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OK ON NEOCLASSICALISM


Geoff prefers a definition that draws attention to what Warren Samuels called "technical meanings as to its central problem: the mechanics of utility", "constrained maximization", etc, and method--equilibrium. (in the forward Warren wrote for John's book).


I follow John Henry in focusing on the origins, ideological structure, and purpose of the approach. Its origins are apologia--to defend capitalism against Marx; it is anti-science, using obfuscation to hide the reality. Its choice of utility was purposeful--a subjective theory of value incapable of verification to counter the labor theory of value. It could hide exploitation (exposed by the classical theory of value) behind supply (factors of production) and demand (based on mysterious and fundamentally  unobservable utility that is only "revealed" in "preferences"). The basis of the capitalist system cannot be seen and indeed is denied. It is fraud. By design and purpose. The development of neoclassical out of classical has nothing to do with advances in the science of economics. No matter what some individuals who contributed to its creation might have thought. From the get-go it was anti science.


The first panel that I recall attending was at the EEA, "The Economics of Suicide". As my undergrad studies were in psychology, I wondered what economics could add to our understanding of this problem. So I attended. There were 3 papers presented, all of them amounting to an explanation of suicide as maximization of utility under constraints, with high rates of time discount. That five seconds of sheer joy Trumped a lifetime of living because the internal rate of discount was high. Jumping out of a 50th floor window is NOT a problem, it is the SOLUTION to a mathematical problem. The presenters were young, smart, and serious. I expected laughter. There was none (except by me; it was a joke to which I was the sole party).


Now I doubt any one of those presenters was purposely engaging in obfuscation, none intentionally defending the capitalist system, none realizing they were engaged in perpetuating the fraud that is neoclassical theory. To Geoff's point, none appeared to be a bastard.


I see that as irrelevant to the critique of neoclassicalism as anti-science. It does not help us to understand the real world. It's method is by design fraud.


Adding neoclassicalism to heterodoxy is bastard. Heterodoxy attempts to explain the real world. Maybe it often fails. Revisions help. That is simply not the case with neoclassical economics. It is never abandoned after failure. Every "bad" idea it ever had lies in waiting to make a comeback. And invariably does.




L. Randall Wray
Senior Scholar, Levy Economics Institute
Papers: www.levyinstitute.org/publications/?auth=287<https://urldefense.proofpoint.com/v2/url?u=http-3A__www.levyinstitute.org_publications_-3Fauth-3D287&d=DwIF-g&c=Cu5g146wZdoqVuKpTNsYHeFX_rg6kWhlkLF8Eft-wwo&r=LtbujWNPdbzw6j8eq9-RJVMBctp9ndCoqGEy57VsNLQ&m=c0CEufD5Rf4601-usxeQsHUI3LOk-_jy2XsLgxNjvdQ&s=go0gYHXwSrF9RMN-IJYqoMwnEA8H1yy8mW7CAyE0HHE&e=>

Co-editor Journal of Post Keynesian Economics
ISSN 0160-3477 (Print), 1557-7821 (Online)
www.tandfonline.com/toc/mpke20/current
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New Book: Why Minsky Matters: An Introduction to the work of a maverick economist, Princeton University Press https://urldefense.proofpoint.com/v2/url?u=http-3A__press.princeton.edu_titles_10575.html&d=DwIF-g&c=Cu5g146wZdoqVuKpTNsYHeFX_rg6kWhlkLF8Eft-wwo&r=LtbujWNPdbzw6j8eq9-RJVMBctp9ndCoqGEy57VsNLQ&m=c0CEufD5Rf4601-usxeQsHUI3LOk-_jy2XsLgxNjvdQ&s=cJWomQC1jvcU7JQS8jFvllvALxtTwFMWIu9tOSUfsnU&e=

New Book: Modern Money Theory: a primer on macroeconomics for sovereign monetary systems, Palgrave Macmillan https://urldefense.proofpoint.com/v2/url?u=http-3A__www.palgrave.com_page_detail_modern-2Dmoney-2Dtheory-2Dl-2Drandall-2Dwray_-3Fisb-3D9781137539908&d=DwIF-g&c=Cu5g146wZdoqVuKpTNsYHeFX_rg6kWhlkLF8Eft-wwo&r=LtbujWNPdbzw6j8eq9-RJVMBctp9ndCoqGEy57VsNLQ&m=c0CEufD5Rf4601-usxeQsHUI3LOk-_jy2XsLgxNjvdQ&s=k9caMCqNs4t_-YugJpF8Puk2Iyr1SMuI8zQxttrJf_k&e=

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________________________________
From: AFEEMAIL Discussion List <[log in to unmask]> on behalf of Geoff Hodgson <[log in to unmask]>
Sent: Thursday, May 2, 2019 10:24 PM
To: [log in to unmask]
Subject: Re: [AFEEMAIL] Neoclassicism, etc.


Dear All



Just one point in response to John. Lange did not propose the competitive pricing arrangements of a (hypothetical) capitalist order. Capitalism involves private ownership. Lange did not propose private ownership. Instead he (wrongly) suggested that pricing would be possible if a central planning authority simulated the operations of a hypothetical Walrasian market.



Just one response to Anne. Randy used the term “neoclassical”. He did not define it. I’m asking (again) what he means by the term. BTW, I like much of Tony Lawson’s work, but IMHO his “neoclassical” article is arcane and fails to look at post Samuelson usage of the term.



