Debunking Economics

[Robert Vienneau <rvien@xxxxxxxxxxxxxx>]

I have read through "Madness in Their Method" and skimmed some of the
remaining chapters. I am looking forward to being able to direct people to
Steve's book. I couldn't get through the chapter on original work on "Size
Matters" because the graphs took up too much of my memory. I have some
questions, though.

I don't know that I've ever fully worked through the SMD theory. But I
wondered if an assumption of homothetic and identical utility functions was
SUFFICIENT, but not NECESSARY, for well-behaved aggregate demand functions.
Might it not be the case that some other configuration of utility functions
might, by weird happenstance, yield well-behaved downward sloping aggregate
demand functions? Then saying that theory shows demand curves cannot be
well-behaved would be too strong. It would only be that theory gives no
reason to expect downward-sloping demand curves and suggests that they
would rarely appear, at least on utility-maximizing grounds.

I think a lot of economists believe that marginal productivity says
something about market outcomes being just or rewarding people for what
they contribute. I find that belief silly. Did you find a written text
saying that? I think a much more reasonable justification of capitalism
would be based on Hayek and a discussion of the rules of the game. This is
sort of Blaug's line in his pamphlet on the CCC. Might you want to mention
something like this? Of course, such a defense of capitalism does not say
anything about distribution being just, does not support a hard-right
neoliberal attack on a mixed economy and policies to mitigate an unequal
distribution, and permits experimentation with laws defining property
rights differently.

I do not see that Bhaduri's argument that the marginal product of capital
is generally unequal to the interest rate (because of price Wicksell
effects) has an analogy for the marginal product of labor and wages. I
think Hahn's Cambridge Journal of Economics paper on the Neo-Ricardians
makes the claim for an analogous argument questionable. On the other hand,
I hadn't thought about the connection of this argument to Sraffa's 1920s
papers before. Given the stuff on markup pricing and the theory of the
firm, I don't think you have need of some analogous argument here, anyways.

One aspect of reswitching I like is as follows. If a technique is optimal
at two or more values of, say, the interest rate, then some wildly
different distributions will be compatible with the same quantity flows, at
least when looking at physical marginal products. Very different VALUE
marginal products can be compatible with the same  relevant (left and right
hand) derivatives in physical terms. So much for the vulgar belief in
marginal productivity as rewarding factors according to their contribution.
That's probably not very clear, but do you make some point like that?

I found the transition from the CCC to methodology too abrupt. I know this
is not your fault. I have never been able to understand how one can respond
to the logical difficulties highlighted by the CCC by citing the F-twist.

Might you want to include something about Steedman and Metcalfe's critique
of comparative advantage and the HOS theory of international trade?

Should there be something about general equilibrium theory here? I
understand the claim that Sraffa showed distribution is prior to pricing.
But, given Hahn, I thought that too strong. I think Sraffa showed that
could be the case, and reconstructions of Classical wage theory and the
Kaldor-Kahn-Robinson-Pasinetti PK distribution theory show how distribution
theory and pricing theory can be combined.

Maybe this raises a question of approach. If some ideas were debatable, do
you want to take a position that a competent mainstream economist could not
argue with? Or do you want to adopt a harder position consistent with, say,
Neo-Ricardianism that might go a little beyond what the theory shows. After
all, why should neoclassical theory be the default?

I assume you're aware that some editing has to be done to make figure
numbering and footnotes totally consistent with the text. Occasionally you
use the phrase "saw off" in a way that I assume is Australian slang. I
don't think that that works in American English.

I hope you find these comments helpful.