[embedded content]Anwar Shaikh On The Transformation Problem
Lots of empirical work shows that prices tend to be proportion to the labor embodied in commodities. My references in this
article
document this claim. Furthermore, empirical wage-rate of profits curves tend to be close to straight lines.
This is not what, say, Sraffa’ mathematical economics would lead me to expect. What explains these
surprising empirical findings?

Almost 34 minutes in, in the above video, Shaikh makes the above point about the contrast
between theory and empirical findings. He concludes with speculation, including with
comments on Bertram Schefold’s work with input-output matrices formed out of random
matrices.

I offer some speculations myself in this post. I do not have much theory to back these

Neoliberals are hostile to labor unions and every other institution that would allow the vast majority of the population
to have some effect on how we are ruled.
And they have been so successful that
only the super-rich can save us, as the title
of a Ralph Nader novel a few years back had it. A couple of recent examples of journalism are about movements
of the super-rich:

Sheelah Kolhatkar writes, in the New Yorker, about Patriotic Millionaires.
Theodore Schleifer writes, in Vox, about Resource Generation.

I suspect most of the super-rich, however, are vicious, reactionary fools. Apparently,
Benjamin Page, Jason Seawright, and Matthew Lacombe provide
evidence in their recent book,
Billionaires and Stealth Politics.
I’ve read and
commented on their previous working paper.

In the

I have a new working paper.

Abstract: Does the Cambridge equation, in which the rate of profits in a steady state is equal to the quotient
of the rate of growth and the savings rate out of profits, hold in an economy with widespread non-competitive markets?
This article presents a multiple-good model of markup pricing in an attempt to answer this question. A balance equation
is derived. Given competitive conditions, this model can be used to derive the Cambridge equation. The
Cambridge equation also holds in a special case of markup pricing, with one capital good and many
consumption goods being produced. No definite conclusions are reached in the general case.

Figure 1: Real Factor Price Frontier1.0 Introduction

Carlo Milana has proposed
a new way of visualizing the choice of technique, including in the case
of reswitching. This way of describing what he has done is not neccessarily
how he thinks of it.
In this post, I describe his approach with a reswitching example, in a model
of the production of commodities by means of commodities.

2.0 Technology

Table 1 shows the coefficients of production for this example.
Coefficients of production specify inputs per unit output.
Each process takes a year
to complete. Inputs are totally used up in the production of the outputs.
(This example is taken from one of my papers.)

Table 1: Coefficients of Production for The Technology
InputSteel IndustryCorn IndustryAlphaBetaLabor1275/4641

"The University [of Chicago] is the best investment I ever made in my life." — John D. Rockefeller

Consider the following people and selected activities:

Lewis Brown founded the American Enterprise Institute, in 1938.
Jasper Crane cofounded the Foundation for Economic Education, in 1946.
Leonard Read cofounded the Foundation for Economic Education, in 1946.
Harold Luhnow, even before 1947, directed spending for the Volker Fund.
Sir Antony Fisher funded the Institute for Economic Affairs, around 1956.
Lord Ralph Harris, first general director of the Institute for Economic Affairs.
Arthur Seldon, first editorial director of the Institute for Economic Affairs.
F. A. Harper founded the Institute for Humane Studies, in 1961.
Charles Koch funded the development of the Virginia school,

I study economics as a hobby. My interests lie in Post Keynesianism, (Old) Institutionalism, and related paradigms. These seem to me to be approaches for understanding actually existing economies.The emphasis on this blog, however, is mainly critical of neoclassical and mainstream economics. I have been alternating numerical counter-examples with less mathematical posts. In any case, I have been documenting demonstrations of errors in mainstream economics. My chief inspiration here is the Cambridge-Italian economist Piero Sraffa.In general, this blog is abstract, and I think I steer clear of commenting on practical politics of the day.I’ve also started posting recipes for my own purposes. When I just follow a recipe in a cookbook, I’ll only post a reminder that I like the recipe.Comments

[embedded content]Elizabeth Warren Echoing A View Institutionalists Understand
This year, the "Nobel prize" in economics went
to Abhijit Banerjee, Esther Duflo, and Michael Kremer. They champion empirical economics over theory. Previously, institutionalist
economics was described as ‘theory without measurement’ (Koopmans 1947). Does
institutionalist economics
parallel the supposed
mainstream empirical turn?

