Re: Economic Rent in Terms of Risk Free Interest Rate

In article <1127274649.187696.164290@xxxxxxxxxxxxxxxxxxxxxxxxxxxx>,
"ruetheday@xxxxxxxxxx" <ruetheday@xxxxxxxxxx> wrote:

> >My favorite arguments focus on capital theoretical problems in
> >neoclassical economics. When discussing traditional neoclassical
> >economics, I usually am not talking about arguably "unsound"
> >assumptions like the above. I am talking about mathematical
> >error.

> What would be an example of this?

Asked and answered through many posts over the years on this newsgroup.

If you really care, why not read some of the literature?

"Thus the reswitching anomaly, along with its theoretical developments
and implications, has been placed in abeyance. And so it must be, for
if this criticism were taken as being no less applicable to the real
world than the theoretical, then it follows, as already noted, that
orthodox economics is unable to make any reliable statements concerning
the relationship of production to the various input markets. That is,
the neoclassical vision of a market-coordinated production system,
along with derivative growth and distribution theories, are all
invalidated. As a consequence, the nature of the entire traditional
circular flow conception is called into question...

...It is one thing to say that this conception of indirect economic
management does not satisfactorily achieve its goals because of the
existence of such real-world problems as bottlenecks, power, premature
inflation, inflationary expectations, random shocks, ratchet and
spillover effects, and the like. In such situations, an economically
coherent and consistent market-based system of production and
distribution is still assumed to exist, though it is overlaid with
political, institutional, and psychological factors that affect
economic adjustments and performance. The basic strategy, in this case,
would be to maintain the general neoclassical-synthetic emphasis on
fiscal and monetary management (with perhaps somewhat greater stress on
the monetary tool, if the monetarists were to have their way), and
supplement these tools with finely targeted direct and specific
devices - for example, stricter antitrust enforcement, more sharply
focused incentive (and disincentive) taxes, expanded job training and
subsidization programs - so as to allow and encourage the effective
functioning of centerpiece fiscal and monetary devices.

It is quite another thing to argue that key markets in the system,
particularly those in the resource or input sector, do not possess the
fundamental economic characteristics necessary to the orderly
systematic functioning that is postulated by mainstream theory..."
-- Richard X. Chase, "Production Theory," in _A Guide to
Post-Keynesian Economics_, (edited by Alfred S. Eichner), M. E.
Sharpe, 1978, p. 79-80

"Here a serious difficult arises - a difficulty first outlined
with remarkable clarity by Walras.

In models of production and exchange involving only
non-reproducable means of production (land and labour)
commodities fall into two distinct groups. Either, as in the
case of the rentals paid for the services of factor endowments,
their prices are determined simply by market clearing, or, as
is the case of 'final' goods (consumer goods) their prices must
be equal, in equilibrium, to the sum of the rentals of the
factor services required for their production (their cost of
production). Since, by definition, no factors are reproducible,
their prices are not subject to this 'cost of production'
condition.

Once reproducible means of production are introduced into this
picture, its clarity is obscured. For in this case, the rentals
on the endowments of reproducible factors should be determined
by market clearing, and yet, in equilibrium, the prices of
reproducible factors, like the prices of all reproducible
commodities, should be equal to their cost of production. Since
the prices of reproducible factors are simply the capitalized
values of the rentals paid for their services, two sets of
conditions ('market clearing' and 'cost of production') are
being applied to the determination of the same prices. The
analysis is over-determined.

The difficulty of extending the analysis of supply and demand
to models including reproducible means of production impressed
itself upon the earliest neoclassical writers (notably, Walras,
Bohm-Bawerk and Wicksell) and, being unsolved, has been
returned to again and again."
-- John Eatwell, Murray Milgate, and Peter Newman (1990).
"Preface", _The New Palgrave: Capital Theory_, Macmillan.

