History of Economic Thought - Science topic

Dear Yoshinori,

I apologize for the delay in responding to your generous comments on my previously published articles. I did not have enough time until now. I answer you now your interesting question.

Saari and Simon's criticisms focus on the adjustment processes known as Walrasian tâtonnement, where 1) there is no exchange, production, or consumption activities during disequilibrium, and 2) prices are adjusted according to the law of supply and demand or Newton's iterative process, explained as if they result from perfectly competitive mechanisms where a Walrasian auctioneer sets the prices. In these cases, the stability results depend on the shape of the excess market demand functions for each commodity. According to the SMD theorem, this presents a significant problem and a huge limitation for such stability results.

In contrast, the Hahn and Fisher adjustment processes are different: 1) they are not Walrasian tâtonnement processes (Hahn's process involves exchanges, and Fisher includes also consumption and production activities), and 2) firms or individuals set prices through more or less monopolistic competitive processes. Most importantly, their stability results do not depend on the shape of the excess market demand functions for each commodity. Therefore, they are not constrained by the SMD theorem.

It is a shame these adjustment processes are not as well known or taught in our economics courses.

Best regards,

Martin

Dear Stephen, then you could have said that the answer is yes, as what you described there are the characteristics of the BACKWARD DEEP PARADIGM DOUBLE DOWN as it is a move inward from a flawed paradigm to a flawed paradigm, a move that can only work under a break in academic integrity and academic tunneling as it is technically paradigm tunneling.

The reason why I asked the question is that I know there are people that know what is going on as you do, but let things go uncalled,,,,you have seen I guess the coordinated push, specially as seen in researchgate without those who know calling it out as it is and not allow those promoting the ideas to do it in the name of economics as backwasrd paradigm double downs are not science based moves.

For instance, from my point of view, all economists that came after Adam Smith and who did not call attention to the fact that you can not expect economic growth without creating social and economic externalities, yet THEY KEEP SILENT until the WCED 1987 call it WRONG and in need of fixing,,,,, KEYNESS know or should have known too that the original assuptions were wrong so any work or nobel prize based on wrong assumptions has been part of the knowledge that exacerbated the consequences of the original wrong assumptions as they knew or should have known that there was a need to internalize the cost of those externalities, but keep working on addressing those externalities from the outside....So following your thinking and quotation, Keynes was among those practical men and / or defunt economists that you imply.

I am working on a series of articles on forward and backward paradigm moves to close the knowledge gap that preven the average person to understand those moves, including paradigm shift avoidance moves, in simple terms, coming later this year

Have a nice day

Lucio

Lauri Jokinen

thank you for this detailed check. This kind of negative check is also important.

As I am a Sraffian, I started to consider economics by reading Sraffa (1926) and Sraffa (1960). However, it is not easy to know the true intention that Sraffa wanted to point out. For example, it is famous that Sraffa (1926) stimulated the later research that is usually named theory of imperfect competition (Kahn and Robinson). Chamberlain claimed his theory should be named monopolistic competition. I am doubtful of all these interpretation. At least, Sraffa was not satisfied by works like Joan Robinson. I have taken up this point (as one third) of my recent speech "Ricardo, Sraffa, Pasinetti, and beyond" in an International Conference on Economic Theory and Policy on 2023.9.15 at Meiji University, Tokyo.

I proposed to interpret Sraffa (1926) that he just presented a theory of free market and he was not happy to classify competition perfect, imperfect, or monopolistic. Although he did not find the phrase such as "sellers are price-makers and quantity-takers," he must have been thinking that firms (or producers) set price for their products and produce them as much as they are sold at the price they set. This is the most often observed facts in free market economy. Why should we characterize them as imperfect or monopolistic competition?

N.B If some readers of this page is interested to read the paper above mentioned "Ricardo, Sraffa, and Pasinetti, and beyond," please tell me so. I will be glad to send them the PDF of the paper, although it is still in a state of first draft.

There are two main sources of economic growth: growth in the size of the workforce and growth in the productivity (output per hour worked) of that workforce. Either can increase the overall size of the economy, but only strong productivity growth can increase per capita GDP and income. The temporal aspect of economic growth, dear Mohammed Asseel , is therefore based on the realization of dynamic efficiency, i.e. dynamic and efficient allocation of

Thank you Dear Dr. Stoycho Rusinov for your availability

In the middle of the 18th century, the combination of economic issues with ecology was somewhat absent. Ecological threats did not appear to be something important at that time. For Smith and his contemporaries, the main problem of political economy was to break down the supply barriers of the economy and lift humanity out of poverty. Therefore, his main work is The Wealth of Nations.

In practice, since resources need capital to find and develop them, since technological improvement can be applied to production only via capital investment, since entrepreneurial skills act only through investments, and since an increased labor supply is rela­tively independent of short-run economic considerations, the only viable way to economic growth as rise in living standards is through increased saving and investment. Either more and better resources can be found, or more and better people can be born, or technology is improved, or the capital goods structure is lengthened and capital multiplied. In the Austrian or psychological view of human economic action, what brings about improvement comes not by economic growth or by stability, but through economic transformation that is guided by the freedom of private initiative within an open market system, i.e. instead of its fixation on economic growth and stability, a non-interventionist system would favor the space that is given for the individual to demonstrate and actively pursue his preferences.

The current interventionist approaches , in contrast, put the individual under a modern kind of serfdom where "output" or rather "expenditure" becomes the statistical criteria.

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It is your mind that matters economically, as much or more than your mouth or hands. In the long run, the most important economic effect of population size and growth is the contribution of additional people to our stock of useful knowledge.

Julian Simon

There cant be a paper on history of pricing as such. Pricing is a marketing function and is based on certain principles well established. Like cost , demand and supply gap, brand premium , warranty and replacement component etc. There are various type of pricing model used in world depending on stages of product life cycle. Ranging form skimming price to marginal pricing. It would be nice idea if you go through management literature of 100 years and trace how pricing ideas were added in management practices with clear landmarks. I advise you to take yup this task, You may otherwise get books on pricing strategies which list types of pricing and where these apply.

Dear Duan, the supply is based on the cost, and the cost refers to one firm. That is why we need the number of firms to have the total cost that in conjuction with total demand determines the equilibrium point (price-quantity produced). Regarding the problem of traditional theory of not reflecting reality, what I say is that we must first correct the fundamental mistakes of the basic model, and based on this revision to proceed to more complex models containing other factors and parameters that furthermore affect equilibrium.

Over the past decades, a number of sources of globalization have emerged. One of them is technological progress, which has led to a sharp reduction in transport and communication costs, a significant reduction the costs of processing, storing and using information.

The second source of globalization is trade liberalization and other forms of economic liberalization that have curtailed protectionist policies and made world trade freer. As a result there were tariffs have been substantially reduced, and many other barriers to trade in goods and services have been removed. Other liberalization measures have led to an increase in the movement of capital and other factors of production.

The third source of globalization can be considered a significant expansion of the scope of organizations, which became possible both as a result of technological progress and wider horizons of management on basis of new means of communication. Thus, many companies that previously focused only on local markets have expanded their production and marketing capabilities, reaching the national, multinational, international and even global level.

Globalization brings not only benefits, it is fraught with negative consequences or potential problems, which some of its critics see as a great danger.

One of the main problems is related to the question: who benefits from globalization? In fact, most of the benefits are rich countries or individuals. The unfair distribution of the benefits of globalization gives rise to the threat of conflicts at the regional, national and international levels.