Although institutionalists, as far as I know, did not have the resources to create
randomized control trials (RCTs), they did collect and analyze statistical data.
I think especially of
Wesley Clair Mitchell
and the National Bureau of Economic Research (NBER).

Institutionalists was not atheoretical, I think. They developed qualitative analytical concepts.
I think of C. E. Ayres

Figure 1: A Switch Point and a Fake Switch Point on Wage Curves1.0 Introduction

In the analysis of the choice of technique, I typically consider examples of technology with a finite number of
techniques. For each technique, I find the wage as a function of the rate of profits. The outer
envelope of these curves shows the cost-minimizing technique at each rate of profits (or each level of the
wage). Points on more than one wage curve are switch points.

This approach is valid when, for example, all techniques produce the same set of commodities,
and each commodity is basic, in the sense of Sraffa. That is, all commodities enter directly or
indirectly into the production of all commodities.

But another requirement is that prices of all commodities in common between two techniques
be

As far as I am concerned, cost-push inflation is a
manifestation
of class conflict between workers and owners.
In the late 1970s, Paul Volker and Ronald Reagan took the side of the owners.
I am willing to accept that Volker genuinely believed in Milton Friedman’s
incorrect
quantity theory of money. And, since then,
workers have been getting a smaller
share
in increased productivity.
Some obituaries of
Paul
Volker
exhibit an understanding of what he did.

But I want to talk about my recollection of how interest rates have been covered in the
press from that time. Of course, at any given time, there are a whole range and time
structures of interest rates. When Volker drove the interest rate
above 20 percent, the focus in news coverage was, as I recall it, on the prime
rate, that is, the

1.0 Introduction

I have sometimes set out Marx’s model of
expanded reproduction,
only with prices of production instead of labor values.
I assume two goods, a capital good and a consumption good, are produced with constant technology.
If one assumes workers spend all their wages and capitalists save a constant proportion of
profits, one can
derive
the Cambridge equation in this model.

The Cambridge equation shows that, along a steady state growth path, the economy-wide rate of profits
is determined by the ratio of the rate of growth and the saving rate out of profits.
Maybe one should not use causal language here. The Cambridge equation is a necessary,
consistency condition for smooth reproduction in a capitalist economy.

This post derives the Cambridge equation with markup

David Graeber’s review of Robert Skidelsky’s Money and Government: The past and Future of Government.
A TED talk, by Nick Hanauer, on how complexity economics is
replacing "neoliberal" economics. He is especially interested in reciprocity.
A 2014 interview by Bill Moyers, of Paul Krugman, on Piketty’s book.
Mariana Mazzucato, with a talk
on the value of everything. She also has a 2013 TED talk.
Heinz Kurz on the Cambridge capital controversy.
Bertram Schefold on the CCC and his recent research.

A considerable body of literature has been published, during the last century, arguing that a movement away from competitive
markets must be recognized in trying to describe and understanding contemporary capitalism. The literature I am thinking
of emphasizes big business, corporations, and finance. Here are some selections, not all of which I have read:

Rudolf Hilferding (1910). Finance Capital: A study of the latest phase of capitalist development.
Adolfe A. Berle and Means (1932). The Modern Corporation and Private Property.
Bruno Rizzi (1939). The Bureaucratization of the World
James Burnham (1941). The Managerial Revolution: What is happening in the world.
Joseph Schumpeter (1950). Capitalism, Socialism, and Democracy
Josef Steindl (1952). Maturity and Stagnation in American

Figure 1: Rate of Profits Unequal to Scale Factor for Rate of Profits
This post continues the example in the previous
post.
I modify the prices equations so that the rate of profits in producing corn
is (s1 r̂), and the rate of profits in producing ale
is (s2 r̂). The solution to the price equations are:

pcorn = 16 [16 + (s1 – s2) r̂]/[204 + (3 s1 + 9 s2) r̂]

pale = 32 [10 – (s1 – 3 s2) r̂]/[204 + (3 s1 + 9 s2) r̂]

w = 4 [51 – (9 s1 + 5 s2) r̂ – s1s2 r̂2]/[204 + (3 s1 + 9 s2) r̂]

where r̂ is what I have been calling the scale factor for the rate of profits.

