Re: the firm (was: Debunking economics)

["Steve Keen" <stevekeen10@xxxxxxxxxxx>]

Dear Alan,

This is one point which I discussed in an off-list post to John; and it's
also noted in the intro to the book, that what "is" neoclassical economics,
in terms of its "cutting edge", keeps on changing. However, I believe from
experience with neoclassical economists that the cutting edge continues to
accept as valid concepts which, when challenged, are easily dismissed by
saying that they are no longer current.

The target is the undergraduate/intermediate micro model. The perfectly
competitive model is still taught to undergraduates (at least in Australian
universities), and is the core of standard American undergraduate texts
(which these courses use). So I think on that basis alone it is a valid
target for attack. If it can be shown to be internally inconsistent--so that
if, starting where P=MC, a firm which reduces output, as John's proof shows,
increases its profit--then it should not be taught in those courses, or
appear in those books.

However, the argument applies in general to any theory which argues that
P=MC is an ideal, since it remains true that any production past the point
where MR=MC must be produced at a loss. Now I must confess that I am not
familiar with the standard transactions costs and informational asymmetries
literature (apart from the side effect of reviewing the odd paper on
informational asymmetry approaches to financial instability!), because I
would rather spend my time on approaches to economics which I regard as more
productive.

But I suspect that those models too put forward P=MC as an ideal--which is,
however, unattainable because of those transactions costs and informational
asymmetries. If this is correct, then even these models are subject to this
critique. Can you enlighten us on this?

Cheers,
Steve
> Steve Keen wrote:
>
> > they make a mockery of the
> > neoclassical model of the firm
>
> Steve,
>
> Just what constitutes ``the neoclassical model'' of
> the firm?  Surely we don't want to pick as a target
> of modern attack something that is taught only in
> History of Thought courses (to the extent one can
> find those any more). So what is the target and why?
> Is it the cost-curve analysis of Intermediate
> Micro and its profit maximizing appendage?
> Or the kind of thing that one finds in modern
> graduate texts, which focuses on transactions
> costs and informational asymmetries?
> I think it pays to be much more specific,
> especially when mounting what purports to be
> a challenge to mainstream views.
>
> Alan

________________________________________________________________________
Get Your Private, Free E-mail from MSN Hotmail at http://www.hotmail.com