The second problem is related to potential regional or global instability due to the interdependence of national economies at the global level. Local economic fluctuations or crises in one country may have regional or even global implications.

The third set of problems posed by globalization is caused by the fear that control over the economies of individual countries may shift from sovereign governments to other hands, including the most powerful states, multinational or global corporations and international organizations.

Because of this, some see globalization as an attempt to undermine national sovereignty. For this reason, globalization can make national leaders feel helpless before its forces, and the electorate - antipathy towards her. Such sentiments can easily turn into extreme nationalism and xenophobia with calls for protectionism, lead to the growth of extremist political movements, which is potentially fraught with serious conflicts.

The problem generated by globalization - the infringement of national sovereignty and the independence of political leaders - can also be largely resolved on the basis of international cooperation, for example, by a clear delineation of the powers of the parties, i.e. national governments and their leaders, on the one hand, and international organizations and multinational or global corporations, on the other. The very involvement of political leaders in building the necessary institutions to deal with these and other globalization-related issues will help them regain the sense that they are in control of their future and in control of their positions in the world.

Globalized world. In the meantime, unfortunately, the world is moving in the opposite direction, along the path of political and military dictate of a strong

weak, that in the context of globalization of all aspects of the life of the world community, it is fraught with a global confrontation.

The current crisis of the Western economy is not a recession because it is not cyclical and is not limited to 12-16 months. What is happening in the US and Europe today is a structural crisis, a process that began in the fourth quarter of 2021 and will continue for at least five years without interruption. However, the West does not understand the causes and essence of the crisis, because they do not have theories describing it. That is why, according to the economist, the American and European authorities are doing stupid things instead of effective measures to resolve problems.

It was impossible to avoid this crisis, because they went too far. They have expanded private consumption so much that they can no longer keep it. You need to name the main number. There is an indicator in the United States that they do not disclose in public discussion: this is the level of price growth for all industrial goods, not only for final goods entering the wholesale trade, but in general for everything, from raw materials to the final product. For the first time, the rise in prices for manufactured goods exceeded the level of the late 1970s. The previous peak was at the end of 1947. There are 23 with something percent.

The entire system of socio-political management in the West, both in the USA and in Europe, is built through representatives of the middle class, qualified consumers. Today this instrument is being destroyed. Instead of the middle class, new poor people appear, who have a middle-class attitude, but they have no money.

The sanctions pressure on Russia has exacerbated the economic problems of the West. European financiers note that EU politicians are afraid to take responsibility for decisions taken under the slogans of transatlantic solidarity and assistance to Ukraine.

In fact, this whole situation with global confrontation and the breakdown of the dollar system is disastrous for the United States not by economic factors, but by intellectual ones. Roughly speaking, Washington will undoubtedly lose to Moscow only because the US does not even have a concept of a plan to solve the colossal economic problems and save the dollar system.

Intellectual life in the US and Russia goes in opposite directions. The US has nothing left for a long time. There, no one can imagine even a weak positive scenario. The complete absence of any thought, not to mention the concept.

Dear Dimitrios Nomidis,

Yes, that's right. The dominant view is that the mainstream of classical economics revealed the shortcomings of a macroeconomic model based mainly and / or solely on the assumptions of classical economics in the 1930s. For the first time on a larger scale, the disadvantages of the macroeconomic model based mainly and / or solely on the assumptions of classical economics began to be discussed during the deep recession of the global economy in the 1930s. It was then the first major global economic crisis during which labor market imbalances persisted over an extended period, which meant high levels of unemployment that lasted for years. The economy did not recover quickly. Also in highly developed countries, a high level of unemployment continued, reaching even around 30% in some regions. The problem of high unemployment was related to low employment, low income, a decline in production and consumption, an increase in crime, a decline in tax revenues flowing into the state budget, a decline in investment, etc. economic growth, to the level of potential production, full use of production factors, to employment growth, it was the state that had to come with help, which created new jobs in public sectors and with the use of financing new investments from the public finance system of the state. In this way, Keynsism arose as a formula for an interventionist pulling the economy out of a deep economic crisis in the form of investments organized and financed by the state. However, in my opinion, the disadvantages of the first mainstream in the history of economic thought, ie classical economics, can be identified already during the first industrial and technological revolution. It is since that period that economic systems have developed as expansive and unsustainable, not taking into account the negative effects of economic development in economic growth, i.e. social and environmental costs resulting from the level of environmental pollution, which has been increasing for over 200 years, reduction of biodiversity of natural ecosystems, degradation of the biosphere and the climate of the planet. On the other hand, the anti-crisis state intervention applied in the 21st century during the last largest global financial and economic crises on a record-breaking scale also includes many mistakes. The anti-crisis state intervention used in the twenty-first century on a record scale combined selected instruments of a relaxed fiscal and monetary policy with the loosely treated Keynsian formula. For example, by lowering the scale of the economic crisis and recession, you have generated an increase in liquidity in the financial system and / or the economy by injecting large amounts of extra money into the economy without cover and thus generating an increase in inflation that was considered the lesser evil. This kind of interventionist and imperfect actions within the broadly understood anti-crisis and pro-development socio-economic policy are used until now. Unfortunately, no better solutions have been developed that would be better adapted to the current macroeconomic situation, the sector and branch structure of the economy, taking into account the implementation of the sustainable development goals and the needs related to the pro-environmental transformation of the economy.

Best regards,

Dariusz

Lucio Muñoz : Thanks for your kind response to my comment. I must tell you that I am a decades-long, severe and antagonistic critic of modern official theoretical physics and cosmology; both in and out of RG. One of my forums in RG on Einstein’s theories of relativity was closed down by an exceptional ruling of the RG management after it ran for a year and a half and attracted many physicists from around the world. I can see that someone totally unknown to me, made a collage of my comments in that forum and posted it online at the following link:

But I understand that your question in this forum is not directed to persons like me (which is rather an exception), but of course, is very relevant in the face of the present crisis of credibility of modern scientific theories and the existing paradigm. I definitely welcome your efforts in this forum.

I must also say that I do not doubt the intellectual honesty of Kuhn; but in my opinion it was a naïve exercise; because it did not consider the harsh realities of society of conflicting interest groups as I discussed in my comment above. But Karl Popper in my opinion, was definitely an opportunist and trickster – a turncoat “Marxists”, used and promoted by British imperial authority on the one hand to bestow “scientific” benediction on the esoteric theories of relativity by Albert Einstein, making those Kosher (because such theories cannot be falsified and by default are established as objective truth!). On the other hand, used as a “determinist” in the polemic on quantum uncertainty and in the ideological conflict and geopolitical rivalry of the time.

Best regards.

I should have added in my initial response that instead of a time series approach an equally simple way would be to do a cross sectional analysis. Use data on population growth and per capita income from a variety of countries with differing income levels. Also, if there is some reason not to use regression analysis just setting up the data in a scatter diagram would offer some insight into the relationship.

The accounting model is simply wrong.

I have posed this question more than six years ago. It may be strange to add this comment myself, but I believe that we have produced a firm theory that grasps the essence of the principle of effective demand.

