[OPE-L:5740] Re: Blauf on neoclassicism

From: Steve Keen (s.keen@uws.edu.au)
Date: Sat Jun 02 2001 - 02:08:44 EDT

"Blaug just brushes reswitching aside calling on Lakatos to allow for the 
bypassing of small logical anamolies as long as the research programme is 

Here is Mark Blaug, circa 1998, on neoclassical economics:

      Modern economics is "sick." Economics has increasingly
      become an intellectual game played for its own sake and not for its
      practical consequences. Economists have gradually converted the
      subject into a sort of social mathematics in which analytical rigor as
      understood in math departments is everything and empirical relevance
      (as understood in physics departments) is nothing. If a topic cannot
      be tackled by formal modeling, it is simply consigned to the
      intellectual underworld.

      To pick up a copy of American Economic Review or Economic Journal, not
      to mention Econometrica or Review of Economic Studies, these days is
      to wonder whether one has landed on a strange planet in which tedium
      is the deliberate objective of professional publication. Economics was
      condemned a century ago as "the dismal science," but the dismal
      science of yesterday was a lot less dismal than the soporific
      scholasticism of today To paraphrase the title of a popular British
      musical: "No Reality, Please. We're Economists."

      It was not always so. If we can date the onset of the illness at all,
      it is the publication in 1954 of a famous paper by Nobel laureates
      Kenneth Arrow and Gerard Debreu. This paper marks the beginning of
      what has since become a cancerous growth in the very center of
      microeconomics.6 The Arrow-Debreu paper provided a rigorous proof of
      the existence of multimarket equilibrium in a decentralized economy, a
      notion that Leon Walras had entertained eighty years earlier but
      failed to establish convincingly. This proof was rigorous by
      mathematical standards, but it required some assumptions that clearly
      violated economic reality-for example, that there are forward markets
      for every commodity in all future periods and for all conceivable
      contingencies and yet no one holds money as a store of value for more
      than one period. Even so, Arrow and Debreu did not manage to prove
      that such a general equilibrium is stable in the sense that it is
      actually attained from whatever position we start. In short, the
      Arrow-Debreu proof had more to do with mathematical logic than with

      Unfortunately this paper soon became a model of what economists ought
      to aim for as modern scientists. In the process, few readers realized
      that Arrow and Debreu had in fact abandoned the vision that had
      originally motivated Walras. For Walras, general equilibrium theory
      was an abstract but nevertheless realistic description of the
      functioning of a capitalist economy He was therefore more concerned to
      show that markets will clear automatically via price adjustments in
      response to positive or negative excess demand-a property that he
      labeled "tatonnement"-than to prove that a unique set of prices and
      quantities is capable of clearing all markets simultaneously.7 By the
      time we got to Arrow and Debreu, however, general equilibrium theory
      had ceased to make any descriptive claim about actual economic systems
      and had become a purely formal apparatus about a quasi economy It had
      become a perfect example of what Ronald Coase has called "blackboard
      economics," a model that can be written down on blackboards using
      economic terms like "prices," "quantities," "factors of production,"
      and so on, but that nevertheless is clearly and even scandalously
      unrepresentative of any recognizable economic system.

      To make things worse, the Arrow-Debreu model was soon augmented by the
      so-called fundamental theorems of welfare economics, namely, that
      every perfectly competitive economy in a state of general equilibrium
      is Pareto-optimal and, moreover, that any Pareto-optimal allocation of
      resources can be attained by means of a perfectly competitive
      equilibrium plus an appropriate redistribution of initial endowments.
      This is said to nail down precisely what Adam Smith perceived only
      dimly two hundred years ago: The "invisible hand" of competition
      secures the best of all possible worlds, an optimal allocation of
      resources in which no one can be made better off without making
      someone else worse off.

      Alas, what a historical travesty is here! What Adam Smith meant is
      what the man in the street means when he applauds the competitive
      process. A competitive economy tends to produce the kind of goods
      people want at the lowest possible price because it encourages
      entrepreneurship and technical dynamism through a restless struggle
      for advantage, a struggle that is not confined to price competition
      but includes nonprice variables, such as new goods, better old goods,
      better-serviced goods, and more quickly delivered goods. In other
      words, for Adam Smith and for the man in the street, competition is a
      type of behavior by businessmen and not a market structure like
      "perfect competition," according to which business firms are purely
      passive "price takers" rather than active "price makers." This is what
      Richard Lipsey calls the "informal defense" of competition in contrast
      to the "formal defense" enshrined in proofs of the fundamental
      theorems of welfare economics grounded in the concept of perfect
      competition.8 It is exactly the same contrast that Schumpeter drew
      more than fifty years ago between "dynamic efficiency" that encourages
      the innovative process and "static efficiency" that excludes it.9

In other words, today Blaug sees the neoclassical agenda as degenerate.

The reference is Challenge!. 41(3): 11-34. 1998 May/Jun, and it's 
downloadable (at least, it was a year ago, when I located it).

