RE: Galbraith and The American Prospect

["John M. Legge" <jlegge@xxxxxxxxxx>]

Gunnar,

The paragraph in Galbraith's article before the one that you quote is:

The prevailing theory is the idea that price and quantity are set in free competitive markets through the interaction of supply and demand. It is this idea, and no other, that lies at the core of the economist's way of thinking. And it is also the source of the profession's problem in getting almost anything important right.

Schumpeter, and James KG, reject the "free competitive market" postulate, as I do.  Supply and demand may continue, but they are (in general) determined by the strategic decisions of firms and not by any invisible hand or impersonal market force or Walrasian auctioneer.  If we accept that economics is "method rather than a doctrine, an apparatus of the mind, a technique of thinking" then the emphasis on competitive markets by the mainstream excludes, by definition, phenomena such as involuntary unemployment and market power.

Martin in Advanced Industrial Economics (1993) gives three pages to his reasoned rejection of the Chicago School and their "tight prior" condition that any explanation of any economic phenomenon that does not include the assumption of perfect competition is by definition false.  The mainstream is, however, only "Chicago lite".  This self-inflicted blindness leads to the repeated predictive and explanatory failures highlighted by Galbraith.

JML

-----Original Message-----
From: owner-pkt@xxxxxxxxxxxxxxxx [mailto:owner-pkt@xxxxxxxxxxxxxxxx]On Behalf Of Gunnar Tomasson
Sent: Friday, 25 February 2000 3:01 AM
To: POST-KEYNESIAN THOUGHT
Subject: Re: Galbraith and The American Prospect

Paul:

 

Re. James Galbraith's comments:

"The notion of supply and demand as the organizing principle for everything is a few decades more than a century old. (It was not so for Smith, Ricardo, Malthus, Marx, or Mill.) The key player in the Anglo-Saxon tradition is Alfred Marshall; in the continental tradition, no doubt, Leon Walras. In the twentieth century, great economists including Keynes, Joseph Schumpeter, and John Kenneth Galbraith have tried to break the grip of this notion on the professional imagination. But they have not succeeded."

As (a) long-time student of classical economic thought, and (b) new subscriber to the PKT list, I submit that "the notion of supply and demand as the organizing principle" is central not only to mainstream and monetarist economics but also to PKT economics as exemplified by recent exchanges on the PKT list.

In this respect, I take as my point of departure Schumpeter's remark to the effect that, by completing the Classical Research Agenda in the field of Value Theory in mid-nineteenth century, John Stuart Mill brought economic theory to a "half-way house".

As I see it, all subsequent attempts by theorists to advance beyond this "half-way house" are ultimately predicated on the notion that economic theory is properly regarded as a branch of mathematics rather than logic. 

In his memorial article on Schumpeter, Samuelson expressed surprise that the newly-departed (a) had so stated and, after some dallying therewith, (b) had turned thumbs down on econometrics as the wave of the future.

This is how John Maynard Keynes summarized the Say-Mill-Keynes-Schumpeter view of economics as branch of logic in 1922:

"The Theory of Economics does not furnish a body of settled conclusions immediately applicable to a policy.  It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions."

Gunnar

----- Original Message -----

From: paul davidson

To: POST-KEYNESIAN THOUGHT

Cc: galbraith@xxxxxxxxxxxxxxx

Sent: Thursday, February 24, 2000 2:22 PM

Subject: Galbraith and The American Prospect

For those of you who did not receive the following message on your email I repeat it:
There's a great article by James K. Galbraith, entitled "How the Economists
>>Got it Wrong," that appeared in the American Prospect a couple weeks ago.
>>Well worth checking out.  It can be found at
>>http://www.prospect.org/archives/V11-7/galbraith-j.html
>>
>
I encourage all to read this article. Jamie's characterization of Paul Krugman is especially appropriate.

Great article Jamie!!

Paul

Paul Davidson

Holly Chair of Excellence in Political Economy

Editor, JOURNAL OF POST KEYNESIAN ECONOMICS

Economics Department, 523 SMC

University of Tennessee

Knoxville, Tennessee 37996-0550

phone: (865)974-4221

fax: (865) 974-4601

email: pdavidson@xxxxxxx

web page: http://econ.bus.utk.edu/Davidson.html