Please see our book:

We have written briefly why it can provide a microfoundations for Post Keynesian economics. The main reason of this claim is that we have successfully reformulated the principle of effective demand. We did not claimed that it provides the microdoundations for New Keyensian economics by two reasons:

(1) New Keynesian economics has abandoned the concept of effective demand. It keeps the notion of aggregate demand, but our new formulation re-builds the principle of effective demand at the firm or product level.

(2) New Keynesian economics admits Walrasian economics (including Arrow and Debreu 1954) as the basis of its microfoundations, whereas our theory is paradigmatically different from Walrasian economics or general equilibrium analyses. We have consciously excluded equilibrium framework anywhere in our analyses.

If some of you readers have objections, please post your opinions here. We can discuss them.

Fred M. Taylor, in his Principles of Economics (1925, p. 201) writes, "This principle, I have taken the liberty to designate Say's Law; because, though recognized by many earlier writers, it was particularly well brought out in the presentation of Say (1803)." The principle Taylor discusses is the fact that productions (supply) constitute demand for productions. But a more complete rendition of the law of markets from Say's own writings is a two-part proposition: (a) the production of a commodity immediately creates a demand, an outlet, or market for other produced goods and services, and (b) productions can only be purchased by or with other productions. These two parts of Say's proposition, which he claims to have derived from Adam Smith's Wealth of Nations, is what Keynes (1936) corrupted as "supply creates its own demand," having derived that version from a restatement by John Stuart Mill (1874, p. 73). Mill's own statement is, "Nothing is more true than it is produce which constitutes the market for produce, and that every increase of production, if distributed without miscalculation among all kinds of produce in the proportion which private interest would dictate, creates, or rather constitutes, its own demand."

Keynes, who appears never to have read Say's own (and better) formulation of the law of markets or outlets (as the French readers claim to be a more accurate rendition), found the proposition a major affront to his attempt to formulate a theory of employment in his General Theory (1936). This because Keynes believed that Say's Law assumes there is always full employment of labor or that there is no obstacle to full employment. Thus, Keynes (1939) subsequently concludes: "a theory so based is clearly incompetent to tackle the problems of unemployment and the trade cycle." I think it is grossly misleading for Alain Beraud and Guy Numa (2019) now to claim the possibility of agreement between Keynes and Say on the functioning of a monetary economy. For one thing, Say adopted Adam Smith's treatment of savings as being spent reproductively by borrowers whereas Keynes treats savings as a withdrawal from the expenditure stream; Keynes never connected savings with the purchase of interest- and/or dividend-earning assets. Savings simply disappear in some "black hole."

People should read J.-B. Say's own "Treatise on Political Economy" and "Letters to Mr. Malthus." Say himself treats the incidence of unemployment from economic contractions or labor's displacement by machinery as economic growth occurs, but which Keynes did not recognize.

I would call it a two-party transaction. However, I think the distinction has to be defined more precisely, because even on security and commodity exchanges there are normally only two parties to any transaction, even if other people are witnesses to it.

Dear Xiaojie Liu

thank you for your frank argument. The fact that no professors teach HO theory in the phd courses does not matter. If most of problems that can be explored by a theory, it will cease to be taught. HO theory is still important because it is still binding economists' way of thinking. As you argued, you jump to think proportions between capital, labor and perhaps technology as factors of production. This habit of thinking is formed by HO theory. But is it reasonable?

My contention is factor proportion theories (HO theory is only an example) are all wrong.

(1) First, it has no good predictive powers. See controversies in 1990's vis-à-vis HOV models.

(2) Theoretical framework of factor proportion theories contains many serious theory troubles. To cite only two of them, (2a) measurement problem in capital theory and (2b) aggregated production functions. For the latter, see

Felipe and McCombie 2013 The Aggregate Production Function and the Measurement of Technical Change: 'Not Even Wrong' , Edward Elgar.

Aggregate production function is in a great probability misidentifying accounting identity as production functions as Herbert A. Simon pointed it in is Scandinavian Journal of Economics when he got a Nobel Prize of Economic Science.

(3) They give erroneous footlights on less important questions instead of more important issues. For example, technology is understood in a very superficial way and misleads people to wrong questions (especially the people of less developed countries). Factor proportion theories have strong tendencies to consider technology as something which can be bought by money.

You should also remind that Ricardian theory has been renovated in these ten years or so. First, what is understood as Ricardian theory in schools is not what Ricardo thought but an invention of John Stuart Mill.

See

Gilbert Faccarello (2017) A Calm Investigation into Mr Ricardo's Principles of International Trade, and

Yoshinori Shiozawa (2017) An Origin of Neoclassical Economics: Mill's 'Reversion' and its Consequences.

Second, a new general theory (the new theory of international values) in the Ricardian tradition is now build. It is much superior than four generations of neoclassical trade theories (textbook Ricardian, HO theory, New trade theory and New new trade theory). For example, the new theory of international values is a theory which permits input trade in a general form (Ricardo-Sraffa trade economy). This is the theoretical basis for the analyses of global value chains (GVCs), because GVCs are network of productions and international trade. Please note that above four generations preclude input trade by assumption or is practically a theory of small open economy as it is the case of New New Trade Theory. The new theory of international values is free from such theory questions of capital measurement and aggregated production functions, simply because it does not draw on such concepts and constructions.

Third. Another essential difference between the new theory of international values and HO theory is the theory of wages. HO theory has no good theory except factor price equalization theorem. The theorem claims that wages of all countries are the same in the factor proportion equalization cone. It is evident that this kind of theory cannot be used to analyse rich and poor counties problems, because this is practically the question that a rich country's workers gains higher wage rates than those in poor countries. The new theory of international values is a theory by which we can determine wage rate of each trading nations. Thus, workers of a nation gain five or twenty times as much as those of a poor nations. This big difference of wage rates between countries does not come from the difference of factor proportions. Wages depends on the technology (in other words, the set of production techniques that a nation [or firms of a nation] possesses) .

The first task that a poor nation must tackle is to change their production techniques to more productive ones. It does not mean to buy a new technology from abroad. By a change of production sites, productivity of production techniques can be changed tremendously. In this changing phase, foreign capitals' firms may give a good stimulation, but what is important is the efforts of workers (including directors and engineers) on the production site. It is also necessary to note that social infrastructures like roads and ports influence the total productivity of a nation, because transportation is an important part of production techniques.

Sarbajit Chaudhuri recommended Xiaojie Liu's post. It is a great pleasure that he is interested in our question. Please join us and give your opinions about international trade theory and its relations to development economics.

If we start from this assumption, that efficiency is desirable is a core value judgment in economics, so, if we can judge that from a point view of gains, than your question will be treated in depth, specialy, in valuating normative economics.

The book I have mentioned above (Microfoundations of Evolutionary Economics) is composed of seven chapters in total. Here is the table of contents:

1. Microfoundations of Evolutionary Economics

3. The Basic Theory of Quantity Adjustment

5. Extensions of Model Analysis of the Quantity Adjustment Process in Several Directions

- Feasibility of the (S; s) Inventory Control Policy in the Economy as a Whole

7. Exchange and Arbitrage - Price, Evaluation and the Principle of Exchange

The main part is how a large market system is adjusted by agents whose capabilities are limited in several aspects. Chapter 2 is a general introduction and in Chapter 4 (written by Masashi Morioka) gives a mathematical proof that the quantity adjustment process converges as long as it is not constrained by lack of inventories (stock-outs). When a firm faces lack of inventories or adopts (S, s)-adjustment policy, the total adjustment process becomes non-linear . This process cannot treated by mathematical methods. Chapter 6 (written by Kazuhisa Taniguchi) gives results that Taniguchi examined by computer simulation method.

