Coming Soon:

The following books by Robert Paul Wolff are available on Amazon.com as e-books: KANT'S THEORY OF MENTAL ACTIVITY, THE AUTONOMY OF REASON, UNDERSTANDING MARX, UNDERSTANDING RAWLS, THE POVERTY OF LIBERALISM, A LIFE IN THE ACADEMY, MONEYBAGS MUST BE SO LUCKY, AN INTRODUCTION TO THE USE OF FORMAL METHODS IN POLITICAL PHILOSOPHY.
Now Available: Volumes I, II, III, and IV of the Collected Published and Unpublished Papers.

NOW AVAILABLE ON YOUTUBE: LECTURES ON KANT'S CRITIQUE OF PURE REASON. To view the lectures, go to YouTube and search for "Robert Paul Wolff Kant." There they will be.

To contact me about organizing, email me at rpwolff750@gmail.com




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Friday, November 2, 2012

WELL IT'S ABOUT TIME


On October 21st, I put up a post on this blog, entitled "Dyspepsia," that managed to be self-pitying and self-congratulatory all at the same time -- not a bad trick.  On October 27th, "Magpie" responded by going to box.net, reading one of the lengthy essays I had posted there [and to which I referred so praisingly in my Dyspepsia post], and leaving a comment that concluded with a question.  Now, six days later, I am finally getting around to responding.  Not exactly instant communication, but I have been busy obsessing over the election.

The essay in question is entitled "Critique of Keynes," and Magpie's question was, roughly, Why do I classify the economic theories of the classical political economists [Smith, Ricardo, Marx] as Microeconomics?  An important question, which I shall do my best to answer.

Microeconomics is the attempt, starting with a set of assumptions and facts about individual consumers and producers or firms, to deduce or compute certain facts about the economy as a whole, such as the relative prices at which commodities exchange, the economy-wide rate of profit, the rate of economic growth of the entire economy, the physical size and corresponding value or price of the social surplus, and the share of the social surplus received by each of the three great economic classes in the society -- workers, entrepreneurs, and land owners.

Both classical Political Economy and the marginalist theories introduced in the 1870's by Walras, Jevons, and Menger are, in this sense of the term, microeconomic theories.  They differ in certain important respects with regard to the assumptions with which they begin [and consequently with respect to the sort of mathematics they use], but they both qualify as "microeconomic" precisely in the sense that the reason from facts and assumptions about individual consumers and producers [i.e., small facts or micro facts] to conclusions about the economy as a whole.

The principal difference between the assumptions of the classicals and the assumptions of those who came to be called neo-classicals is that the classicals adopt the simplifying premise that at any time there is only one technique of production for each commodity, whereas the neo-classicals assume the availability of an infinity of alternative techniques, differing from one another in such a fashion that they can be conceived as varying continuously [hence as amenable to the ministrations of the Calculus.]

Is that any help?

4 comments:

Magpie said...

Thanks for the answer, Prof.

I have to agree with most of the facts you cite, but I am not so sure about the conclusions.

I (and I am only an amateur, so I plead for everybody's leniency) agree with Prof. in that classical economists had to make some "microeconomic" assumptions: for instance, capitalists attempt to maximize profits. So, up to this point, I am in complete agreement.

As Prof. said, the assumptions neoclassical economists make "differ in certain important aspects".

I also agree with this, but I believe this is a bit of an understatement.

Is not just that these assumptions differ, but that the neoclassical economists make an awful lot more assumptions and often, on top, add ad hoc assumptions to prove results in more specialized areas. And often enough these more specialized areas overlap with areas outside their original scope.

An example is consumers' behaviour. To have weak preferences, following Varian's "Microeconomic Analysis", we need only completeness, transitivity and reflexivity (all of them sound quite natural, although not even these 3 are always empirically confirmed).

With weak preference, we are told, we can get the bulk of consumer behaviour. Great then! 3 assumptions, simple enough.

But once one relaxes, the book goes on: "We often wish to make other assumptions on consumers' preferences" and lists 6 additional assumptions.

This means that in order to have these particular results holding true, 3 + up to 6 assumptions must hold true for the economy as a whole! And we were already having problems with the first 3!

This, I'd say, makes these results a lot less robust.

In comparison, the classics only assume that consumers spend their incomes.

To make things worse, the above refers only to ordinal utility. To introduce cardinal utility functions, one needs at least 3 additional assumptions relating to lotteries.

But cardinal utility functions are supposed to describe the behaviour of entities that sometimes can hardly be considered consumers: banks, investors, insurance companies.

And that assuming all along that "consumers" can calculate the probabilities associated to each outcome!

And, as the book is an intro, no dynamic models are used, where the same calculations apply over many periods of time.

In this sense, I'd say that, in comparison to neoclassical economists, classical economists' models are almost "assumption free". Therefore, a priori they should be much more robust.

Robert Paul Wolff said...

I agree with virtually everything you say, but I think I may have misunderstood your question. I thought you were asking me why Classical Political Economy is classified as Microeconomics rather than Macroeconomics, and that is what I was explaining. If you want to see a discussion of the complexities of such apparently simple and obvious asssumptions as completeness, transitivity, and reflexivity, see my book-length blog tutorial, The Use and Abuse of Formal Models in Political Philosophy, on box.net, where that and much more is discussed.

Magpie said...

Maybe, then, the misunderstanding was mutual! :-)

Somehow I got the wrong feeling, from reading Critique, that the idea was that classic economists emphasized microbehaviour as much as neoclassicals.

Apologies.

city said...

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