Re: appearances and GE (part II)

[Jim Devine <JNDF%LMUACAD.BITNET@xxxxxxxxxxxxxxxxxx>]

part II of III: general equilibrium theory.

After suggesting that Walrasianism and Marx's law of values are
*alternative abstractions* for understanding the empirical world,
the last note ended with the questions: which abstraction is better?
what are the *purposes* of one's analysis? what is one's prior vision
of the object of study (here, capitalism)? Here we turn to these
questions. Starting with a discussion of Gil's comments on Sraffa,
we move to a critique of Walrasian GE theory.

Below, GS is from Gil Skillman's Tue, 22 Mar 1994 missive. JD
denotes my reply.

GS: In passing, I suggested an equivalence between Sraffian-style
prices of production and a type of GE price structure. To this Jim
responds:

  prices of production are not GE prices, since (among other things),
  labor-power markets are not in equilibrium.

I gave my reason for considering prices of production a version
of GE prices in my discussion on the net with Ajit S.... -- that
being, the conditions imposed in the Sraffian system must be
considered utterly arbitrary, and thus not worth considering,
*unless* one interprets them as (minimalist) general equilibrium
conditions. Jim does not respond to this, so I maintain the point.

JD: I guess you missed my comments on this (I got the feeling they
weren't posted to pen-l due to some glitch). (Apologies ahead of
time to those who've read this stuff before.)

(i) I don't want to defend the Sraffa system, especially since as I
noted, there exist endogenous forces leading to the non-equalization
of rates of profit between sectors (as Farjoun and Machover point
out in LAWS OF CHAOS; see also Freeman and Mandel, eds., RICARDO,
MARX, SRAFFA, especially the essays by Farjoun and Freeman; both are
Verso Press). IMHO, since this counteracts the profit-equalization
tendencies, the Sraffa system ends up being too utopian. In this, it
shares a lot with the Walrasian GE system.

(ii) As I pointed out in a missive on March 2, 1994:

This [Gil's claim that Sraffa's system is simply a crippled version
of GE that leaves stuff out] seems to reveal a central point of the
Walrasian conceit. The Walrasians want to explain everything in
terms of supply and demand, and more fundamentally in terms of
tastes and technology (and they are willing to make all sorts of
silly assumptions, e.g., the existence of an Auctioneer to do this
reduction). They don't want to deal with non-market instititutions.
(BTW, the orthodox Walrasian would bridle at this last phrase, since
the "market" is not seen as an institution made by people, but as a
natural phenomenon.) So the Sraffian pointing to institutional
determination of wages is seen as "leaving something out" rather
than an admission that simple supply and demand can't explain
everything. To my mind, the Sraffian admission is a step forward
rather than a sign of weakness ("something left out").

The Walrasian school can't accept the idea that certain institutions
such as the class relationship between capitalists and workers cannot
be explained by simply supply and demand. Like Roemer, they want to
reduce such ideas to simply "the exogenously-given pre-existing
vectors of endowments held by agents," which then fits so nicely
into the Walrasian strait-jacket. They can't deal with the idea of
capitalism being a dynamic system, an institution that has taken on
a life of its own (relative to tastes, technology, and endowments)
which then turns around and shapes the nature of the tastes,
technology, and the distribution of "endowments" among different
people that develop over time. (Of course, time is another problem
for Walrasians: they can't deal with historical (i.e., real-world)
time, but only logical time. ["Dynamic general equilibrium" is an
oxymoron, unless one uses a Walrasian definition of "dynamic," which
ends up being a circular argument.]) The Walrasians can't deal with
the idea that the "labor market" might be a non-market institution
(of the sort, say, modelled by Carlin and Soskice in MACROECONOMICS
AND THE WAGE BARGAIN).

Also on March 2, in a different missive, I responded to a comment by
Gil in a way that follows this thought:

>[GS writes:] To Marx, labor power is a commodity, just like the
>production inputs in Sraffa's system are commodities.  So how can one
>justify the dichotomy that the price of labor power is mysteriously
>the product of "social forces", utterly independent of labor markets,
>while for the other commodities, "the role of the MARKET is ...to
>assign prices ...."?  Why isn't the price of coal, of bread, of
>spinning jennies, of cotton gins, ad infinitum, determined by "social
>and historical forces", outside the Sraffian model?  On what grounds
>can the Sraffian system pretend that the latter commodity prices are
>market-determined entities while the price of that special commodity,
>labor power, is not? ...