Taniguchi-Morioka's results have a paramount importance, because this is the first time that a big market economy which may be as big as global economy and moved by agents with bounded rationality and myopic sight has some stability property. This can replace Arrow and Debreu model and thus a solution to the classical Adam Smith problem. Taniguchi-Morioka's results show that the total system can follow the slow movement of the final demand flow. With these results, we think Keynes's and Post Keynesians idea gained a theoretical foundation. Price adjustment and quantity adjustment can in principle be separated and analysed as such. Our book is not only a microfoundation of evolutionary economics but also of Post Keynesian economics.

In this formulation and research, fundamental uncertainty was not a good guiding post. What we had to do was to choose routine behavior (C-D transformation) that can be employed as a general rule and that is sufficient to prove by a single behavioral principle the total adjustment process of the whole economy.

The results we got is however a world of irretrievable past and the unknowable future. Methodological argument per se does not let economics proceed. What is needed is the challenge for a new theory making. As it is often said, it needs a theory to beat a theory. Methodology argument cannot replace theory making. I believe this is the main trouble for almost all heterodox economists who only argue methodology.

Economic liberalism differs from political liberalism, in different degrees in each of the countries, so it is not possible, it seems to me, to make generalizations about this.

That‘s nothing new. The GATT is held up as having systematically reduced trade barriers through periodic rounds of negotiations between its member states. However, although its members accounted for most of international trade, even by 1967 they were no more than 50 in number: very many newly independent countries and other smaller states did not join.

And the GATT had two major exceptions to trade liberalisation. The first was in agriculture, which its members were allowed to protect for purposes of food security. There was a strong case for this (and there still is), but it had the side-effect of making it more difficult for commodity-dependent developing countries to export some of their most important commodities.

The second was the Multi-Fibres Arrangement (MFA), which was introduced in 1974 as a temporary measure but repeatedly renewed until 2004, ten years after the creation of the WTO; and a previous arrangement for cotton textiles had started in 1961. The MFA imposed national quotas on non-members’ exports of textiles and clothing to GATT members. And if a country didn’t have a quota, it could be hard work to acquire one. Since this tends to be the first sector to industrialise in most countries, the MFA acted as a serious brake on poorer countries’ industrial development.

While I would not class myself as a fundamentalist Marxist or fundamentalist anything, I do think it is important to have clarity in terms of what we are trying to do in our work. For me, the main point of Marxism is to use the ideas of Marx and contemporary Marxist theory and research to locate weaknesses in the rule of capital. To pinpoint capital's fragilities, contradictions, and crises. All the better to generate a politics which focuses on those weaknesses, fragilities, contradictions and crises.

Your papers look extremely interesting! I'll make sure to read them.

Regarding your question, loose relation of max-plus with min- and max-times is often mentioned in the papers of the max-plus working group. Stéphane Gaubert and Marianne Akian are still active in this field, often making incursions into neighbouring topics.  I attach a link below. 

Our own research deals with an abstraction of max-min-plus and max-min-times which is called idempotent semifields. We have a project in Researchgate that deals with idempotent semifields to generalize Formal Concept Analysis to matrices with entries in said semifields. Perhaps more to your liking, our IPMU 2016 paper explains how to obtain max-min-times (the dual completion of either max-times or min-times) using Pap's g-calculus from the positive reals.  I also attach a link below.

Enjoy!

Dear Kurt Dopfer,

thank you for the information. I have asked Harry Bloch to share his paper with me.

Yoshinori Shiozawa

If you uploaded it, you can delete it yourself on your Researchgate profile, just open the article, select the arrow for more options and delete it. If someone else uploaded it, you can claim ownership and then delete it.

I am not familiar with Verbin.  By any chance, do you mean Veblen as in Thorstein Veblen?

See Cointegration Analysis in Econometric Modelling by RICHARD HARRIS ( see 96 through 97) 1995 for an example and step-by- step illustration of Pantula Principle. in a nutshell, it is to start with the most restrictive model (no linear trend in data (Table in Osterward ending in 9.24. OR 28.14, 22.00, 15.67 and 9.24. That is, the restricted intercept in CE; and none in VAR and CE     

then, to Linear trends in the levels of the data (Osterwald  Table ending in 3.76 or the the one that ends in 8.18 (the assumption is no intercept in CE and test VAR but there is trend in CE. It often referred to as an unrestricted constant model.

Here, one may introduce a model under the assumption of no intercept in CE and test VAR, but there is a trend in CE and use a Table in Osterwald ending in 8.18. 

Last, is the no quadratic trends in the levels of the data (Osterwald ending in 12.15. The critical values are reported as follows 31.46, 25. 54, 18. 96 and 12.25 for the 5%.

In these models, you stop the first time the null hypothesis is not rejected. That is, starting from the first model you move through the maximal eigenvalue row by row. I do not consider the two other extremes because they are rare in applications.

For those interested, I have found some interesting discussions in: Walter Y. Oi , "The Desirability of Price Instability Under Perfect Competition", Econometrica, Vol. 29, No. 1 (Jan., 1961), pp. 58-64

In his Introduction to The Turgot Collection, (above cited) Murray Rothbard writes:

Rothbard judges that Turgot was the first person to argue in Crusoe economics. Is this contention confirmed?

Dear Yoshinori,

Thanks for your kind words. I perfectly agree with you that Say never fully understood Ricardo and was perhaps even intent on not understanding him or rather misunderstanding him. I attach a paper Christian Gehrke and I published in 2001 on Say and Ricardo on value and distribution.

That utility matters in order for goods to have value was not disputed by Smith or Ricardo, but neither of them was a utilitarian. They also did not object to the view that demand and supply matter in determining market prices, but they disputed that they play a role in determining natural or normal prices. Supply in this context was taken to be a given actual offer and not a supply function. Similarly, demand was used in an everyday language and not in the sense of a definite quantitative relationship between the amount demanded and the price of a commodity. Representatives of the German use value school, who invented the concept marginal utility, did not see their ideas in conflict with Adam Smith's theory, but rather as adding some flesh to it. (See my piece on the German and Austrian schools.)

John Stuart Mill interestingly stated that due to Ricardo's achievement the theory of value was complete. However, when dealing with the problem of joint production he abandoned this view and claimed that demand plays an important role. Alas, in discussing the case of two products being produced by means of a single process (e.g. wool and mutton) he assumed that there is only one process available and the system of equations is thus short of one equation to determine all unknowns. Had he allowed for two (or several) methods of production he would have had to develop a more sophisticated argument. (I published a paper on "Early Classical and Marginalist Economists on Joint Production"  in 1986 in Metroeconomica.)

Ricardo was not well received in Germany, which was under the spell of old cameralist traditions and later of Say. People abhorred abstract reasoning and understandably had difficulties to come to grips with it. But there were notable exceptions to the rule. These included Hermann and von Thünen in the first half of the 19th century and then towards its end von Bortkiewicz, to name but a few.

Best,

Heinz

Dear Sergey Popov,

Yes, you are right. Germany has succeeded in university renovation whereas English did not. Mathematical education in England remained in a low level. This gives one reason why introduction of mathematics in economics was rather retarded. However, this is externalist explanation.  I do not exclude these explanations, because in any scientific development both external and internal forces are working.

