking here….

The Archdruid Report
Dark Age America: The Hoard of the Nibelungs
John Michael Greer

Outcomes Based National Evolution - Measured by Nominal Metrics Like GDP, Or By Real Outcomes? (Why Must We Ask The Obvious?)

   (Commentary posted by Roger Erickson)




There's a reason why homo-econo-ignoramus doesn't appear on this chart. All those pompous Nobel Prize winners simply don't matter, any more than the methane coming from livestock.

Does GDP correlate with general welfare of the people ... or with national Adaptive Rate?

More to the point, what do we do with all our increasingly possible leisure time?

Oh, maybe quit trying to tell people what to do and how to do it, and instead leave exploration of our expanding options up to their increasingly distributed ingenuity?

Ya think?

Did every one of the soldiers working with General Patton have a defined job? No and yes. Their JOB was to cooperate ingeniously in navigating their dynamic context, AS AN AGGREGATE! The best way to survive as an aggregate is to NOT assign arbitrary jobs to all members, and to instead invest in distributed freedom to increase the net adaptive value of distributed decision-making.

GDP? Jobs? Really?

There are more relevant questions to ask. Start with the fact that no amount of humans is ever "necessary," except in the viewers perspective. Do we know who or what will be asking these questions? Not yet we don't.

The only known reason for separate classes within any species or culture, is as a tool for extending dominance hierarchies, i.e., to use your neighbors before they use you.

To see that, all you have to do is perceive "the value that dominants gain from suppressing their subordinates" - which is right out of biology-101, and presupposes a perspective where competition for over-subscribed static resources exists. What if that perspective itself no longer applies? How? Once an aggregate transitions to a state where the importance of dynamic assets is finally recognized as far outweighing the importance of static assets. That's always been true, of course, ever since the first "better way" was first recognized. It's just that most humans STILL don't recognize that tautology!

Relevant answers, and the data to support them, depends on who defines context, and why. Without a useful definition of our changing context, we don't arrive at an optimal definition of "value." For instance, is the ratio of static vs dynamic value changing rapidly, as the ability of humans to transcend biological niches continues to expand? Unfortunately, you won't hear that question posed in many, if any, economics textbooks, simply because the very perspective of orthodox economics is too primitive to even keep up with the existing range of other human disciplines.

Again, these observations about dominants suppressing subordinates - and WHY - are right out of biology-101, and have been documented out the wazoo, for many social as well as non-social species (despite what these particular authors claim, that it's been proven ONLY for meerkats - they're likely just posturing for tenure in some academic department :( ).

For example, in most "pack" animals, from meerkats to lion prides to wolves, the dominant male & female completely prevent subordinates from reproducing (often over 90% of the time), so all you really have to follow are the boundary conditions - i.e., who's offspring do & don't survive. You can see the same dynamics at every level of the phylogenetic scale, from viruses to human beings. The core system dynamics don't change very much, but the accumulated methods sure do.

Same thing occurs in upper class vs lower class humans and other primates - e.g., chimpanzees. Lots of poor people scrimp on their own child rearing or forgo reproducing, while working to help rear the children of rich people. Offspring of chimps less dominant in their packs don't get the same perks that "yuppie" chimp kids do. But there's a clear reason for that, as long as access to static assets is a point of competition.

Once you look, do you see any difference whatsoever - once you compare fungi, meerkats or humans? (Note also that continual revolutions - in all species - illustrate frequent turnover among which phenotypes are dominant, and which are suppressed. There's no guaranteed permanence, at least not out on the cutting edge of an evolving species or culture.)

But now we're talking about a whole new layer of opportunity, never before exposed (at least to this extent) by any species except human cultures! What happens if OUR context changes markedly, and the prior relevance of dominance hierarchies becomes less relevant, or completely irrelevant? How long would it take humans to even notice, and re-adapt?

If there are countless machines around to solve increasing proportions of support tasks .... then there is a point beyond which there is no longer any previously recognized gain to be had from suppressing subordinate humans!

Duh!

We've been discussing teamwork, military resiliency, and democracy for over 2000 years, and still not really catching on. So no, human cultures don't instantly re-orient to altered context. Perhaps it's finally time to automate the production of cultural return-on-coordination. How? Perhaps by subtly adjusting K-12 education? It'll take practice, not predictions.

If our survival pressures switch from reproduction of humans to reproduction of increasingly more adaptive human cultures, then the "moment" of adaptive pressure moves even further away from inter-personal competition and towards aggregate coordination, a complete transition in perspective that has actually been underway throughout biological history.

