‘Anecdotal myths’: Tinbergen's influence on Harrod's growth theory

Abstract

In the history of economic theory, Harrod's transition from the explanation of business cycles in An Essay on the Trade Cycle (1936) to his well‐known growth theory in ‘An essay in dynamic theory’ (1939) has always been surrounded by some degree of speculation. One of the topics in that area of speculation concerns the (degree of) influence exerted by Tinbergen on the development of Harrod's growth theory during the 1936–9 period.

This paper argues that Tinbergen's influence on Harrod's work mainly took place on formal, mathematical, grounds, leaving methodological matters untouched. This matter is of some importance in understanding the success of what was initially considered by others as a ‘dynamic’ extension of the Keynesian research programme and later evolved, through the work of Tinbergen and Solow, into a neoclassical growth theory.     

From profit margins to income distribution: Joan Robinson's odyssey from marginal productivity theory

The point of departure for this paper is a 1941 Note on profit margins co-authored by Joan Robinson and Nicholas Kaldor that remained unpublished until 2000. Robinson's reviews of Henry Clay's The Problem of Industrial Relationships, Bresciani Turroni's The Economics of Inflation, and Roy Harrod's Towards a Dynamic Economics, along with her 1965 Cambridge Inaugural Lecture, may be interpreted as analogous documents that develop her critique of neoclassical wage theory and identify the money wage as the economy's ‘key’ price. These publications were critical steps toward the wage mark-up hypothesis and Post-Keynesian support of incomes policy to contain inflation. Robinson's Harrod review anticipated her later ideas about economic growth. With Kalecki's notion of ‘the degree of monopoly’ and her own concept of neo-mercantilism (from the Inaugural Lecture), these themes are nascent in the Robinson–Kaldor Note on profit margins.     

Solow's Harrod: Transforming macroeconomic dynamics into a model of long-run growth

Modern growth theory derives mostly from Solow's “A Contribution to the Theory of Economic Growth” (1956). Solow's own interpretation locates its origins in his view that Harrod's growth model implied a tendency toward progressive collapse of the economy. He formulates his view in terms of Harrod's invoking a fixed-coefficients production function. We challenge Solow's reading of Harrod's “Essay in Dynamic Theory,” arguing that Harrod's object in providing a “dynamic” theory had little to do with the problem of long-run growth as Solow understood it, but instead addressed medium-run fluctuations, the “inherent instability” of economies. Solow's interpretation of Harrod was grounded in a particular culture of understanding embedded in the practice of formal modelling that emerged in economics in the post-Second World War period. Solow's interpretation, which ultimately dominated the profession's view of Harrod, is a case study in the difficulties in communicating across distinct interpretive communities and of the potential for losing content and insights in the process. Harrod's objects – particularly, of trying to account for a tendency of the economy toward chronic recessions – were lost to the mainstream literature.     

The Economics of Karl Marx: Analysis and Applications

Abstract

Controversy focuses on three questions: Is capital a distinct factor of production? Is capital quantifiable in a theoretically consistent manner? Are process stories necessary around convergence to, or changes in, equilibrium interest rates? To all, Kaldor answers ‘yes’ to Knight's ‘no’. The controversy is historically important in: 1) shifting issues in recurring twentieth century capital theory controversies from periods of production to production functions, from roundaboutness to diminishing returns; 2) revealing Knight's position on increasing knowledge offsetting diminishing returns over time as an unacknowledged ‘precursor’ of new growth theory; 3) marking the turning point for Kaldor's attachment to Austrian theory.     

Krishna Bharadwaj's “Return to Classical Theory”: an attempt towards an archaeological reconstruction

Abstract

In the wake of Sraffa's ‘return to classical theory’, Krishna Bharadwaj undertook a critical reassessment of Marshall's claim to continuity with classical theory in general and Ricardo's ‘intensive margin’ in particular. Her analysis is based on an analytical separation between two distinct ways of economic reasoning: the ‘surplus based’ and the ‘demand and supply based’ theories. Calling it an ‘archaeological reconstruction’ of the history of economic theories, I will examine how such an interpretation of theoretical shifts clarifies both the presuppositions behind analysing at the ‘margin’, and hence its radical departure from the conceptual content of the classical theory.     

