Re: marginalism

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Barkley:

Re. the following:

>      Just for the record, I have various problems
> with "marginalism," and am not frequently some
> great defender of it.  But, the idea that its biggest
> problem is some alleged "unlimited" supply of
> resources is the least of its problems in my view.

Comment:

Below is an extract from an old working paper of mine on related issues.

Gunnar



(i)                 General equilibrium



The mathematical genius, John von Neumann, is recognized as the foremost
pioneer in the construction of general equilibrium models in the twentieth
century.  In a recent book, his model was summarized briefly as follows:



"In a new [1937] breakthrough John von Neumann first formulated a balanced
and steady-state growth of a general economic equilibrium and proved the
existence of a solution.  The breakthrough did not lie in the subject
matter, which was still allocation and relative price in general equilibrium
using maxima and minima.  Indeed, all economists can appreciate the simple
beauty, yet high degree of generality, characterizing the von Neumann model.
There is substitution in both production and consumption.  The model "can
handle capital goods without fuss and bother," as Dorfman-Samuelson-Solow
put it.  There is explicit optimization in the model: the solution weeds out
all but the most profitable process or processes.  There are free and
economic goods, indeed the solution tells us which will be free and which
economic." [106]



Economists in the modern mainstream macroeconomics tradition have analyzed
von Neumann's model from the point of view of mathematics, neglecting to
test it for analytical coherence and consistency along the following lines:



1.                  von Neumann assumed "that the natural factors of
production, including labour, can be expanded in unlimited quantities."
[107]

2.                  He also defined a "free good" to be one whose supply
exceeds the need for it.

3.                  Thus, "free goods" within von Neumann's model may be
"free" one day and "non-free" the next, although he did not make that point.

4.                  Since all factors of production "can be expanded in
unlimited quantities" by assumption, von Neumann's model has built into its
premises the conclusion that all goods may in time become "free" goods.

5.                  Since time is not an essential feature of any general
equilibrium model, why should only one or some rather than all goods be held
to be "free" and not "economic"?

6.                  Speaking of a mathematical equation relating to the
subject matter, von Neumann said: "[Its] meaning is: it is impossible to
consume more of a good G in the total process than is being produced.  If,
however, less is consumed, i.e., if there is excess production of G, G
becomes a free good and its price y = 0." [108]

7.                  von Neumann recognized that there was mathematically
nothing to preclude all goods from being available in infinite supply so
that all goods would be "free."

8.                  von Neumann declared this mathematical possibility to be
"meaningless." [109]

9.                  In principle, a mathematical model can only yield
conclusions, which are already implied by its premises.

10.             Therefore, when von Neumann found it "meaningless" that all
goods could be "free goods," he effectively declared the premises of his
model to be "meaningless."



106.                  Hans Brems, Pioneering Economic Theory, 1630-1980, A
Mathematical Restatement, The Johns Hopkins University Press, Baltimore and
London, 1986, p. 299.

107.                  John von Neumann, 'A Model of General Equilibrium',
1938, reprinted in Precursors in Mathematical Economics: An Anthology, ed.
by W. J. Baumol and S. M. Goldfeld, London, 1968, p. 297.







----- Original Message -----
From: "Barkley Rosser" <rosserjb@xxxxxxx>
To: "Clifford Poirot" <cpoirot@xxxxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>;
<william_b_ryan@xxxxxxxxx>
Sent: Tuesday, October 28, 2003 12:17 PM
Subject: Re: marginalism