I want to show that, only in exceptional cases can the the markups s1 and s2 be rescaled
such that the scale factor is equal to the economy-wide rate of profits, whatever the distribution of income.
For concreteness,

Figure 1: Variation of Prices of Production with Wages and Markups1.0 Introduction

This post documents an example in my working paper,
The Labor Theory of Value and Sraffa’s Standard Commodity with Markup Pricing.

2.0 Technology

Consider a simple economy in which corn and ale are each produced from inputs of labor, corn, and ale.
Inputs for unit outputs are shown in the columns in Table 1. Obviously, the units of measure should not
be taken serious. Inputs are totally used up in the production of outputs. I abstract from the existence
of fixed capital, land, and joint production.

Table 1: The Technology
InputIndustryCornAleLabor1 Person Year1 Person-YearCorn(1/8) Bushels(3/8) BushelsAle(1/16) Pints(1/16) Pints
The standard net product consists of (9/16) bushels corn and (3/16) pints

Table 1: Selected Critiques
AuthorBookNumberRatingsMeanRatingMoshe AdlerEconomics for the Rest of Us214Rod Hill & Tony MyattThe Economics Anti-Textbook134Steve KeenDebunking Economics, 1st edition253 to 4Debunking Economics, 2nd edition564 to 5Paul OrmerodThe Death of Economics103 to 4John QuigginEconomics in Two Lessons24John WeeksEconomics of the 1%134 to 5
Steve Keen seems to be the most popular of those writing internal critiques of economics directed towards the common reader. I selected the
above books and looked at rankings on Amazon’s United States website. You can spend lots of time reading the comments.

I am not sure about how to characterize this genre. I am more focused on theory than offering political programs.
Would Robert Reich’s Saving Capitalism be excluded?
But what

I have uploaded a
working paper
with the post title.

Abstract: This article demonstrates relationships that are transparent in Sraffa’s
standard system hold even when relative rates of profit vary persistently among industries.
Even with such variations, total constant capital, total variable capital, total surplus value,
and the rate of profits are unaltered by evaluation at labor values and at prices of production
in Sraffa’s standard system. These results buttress those who see in the standard commodity
a solution for Marx’s so-called transformation problem.

Elements of a post capitalist society are and have been
developing
in actually existing capitalism.
This post points out a couple of examples.

The Green Bay Packers is a community-owned (non-proper) football team in the National Football League (NFL).
One can find some arguing that they
are
socialist.
And some are concerned to
refute
this claim.

Decades ago, some universities in the United States set up research and development organizations that then became independent, not-for-profit companies.
For example, here is the
web site
for SRC, formerly Syracuse Research Corporation.
This means, apparently, that they re-invest what they make.
IRS Publication 557
explains how to apply for status as a 501(c) organization.

A quick Google search gets me to the
National Center for Employee

Figure 1: A Pattern Diagram with Joint Production1.0 Introduction

This post completes an example. I analyzed bits of this example
here and
here.
This post may make no sense if you have not read a long series of previous posts
or, maybe, the papers highlighted
here
and here.
I am interested in how and if my approach to analyzing and visualizing variations in the choice
of technique with technical progress extends to joint production. The example suggests fake switch points
do not pose an insurmountable obstacle for such an extension.

2.0 Technology

I repeat the specification of technology.

