Tag Archives: Methodology of Economics

Economists proved over half a century ago that certain stories are unfounded in the theory. For example, one might think that if some workers are involuntarily unemployed, a drop in real wages would lead to a tendency for the labor market to clear. The Cambridge Capital Controversy revealed some difficulties. In response, some economists turned to the Arrow-Debrue-McKenzie model of intertemporal equilibria in which it is not clear that one could even talk about such concepts. The...

[embedded content]Jeremy Rudd addresses the Cambridge Society for Economic Pluralism Jeremy Rudd has written: Mainstream economics is replete with ideas that 'everyone knows' to be true, but that are actually arrant nonsense. For example, 'everyone knows' that: aggregate production functions (and aggregate measures of the capital stock) provide a good way to characterize the economy's supply side; over a sufficiently long span - specifically, one that allows necessary price...

Suppose one rejects the labor theory of value as a theory of prices. Or, even more, one could reject Marx's theory of value in volume 1 of Capital. Still, one could elaborate the theory of prices of production. In my published works, I have tried to extend the theory a step or two. And the theory of prices of production is opposed to a marginalist theory, a theory of supply and demand, if any such coherent theory exists. In this post, I offer one explanation of the setting of the theory...

1.0 Introduction In his book, Human Action, Ludwig von Mises defines 'praxeology' as the science of human action. He says that it is a subject of formal reasoning. Human action is conscious action in which the actor attempts to decrease felt uneasiness. 'Catallactics' is a subset of praxeology treating market exchanges. But von Mises is quite confused. 2.0 Does Formal Reasoning Enlarge Our Knowledge? Von Mises does not know. At one point, he says formal reasoning does enlarge our...

1.0 Introduction Kurz and Salvadori (1995) explain prices of production with two methods of analysis: the direct method and the indirect method. The indirect method, for the circular capital case, involves the creation of the wage frontier, the most well-known diagram to come out of Sraffa (1960). The direct method characterizes a system of prices of production by axioms, while the indirect method suggests algorithms for finding cost-minimizing techniques. 2.0 The Direct Method In both...

1.0 Introduction A question has arisen elsewhere. Why, except for an interlude during the post war golden age, has a nineteenth century orthodoxy dominated economics departments and treasury departments around the world? Here I do not investigate the details of this orthodoxy or if it does dominate. 2.0 An Authoritarian Point of View Some people believe that some are better than others. They want to live in a world where those at the top tell those below what to do, and those below jump....

I have found a common misrepresentation from many, including mainstream economists, is that critics of their models do not understand them or the role of the assumptions. Those mainstream economists rely on an incoherent essay from Milton Friedman to dismiss criticism of the realism of assumptions. My favorite criticism, though, is that their conclusions do not follow from their assumptions. I like to show this by constructing numerical examples that contradict their teaching. On the...

[embedded content]First Lecture For MIT Microeconomics I associate Jonathan Gruber with Obamacare. I think the Affordable Care Act is totally insufficient and a great advance. If politicians hire you to model the effects of some policy change, might you want to use, more or less, the most widely accepted techniques? I am also appreciative that I can watch this. When you are teaching, should you present claims in the most romantic way possible? "That is why I can teach you the entire...

This is C/294 in the Sraffa archives. Rudiger Soltwedel had his own letterhead. D 66 Saarbrucken 3, 28. Febr. 1968 Waldhausweg 7 Evangelisches Studentenheim Professor Piero Sraffa Trinity College Cambridge Dear Sir, I am student of economics at the University of Saarbrucken and I just began my finals work for my diploma. The topic of this study that Prof. E. Schmen formulated is your essay and its title is exactly that of your book: ‘Sraffa’s production of commodities by means...

I do not know if I will keep on, but I thought I might present a series of posts expanding on this one. By the way, I should have said there that the maximum rate of profits is the reciprocal of the organic composition of capital in Sraffa's standard system, not the actual system. Sraffa's model is descriptive, based on objective data that can be observed for one production period. This data, at least through the first three chapters of The Production of Commodities by Means of...