I have an impression that history of economic thought gives undue weight to external explanations. My paper on Mill's reversion is a trial to invert this trend.

Dear Yoshinori and Lall,

 Yes, Shibata was a unique Scholar that was grown up in Kyoto under the influence of two big names, Hajime Kawakami (Marxist) and Yasuma Takata (Marx-critic). When I was affiliated with Kyoto University, I was entrusted by the daughter of Shibata (Junko Nagasaka) to select important books and materials from Shibata's private collections to preseve them in the University library. (It contains letters from Schumpeter, his reflection on war just after Japan's surrender, and obituaries in his funeral. But, from the eyes of a bibliographer, it is far from rich as economics library, since Shibata had to sell almost all of his Collection in the years of distress under the purge, )

   I dealt with Shibata's engagement in the wartime totalitarian reforms in "Economic Reform Plans in the Japanese Wartime Economy: The case of Shintaro Ryu and Kei Shibata", in Aiko Ikeo ed., Economic Development in Twentieth Century East Asia, Routledge, 1997. (pp.100-115)

   Such a historical description of Shibata's career culminated in Kuniaki Makino, Shibata Kei: Shihonshugi no chokoku wo mezashite (toward overcoming of capitalism), Kyoto: Mineruva Shobo, 2015. 234p. (in Japanese)

  Theoretical economists  maintained their interest in Shibata's attempt to criticize Marxian economics as well as the economics orthodoxy then.

  Takashi Negishi (1995) "Boehm-Bawerk and Shibata on Power or Market," Journal of Economics (Zeitschrift fuer Nationaloekonomie), 61(1), 281-299

.   Tadasu Matsuo (2010) "Average Period of Production in Circulating Input-Output Structure", Applied Mathematical Science 4(46), 2293-313.

   Dong-Min-Rieu (2009) "The Shibata-Okishio Connection: Labor Theory of Value and Rate of Profit", Journal of the History of Economic Thought, 31 (3) September 2009, pp. 325-339     

   In Japanese Atsushi Nishi published two articles under the influence of Matsuo (2010)  :

   Nishi, A. (2013) "On the Relation between the autoregressive pattern of input-output structure and the concept of average period of production: Shibata Kei's approch and Matsuo Tadasu's approach", Kikan Keizairiron 50(2), pp.89-76.

  Nishi, A. (2014) "On the Generalization of the Concept of Boem-Bawerk's Average Period of production to the Autoregressive Pattern of Input-Output Structure: Kei Shibata's Approach", Keizaigakushi Kenkyu 56(1), pp.48-70.  

   Bests!

Linda Russell,

thank you for your information. I loved Lee Smolin's Trouble with Physics, but I did not know Time Reborn. I will try to read the book. 

Also, I have to thank you, because this is the first answer you ever posted for a question in ResearchGate. It is the great honor for me. 

Dear Yoshinori and company,

All of you are making a common mistake about the concept of equilibrium in modern economics. There are two concepts that are not used interchangeably: equilibrium in the real world out our windows and equilibrium as a property of formal mathematical models.

I would say that the main problem in modern economics is that our departments have be taken over by the mathematics department's culture. Realism is less important than elegant proofs.

I have discussed some of the problems of A-D GE models in Chapter 2 of my 2014 book: Model Building in Economics: Its purposes and Llimitations (Cambridge U.P.). And I am currently working on a book that expands on that chapter. If any of you are interested, contact me at bolandla@yahoo.ca and I will send you the Outline and Preface.

LB

Dear Jorge,

Forgive me for asking you what might seem to be an unnecessary, or even ill-informed, question but I am as much concerned by the manner in which the theories and ideas within the 'body of knowledge' that make up our 'discipline' relate to and thereby identify themselves as oriented towards a common goal, or a set of disparate goals, as by their details.  Also by the existence of any disparity between their apparent, or stated purpose, and their evident, or correlated purposes.  My question arises from your statement "The classical rule of specialisation – which is the rule Ricardo and other classical political economists applied in order to find out whether a particular trade is beneficial for a country or not..".

I would like to ask, initially perhaps:

"Does all of the classical economic writing, upon which the modern mainstream of economic teaching and of national policy development advice is ultimately based, have as its proximate, or its immediate, goal the benefit of the country or state?"

It occurs to me that if the 'production value' of the labour of individuals, to them, is to be maximised by their mutual specialisation of their individual labours in the context of their being a free and fair mechanism for the mutually agreeable exchange of the greater volumes of goods, and hence of greater value at fixed prices, that is being produced by their specialisation, and then one quickly moves on, as both Ricardo and Smith do, to  a consideration of the same basic processes across wider geographic areas which then subsume national boundaries and then to re-state the previously identified benefits to skilled or able individuals of the specialised application of their labours to being legitimately identified with "the benefit of the country or state" is to build into all subsequent economic argument the implicitly assumed and non-violate and rigid relationship to exist between 'the state' and the individuals through whom it is manifest and the individuals whose labour produced the products by and through which the benefit of 'the state' is being sought through this body of theory.

This seemingly natural identification of the goal of the benefit to 'the state' --- which is to be gained through the application of economic understanding and policies that are based upon that knowledge of the benefits which individuals labouring to produce goods in greater volume by their mutually 'agreed' specialisation avail themselves through their subsequent free and fair agreeable exchange  ---  dramatically exposes the nature of the social order existing in Mercantile times.  One in which the right of 'dominion' over lands had already been extended for hundreds of years to imply an absolute right of holder's of that dominion to be extended over the lives, labours and possessions of the main body of people residing within those dominions whenever and however it pleased them.

This assumption, it seems to me is still embedded today in our 'political economy', that is to say the 'study and development of state policy towards the economic activities of the people within the state'.  Further it suggests that very socio-political structure must tend to generate its own legitimate 'theory of political economy' as a body of views and policy generation processes in service of each state.

The consequence of this is that 'political economy' is greatly over reaching itself when it considers what is good for the world through the study and prescription of trade policy internationally, or any other area of policy for that matter, according to any specific, and probably dominant, socio-political order.   It is thus by this mechanism that a global hegemony in economic outlook is and has been established by the most dominant states and by which it is perpetuated.

This is neither 'scientific', legitimate or moral.....

....and the alternative of accepting the legitimacy of 'state specific' political economy cannot be legitimate either unless that study and body of policy is itself under-pinned by a basic, commonly and freely agreed body of knowledge and understanding regarding the individual rights and inviolate principles to be applied to the individuals comprising humanity itself.

Without this, everything we and our colleagues are engaged in serves humanity in no imaginable way for their long-term benefit, or short-term since that is always subsumed by the focus of political economy being on the benefits to be gained by the individuals most closely representing and embodying 'the state'.

Can you help me to understand what the actual purpose of all our evident philosophical and practical skills?  Is it to help all people?  or do we trust the interests of 'our paymasters' to be identical with those of all people?

And if they are "How do we know that as a fact and be sure that it will remain to be so?"

There is still a very long way to go before what we concern ourselves with now can be developed into something which has a context and demonstrable purpose within which we can then think about making the use of our skill in any way efficient and effective as a permanent means of benefiting mankind.

Kind regards,

Robin

Robin Edward Jarvis raises at once so points of discussion that are all important, I cannot follow him promptly. I want to answer to his second post (post number 7). In his third post (post number 10), he makes a point that economics cannot and should not go without ethics. He is fundamentally right, but I am not prepared to discuss this question yet and do not enter to this question in this question page. Mohammad Israr Khan posed a question: How do the economists define self-interest and rationality?