Yes, past transitions equal or greater in scope have already been documented. Apparently, you're not required to learn about them in order to get a degree or even a prize in economics. There have been multiple "singularities." In the big scheme of things, that topic is actually quite passé. We're just taking the upcoming one rather personally, due to our very constrained perspective on context. :)

Here are just some of the known transitions, or past singularities.

1) Transition from "inorganic" chemistry to self-replicating organic molecular assemblages (there may have been prior ones, this is just an arbitrary start to our list, for now; and don't forget quantum physics & the prior Big Probability Events; they're candidate singularities too)

2) Transition from self-replicating molecules (autocatalysis) to self-replicating template structures (i.e., appearance of condensed methods for "directed" construction; e.g., protein catalysts and the incredibly old rna-based ribosome enzyme)

3) Further transition from partially to fully template-driven self-replication - i.e., the dna/rna/protein based replication sequence common to prokaryotes, archaeryotes & eukaryotes

4) Even further transition from unicellular to massively multicellular template-driven self-replication
("layers" of self-replication, where only "germ cells" replicate, and trigger the build-out process we call embryogenesis)

5) Yet another transition is known? Yes! Various "social" - and very few "Eusocial" - species already exhibit various stages of passing another transition, where "germ members" dominate replication to various degrees (including humans), and the rest of an entire social culture divert increasing proportions from hyper-local to more indirect reproductive efforts.

Many people are asking what the next transition might be, and how soon?

There's no freaking way to know! The race is to PARSE what's happening, and adjust while it happens, not to predict it.

Compared to the known history of biological diversity, the entirety of economics writing is just pure BS, incredibly boring, noise, of no adaptive consequence whatsoever.

The truth is, Economics Lacks Imagination.

We gotta be on our toes, and think harder about what's coming down the pike OUTSIDE of the brain-dead dung-box we call orthodox economic theory. It's always time to move on, or we won't be among those moving on.

At what point is the entire human species "needed?" Depends on who or what is asking, and how the questioners define need. If robots become self-replicating, will it actually be far easier to advance "culture" by doing away with humans altogether. SciFi folks have been imagining & discussing that for many decades.

However nothing yet, from dying planets to SuperNovas to the BigBang has extinguished biological evolution, so it's doubtful that anything we can imagine can hold a candle to the real options. Consensus is that some variety of carbon life would undoubtedly colonize and live off/in/within any robotics we can build.

Relevance is obviously a moving target.

Jerrit Erickson writes:

"Ten billion humans are no more or less necessary than any humans, or
life itself for that matter; we don't know why we're here, if there
even is a reason. That hasn't stopped everyone from acting like
there's a plan up to this point."

Precisely. The whole point is aggregate resiliency through net diversity, either static or generated on demand. Hence, in our human cultures there are countless competing plans, each becoming obsolete as fast as contexts change.  Plus, all our plans are soon replaced by even better plans, which are made obvious just by observing unpredictable change. So a corollary point is to never stop SELECTING from all those proposed plans.

We navigate contexts by reacting and adapting, and NOT just by blithely predicting.

Zero predictive power, seemingly unlimited adaptive power (so far, at least), that's what we have.

What would General Patton have said about telling people HOW to manage GDP, or to "get a job?" Here's my 1st guess: "@#$%^&*! Don't be a fool, Cultural Soldier! Now what's our situation?"

Philip Pilkington: The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism

The political philosopher Corey Robin recently published an interesting essay on what he thinks to be the connection between the late German philosopher Friedrich Nietzsche and the economic theory of marginalism which Robin associates with the Austrian school (but which, of course, is also a mainstay of mainstream neoclassical economics). I should start by saying that I respect Robin’s work a great deal; I respect it to the extent that I did an interview with him for this very site when his last book appeared. However, his latest piece is grossly misguided and reflective of the fact that, when it comes to theoretical economics, academic critics on the left simply do not know their enemy at all.

The reason for this, I think, is because Robin does not quite grasp the essence of either modern neoclassical or Austrian economics or, consequently, how these twin doctrines establish an absurd and abstruse metaphysical system of morals that poisons the minds of everyone from academics to laymen and lawmakers. It would also appear that, lying in the background somewhere, Robin assumes that the only antidote to the scourge of marginalism is the dusty old labour theory of value – as problematic and discredited as it is. This is something of a guess on my part but if I’m correct it is but another indication that the left are fighting battles that have long since been thoroughly and completely lost. In actual fact, the questions and the answers lie elsewhere – and they lie precisely in the work of the very philosopher that Robin equates with degenerate marginalism.