At 12:07 PM 6/2/01 Saturday, you wrote:
>>Re Rakesh's [5735]:
>>Did anyone else notice the irony that shortly after
>>complaining that Steve et al were responsible for
>>the endless discussions by Marxists about the
>>'transformation problem' etc and were thereby
>>stopping our progression onto other topics such
>>as the world market, Rakesh himself has re-raised
>>the issue of the TP in his questions in [5735] to
>>The record on OPE-L, I would assert, has not
>>been that the discussions on the TP have been
>>raised by those on the list who have charged that
>>Marx is logically inconsistent. Rather, it is those
>>who have attempted to show that Marx is logically
>>consistent and that the 'problem' is a non-problem
>>who have been the ones who have initiated some
>>of our more lengthy exchanges on the TP. Another
>>irony:  one of our recent threads on the TP was
>>extended by Rakesh himself with his ardent
>>support of the Gouverneur solution. In general,
>>our debates have mostly focused on who had
>>the best solution to the TP rather than wether there is a solution to the
>>All we need do to break this cycle is agree to
>>move on to other topics. But, if we go on to again
>>discuss issues associated with the TP then let
>>us at least not scapegoat our members who believe
>>that there is no legitimate solution to the TP.
>>In solidarity, Jerry
>Fair enough. You got me, Jerry.
>What needs to be recognized though is that value theoretic marxism should 
>no more be prevented from developing due to a putative transformation 
>problem just like neoclassical theory has not been stopped in its tracks 
>by the (logical? real?) possibility of reswitching or neo ricardianism has 
>not been shut up despite having no real theory of money.
>  But it is marxism alone that has run into real obstacles because of its 
> putative logical errors (Blaug just brushes reswitching aside calling on 
> Lakatos to allow for the bypassing of small logical anamolies as long as 
> the research programme is nondegenerate, but it seems not to have occured 
> to Blaug that the complete transformation problem is an even more trivial 
> logical anomaly). And Marxism alone runs into these problems despite the 
> fact the critiques such as Garegnini's are themselves logically flawed 
> (granting the adding up critique and then stipulating the invariance of 
> the mass of surplus value) or at odds with each other (Bortkiewicz, 
> Sweezy and Meek all give different, conflicting answers as to why they 
> hold mass of surplus value, dept iii invariant and feel no reason to 
> resolve their differences).
>I am not interested in the TP; I am interested in showing how much the 
>standards are changed when it comes to judging Marx. I am not trying to 
>show that there is no transformation problem; I am trying to underline the 
>operation of power within the academy, including its radical groups. It is 
>the very triviality of the transformation problem that reveals the nature 
>of the power by which Marxism has been marginalized.
>  With Marx, he is thrown out of the game on logical violations before he 
> is even allowed to bat. That is singular treatment. Which raises the 
> question of why. Why pick on Marx's Capital of all theories? Why try to 
> reduce it back to simply a critique of theories of income distribution? 
> What else was marx trying to do? Why is this potential revolution in 
> thought put back into the box and assimilated into something more 
> familiar, viz. the classical economists' interest in the class based 
> distribution of the social product. Why insist that Marx was doing 
> essentially the same thing as Ricardo! He obviously was not.
>  Now yes you are right I am myself contributing to marginalization of 
> Marx by talking about these logical issues. . So you are right to point 
> this out. I have contradicted myself.
>However, my debate with Fred is not over the transformation problem per se 
>(he has convinced me that the inputs are not in the form of values or even 
>simple or direct prices) but concerns his violation of the principle that 
>value cannot be directly measured and observed. I said that in equating 
>price flow of a machine with value transferred, the mistake here is in 
>confusing levels of abstraction. This is not the traditional 
>transformation problem; as fred has put it, I have been raising the 
>problem of an inverse transformation problem. And the point of this debate 
>has been to get clear how the concept of value operates in Marx's theory; 
>if I am right that it is not directly observable and measurable in the 
>flow price of a machine--and if so, why is this so--can Marxism fend off 
>positivist strictures?
>So I am not talking about the transformation problem:  I reject the 
>traditional idea that the knowns can be the value ones (value transferred, 
>rate of surplus value, total value) while the unknowns are the price 
>ones--relative prices, prices of production, rate of profit. But again my 
>point here is not the transformation problem but the nature of the 
>necessary expression of value by way of another commodity, which is a 
>system of misrepresentation which negativizes equal exchange, though Marx 
>is often understood to have argued that the law of value regulates 
>exchange ratios.   That is, I am trying to get to the money form. I wrote 
>a long post on how Marx came to understand money as the god in the 
>practical religion of everyday life, and then learned from the comments by 
>Chris A and Howard on the peculiarities of the equivalent form which in my 
>opinion holds the entire secret to Marx's theory of fetishism.
>Yours, Rakesh

Home Page: http://www.debunking-economics.com
Dr. Steve Keen
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Economics & Finance
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