Re: progress

["William B. Ryan" <william_b_ryan@xxxxxxxxxx>]

In reply to your post of September 1.


"...hence I don't think utility functions exist."
----------

They indeed do not.  Economists who play with them are playing with a
mirage.


"I postulate that it is possible to prove that utility functions do not
exist..."
----------

On its own terms marginalism is logically consistent.  The nonexistence
of utility functions can only be proved from outside its logic, by starting
from other premises.  The problem is therefore fundamentally empirical,
not logical.  Which set of premises more closely reflect reality?

Steve Keene, a professor of economics at an Australian university, has
attempted to disprove marginalism on its own terms--an heroic, though
ultimately wasted effort, I think.

He has written a book named *Debunking Economics*.  The "debunking" webpage
is:  http://www.debunking-economics.com/

I do agree with the substance of the following from the book:

"One of the most striking aspects of the late 20th century was the increase
in the gap between the poorest worker and the richest. While many bemoaned
this increase in inequality, economists counselled that the growing gap
merely reflected the rising productivity of the highly paid.

"The basis for this advice is the proposition that a person?s income
is determined by her contribution to production, or more precisely, by
the marginal productivity of the ?factor of production? to which she
contributes. Wages and profits, or ?factor incomes? as economists prefer
to call them, reflect respectively the marginal product of labour and
of capital. The argument that highly paid workers, managers of major
corporations, stock and money market traders, financial commentators,
etc., deserve the high wages they receive compared to the less highly
paid nuclear physicists, rocket scientists, university professors, school
teachers, social workers, nurses, factory workers, etc., is simply an
extension of this argument to cover subgroups of workers. Members of
the former group, we are told, are simply more productive than members
of the latter, hence their higher salaries.

"I?ll defer discussion of the proposition that profits reflect the marginal
productivity of capital until the next chapter. Here we?ll consider the
argument that wages equal the marginal product of labour. Once again,
the argument relies heavily on concepts we have already dismissed: that
productivity per worker falls as more workers are hired; that demand
curves are necessarily downward sloping; that price measures marginal
benefit to society; and that individual supply curves slope upwards and
can easily be aggregated. Even allowing these invalid assumptions, the
economic analysis of the labour market is still flawed..."
----------

The solution is to be found in the meaning of "factor incomes," I think,
"wages and profits," says Keen, relating the standard economists' definition.

But Wages + Profits, as a matter of dynamics in the real world, do NOT
equal Wages + Dividends.






--
William B. Ryan
william_b_ryan@xxxxxxxxxx - email
voicemail/fax - 1-866-678-3967 - toll free



---- "John D. McRuer" <mcruer@xxxxxxxxxx> wrote:
> Bill,
> I have done some of the homework required to digest your most recent
> input.
> I looked up the national accounts in my Samuelson and Scott and was
> pleased
> to note that there is no apparent conflict between my evolving views
> and
> what was being taught to first year students in the 1980s. I also read
> their
> summary and critique of Marxian theory, but didn't really take it in.
> I need
> to go over it again, but more carefully. Some of it seems relevant,
> but in
> my ignorance, I don't want to fall into any of its well known traps.
>
> I found on the internet a critque of cost-benefit analysis by a Danish
> physicist who works for the IPCC; it was consistent with my own prejudice.
> I
> learned in his article that the IPCC's ecological economists have very
> serious reservations about cost-benefit analysis as a technique for
> evaluating policies for addressing global warming; many do not think
> it
> should be used.
>
> I am now in position to state my objective. I want to create a robust
> case
> for my prejudice: I believe that evaluating social benefits in dollars
> leads
> to an indeterminate result because the logic used for such evaluation
> is
> circular. The evidence doesn't become apparent unil you try to build
> models
> from basic, rigorously defined elements. A problem in the conventional
> theory arises from the doubtful legitmacy of mapping certain underlying
> concepts of economics into the set of real numbers. The source domain
> of
> such mapping must be countable (as defined by the theory of sets) and
> I am
> fairly sure that in many cases it is not, although subsets of the domain
> may
> be. Secondly, I don't believe it is possible even in principle to define
> a
> continuous single valued function for determining the optimum among
> a set of
> socio-economic indicators: hence I don't think utility functions exist.
> I
> postulate that it is possible to prove that utility functions do not
> exist,
> but I lack the mathematical expertise and the time to work up a robust
> proof. The place I would look for my proof is in theoretical mathematics.
> For instance, if the utility function were based on an inner product
> then
> the dimensions of the indicators would have to be commensurate--there
> would
> have to be a rigorous logic to justify aggregating oranges with steam
> boats.
> The market does this, but nobody seems to know what it is assuming
> when it
> does, or under what circumstances its assumptions are valid.
>
> The reason this matters is that cost-benefit analysis provides the
> basis for
> much social and ecological policy. If it really is the falacy that
> I think
> it is (in the broad social context), our chances of making good policy
> choices with it seem dim indeed.
>
> Cheers,
>
> = John
> ------------------------------
> John D. McRuer
> RR #1
> Wellesley, ON
> N0B 2T0
> Canada
>
> (519) 656-2570