In order to answer to his question in depth, I believe we cannot go without asking the elation between economics and ethics. I only started to learn one or two basic books to consider on this question. I will try to challenge answering in the near future (I hope). 

Another fascinating wonderful question, totally new to me, was raised by Carlos Eduardo Maldonado (post number 1) and Robin Edward Jarvis (post number 3, at the end of his post) mentioned on it:

I will come back to this question after I will have discussed Robins’ two points. 

Robin Edward Jarvis (post number 7) raises many points here also, but I want to discuss following two points in the coming two posts :

Dear Shiozawa sensei and ResearchGate community,

I could not agree more with you when you state that all data-first theorist like Hoover, Hendry, Juselius, Johansen, Spanos are deeply influenced by F53. In the end, all of them follow a marshallian approach. According to the four aspects of scientific research, they start from (3) and end up in (1). Regarding (3), it is necessary to recall that "Data-First" theorist do not transform or curate data since they are "market processes" and, according to Hendry (2011), are subject to three kinds of unpredictabilities: intrinsic, instance and extrinsic. In other words they "let the data speak for themselves".

However, I don’t think the vast majority of economics are influenced by F53 Positivism or Popperian Falsificationism in strict sense inasmuch as RBC and DSGE models (the widespread models in Economics), whose predictive power is not good, have not being ruled out. Professor Mário Amorim Lopes explanation about popperian epistemological approach on social sciences was really clear and contundent. For instance, these models were not able to predict 2007/08 Financial Crisis, they were not able to survive falsifications, albeit they are still used for the vast majority of Central Banks in several countries. Kirman (2010) stated that “The Economic Crisis is a Crisis for Economic Theory”.

Now the question is, are DSGE models the best theory available? Are there other theories which are able to predict Economic Crisis? Kirman (2010) supports the idea that Shiozawa sensei stands for (so do I): viewing an economy as a complex adaptive system, a set of interdependent elements (agents) organized in networks (without a central control) which produce emerging aggregates and have the properties of adaptation and self-organization. In that sense, to overcome DSGE scenarios with representative agents, rational expectations, walrasian law (markets empying) and stochastic trend; it is necessary to build models that explain and predict economies with contagion, interaction, interdependence, networks and trust.

So far, we have identified that it is necessary to construct models which consider Economic Crises as inherent to the evolution of the complex system. But can we identify the evolution of the system? This responsibility lies in two different hypotheses: i) Former economic theories that have been ignored like the Financial Instability Hypothesis by Hyman Minsky; and ii) Approaches from other disciplines such as: Econophysics (see Jovanovic, F. y Schinkus, C., 2013; Rickles, D., 2008 and Sornette, D., y Zhou, W., 2007).

Allow me to discuss some ideas on Econophysics (I am deeply interested in this field). First of all it is necessary to recall that Financial Markets Data present certain stylized facts: i) Fat-tailed distributions (Instance Unpredictability, Hendry (2013) – Taleb’s Black Swan); ii) Volatility; iii) Autocorrelations (memory); iv) Leptokurtosis and v) Clustering. According to this, the normal distribution, martingales and random-walks which are the battlehorses of Eficient Market Hypothesis by Fama and therefore DSGE models, does not shed a light on Financial Market Data. On the other hand, Econophysics put forward the use of “Truncated Levy-Pareto” distributions which address all those stylized facts stated above. These distributions are bell-shaped like Gaussian distributions but unlike these ones, they assign bigger probability to the events in the center and the tails of the distribution (Economic Crises). (Jovanovic, F. y Schinkus, 2013).

In that sense, given that Econophysics view the economies as a Complex Adaptative System and provides a good explanation on Economic Crises, why DSGE models are still used? I think he answer to this question responds to interests (professor Karlsson emphasized on it above) and the arrogance of most Orthodox Economists. They are reluctant to ruling out DSGE models and accept developments coming from other disciplines outside economics. I do agree with Moisés Naím when he states that “while there may be budding intentions to appeal to other disciplines in order to enrich their theories (especially psychology and neuroscience), the reality is that economists almost exclusively study—and cite—each other”.  (http://www.theatlantic.com/business/archive/2015/04/economists-still-think-economics-is-the-best/390063/)

To sum up, I think neither Friedmanian Positivism nor Popperian Falsificationism is followed in strict sense by the vast majority of economists. The current bulk of models do not care about predictions, they just follow the “discipline of equilibrium” (Representative Agents, Walras law and Rational Expectations). I exposed the example of Economic Crises and Financial Markets inasmuch as it is the most important falsification of DSGE models, but there are other falsifications in other fields like Economic Growth and Development (my dissertation states about it but unfortunately it is in Spanish and I have not translated it to English yet, my apologies).

Thanks a lot for sharing your valuable concepts on this related topics

Édgar    

REFERENCES

1. Hendry,D. (2011). "Unpredictability in Economic Analyis, Econometric Modelling and Forecasting," Economics Series Working Papers 551, University of Oxford, Department of Economics.

2. Jovanovic, F. y Schinkus, C. (2013a). Towards a transdisciplinary econophysics, Journal of Economic Methodology. Volume 20, pp. 164-183

3. _______________________ (2013b). Econophysics: A new challenge for financial economics? Cambridge University Press, 319-352.

4. Kirman, A. (2010). The economic crisis is a crisis for economic theory. CESifo Economic Studies 56: 483-535.

5. Rickles, D. (2008). Econophysics and the complexity of financial markets, Handbook of the philosophy of science, Volume 10, pp. 133-152.

6. Sornette, D., y Zhou, W. (2007). Self-organizing ising model of financial markets. The European Physical Journal B, 55(2), 175-181

Does anything fit in economic models ?

If it were so, "crisis" would not sprout the way they do.

We (economists) learnt how to describe well but fail on how understand the reality

Thank Omar,

it was interesting to know how the Islam scholars are thinking about international trade.

Yoshinori

I do not think Polyani and Hayeck would make especially snuggly bedfellows.  My colleague Kent Klitgaard supplied this  quote from Polyani:

  I came upon this great quote from Karl Polanyi that summarizes a lot of my thought of what biophysical economics could be, and some of the questions it could address far better than NCE or EE.

 “what can be stated with certainty, however, is that the attempt to impose on the rest of the world a radical Anglo-American vision of the autonomy of market forces, backed by sanctions to subordinate nations, peoples and communities to the rights of  property is a Utopian project which threatens to unleash reactionary political forces. It is incompatible with democratic governance, cultural diversity and pluralism, and ultimately the protection of the biosphere that sustains life on earth.”

I do not think he would be too comfortable with conventional economics (nor am I see: Hall, Charles, D. Lindenberger, Reiner Kummel, T. Kroeger, and W. Eichhorn. 2001. The need to reintegrate the natural sciences with economics. BioScience 51 (6): 663-673.   or    Hall, C.A.S., and K. Klitgaard. 2012. Energy and the Wealth of Nations: Understanding the Biophysical Economy. Springer, NY.)

Schumpeter talked of Ricardian Vice. I think we should éalso talk about Schumpeter's misconception or contradiction if it may not be a Schumpeterian Vice. 

The most serious contradiction appears in Chapter 1 of his Theory of Economic Development. This chapter is titled The Circular Flow of Economic Life as Conditioned by Given Circumstances. 

