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Just one further caveat; I don't regard the neoclassical response to the
Sraffian critique as legitimate, of course!
At 09:16 AM 9/27/00 -0400, you wrote:
>In reply to Steve Keen's OPE-L 3886:
>Steve: "I'm willing to retract the first part of what I said, since
>Andrew says he concurs with my reading of Sraffa on this point."
>Me: "These problems [reswitching, capital reversing] arise from
>simultaneous valuation. Get rid of the dogma that input prices equal
>output prices, and you get rid of the problems. In light of the capital
>controversy, the neoclassicists realized this, got rid of the dogma, and
>nullified the reswitching critique."
>Steve: "I find this difficult to interpret on a number of grounds. It
>appears to argue that neoclassical economics is now a disequilibrium
>theory. Unless you want to see game theory in this perspective, I find
>that proposition difficult to swallow. Instead, the Arrow/Debreu GE
>approach is completely devoid of time processes, working in the realm of
>the formal existence of equilibrium, rather than any alleged time
>processes which might get it there. But that is a side issue."
>Me: Prior to the capital controversy, it was indeed "completely devoid
>of time processes." That is no longer the case, strictly speaking --
>though neoclassicists now smuggle in stuff like perfect foresight and
>complete forward markets in order to make the present state of affairs
>redundant to the determination of future states, in effect to abolish
>time. Malinvaud's version of GE theory, for instance, explicitly
>recognizes the difference between input and output prices, and computes
>rates of profit (or interest) on the basis of input prices that differ
>from output prices (i.e., rates of return are computed on the actual
>capital advanced rather than the replacement cost of capital goods). A
>very nice paper by Frank Hahn called "The Neo-Ricardians" (if I remember,
>it was published in the CJE in the late 1970s, maybe 1977) likewise
>overcomes the "Sraffian" critique of some neoclassical propositions by
>allowing input prices to differ from output prices, thereby showing that
>the "neo-Ricardian" static equilibrium results can be viewed as mere
>special cases of a more general (and powerful) neoclassical theory.
>Steve: "More importantly for our debate, this appears to accuse Sraffa of
>what Andrew says he doesn't accuse him of: being "simultaneist". How else
>can I read "These problems arise from simultaneous valuation. Get rid of
>the dogma that input prices equal output prices, and you get rid of the
>problems". Are you not accusing Sraffa of a "dogma"?"
>Me: No, I'm not accusing him. Sraffa undertook (successfully) an
>*internal* critique of neoclassical theory as it existed at the time. We
>agree about this, no? The simultaneous pricing equations were those of
>the neoclassicists. In recognition of the validity of Sraffa's (and
>others') critiques, the neoclassicists revised their theory so that, as
>it now exists (at least at the level of "high theory"), it is immune to
>Steve: "Why is this "long period" methodology "ridiculous" if you say
>you read Sraffa as I do, to be considering "an economy which had been in
>equilibrium for the indefinite past", and then showing that the
>(neoclassical) presumed equilibrium of this dynamic system cannot, in
>fact, be an equilibrium?
>"If you read it as the charge that everything happens simultaneously, or
>that dynamic processes can be ignored, then I agree it's ridiculous. But
>firstly you say that you're not reading it that way (in the first half of
>your reply), then you appear to do just that in your second half."
>Me: I apologize. I should have been more careful. The "long period"
>methodology can be employed in a "critical" manner or a "positive"
>manner. I think its critical employment is perfectly legitimate. Sraffa
>employed the long period method (more precisely: the static equilibrium
>method) critically, in an internal critique of neoclassical theory that
>had heretofore employed it in a positive manner. He showed that what the
>neoclassicists of his time had taken to be the necessary results of their
>theory were not in fact necessary results. Cool.
>It is only the employment of static equilibrium or "long period"
>methodology as an aspect of *positive* theory construction that I
>consider ridiculous -- more precisely, logically invalid. It attempts to
>deduce properties of the general case from the relations that happen to
>hold (tautologically) in the special case of static equilibrium. It is
>just not a logically valid move to pass from the special case to the
>general case in that way.
>Compare two static equilibria. First, any airplane A is in some airport
>X, on the ground. Sometime later, it is in some airport Y, also on the
>ground. "Ergo," airplanes cannot fly.
>The "Marxist" variant of this is: airplanes need to reproduce
>themselves. They do so by refueling. They refuel on the ground. Hence
>airplanes that reproduce themselves do so only on the ground. But we
>know that airplanes do reproduce themselves. "Ergo," airplanes cannot
>Notice that the method is logically invalid even when the equilibria are
>stable, as they are in the airplane case. Non-convergence to equilibria
>only compounds the basic problem.
>I have other complaints against static equilibrium methodology as well,
>but its logical invalidity is the chief one.
Dr. Steve Keen
Economics & Finance
University of Western Sydney Macarthur
Building 11 Room 30,
Goldsmith Avenue, Campbelltown
PO Box 555 Campbelltown NSW 2560
email@example.com 61 2 4620-3016 Fax 61 2 4626-6683
Home 02 9558-8018 Mobile 0409 716 088
Home Page: http://bus.macarthur.uws.edu.au/steve-keen/
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