>      Just for the record, I have various problems
> with "marginalism," and am not frequently some
> great defender of it.  But, the idea that its biggest
> problem is some alleged "unlimited" supply of
> resources is the least of its problems in my view.
> Barkley Rosser
> ----- Original Message -----
> From: "Clifford Poirot" <cpoirot@xxxxxxxxxxx>
> To: <pkt@xxxxxxxxxxxxxxxx>; <william_b_ryan@xxxxxxxxx>
> Sent: Tuesday, October 28, 2003 11:47 AM
> Subject: Re: marginalism
>
>
> > In some ways resources are even more constrained in the longer run as
> > population pressure and increased energy use bumps up against limits.
> >
> > -----Original Message-----
> > From: Barkley Rosser [mailto:rosserjb@xxxxxxx]
> > Sent: Tuesday, October 28, 2003 11:17 AM
> > To: william_b_ryan@xxxxxxxxx; pkt@xxxxxxxxxxxxxxxx
> > Subject: Re: marginalism
> >
> >
> >       "The new approach to economics"???  Is
> > this something you cooked up or something you
> > picked up from reading the late Julian Simon?
> > Very simply, in the short run many resources are
> > limited.  It takes time to drill new oil wells or increase
> > output rates from old ones.  It takes time to dig new
> > coal mines or other mines.  So, marginalism is
> > certainly relevant in the short run.
> >      It becomes less so in the long run, although
> > even there, it is false that resources are "unlimited,"
> > although many that may be constrained in the short
> > run are not very constrained in the longer run.  Ironically
> > those that are really in the shortest supply are not the
> > non-renewable ones, but the so-called renewable ones.
> > Once you have driven a species to extinction it is gone
> > forever.  Unlike methane, we will not find it on Jupiter.
> > Barkley Rosser
> > ----- Original Message -----
> > From: "William B. Ryan" <william_b_ryan@xxxxxxxxx>
> > To: <pkt@xxxxxxxxxxxxxxxx>
> > Sent: Saturday, October 25, 2003 10:56 AM
> > Subject: marginalism
> >
> >
> > > ***>Price is where marginal benefits + utility (aka
> > > market cost) = cost. (The whole point of marginalism
> > > and STV) Cost is another term for price.  So...price
> > > + utility = cost is circular logic.  Circular logic
> > > is impossible, therefore supply and demand is
> > > junk.<***
> > >
> > > Your argument is invalid not because marginalism is
> > > not invalid, but because you have falsely described
> > > marginalism.  Marginalism is invalid because it is
> > > premised on the false assumptions that resources are
> > > scarce and demand is unlimited, so the two must
> > > intersect.  Marginalism is perfectly logical premised
> > > on those assumptions.
> > >
> > > The new approach to economics is premised on the
> > > facts that resources are permanently abundant and the
> > > physical capacity to consume is permanently limited.
> > >
> > > Resources become abundant through continuing
> > > discovery, development and innovation.
> > >
> > > And it is physically possible to consume only so much
> > > per unit time.  The limit to consumption is the point
> > > of satiation.
> > >
> > > --
> > >
> > > "smithaa02" <sadf@xxxxxxxx> wrote:
> > > >
> > > >"Capitalist Pig" <root@localhost.> wrote in message
> > > >news:lnfipvksijllub6jk84ucisvlb8anmdj92@xxxxxxxxxx
> > > >> On Thu, 23 Oct 2003 22:32:23 -0500, "smithaa02" <sadf@xxxxxxxx>
> wrote:
> > > >> >
> > > >> >I've debunked marginalism, STV, and supply and demand all
> > > >> >in one.
> > > >> >
> > > >>
> > > >> Wow, I'm impressed!
> > > >
> > > >You should be...
> > > >
> > > >>
> > > >> >
> > > >> >Price + utility can't equal price for that is circular logic.
> > > >> >
> > > >>
> > > >> I wouldn't call it circular logic, I would call it a mistake. I
have
> > > >> no idea how you could come up with such silly definition.
> > > >Price is where marginal benefits + utility (aka market cost) = cost.
> (The
> > > >whole point of marginalism and STV) Cost is another term for price.
> > So...
> > > >price + utility = cost is circular logic.  Circular logic is
> impossible,
> > > >therefore supply and demand is junk.
> > > >
> > > >
> > >
> > >
> > >
> > >
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