The concept of circular flow (German original is Kreislauf) is very important. Schumpeter starts from circular flow of economic life and defines economic development as a change of this circular flow. One of such change is innovation which is the key concept of Schumpeterian economics. 

Schumpeter explains this concept in sentence like this: 

Since the circular flow of the economics periods, this most striking of all economic rhythms, goes relatively fast, and since in every economic period essentially the same thing occurs, the mechanism of the exchange economy operates with great precision. (p.6) 

He knows it is difficult for a person to change this circular flow as he writes like this: 

All the preceding periods have, furthermore, entangled him in a net of social and economic connections which he cannot easily shake off. ... All these hold him in iron fetters fast in his tracks.(p.6) 

However, Schumpeter thinks that this circular flow can be rebuild from nothing. He uses a Latin expression "ab ovo" (from egg) to make this more impressive. He uses the term "ab ovo" three times in his book. I cite the explanation at the first appearance of the word. 

This picture may be refined, and made to yield more insight into the functioning of economic system, by means of a well known device. We assume all this experience to be nonexistent, and reconstruct it ab ovo¹, as if the same people, still having the same culture, tastes, technical knowledge, and the same initial stocks of consumers' and producers' goods², but unaided by experience, had to find their way towards the goal of the greatest possible economic welfare by conscious and rational effort. (p.10) 

Note 1. This method is due to Léon Walras. (p.10)

 I don't know if Walras used this kind of parable. This may be Schumpeter's interpretation. 

Note 2. As every reader of J. B. Clark knows, it is strictly speaking necessary to consider these stocks, not in their actual shapes -- as so many ploughs, pairs of boots, and so on -- but as accumulated productive forces which can at any moment and without loss or friction be turned in to any specific commodities wanted. (p.10) 

Note 2 reminds me the Capital Controversy. "Productive forces" here mentioned is exactly what Joan Robinson called "leets". 

Schumpeter warns (and in fact apologizes) that this ab ovo parable does not mean that he believes this is practically possible. 

We do not thereby imply that people would in practical life be capable of such an effort.³ We merely want to bring out the rationale of economics behavior irrespective of actual psychology of the households and firms under history. (p.10)

Note 3. There is, therefore, misunderstanding in the objection so often leveled at pure theory that it assumes the hedonistic motive and perfectly rational conduct to be the only forces actually at work in economic life. (p.10 Emphasis added by me.)

Schumpeter emphasizes that "what he want to analyze" is "the working of its mechanism or organism at any given stage of development." 

Is it innocent to assume this kind of ab ovo construction is possible? In my understanding, Schumpeter is missing the very mechanism how an economic system works. Economic agents modify their conducts when they realize their (former) conducts did not produced expected results. 

Schumpeter mentions on Wieser's continuity principle but he does not understand that he contradicts himself in assuming ab ovo construction is possible in modern complex economy. If it is possible in principle or theoretically, innovation looses its significance, because any innovation is an ab ob conduct adapting to the new environment. There is no innovation at all.

Hi Rob,

I would submit the following comments (tentative answers) to your questions:

1. Smith was assuredly not "religious" in the usual sense of the term.  To my mind, the time he lived, during the Scottish Enlightenment, actually suggests a likelihood that he was not that religious.  (His good friend David Hume openly scoffed at religious beliefs and authority, but that could still get you in trouble.)

2. The "Invisible Hand" that guided Smith's market might suggest a religious sensibility, but I think that interpretation is mistaken.  It's not that there _is_ an invisible hand guiding the market, but that it's _as though_ such a hand existed.  The astonishing reality, Smith is saying, is that complex order can seemingly emerge from human (conscious) acts that have no intention with respect to that order.  The social order is an unintended by-product of the acts and choices of individuals.  Note that the other interpretation, that "the invisible hand" is a higher consciousness of some kind, is easily understandable.  Consider an industrial assembly line where automobiles are produced: The workers on the line don't know how to produce a car, even though they are, collectively, doing just that.  How can that be?  Well, engineers who _do_ know how to produce a car have designed a complex system that gives each worker a task; taken together, the performance of these tasks works the will of the Designer(s).  Surely it's the same with an economy that produces what we need to live and thrive?  --But no, that rich, complex order happens _as though_ designed, but it's not designed.

3. "Religious views," then, undoubtedly influenced his work, but in the opposite way we might tend to suppose.  In Smith's time, and especially in the United Kingdom, "natural philosophy" was mightily in vogue.  Scientists (not so called yet) were avidly seeking natural causes and accounts of reality.  Mostly, as far as I can see, they looked at "nature" in the obvious sense (physical bodies, observable phenomena), but some, like Hume and Smith, looked at institutions and patterns of behavior and tried to account for these as empirical phenomena.  This methodological style might be thought of as a reaction to the theological approach, and in that sense, was influenced by religion.

Thanks for your question!

Dear Bjerke,

13 days ago, I actually wrote as you cited above:

It was a pure mistake of  mine. I should have written

 I am sorry that my mistake confused you very much. I have edited above sentences so that other readers of this page will not be confused again. 

As for the ideas you have exposed, please give me 10 days or so. I will participate to a conference in Sendai and am now preparing  my paper.

From a perspective of History of Economic Thought, see Robinson, Joan (1938). The Concept of Hoarding

Misses and Hayek were battling against the socialists such as H. Dickinson, O. Lange, and F. Taylor on the “economic calculation debate.” Keynes was not on either side. He did not subscribe to the Austrian view, nor was he a socialist.

Although Keynes postulate a role for the government in crises situation, he did not accept the central planning or management view of the socialists. He will go so far as to speak of the “socialization of investment…But beyond this no obvious case is made out for a system of State Socialism”. (General Theory (GT) p. 378).

I think Keynes could have chimed into the debate at the point where the debate focused on information. Government must have information in order to help steer the economy towards full employment. Keynes was hesitant to use probability theory in the GT, although he wrote the famous “Treatise on Probability”. In a fuzzy way, this idea can be put into the same set of thought of Hayek, namely that information cannot be organized as it resides in the brain cells where it is inaccessible to the hands of the planners or policy makers. So both of them have a Fuzzy set of information, one that economic ideas is non-ergodic, and the other that information is only subjectively accessible. Now, the Fuzzy set has picked up another uncertainty element regarding how agents partition information differently.

Keynes was arguing with the Austrians on other matters. His debate with Hayek on monetary matters is well known, starting with Hayek’s review of Keynes’s “Treatise on Money”. Hayek however, did not pay as much attention to Keynes” “General Theory”, dismissing as an inadequate piece on employment.

One must understand it clearly that in fact rate of interest and the marginal efficiency of capital have an opposite individual existence. Rate of interest does not takes care about the production activity and the profits and losses incurred, while MEC wholly depends upon the production and productivity. SO for me interest rate is the wildest form of exploitation used with great tactics, it is a vice almost sharing great responsibility in creating the large divide between rich and the poor.

I do not think it is a contradiction. 

The causal order of Keynesian relations thus presents itself as follows. First of all, it is necessary to consider the factors that determine the level of effective demand and investments, namely expectations, which can be taken as exogenous, and the level of the interest rate, which depends, given the liquidity preference, on the supply of money. Effective demand determines the level of income and hence of saving, which serves to finance the autonomous demand constituted by investments. In a certain sense, the money market precedes the market of goods in the causal order.