I postulate an economy in which two commodities, corn and linen, can be produced from inputs of corn, linen, and labor. Managers
of firms know of three processes (Tables 1 and 2) to produce corn

Here is a post from a blog
devoted to cybercommunism. The blogger is glowing about Paul Cockshoot’s work on refuting Hayek’s supposed refutation of the possibility
of a post-capitalist society.
William Milberg
writes about how it is becoming more
common to use the word "capitalism", a word mainstream economists had mostly stopped using.
Herbert Giants and Rakesh Khurana write
about the corrupting effects of neoclassical economics on what is taught in business school and then practiced by corporate elites.
Osita Nwanevu writes,
in The New Republic, about the enthusiasts that showed up at last weekend’s Third MMT Conference.
Lisa Schweitzer studies urban environments. In a blog post, she expresses irritation at Paul Romer’s arrogance, admittedly filtered through a glowing New York Times

I am not sure about the economic logic in this post. Maybe somebody like D’Agata or Zambelli could do
something with this. These ideas were suggested to me by email with a sometime commentator.

I start out with notation for Sraffa’s price system, modified in an unusual way to
allow for persistent variations in the rate of profits among industries:

a0 is a row vector of labor coefficients in each of n industries.
A is a Leontief input-output matrix, where ai, j
is the quantity of the ith commodity needed as input to produce one unit of the jth commodity.
S is a diagonal matrix, where all off-diagonal elements are zero. sj, j is
the markup on non-labor costs in the jth industry.
p is a row vector of prices.
w is the wage.
r is the scale factor for the rate of profits.

The coefficients

Figure 1: Wage Curves and The Price of Corn for the Fluke CaseIntroduction

This post extends a
previous post.
I am basically introducing structural dynamics into an example, by Bidard and Klimovsky of fake switch points.

At a rate of profits of zero in the example, the price of corn is zero for Alpha, one of the two techniques
that is cost-minimizing there and for somewhat higher rates of profits. At a time before the fluke
case, only the Gamma technique is cost-minimizing at a rate of profits of zero. The price of corn,
as calculated with the Alpha technique, is negative at a rate of profits of zero.
Alpha prices become non-negative only for positive rates of profits. This possibility cannot
arise in examples with only single production and the choice of technique analyzed by the

Figure 1: Wage Curves with Corn as Numeraire1.0 Introduction

This post presents an example of a fluke switch point in which the choice of technique cannot be analyzed
by the construction of the wage frontier. Under joint production, the technique that is cost-minimizing,
for a given rate of profits, does not necessarily maximize the wage. Nevertheless, one can still see
what I call a pattern over the wage axis in this case. The example is a generalization of
the numerical example in Bidard & Klimovsky (2004).

2.0 Technology

I postulate an economy in which two commodities, corn and linen, can be produced from inputs of corn, linen, and labor. Managers
of firms know of three processes (Tables 1 and 2) to produce corn and linen. Each process produces net outputs of corn and
linen as a

I happen to have one book by Marty Weitzman (1942 – 2019) on my bookshelf. So I thought I would write a bit about
The Share Economy: Conquering Stagflation.

This is an ill-timed book. It proposes that firms negotiate with workers to pay them a percentage of revenues,
instead of, say, an hourly money wage.
It argues that such a change will address the widespread macroeconomic problem,
throughout the 1970s, of simultaneously high unemployment and high inflation. But, by the time the book came out, stagflation had been "solved", in
an extremely reactionary way.
The countervailing
power
of organized labor
was being abolished. Labor unions were being crushed, and workers would, by and large,
no longer see their wages increase with productivity. Instead of unemployment being addressed,

This list is mostly a matter of aspirational reading.

Maybe I want to read Ted Burczak’s
Socialism after Hayek.
(The Amazon page has one of Herb Gintis’ long reviews.)
Binyamin Appelbaum’s
The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society
is not even out yet, and already some mainstream economists are whining about it on twitter.
William R. Clark and Vincent Arel-Bundock have a paper,
Independent but not indifferent: Partisan bias in monetary policy at the Fed,
in 2012.
Christopher Gandrud and Cassandra Grafström’s
Does presidential partisanship affect Fed inflation forecasts?
is related.
Mark Buchanan
recommends
that more
attention
be paid to the work of Ole Peters and others at the London Mathematical Laboratory. They have developed
something called

This post gestures to a worrisome argument that could be constructed by combining arguments from certain references. It
is also more about current events than most posts on this blog.