"But the question of Ricardo's relation to marginalism would be
of interest mainly to antiquarians had Sraffa not reopened the
second issue raised by Jevons. Sraffa's Production of Commodities
by Means of Commodities (1960) exposed a serious defect in the
marginalist explanation of distribution, and demonstrated
moreover that the classical surplus theory could be given a
rigorous formulation. Ricardo had been on the right track: it
was Marshall, Walras and Menger - and Jevons - who had pushed
economic science off the rails."
-- Gary Mongiovi, "Some Reflections on Sraffa's Ricardo".
Competing Economic Theories: Essays in Memory of
Giovanni Caravale. Routledge. 2002.

"since both groups of versions of marginalist equilibrium theory -
the long-period versions and the neo-Walrasian versions - encounter
what appear to be radical and insurmountable difficulties, one
must conclude that at present there is no defensible neoclassical
theory (in the sense of explanation) of prices and distribution.
The onus is on the neoclassicals to show that this is not so."
-- Fabio Petri, "Professor Hahn on the 'neo-Ricardian' Criticism
of Neoclassical Economics", in _Value, Distribution, and Capital:
Essays in Honour of Pierangelo Garegnani". Routledge, 1999.

"Certainly the critics of neoclassical theory committed a great heresy
during the capital theory debate by proving false the analytical
basis for the principle of substitution in so far as it affects
the demand for capital and labour. Those who would defend
neoclassical theory against any attack on its logical structure
fail to see the significance of this result. This is because
they have given up any causal claims for general equilibrium
theory..., thus abandoning the traditional notion of equilibrium
as a centre of gravity relative to which prices and quantities
fluctuate."
-- Harvey Gram, 1990.

"Both classical and marginalist economists provided accounts of
the long-period (uniform rate of profit) theory of value and
distribution, but whereas a classical economist could take the
real wage as a datum for the purpose of such analysis (whatever
the implicit 'background' theory of wages might be), the
marginalist economist had to 'close the system' in some other
manner. In effect, since 'resource supplies' were often taken as
given, this meant that 'the supply of capital' had to be taken
as given, IN ONE WAY OR ANOTHER. Just how the given supply of
capital was to be represented was an issue that led to
considerable heterogenity amongst even those marginalist
economists who shared the long-period method of analysis with
the classical economists and with each other. That heterogenity
cannot be entered into here (see Kurz and Salvadori, 1995:
427-43) but it is now widely recognized that each version of
such traditional long-period marginalist theory of value and
distribution encountered insoluble problems (ibid.: 443-48)."
-- Ian Steedman (1998)

--
Mostly economics: <http://www.dreamscape.com/rvien/#PublicationsForFun>
r c
v s a Whether strength of body or of mind, or wisdom, or
i m p virtue, are found in proportion to the power or wealth
e a e of a man is a question fit perhaps to be discussed by
n e . slaves in the hearing of their masters, but highly
@ r c m unbecoming to reasonable and free men in search of
d o the truth. -- Rousseau
.

Relevant Pages

  • Re: Actualizing anarchism
    ... if one assumes that the prices ... (or Marx's prices of production), one would be applying ... of Economics and Business Administration Discussion Papers, ... Cambridge Journal of Economics. ...
    (sci.econ)
  • Re: Oil at $40 a barrel...
    ... That's no longer quite true (as far as economics is concerned.) ... understand that is an on-going full scale operation somewhere in Canada. ... seem to expand when prices go up. ... often force private operators to sell future production in advance (via the ...
    (uk.politics.misc)
  • Re: Walthers buys Life-Like
    ... A brass importer wants to have presold a fair number of models before they'll commit to making them, and many production runs these days are on the order of a hundred or so units, sometimes considerably fewer. ... The economics of brass locos worked as long as wages in Japan were low, then when those rose to comfortable levels, production was moved to Korea. ... As Chinese wages start to rise, you'll see the prices of plastic rise, too. ...
    (rec.models.railroad)
  • Out of Keyness shadow
    ... Though once America’s most famous economist, Fisher is now almost ... modern monetary economics; Keynes called Fisher the “great- ... the United States is now awash in debt. ... forcing asset sales and driving prices down further. ...
    (misc.invest.stocks)
  • Re: tax cuts and minimum wage!
    ... in equipment that is effective will increase production. ... window of effectiveness of minimum wage increases operates much as the ... narrow window of tax cuts. ... I don't know what background you have in Economics, but I have a little bit ...
    (alt.politics)