This order can be represented as follows. Equilibrium on the money market depends on the state of expectations, which influences the demand for money for speculative purposes, as well as the money in circulation. This set of circumstances determines the level of the interest rate. → The amount of investment that corresponds to a certain interest rate depends in turn on expectations. → Together with the amount of consumption, which depends on the community’s propensity to consume, the volume of investment determines the level of income. → The level of income determines the level of employment. Consequently investment determines saving (Y-C), not vice-versa. 

A deeper analyisis of Keynes'causal order in the General Theory may be found in  Pasinetti, L. [1974], Growth and Income Distribution - Essays in Economic Theory, Cambridge: Cambridge University Press, ch. II "The economics of effective demand".

Regarding the causal nexus from I to S, it could be useful Graziani, A. [2003], The Monetary Theory of Production, Cambridge: Cambridge Univeristy Press.

Bonnie

Cameron, Rondo and Larry Neal, A Concise Economic History of the World: From Paleolithic Times to the Present, New York, Oxford University Press, 2003. This is has been my favourite, with different complements. The same for Maddison. (Maddison, Angus: (2002) La Economía Mundial: una perspectiva milenaria, Ediciones Mundi-Prensa. Madrid.)

You may also have a look at Comín Comín, Francisco [2011], Historia económica Mundial. De los orígenes a la actualidad (Madrid, Alianza Editorial), for spanish-language students. (More concise is (my favourite) Comín, Francisco, Mauro Hernández y E.Llopis (eds.) (2005), Historia Económica Mundial, siglos X-XX, Barcelona, Crítica)

Don´t forget Eichengreen, B (1996); Globalizing Capital (Princeton University Press) (2nd edition 2008) as a complement

If you have time, you can go to eh,net: http://www.thebhc.org/resources/syllabi.html for ideas!

The ability of a currency to store value occurs for both external reasons, which you seem to focus on, and internal reasons that revolve around the currency itself. A simple example - in a period of hyperinflation, caused by the use of seigniorage to finance government operations (printing money) will cause the value of currency to diminish quickly in short periods of time classic examples - Germany, Zimbabwe among many). In such cases people attempt not to hold or use the currency or attempt to exchange it for something else immediately after receiving it exactly because the store of value function has broken down (hyperinflation causes the price level to rise and the value of a currency unit to fall appreciably - holders of the currency see the value of their currency holdings reduced.in terms of what they can exchange it for). What people are willing to exchange the currency for is constantly being eroded in such cases and is a good example of how the store of value function works (or doesn't work in this case) regardless of external issues. This is just one example of where the issue is still relevant.

While I could point you to a lot of texts that discuss this at length a simple search of the internet will unearth a lot of good material. A couple fun examples of the functions of money and bitcoin appear in the NY Times this past Saturday (Mar 1, 2014). See Robert Shiller's "Economic View" on money as a unit of account, and Joe Nocera's Opinion column on bitcoin and its store of value. There have been lots of other discussions like this recently in the press and academic blogs

Nocera:

Shiller:

The Quantity Equation (Fisher or its earlier British incarnation) is an identity, so it must be true. MV = PT. It is true because it says the value of money spent = the value of goods sold. It is also true because velocity, V, ends up being defined as V=PT/M. The question should be is the quantity theory of money (in whatever form) useful or valid. Early monetary stories were fairly compelling when money could be easily defined (look at the simple Friedman stories of patterns of spending). The theory was reworked as a demand for money theory, so now M is money demand, k=1/V and the money demand equation becomes M=kPT. Early versions of the theory view V or k as constant. However, M became more complicated (M0, M1, M2, M2, MZM etc.) and velocity was decidedly not stable. The question became was V or k predictable, say as a function of interest rates? Some researchers at the Fed thought so when they produced the P* model in the early 1990s but that fell apart a long time ago. Then the question was if money supply and money demand were not equal, what adjusted? The Friedman model was the real economy was determined by real factors (Walrasian equations) and the variable that adjusted was the price level. Hence the quantity theory of inflation, which is I think what economists traditionally think of when quantity theory is mentioned. Clearly this does not hold, at least in the short run (look at any measure of M in the US in the wake of QE). However, this does not mean that the proposition that inflation is a monetary phenomenon in Friedman's classic dictum. It does mean that any simple quantity theory doesn't hold for modern economies.

Hi Konstantinos,

Thank you for your kind words and interesting comments about my paper.

Regarding the question about absolute advantage and the benefits of trade, my short answer is yes. Even in the case when a country does not have an absolute advantage in the production of any product, it would still benefit from trade.

The explanation for this counterintuitive answer lies in the classical rule of specialization, which is the relevant rule for specialization. The classical rule of specialization makes an internal cost comparison (loosely speaking one can say that it is similar to a make-or-buy decision). It is therefore not dependent on any kind of external advantage.

With regards to the unrealistic assumptions associated with comparative advantage, I’m currently working on a paper that argues that the bulk of these assumptions were made by the so-called Ricardian trade model, which can be found in contemporary economic textbooks. This textbook trade model, however, has very little in common with Ricardo’s original demonstration of comparative advantage in the Principles. I have attached to this message a link to the first draft of the mentioned paper.

I agree with you that such a narrow view (maximization of production and consumption is the only thing that matters) would be a mistake. However, increasing production is crucial for reducing poverty and satisfying the growing needs of the population. And it is up to the will of the citizens in democratic societies to put the regulatory framework in place that has to be observed while pursuing the goal of increasing production.

Hello Olaf,

The value in an economy is currently assesed by how Busy it is, the throughput expressed in GDP indicates if an economy is healthy (growing) or in decline (contracting). Stating that an economy is a particular size, removes the dynamic element of growth and contraction. Furrthermore, what economist do not see or cannot see that economies grow and develop ususally in alternating phases. The mantra for politicians and economist is growth but we need to develop a less harmfull more live-enhancing/fertile productionsystems in industry and agriculture.

So I guess my point is in nautural ife things grow and die as well just as in economies it is what you allow to die or live on that dtermines the quality of (economic) life not the psize, thourghput or place/resources at your disposal.

Thanks for the interaction

Jaco

Unfortunately, I find that the profession does not value the History of Economic Thought nearly as much as it should. It was one of my areas (and I teach it at my university) but it is rarely sought after by schools. My own area of research is the history of ancient Chinese economic thought and its influences on China's modern development and I wa astounded to discover that few in China even understood the role of path dependence in East Asian economic development.

I find that the words of my graduate professor ring true: just about everything in economics can be found in Adam Smith's Wealth of Nations or Theory of Moral Sentiments. The level of ignorance by so many Ph.D.s in economics of what is actually written in Smith, Malthus, Ricardo, J.S. Mill, List, Marx, Marshall, Keynes, Schumpeter, and Hayek is breathtaking.

I recommend three terrific books that highlight some of the problems in our profession:

1) How Economics Forgot History: The Problem of Historical Specificity in Social Science by Geoffrey M Hodgson

2) How Economics Became a Mathematical Science by E. Roy Weintraub

3) More Heat Than Light: Economics as Social Physics, Physics as Nature's Economics by Philip Mirowski

The Kuznets part always was hihgly controversial. All textbooks on Development discuss this. The Solow part needs adding aspects of globalization. Kaldor has contributed many important aspects but no framework integrating them: endogenous growth, scale economies, externalities, accelerator investment functions.