My main point is that I do not think it is appropriate to call neoclassical (however defined) colleagues “bastards”. It has been rightly pointed out that some people deserve that appellation, but that has little to do with the analytical position that they adopt.



Best wishes

Geoff







From: AFEEMAIL Discussion List <[log in to unmask]> On Behalf Of Henry, John
Sent: 02 May 2019 23:17
To: [log in to unmask]
Subject: [AFEEMAIL] Neoclassicism, etc.



Dear All,



As I've been brought into this discussion, perhaps an elaboration of my position is needed. Geoff writes: “On page xv of his book John explained that his volume tries to show: "why the neoclassical perspective, resting on a utility theory of value, became increasingly prominent, then dominant, in the nineteenth century. The argument rests on the underlying economic change undergone by capitalist society during the period". Not only does this extract highlight the concept of utility, but it also shows that John's argument is more deep and subtle than Randy suggests.”



I'm not sure that the above reference indicates greater subtlety or depth than that offered by Randy (well, Randy is rarely subtle!), but I don't want to be misunderstood. The UTOV was selected for a couple of reasons. The main reason was that, following Adam Smith, we have two choices to follow in theorizing about a commodity-producing economy--that is, capitalism as we call it. Use value and exchange value. Smith, Ricardo, James Steuart, Petty, et al. chose exchange value. This represents the "classical political economy" approach--correctly so in my estimation. To counter this approach, the "neoclassicals" went the utility route, which they identified--incorrectly--with use value. (As an aside, I think Veblen was wrong to label such economists as NEOclassical. He should have labelled them ANTIclassical.) Jean Baptiste Say, the "father" of neoclassicism starts his Treatise by attacking Smith and the labor theory of value. The attack on the LTOV and emphasis on exchange value continues and culminates in the work of Jevons, Walras, Menger, and, in the next generation, Marshall, Clark, et al. We're off to the races. My position is that there's no better authority in all this than Walras, a notable chap who is sometimes labelled a socialist. Ha! He's no more a socialist than my departed mother. All one has to do is read the first chapter of his Elements. He begins with an examination of "economics" that can be seen as favorable to institutionalists. Society is there, history is there, culture is there, etc. He then proceeds to whittle his definition down to what he terms "pure" economics. And this is utility maximization, equilibrium, etc. but--MORE NOTABLY--the preeminence of a competitive, free exchange, profit-seeking structure. That is, capitalism, though in an idealized, hypothetical form. And this is what matters.



Classical theory began as an attempt to understand capitalism--and, yes, I accept the "ism." Capitalism is not of a feudal, nor a slave, nor a primitive communist organization. (Speaking of which, these were still hanging around when capitalism was a new-fangled order, and there were those who wanted to revert to such an arrangement--the Diggers during the English civil war.) Early "economists" (as this grouping was something new as well) sought understanding; by the time of Ricardo, such understanding became criticism. We can see the beginning of such criticism in Smith. And then we get the onslaught--Sismondi, St. Simon, Proudhon, and, in particular, Owen. (On all this, see Claeys, Machinery, Money, and the Millennium.) The reaction, and that's what it was, was directed toward the saving of capitalism from its critics. If one reads the proto-neoclassical writers from Say through the post-Ricardian period, one will find overt statements to this effect. If you want quotes, see my book referenced. (And don't get me started on John Stuart Mill!) To "save" capitalism, one needed an alternate theory to that posed by the Classicals. This was based on a UTOV (in the main), but that was merely a theoretical subterfuge. The whole campaign was to move the dominant discourse away from the Classical perspective (which, of course, by the late 19th C had become dominated by a fellow named Marx, who was essentially ignored, though Marshall took a couple of potshots at the old geezer.) But, in this anti-classical discourse, one could not ignore, bypass, whatever, the nature of the commodity--a use value produced for exchange. So, should use value or exchange value dominate? We're back to Smith. For anti-classicals, it's use value, transformed into a generalized UTOV, courtesy of Jevons, Walras, Pareto, et. al (but based on their anti-classical predecessors). But, why dominance in the last third of the 19th C?  This is the period of oligopolization when corporate forms of organization were able to "sabotage" (a la Veblen) the production of use values (in the classical sense). It's also the period when the theory of competition, equilibrium, optimality, etc. was formalized and became increasingly the standard. NOTE WELL: neoclassical theory becomes dominant by erecting a hypothetical economic order just as the real economic order displays characteristics that are the very opposite of the theory supposedly explaining it. Neoclassicism is political and is associated with the defense of capitalism. It has been so since its inception (Say, et al.), and remains so throughout its history. Its main function is to conceal the very nature of a capitalist social order. I'm in fundamental agreement with Randy, though I probably wouldn't have expressed my position so candidly: they're all S.O.B.s! (As a P.S., we’re all political. Ideology or political orientation can’t be eliminated from our theoretical arguments. We’re only human in this regard. Myrdal spoke to this in his The Political Element in the Development of Economic Theory. Heck, this even influences workers in the natural sciences. The various debates on Darwin should be enough to convince, but even physics is not immune.)



Now, if someone wants to take up the issue of Lange, et al., I'll be happy to oblige. Just one thing: in his 1930's article, Lange argued--essentially against Mises--that a socialist order could maintain itself IF it replicated the competitive pricing arrangements of a (hypothetical) capitalist order. This, when capitalism was not only non-competitive, but doing quite badly, and the Soviet Union was actually doing pretty well. So, what, for Lange, et al., did/does socialism mean?



Sorry to take up so much space,







John F. Henry

Levy Economics Institute of Bard College





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