It is Nietzsche’s critique of all theories of value and, by implication, all systems of morality that lay the ground for the most effective critique of the marginalist toxin – a critique that I have laid out in detail on this site before. These may seem like dusty academic issues – the realm of the literary critic than of the practical minded person – but this is not so. Because the left do not know their academic enemy he escapes with impunity and lives on, zombie-like, day after day – in our classrooms and, more importantly, in our everyday moral and political discourse.

Naked Capitalism
Philip Pilkington: The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism

This is an important debate for framing contemporary economics and policy. It begins with philosophy, or contending ideologies,  and it also has to get the history and economics right. To frame MMT effectively, one needs to know the opposition, see it's advantages and disadvantages, and frame the debate in terms of trade-offs, showing how one position is morally superior, as well as more effective at meeting objectives efficiently.

The take away: "However, the goal is always the same; namely, to trick the student into thinking they are learning something objective when really they are being taught how to organise their minds in a very particular way."

See also some Libertarian and conservative responses to Corey Robin

 Bleeding Heart Libertarian
On Robin’s Tenuous Connection between Nietzsche and Hayek
Kevin Vallier

Reason

Hayek and Nietzsche: Perhaps Not Partners in a Cross-Century Anti-Equality Plot
Brian Doherty

The American Conservative

Corey Robin’s Dubious Nietzsche-Hayek Connection

Jordan Bloom

I would come back to the basic distinction between liberalism and conservatism. Liberalism holds that all persons are equal. Conservatism holds that some are better than others. (Hat tip to George Orwell in Animal Farm.) 

Certainly, Neitzsche takes the conservative position, which was imitated, poorly one could argue, but Ayn Rand, who was a Nietzsche wannabe. See Corey Robin's Garbage and Gravitas.

The question, then, is are neoclassical and Austrian economics inherently conservative in this sense, which is to say, is laissez-faire capitalism based on market fundamentalism inherently conservative in this sense? I think it is difficult to argue that it is not, given that the hero is the successful entrepreneur as modern version of the victorious warrior, the feudal lord, or a Hegelian world historical figure. In contemporary capitalism the entrepreneur shares the stage increasingly with top management as large corporations dominate.

According to conservatism this inequality of person results in meritocracy based on some standard of excellence such as the might of the warrior, the blood of the aristocrat, or the "hard work," discipline, thrift, and morality of the Protestant ethic to which Weber attributed the spirit of capitalism. In turn, this result in unequal distribution of wealth and power that underlies "trickle down."

Morris Berman — The Moral Order: A Dying Civilization

There is no record of a dying civilization reassessing its values (or lack of values, in our case) and altering its trajectory. Whether the type of moral order that Professor Barber has in mind actually exists, or might someday exist somewhere on the planet, is certainly worth debating. But what is not worth debating is whether such a moral order might make an appearance on American soil. History is about many things, but one thing it is not about is miracles.

Counterpunch
The Moral Order: A Dying Civilization: A Dying Civilization
Morris Berman | Historian
(h/t Kevin Fathi via email)

Miles Kimball — Steven Pinker on How the Free Market Makes Us Uneasy

As far as I can see, this takes Market Pricing out of the realm of human nature, and there seem to be no naturally developing thoughts or emotions tailored to it.

Confessions of a Supply-Side Liberal
Steven Pinker on How the Free Market Makes Us Uneasy
Miles Kimball | Professor of Economics and Survey Research at the University of Michigan

People inherently know that there is a difference between price and value, although most economists presume that they are the same. Price discovery in markets is based on the assumption that price is identical with value. 

If that were true, Consumer Reports would not exist, for example. Markets are not equipped to discover actual value, only perceived value, and as all successful sellers realize, perception can be manipulated. In fact, that is what the field of advertising & marketing is essentially about — cognitive bias.

Quit Trying to Hoard OUR Liquidity!

commentary by Roger Erickson

If we want to continuously achieve a "more perfect union" in this country, then some of the supposed union members have to transition from trying to hoard fiat, to hoarding coordination capabilities.

"European stocks rallied Monday on signs that U.S. lawmakers are making headway on ... deficit-reduction measures,"

Oh, my god! You just can't make this up!