Philip Converse’s argument
that most members of the mass public are ideologically innocent has long been influential among political scientists.
Why should those who have families to raise, bills to pay, and jobs to take up their time pay much attention to
the details of politics?

Barber and Pope (2018) provides recent empirical evidence, from something like a natural experiment,
that conservative Republicans, especially, are unprincipled.
Their results are based on a survey conducted in early 2017, before Trump had a record as governing.
Since Trump does not care to know anything about anything, one

I happen to think the minimum wage in the United States should be raised. I’ll go along with the
consensus of $15 an hour.

I also happen to
know
that, even under ideal conditions, wages and employment cannot be
explained
by supply and demand.

Some economists, who I no (other) reason to disrespect, seem to think my true statement about labor
economics can be discredited by
attacking my motivations.
So they point out how, under (incoherent) neoclassical theory, higher minimum wages can be justified
by, for example, the theory of monopsony.
But my motivations are almost the opposite.
I take the evidence
that neoclassical economics is wrong about labor markets as a launching into the illogic
of mainstream economics.
(Is this
the most recent meta-analysis on minimum wages?)

The attack,

Blair Fix argues that economists
argue in a circle in putting forth the marginal productivity theory of distribution.
I know that there is no such consistent theory anyways. It occurs to me that
process recurrence, as well as the reswitching of techniques, can be used to demonstrate this
inconsistency.

Suppose you completely know the technique being used in an economy to produce its output. And,
which is even more impossible, you know all other possible techniques. I am thinking of
a technique being specified with something like a Leontief input-output matrix, in
physical terms. Assume, counterfactually, that all these techniques exhibit constant
returns to scale. With these assumptions, you know the physical marginal product
of each input into production, whether it is previously

This post, as suggested, extends this
one-good example. I assume a constant returns-to-scale technology, as specified in Tables 1 and 2. Labor is advanced to the capitalists,
and wages are paid out of the surplus at the end of the year (period of production). The capitalists (incorrectly) expect the technology in
existence at the start of the year to continue to exist. I assume prices of (re)production prevail.

Table 1: Inputs for The Technology
InputProcess(I)(II)(III)Labor30 eσ0,1(1 – t)180 eσ0,2(1 – t)(39/2) eσ0,3(1 – t)New Widgets100One-Year Old Widgets010Two-Year Old Widgets001
Table 2: Outputs for The Technology
OutputProcess(I)(II)(III)New Widgets3 eσ1,1(t – 1)(7/4) eσ1,2(t – 1)(237/20) eσ1,3(t – 1)One-Year Old Widgets100Two-Year Old Widgets010
Only a newly produced widget is a

I am being published
in Structural Change and Economic Dynamics. Currently, this link is without my corrections to proofs, I guess.

Research highlights:

Technical progress and variations in industry markups can change characteristics of the labor markets.
A numeric example illustrates the theory of the choice of technique.
In the example, switch points are created and destroyed with varying coefficients of production and varying markups.
Around some switch points, higher wages are associated with greater employment, given the level of net or gross output
Graphical displays are provided for visualizing these results.

Abstract: This article presents an example in which perturbations in relative markups and
technical progress result in variations in characteristics of the labor market.

I know that the idea of a "natural rate" of unemployment or a
non-accelerating inflation rate of unemployment (NAIRU)
makes no
sense.
I cite, for example, James Galbraith’s 1998 book,
Created Unequal: The Crisis in American Pay.
I think Colin Rogers’ 1989
book is related.

Jared Bernstein
gives
the idea of a natural rate of unemployment at the first of four examples of ideas that [mainstream] economists have gotten
wrong for decades. This is not the first
example of a case where Post Keynesians
(and only Post Keynesians(?)) could explain an empirical phenomenon decades in advance.