ROLLING MY TUB

 

My favorite short passage in the entire corpus of philosophical writings is the two and a half page preface to Kierkegaard’s Philosophical Fragments. At one point Kierkegaard writes, “when Philip threatened to lay siege to the city of Corinth, and all its inhabitants hastily bestirred themselves in defense, some polishing weapons, some gathering stones, some repairing the walls, Diogenes seeing all this hurriedly folded his mantle about him and began to roll his tub zealously back and forth through the streets. When he was asked why he did this he replied that he wished to be busy like all the rest, and rolled his tub lest he should be the only idler among so many industrious citizens.”

 

I am so disturbed by the blowing up of a hospital in Gaza and so utterly unable to do anything at all about that or all the other terrible things happening, that I decided to fold my mantle about me and write something more about the modern re-examination of classical economic theories.  I am under no illusion that the world needs these words at this terrible time, but perhaps at the very least you will not consider me an idler.

 

Early in his writing, Ricardo explored the idea of a corn sector in which corn is the only input in addition to labor – no tools, no implements of any sort from others sectors. He observed that if this were the case, the analysis of labor values and prices would be elementary and no theoretical problems would arise. The profit rate would be identical the rate of growth in the amount of corn produced in each cycle, and so forth.

 

Now consider an economy with only one sector producing not corn but traditional men’s suits – each suit of clothes consisting of a jacket, a vest, and two pairs of pants. Since economic theory bears no relation to reality, we may suppose that the workers in this sector consume suits of clothes, use suits of clothes as tools, work on suits of clothes as input, and produce suits of clothes as output. Clearly, Ricardo’s analysis of a corn sector producing only corn as output will apply equally to the fanciful case of an economy with a single sector producing men’s suits.

 

Now suppose that in the suits economy, there are three sectors, not one: a jacket sector that uses jackets, pants, and vests as input and produces jackets; a vest sector that uses jackets, pants, and vests as input and produces vests; and a pants sector that uses jackets, vests, and pants as input and produces pants as output. So long as the pants sector produces twice as many pairs of pants as the jackets and vests sectors produce jackets and vests, the economy should function in exactly the same fashion as the economy with a single suits sector, assuming that by the higgling and jiggling of the marketplace the appropriate balance of sector sizes comes into existence and can be maintained.

 

Now imagine a real economy producing hundreds of different kinds of goods, in which all of the output is reinvested to expand the level of production cycle by cycle. If there were some way in which the size of the various sectors could be balanced so that there was no excess output from any sector, then presumably we could define an imaginary complex commodity – what Piero Sraffa called the Standard Commodity – whose components were all of the inputs into the various sectors in precisely the proportions required for the economy to grow at a steady rate without wastage or shortages or any other inefficiencies.

 

The great Hungarian-American economist and mathematician John Von Neumann, in an elegant theorem in neoclassical growth theory, demonstrated that in an economy with no luxury sector growing at the maximum rate possible, there would always be a balanced growth path with the various sectors in just the required proportions, and that the economy would find its way to this balanced growth path through the natural seeking of maximum profits by entrepreneurs in the various sectors.

 

This theorem has no more applicability to the real world than any of neoclassical economics’ other elegant theorems, but it is a really lovely elaboration and confirmation of Ricardo’s early intuitions.