Exactly what "deficit" are they talking about?  Data, words and concepts are meaningless without context.   Can someone please ask these 'lawmakers' to simply define what a "deficit" in fiat means?

How long can investment-strategy-by-Kabuki maintain a semblence of coherence, when even the puppet-masters are self-managed by Kabuki?

n_Level nested Kabuki? How is that supposed to work?

At this rate, supposed capitalists may actually achieve the Communist dream, where intelligent governance "wastes away" and disappears .... (leaving only the remaining warlords).

In a fiat currency regime, public initiative = an increasing fiscal budget, which produces what ONLY ACCONTANTS call a fiscal "deficit," which happens to be the private sector's currency supply, which happens to provide public liquidity, which happens to be essential for expressing public initiative.  Our existing lawmakers don't even know that the Currency Issuer's "deficit" = the sum of all Currency Users currency or financial savings?  Houston, we have a problem.

Are lawmakers aware of the trivial subject of context-specific semantics?

No?  Then what's gonna happen when people randomly mixing word meanings try to run a country with 312 million citizens and a $14Trillion economy?

Let me make this simple for 'lawmakers.' When everyone's well fed & rested, but disorganized, saying "slow down" can help.

But when some of the people are hungry, homeless and uneducated ... slowing down = starvation and lost Output, and can easily trigger rage & rebellion.

It's the 1% - those hoarding fiat - who are saying slow down, simply because they're out of touch with the 99%.

Inevitably, the 99% will say: "Listen - You @#$%&! Idiots - Quit Trying to Hoard OUR Liquidity!"

It's the Liquidity, Stupid!

Please ask YOUR local lawmakers to repeat after me, 12 times if necessary:  Static assets can be a medium-term store of value.  Dynamic assets - e.g., individual smarts AND practiced group coordination capabilities - are far and away the best long-term store of survival value.  Fiat currency is 99% a social liquidity tool, and is NOT, I repeat NOT, a optimal store of long-term or even medium-term value.  Conflating liquidity and short/medium/long term store-of-value - whether for individuals or groups - is a suicidal failure of Situational Awareness.  That's small-minded, static-value thinking in a dynamic-value world, one that's increasingly more complex and faster-moving.

One way or another, people within or outside the USA will "make a more perfect union." When that happens, it won't be the result of slowing down.

More on "Three Assumptions for Addressing Fiscal Policy Intelligently"

Three Assumptions for Addressing Fiscal Policy Intelligently

Whenever an economy grows significantly, it's because it's citizens were successful at sensing value, exploring value paths, and inventing paradigm-specific coordinate systems.

When discussing fiat currency operations, it's absolutely clear that we're all searching for the right jingles that will accelerate public transition from pursuit of static value to pursuit of dynamic value (i.e., from hoarding static assets to hoarding coordination capabilities). Why is this even a bottleneck?  Humans are, after all, an obviously social species practicing diverse cultures.  We're actually very close to a solution, since we already practice and exhibit the transition mentioned above, in many of our personal & group activities.  Yet we simultaneously deny that ongoing transition in much - but not all - of our official rhetoric about our own, "social" cultures. Go figure!

What jingle will accelerate our electorate's grasp of the nature of coin and currency?  We can't predict what message will finally resonate. It will have to be selected - from a LOT of options - by the audiences themselves.

Once we find a way to quickly get across what many have already spent too long sumarizing - we'll have made a real difference for future generations. All existing attempts already summarize of the observations of hundreds of authors - but we need something even better. Kudos to all who can diversify simpler versions, so we can explore them all, and discover which ones scale.

It's obviously not easy. As an analogy, Imhotep et al developed the math & geometry to build the pyramids ~4500 years ago - using initially horrendously complicated math notation (it sounded worse than Greek, even to the Greeks). It took roughly another 4000 years before the decimal notation made advanced math accessible to nearly all humans. Seems obvious in retrospect, but what was obvious to some after extensive labor, still wasn't obvious to most. Eventually, however, enough people tripped over appropriate methods - ie., decimal notation - that it's use began to accelerate, for the most mundane of reasons.  It was useful to most people.

Methods drive results, after perceived returns drive demand for new methods.

We always need new methods allowing more people to rapidly sense the return on novel forms of coordination. Call this Adaptive Rate in marketing.  Subsequently, we always need simpler methods for discriminating the initially obscure paths to newly visualized returns.  Call this Adaptive Rate in product application (i.e., group practice).