[JD wrote:] In his long-winded and hard-to-read way, old Karlos
[Marx] argued that capitalis[m] *treated* labor-power as a commodity
but that in reality it was not so. Or if you wish to avoid quibbles
about terminology, labor-power is a commodity unlike all others.
Because labor-power is a property of human beings, which are quite
different from coal, bread, spinning jennies, etc.... Capitalism
tries to treat people like coal, etc., but people rebel against such
treatment. This leads to all sorts of conflict which implies the
development of all sorts of institutions and social norms which
cannot be explained in market terms. Some of this is picked up in
the principal/agent problem literature...

I would *now* add that the institutional determination of wages does
not mean that wages are "*utterly* independent of labor markets" [my
emphasis]. Market forces can easily play a role in helping to
determine wages in a historical process of class struggle (Marx
pointed to the reserve army of labor's role). The Walrasians want
to forget non-market institutions, history, and struggle.

(iii) Gil seems to equate the tendency toward the equalization of
the rate of profit between sectors with GE. As I said in my missive
of March 2:

If I remember correctly, such authors as Smith, Ricardo, and Marx
talked about the tendency toward equalization of profit rates
between industries far before the much-lamented invention of GE
theory. Instead of invoking GE, they pointed to the well-known
profit-seeking behavior of capitalists. (Intelligent folks, these
guys didn't assume that this equalization was actually realized in
the real world the way some Walrasians do. Neither did Sraffa, in my
reading.) What the Walrasians did was to take the long-extant
simplifying assumptions of the classicals and generalize them [even
to labor-power markets, where it seems totally inappropriate]. So it
would be more accurate to say that Walras and his followers invoke
Smith et al. -- while losing the image of the economy as a process
taking place in historical time that Smith et al had. [Much is lost
in the translation of Smith's brilliant ideas into the Walrasian
system.]

I would add now that it's sometimes unclear exactly what Walrasian
GE means to Gil. is it the "soft version," the emphasis on the
tendency toward inter-sectoral equalization of profit rates, wages,
and the like, plus equations such as Walras' Law (the sum of excess
demands across sectors = 0)? or is it the "hard version," models in
which inter-sector equalization is actually attained and where each
sector's excess demand = 0?

(iv) Authors such as Hilferding, in his reply to Bohm-Bawerk long
ago, have pointed to the completely different world-views between
mainstream economics (Bohm-Bawerk, the neoclassicals, and after
Hilferding, Walras) and Marxian political economy. The Walrasians'
vision is that of individualized and atomized society, what Marx
termed individual appropriation. Walrasian GE seems to take to
heart Margaret Thatcher's dictum that "there is no society, only
individuals," not a exact quote.

The Marxian vision, on the other hand, as exemplified by Marx's law
of value, is that of socialized production, the vision of the social
factory sketched in vol. I of CAPITAL. (See part III of this missive
for more on this theory.)

Now it's within the realm of possibility to start from either
theoretical "point of entry" or "research program" (Marxian or
Walrasian) and end up with the same perception and understanding of
capitalism. But in my experience, Walrasianism threatens to do to
leftist economics what Robert Lucas did to mainstream
macroeconomics. Though some of his criticisms pushed mainstream
macro to clarify its arguments, he created one of the silliest
schools of thought I've seen (New Classical macro), one that makes
Monetarism look good. Luckily, mainstream macro has veered away from
Lucas' Walrasian models (into "New Keynesianism"). We need to veer
away, too, while learning from the Walrasian critique.

For example, Roemer introduced an emphasis into Walrasian theory
that is consistent with Marx, i.e., the emphasis on the differences
among individuals in the distribution of wealth. Gary Dymski and my
article on Roemer in ECONOMICS AND PHILOSOPHY suggested all sorts of
additional concepts and ideas that could be introduced into Roemer's
Walrasian theory of capitalist exploitation that (1) make that
theory actually work as a theory of capitalist exploitation and (2)
by coincidence pulled Roemer in the direction of Marx's analysis,
which is more robust. These concepts are generally common sense and
non-Walrasian in nature. Roemer had captured only one aspect of
Marx's analysis (inequality in the distribution of wealth in a
commodity-producing system); needed were other aspects of the old
man's theory.  Unfortunately, the concepts that helped Roemer's
theory work better as a theory of capitalist exploitation violated
his methodological presuppositions.

NB: this says that Roemer's analysis wasn't *wrong* as much as
*incomplete*.  The gaps could be filled by learning someone with a
completely different methodology and economic theory than Roemer.

in pen-l solidarity,

Jim Devine   BITNET: jndf@lmuacad    INTERNET: jdevine@xxxxxxxxxxxxxxx
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (off); 310/202-6546 (hm); FAX: 310/338-1950
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