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John:
I agree with (a) my one-time teacher John Kenneth Galbraith's
critique of the "free competitive market" postulate, and (b) your point
that, when viewed as logic, Theoretical Economics (Bentham's Science of
Economics) would "exclude, by definition, phenomena such as involuntary
unemployment and market power"; the latter would be subsumed under
Applied Economics (Bentham's Art of Economics).
As for "the Chicago School's "tight prior" condition that any
explanation of any economic phenomenon that does not include the assumption of
perfect competition is by definition false," I never got beyond first base
with Milton Friedman with respect to a point which I had first raised with Paul
A. Samuelson in spring of 1978, and which goes to the heart of this Chicago
School dictum.
Briefly, Samuelson's Nobel Prize-winning 'Correspondence
Principle' between comparative statics and dynamics is implicitly predicated on
the nonsense presupposition that text-book Supply and Demand
considerations that apply to real goods and services also apply
to money, whose supply is effected by a stroke of a computer
key rather than by use of factor services.
In principle, therefore, (a) Money Supply is
indeterminate, and, by implication, (b) so are Samuelson's
'Foundations of Economic Analysis', including his 'Correspondence
Principle'.
Gunnar
----- Original Message -----
Sent: Friday, February 25, 2000 1:33
AM
Subject: RE: Galbraith and The American
Prospect
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
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 -----
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
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