Bruce, I began the discussion with the two basic assumptions of Classical Political Economy: 1. People's desires are unlimited. 2. People seek to satisfy their desires with the least exertion. Keith added a third: 3. People have a curiosity beyond present needs for survival It should be understood that these are simply assumptions one may make about a human being in order to begin a study that concerns him. If they are not correct then obviously one won't use them. However, it is difficult - or impossible - to find an exception Anne Mayhew uses "wants", but a want can be little more than a dream. "Desire" implies intent and is therefore stronger. She immediately complicates things in her first paragraph and that's the problem. You don't follow the "commercial logic" of buying cheap and selling dear - you simply seek to satisfy your desires with the least exertion. That's why there are "Sales". If you were offered a job at $20 an hour and you refused to take more than $10 - people would immediately become suspicious about your motives. Because such a response runs contrary to experienced human behavior. You prefer greater value for less cost. Thus, her paragraph beginning "The first condition . . . " is meaningless, even though it is perfectly logical. The parties to an exchange will exchange, or not, irrespective of whether there is a "numeraire". Gold is a good numeraire, which is why I would advocate it as a monetary unit of value - but we won't muddy the waters. The crucial decisions are in the hands of the parties - always. They, not the economists, will choose to act or not. Yet, if you want a PhD you can take 280 million Americans and find every variation in their decision making that you can wring out of them. You'll finish with a mighty tome packed tight with statistics, graphs, and formulaic assertions. Thus, your badge of honor will be for painstaking recording of minutiae. I would argue that the "least exertion" principle would more clearly describe human behavior than all the "research". Look at this paragraph. She writes: "From this observation follows the second condition that must be met if commercial logic >is to apply: the goals of the units being analyzed must be the goal of >having commonly >measured inflows at least equal to or in excess of outflows." Does that sound like the "least exertion" principle? The paragraph continues: >However, as is widely recognized the goals of many social units, such as >families and even large commercial corporations, are multiple and cannot >be toted up as a simple double-entry bookkeeping exercise. It should be noted that this is a problem only to the economist. People will have children because they desire them. I suppose the mother will be anxious for labor to end quickly rather then endure another week (least exertion) even as the doctor suggests surgery to avoid a night-time delivery (least exertion). >To take a simple example: children are not produced in accord with >variation in the current, or even projected, price of labor, so that even >if the amount of labor offered from an existing stock of people varies >with price (a doubtful assumption), labor markets will also be rendered >slightly odd by virtue of the failure of the model of commercial logic to >capture the full array of relevant variables. For large firms with >political, social and market power, long-term strategies of location, >survival, and other goals are likely to outweigh and obscure the simple >application of commercial logic. I was going to take this apart but I'm tired. It's such a mess. Would she tell us that the people in the "large firms" do not seek to satisfy their desires with the least exertion. Or, that "the goals of the units being analyzed must be the goal of having commonly measured inflows at least equal to or in excess of outflows" is not better said with the "least exertion" principle? I fear, Bruce, that they first complicate things, then they point to the difficulty of complication. Such as: "a model so simple that it cannot capture the complexity of interaction in economies. Superior analysis requires recognition of this greater complexity." I can only ask why? Harry ---------------------------------------------------------------------- Bruce wrote: >FWers, > > > >Was the debate 2 or 3 principles? The following trigger memory of that >thread. > > > >Superior Analysis Requires Recognition of Complexity >Anne Mayhew (University of Tennessee, USA) > >Neoclassical microeconomic theory is, both in its simple, and in its most >rarefied forms, >a theory of how a unit will respond when faced with the commercial logic >that says buy >cheap, sell dear, and if you don't cover your costs over some reasonable >period of time, >you will cease to exist. It does not matter whether the prices to which >the unit responds >are changed through competitive or uncompetitive markets or by an >auctioneer; the analysis >is of response to price. > > > >The question to ask, in answering Guerrien's question, is whether or not >the commercial >logic is applicable to units whose behavior one wishes to analyze. The >sleight of hand >performed at the beginning of most introductory economic textbooks, and >assumed >thereafter in more advanced