[PEN-L:31514] RE: To Christian/ Keen on road to debt deflation/ Irrationality and all that

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L:31498] To Christian/ Keen on road to debt deflation/ Irrationality and all that

Christian writes:
> > But this does leave those interested in economic
> > modelling--which is indespensible, in one way or
> > another--with a kind of quandry. How do you
> > account for both uncertainty and for the collective
> > effects of uncertainty on behavior in a model? Does
> > it leave you with no predictive/ modelling power?

Sabri had an answer, I have another, which isn't completely different.

Marx presented simple mathematical models, using numerical examples. One classic case is the "reproduction schemes" which appear toward the end of volume II of CAPITAL. It's been stated as a mathematical model many times. But the basic idea -- ignored by many if not most of the modelers --  is that it shouldn't be seen as describing the way the world actually works. Instead, it represents an equilibrium condition that's hardly ever met, i.e., what might be called a "harmony condition" that describes _what's needed_ for capitalism to attain smooth and steady accumulation (and economic growth). We can add in other conditions, such as a description of the supply of labor-power and the economic processes behind the determination of the profit rate.

How do uncertainty and other real-world complications fit in? They help determine the behavior of the actually-existing capitalist economy when it operates when the "harmony condition" isn't met, as it usually isn't.

The longer that the system operates away from meeting the harmony conditions, the worse the imbalances are that can weigh down the system. Then, on occasion, we see "forceful equilibration," i.e., crisis, when the system is forced to meet the harmony conditions. This allows the eventual re-establishment of conditions allowing "normal" accumulation, which then allow new deviations from harmony and new crises...

This is very sketchy. But (1) the real world is a non-equilibrium process; but (2) there has to be some balance in the economy for it to grow in the long term (as seen in the harmony conditions).

Among economists, this fits well with Hyman Minsky's post-Keynesian analysis of "financial fragility." That analysis -- seen in Steve Keen's work posted to pen-l -- has done pretty well.

JD