Jim Devine wrote: > > and in finance, the hard-core versions of the "efficient markets > > hypothesis" are based on rational expectations.
Julio Huato wrote: > Maybe I'm wrong, but you seem to insinuate that this is wrong. It's > not necessarily so. Why is rational expectations a bad hypothesis to > adopt when setting up a model to look at certain problems (while > ignoring others)? RATEX is nothing but an equilibrium condition (and thus can help someone test the internal consistency of a model), where the actual value of an economic variable equals the expected value (with a little random error and not true uncertainty thrown in). However, it's one of those equilibrium conditions that has a very very weak story for why and how equilibrium is achieved. (It's not like supply and demand, which has a couple of pretty good stories for equilibration.) The problem is that the advocates of the efficient markets hypothesis and its ilk take this purely mental test (is the model internally consistent?) and what might be an interesting curiosity to some and then reify it, treating it as more important than empirical reality. In practice, i.e., when confronted with empirical referents, the RATEX hypothesis has been soundly rejected. It may be a nice logical tool, but that's all it is. It's empirically irrelevant, and it's the real world that matters. To invert Hegel, the real world is not logical and logic is not the real world. (Here "logic" refers to formal logic and math.) > Didn't Marx assume rational expectations (in fact, > the degenerate case of rational expectations, "perfect foresight") > throughout his Capital? No he didn't. I don't know what you're talking about. I'd like to see where he made that assumption. Not only was Marx loath to state his assumptions (except for his volume I and II assumption that value = price), but he did not apply the deductive logician's method (assumptions or axioms --> theorem, etc.) Rather, as he makes pretty clear, he's applying a dialectical heuristic as a way of doing inductive logic, investigating the empirical world to progress from the abstract totality to the concrete totality. (Alas, he never finished the process.) More importantly, in both volumes I and II of CAPITAL, Marx does not deal with individual decision-making except for historical illustration (to make abstract analysis more readable, since he wanted workers to read it). Rather, he considers the structure and process of capitalist production as a whole and then the structure and process of the circulation of commodities in capitalist society as a whole. It seems at first that equilibrium shows up in volume II (in the reproduction schemes). But that's not really an equilibrium but rather a condition required for continued reproduction. Like the Harrod growth conditions (do they teach those in graduate school anymore?), it's a "knife-edge," not an equilibrium. Once the conditions are achieved, there's no reason to keep meeting them over time (at least in Marx's schema). It is only in volume III that he discusses decision-making (specifically, profit-seeking) within the context of that structure and process of production, circulation, and reproduction. It's only in individual decision-making that RATEX (or perfect foresight) can apply in any way. He also did not impose equilibrium conditions as a way of understanding the normal operations of the economy until volume III (with profit rates equalized between sectors). Without the equilibrium condition -- and without the neoclassical worship of equilibrium conditions as being some kind of underlying reality -- RATEX is totally and utterly irrelevant. Even when equilibrium raises its ugly head, Marx does not see it as actually being achieved. Instead, it represents a center of gravity around which market prices oscillate. Centers of gravity need not be achieved: remember that equilibrium of the Moon/Earth system involves the former crashing into the latter. So RATEX is again irrelevant and downright silly: it says that on average, the Moon already has crashed into the Earth and that we should act on that fact. I've got to go hide in my shelter... -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
