Re: marginalism

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

<*>Is this something you cooked up or something you
picked up from reading the late Julian Simon?<*>

By "new" I meant in respect to the nineteenth century
derivation of the marginalist orthodoxy.  It goes
back more than eighty years, to the time of Veblen
and Major Douglas.  In the 1920s it was called the
"new economics," a term adopted by Keynesians in the
1930s.

As to Julian Simon, I had not even heard the name
until a few weeks ago, when Keith Wilde pointed him
out to me.  I wish I had caught on to him earlier.

I am more influenced by Paul Davidson, who has
informed us that the world has never run out of a
"non-renewable" resource like oil, but has exhausted
"renewable" resources many times.  In the Middle Ages
Europe twice ran out of wood.
--

<*>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.<*>

Time is indeed a limiting resource in the short run.
Not the quantity of obtainable oil, wells for
drilling, or rates of output in the long run.  Time
is however abstracted from the marginalist equation:

"Once the equilibrium has been established in
principle, exchange can take place immediately.
Production, however, requires a certain lapse of
time. We shall resolve the second difficulty purely
and simply by ignoring the time element at this
point."

(Léon Walras, Elements of Pure Economics)
--

<*>It becomes less so in the long run, although even
there, it is false that resources are "unlimited,"<*>

Who said "unlimited"?  The marginalist concept of
"scarcity" does not mean "zero," and the anti-
marginalist concept "abundancy" does not mean
"infinite."  The difference is between the "micro"
perspective of the individual firm, and the "macro"
perspective.  The individual firm, in terms of
achieving its objectives, to the extent it is not a
monopoly, is a small fish in the pond.  That small
fish certainly does perceive resource or budgetary
constraints in terms of profitability.  But the
perception changes when we look at the situation from
the perspective of the pond as a whole, through time
and generations.

The biggest problem with marginalism is that it
falsely assumes converging functions for the economy
as a whole in the long run, like the terminal
velocity of a falling object, where drag is
proportional to the square of the object's velocity,
so as the object accelerates toward the ground the
drag opposing the gravitational constant is
increasing to the point where the drag and
gravitational force on the object become equal.  But
if drag is actually decreasing or is constant, rather
than increasing, there is no terminal velocity.  And
if returns are increasing or are constant, rather
than decreasing, there is no intersection between
supply and demand, and therefore no "equilibrium."

We can have all that we want, given of course enough
time.  Looking at it this way, "what is physically
possible is financially possible," the old social
crediter slogan.  There are no real constraints to
what we can achieve.  It is the difference between
optimism and the pessimism embedded in marginalism,
when applied to the economy as a whole.

But even when applied to the individual firm, it is
in poor substitution for double entry accounting.  So
it becomes less than useless heuristically.
Businessmen simply don't think that way.  And it is
impossible for students.  So those who can comprehend
the impossible remain economics majors, while the
less comprehending transfer to other fields.  In the
process the general IQ of the profession degrades.



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

DATE: Tue, 28 Oct 2003 11:16:45
From: "Barkley Rosser" <rosserjb@xxxxxxx>
To: <william_b_ryan@xxxxxxxxx>, <pkt@xxxxxxxxxxxxxxxx>
Cc:

>      "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


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