Lars P. Syll’s — At last–Paul Romer got his ‘Nobel prize’​

Must-read.

How does it relate to MMT? Through institutionalism. Institutionalism takes culture (informal determined and flexible) and institutional arrangements (formally determined and rigid until changed) into consideration. Ideas are the foundation of both.

Society, while materially embedded, is socially constructed. Karl Marx is almost alone among economists to get this. See David Norman Smith, Sharing, not selling: Marx against value. Humans are bounded rationally by what they can think. Aquinas had observed that knowledge is in accordance with the mode of the knower (Summa Theologiae, I, 14, Res. 3.) Marx added that humans are also bounded by material conditions, in particular, the current mode of production. Individuals are materially embedded, being embodied, and society is also materially embedded in its institutions, the most significant of which is the current mode of production, which determines its legal structure, for instance, through property relations.

Marx was not a strict materialist in the sense of everything being materially determined. That is to say, he was not arguing freedom versus determinism. "Bounded" or "shaped" is a better term for his thinking than "determined," which is the usual translation of the German term "bestimmt" that he used, which some have interpreted as a statement of strict determinism.

It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness. [Es ist nicht das Bewußtsein der Menschen, das ihr Sein, sondern umgekehrt ihr gesellschaftliches Sein, das ihr Bewusstsein bestimmt.] — Preface to A Contribution to the Critique of Political Economy (Wikiquote)

 David Norman Smith argues that for Marx, economic value is socially constructed in a monetary production economy, the economic foundation for society after the primitive tribal era, when commodity production for exchange was dominated goods production for use. For Marx, the notion of commodity is key in understanding economics as primarily social rather than chiefly material, as most presume it to be. As Marx wrote: "...their social being ... determines their consciousness…."

This is key in that both the classical economist on whom Marx built, Smith and Ricardo in particular, missed this. According to David Norman Smith, Marx regarded catching this and elucidating it as his chief contribution. Economists subsequent to Marx either did not understand him or ignored him on this point. But, as David Norman points out, part of the fault lies with Marx owing to his potentially confusing expository writing, which Norman sets about clearing up.

As a result, economics came to be viewed as entirely materialistic, that is, about material systems alone. Everything could potentially be measured quantitatively in concrete terms and expressed numerically in stocks and flows using mathematical models. Society itself was even denied as a relevant concept in the interest of maintaining the assumption of methodological individualism and microfoundations.

In this view, institutions don't count, and money is neutral. Economics can be reduced to barter of goods in the production, distribution, consumption cycle, where distribution can be ignored when perfect competition in free markets is assumed, even though admitting the potential for "market imperfections," since it is also assumed that imperfections can be eliminated.

Marx had pointed out that economics is concrete at the level of individuals (producers) but not when commodities are produced for exchange in a monetary production economy and wage labor. The concrete value of utility (use)  becomes the abstract value of price (exchange value). Abstract value is  thus socially constructed and markets are socially embedded. From this, Marx was able to derived his concept of surplus value and worker expropriation. That was anathema in a capitalist system, so Marx was sidelined and demonized.

The Institutionalists. beginning with Veblen, also attempted to show the futility of the neoclassical project ignoring the social aspects of economics, but they remained "heterodox."

Keynes introduced the concept of the monetary production economy in which money is not neutral, undercutting the barter-based neoclassical models that assume money is neutral and doesn't influence exchange in the long run. This is needed to maintain the foundational assumption of long run general equilibrium. Strict Keynesians (not New Keynesians, who assume general equilibrium and money neutrality) are also considered "heterodox."

In his "design science," R. Buckminster ("Bucky") Fuller introduced the distinction between physical and metaphysical resources, physical resources being material and metaphysical resources non-material. Knowledge and ideas are metaphysical resources. Physical resources are finite and scarce, leading to rivalry and exclusion. Metaphysical resources are potentially infinite and constitute free goods. While they are non-rivalrous, they can be made exclusive by making them proprietary, that is, converting them into a form of property, e.g. intellectual property.

Lars Syll's post explains how Paul Romer won the prize for his work on the key economic importance of ideas and scaling ideas. Since this cannot be integrated into neoclassical modeling, they are missing a foundation aspect of economic reality.

The value of this understanding merit much more than a prize. It is essential in coming to the realization that the level of consciousness in a society is determinative. Humans are materially bounded, rationally bound, and socially bounded, but they have much more space to maneuver and innovate than conventional wisdom acknowledges.

Creativity is an aspect of rationality. So Romer's prize is potentially a big deal. Let's see how it gets picked up on. What MMT reveals is that money (affordability) is no problem. The constraints are creativity and availability of real resources. Public funding can and must address this through public investment for public purpose, e.g., in education, R&D, infrastructure, and quality of life in order to create a good society.

Lars P. Syll’s Blog
At last — Paul Romer got his ‘Nobel prize’​Lars P. Syll | Professor, Malmo University

See also

Despite his ignorance of the Cambridge Capital Controversy, Paul Romer's recent criticisms of mainstream macroeconomics have some good points. Typical Dynamic Stochastic General Equilibrium (DSGE) model time series, with exogenous shocks to certain parameters with specified probability distributions. And those parameters are named to suggest they have common language meanings. But there is no reason to think any such correspondence between the mathematics and the labels exist.

I assume, however, that his Nobel prize is for explaining economic growth as the result of some combination of endogenous innovation, the accumulation of human capital, and an increasing variety of capital goods embodying technical progress. Admirers of Adam Smith, Karl Marx, Piero Sraffa, Nicholas Kaldor and those with some grasp of economic history should applaud this emphasis on increasing returns to scale. Mainstream economists, however, claim not to be producing mere descriptive prose, but rigorous formal models that embody their ideas. And mainstream endogenous growth models, including those developed by Paul Romer are, deficient....

Thoughts On Economics
Paul Romer, 2018 "Nobel" LaureateRobert Vienneau