work, is that given conditions of unlimited >wants and limited >resources, the logic does apply widely. The wants can be wants for >revenue for firms, utility >for consumers, benefits for recipients of government services. If the >wherewithal to get those >wants (costs of inputs for firms, work or disutility for consumers, tax >revenues for governments, >resources for all of society) are limited then commercial rationality is >assumed to be the only >possible rationality; the alternative is assumed to be irrationality. > > > >The power of economic analysis described by Bruce Caldwell (PAE Review no. >13) in his >defense of the use of microeconomic theory is the power to explain the >impact of price >ceilings or floors, price supports, and the like given that the units >involved react to price >according to the commercial logic. I would agree with Caldwell that if >this condition is met, >then microeconomic theory does have wide applicability. > > > >However, there is a large issue that requires further exploration, and it >has nothing to do >with the contestable assumption that wants are unlimited and resources >finite. I am quite >prepared to grant these assumptions for short-term analysis of many >economic issues. >What I am not prepared to grant is that two additional conditions for >application of the >commercial logic are in fact met by most of the economic units with which >economic >analysis must deal if such analysis is to be useful in thinking about >economic issues. > > > >The first condition is that there must be a numeraire that can be used to >perform the double- >entry bookkeeping that is core to the commercial logic. A numeraire, or >common measurement >for otherwise diverse elements, is required to know if you are buying >cheaply and selling dearly, >and, in fact, is required if the commercial logic is to have any meaning >at all. > > > > From this observation follows the second condition that must be met if > commercial logic >is to apply: the goals of the units being analyzed must be the goal of >having commonly >measured inflows at least equal to or in excess of outflows. However, as >is widely recognized >the goals of many social units, such as families and even large commercial >corporations, >are multiple and cannot be toted up as a simple double-entry bookkeeping >exercise. To take >a simple example: children are not produced in accord with variation in >the current, or even >projected, price of labor, so that even if the amount of labor offered >from an existing stock of >people varies with price (a doubtful assumption), labor markets will also >be rendered slightly >odd by virtue of the failure of the model of commercial logic to capture >the full array of relevant >variables. For large firms with political, social and market power, >long-term strategies of >location, survival, and other goals are likely to outweigh and obscure the >simple application >of commercial logic. > > > >Where both numeraire and the simple commercial goal exist, microeconomic >theory can be >a useful way of describing probable action and outcomes. Many of Bruce >Caldwell's examples >of the power of economic reasoning probably meet these requirements. If >new rental housing >is added in response to expected revenues from rent, and if apartment >rental rates weigh >heavily in consumer demand, then rent control may reasonably be expected >to result in >shortages. If, however, as is apparently the case with minimum wages, >there are other >factors that weigh more heavily than price on behavior of units involved >(relatively fixed staffing >requirements, number of unskilled people in the labor force, and so on) >then neoclassical >price theory becomes less useful. It is certainly less useful in >exploring the behavior of large, >international corporations with multiple goals, and of families with a >variety of lifestyle options, >than it is in explaining the behavior of small firms that operate in >markets consisting of other >such firms. > > > >The answer to Guerrien's Essay is, therefore, it depends on what you are >analyzing. There >is certainly something worth keeping in standard microeconomics, but we >should not be >deluded by the fancier ways of articulating what remains a simple model, >a model so simple >that it cannot capture the complexity of interaction in >economies. Superior analysis requires >recognition of this greater complexity. > >SUGGESTED CITATION: >Anne Mayhew, "Superior Analysis Requires Recognition of Complexity", >post-autistic economics review, >issue no. 14, June 21, 2002, article 7. ><http://www.btinternet.com/~pae_news/review/issue14.htm>http://www.btinternet.com/~pae_news/review/issue14.htm > > > > > >Bruce Leier > > > >--- >Incoming mail is certified Virus Free. >Checked by AVG anti-virus system (http://www.grisoft.com). >Version: 6.0.371 / Virus Database: 206 - Release Date: 6/13/2002 ****************************** Harry Pollard Henry George School of LA Box 655 Tujunga CA 91042 [EMAIL PROTECTED] Tel: (818) 352-4141 Fax: (818) 353-2242 *******************************
--- Outgoing mail is certified Virus Free. Checked by AVG anti-virus system (http://www.grisoft.com). Version: 6.0.377 / Virus Database: 211 - Release Date: 7/15/2002
