PKT message, Re: Say's Law, Walras, Schumpeter, and Keynes

Bill:

In the context of analytical economics, your statement that "Say does not in the least require an instantaneous equality between supply and demand" = a statement in the context of analytic geometry to the effect that the Pythagorean Theorem does not in the least require an instantaneous equality between A square and B square on one side of the equation, and C square on the other side of the equation.

In other words, it is meaningless.

As for the relationship between analytical and applied economics as viewed by classical economists of first rank, I suggest you track down and read John Stuart Mill's essay written in mid-19th century on "Some Outstanding Methodological Problems in Political Economy" (or some such title).

Mill's essay does not make for easy reading - for the epistemological issues involved are far from self-evident.

In my view, the fact that these issues have effectively vanished from the research and teaching agenda of mainstream and monetarist scholars, whose epistemology mirrors that of the Heisenberg-Bohr approach to theoretical physics, does not diminish their importance - indeed, I am persuaded that a first step towards the rehabilitation of theoretical economics is acceptance among economic scholars of the epistemological view-point advanced by Einstein in the following dialogue with Heisenberg in the 1920s, as reported by the latter:

"But you don't seriously believe," Einstein protested, "that none but observable magnitudes must go into a physical theory?" [Friedman's 'positive economics' - mainstream 'econometrics' - insert GT]

"Isn't that precisely what you have done with relativity?" I asked in some surprise. "After all, you did stress the fact that it is impermissible to speak of absolute time, simply because absolute time cannot be observed; that only clock readings, be it in the moving reference frame or the system at rest, are relevant to the determination of time."

"Possibly I did use this kind of reasoning," Einstein admitted, "but it is nonsense all the same. Perhaps I could put it more diplomatically by saying that it may be heuristically useful to keep in mind what one has actually observed. But on principle, it is quite wrong to try founding a theory on observable magnitudes alone. In reality the very opposite happens. It is the theory which decides what we can observe." ('Physics and Beyond - Encounters and Conversations, Harper Torchbooks, 1972, p. 63)

Let me note parenthetically that, when I raised this issue with Paul A. Samuelson in the late 1970s, he did not address it on its merits. Instead, he wrote back to the effect that "most" people thought that Einstein had come out second-best in his epistemological debates with Heisenberg and Bohr - to which I replied that issues in logic must be resolved through reasoning and not through appeal to majority opinion.

Nor did Samuelson have his facts right, as indicated by Heisenberg's own comments:

"I was completely taken aback by Einstein's attitude, though I found his arguments convincing." (p. 64)

Gunnar

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

From: William B. Ryan

To: pkt@xxxxxxxxxxxxxxxx

Sent: Friday, March 23, 2001 9:22 PM

Subject: Re: Say's Law, Walras, Schumpeter, and Keynes

Gunnar, look, and I think this is quite consistent with your Baumol reference, Say does not in the least require an instantaneous equality between supply and demand, as you seem to think, but does assume a proportionality between the two over time. It is not contrary to Say that there may in fact be perturbations that transiently break the proportionality, but Say and his successors will assert that these cancel or balance in the long run. I think that is the point Barkley is making.
In physics there is the "law" of gravity. But "uniform rectilinear motion" is merely a presumption used in thought experimentation.

All it takes to invalidate Say as a "law" is to demonstrate that there is normally present some factor that causes supply and demand to diverge (in terms of being curves plotted against time) in the absence of conscious adjustment.

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