The French Revolution and the Creation of Benthamism

Abstract

The article investigates Knut Wicksell's interpretation of aggregate economic fluctuations. It is shown that Wicksell described the business cycle as oscillations of an economy with increasing population and scarce natural resources around its steady growth path ('dynamic equilibrium'), provoked by sporadic technological progress. The ‘shocks’ bring about a wave‐like motion because of psychological and technical lags in the economic structure. Wicksell's suggestion that excess net savings in the depression take the form of stocks of commodities is compared to his contemporaries’ answers to the question ‘What happens to savings during the depression?’ The article also puts forward a relatively neglected connection between Malthus’ and Wicksell's notions of over‐production. Divergences between the natural and market rates of interest — essential to his better‐known ‘cumulative process’ ‐ are not a necessary part of Wicksell's business cycle, but they are important to explain why the upper turning‐point can have the nature of a crisis, which results from wrong expectations induced by cumulative price movements.     

Households' Preferences and Exchange Rate Overshooting

Abstract

This paper uses a ‘New-Open-Economy Macroeconomic’ model to study the effect of a shock to Households' preferences on exchange rate dynamics. The special features of the model are that Households' preferences exhibit a ‘catching-up with the Joneses’ effect and that international financial markets are imperfectly integrated. Results of numerical simulations of the model demonstrate that these features imply that, in an otherwise standard ‘New-Open-Economy Macroeconomic’ model, a shock to Households' preferences can give rise to an overshooting of the exchange rate.     

Beyond the principle of population: Malthus's Essay

Abstract

After an introductory section, this article reviews reasons and arguments establishing the invalidity of Malthus's construct of a ‘principle of population’. Section 3 propounds that Malthus's theory is located beyond the principle of population, with the oscillation figure as its centre. Section 4 takes note of the trajectory which the Essay describes between natural and moral science, assesses inequality and growth as the two focal points of Malthus's theory and eventually observes Malthus looking forward to a state beyond the dictates of growth.     

In defence of Adam Smith's theory of value

Abstract

This paper defends Adam Smith against his critics on his ‘additive’ theory of value as well as his theory of ‘falling rate of profits’. It argues that Adam Smith did not forget the raw materials, and so forth, in his resolution of the price into wages, profits, and rent, and that the constraint binding on the total income was also taken into account by treating rent as the residual. It further argues that there is no fallacy of composition in Smith's explanation for the ‘falling rate of profits’. It was explained on the basis of rising real wages and the farmers’ inability to shift the burden of the rise in wages from profit to rent in the context of a growing economy.     

A historiographical exhumation of J.A. Hobson's Over-Saving Thesis: General theory versus historiography

Abstract

The discussion of J.A. Hobson's understanding of over-saving has been largely confined within John Maynard Keynes' famous critique in the General Theory. I argue that gauging Hobson's contribution by ‘general theory’, that is, by an ahistorical, non-evolutionary yardstick, is to miss the larger part of Hobson's achievement. Hobson's conception of over-saving was contained within an evolving historiography of capital accumulation and took on various meanings depending on whether Hobson was discussing a competitive or monopolistic environment. I show that Keynes' ‘corrected’ version of over-saving was implicitly contained within Hobson's analysis of an evolving monopolistic industrial structure.     

Removing an ‘insuperable obstacle’ in the way of an objectivist analysis: Sraffa's attempts at fixed capital *

Abstract

The paper discusses Sraffa's consecutive attempts in the late 1920s and early 1940s to tackle a problem which endangered his objectivist, surplus-based approach to the theory of value and distribution aimed at reviving the standpoint of the classical economists. Whilst with circulating capital the value transfer to the product and the physical ‘destruction’ of the input are one and the same thing, with fixed capital this is not so. Sraffa eventually overcame the difficulty in terms of the joint products-method. This allowed him to explain relative prices and the rate of profits strictly in ‘material terms’.     

Endogenous Imitation and Technology Absorption in a Model of North–South Trade

Abstract

This paper considers the transfer of technology from the North to the South that occurs through trade in high-technology goods and explicitly models the ‘reverse-engineering’ process that allows the South to assimilate new technologies. A key finding of this study is that the South's rate of growth is dictated by the size of the country's human capital, which determines its absorptive capacity and its ability to assimilate knowledge from the North. We find that while a Southern country that is poor in human capital can only imitate, Southern countries that possess sufficiently large human capital endowments, beyond a certain threshold, signal the onset of innovation. We also find that the North enjoys a higher rate of innovation and growth with trade than without. North's gains are the highest when it trades with a human-capital ‘poor’ South, because imitation increases South's demand for Northern intermediates. But trade with the Southern countries that are human capital rich (and therefore involved in innovation), dampens their demand for Northern imports, adversely affecting North's growth. The model predicts growth convergence between the North and a South that is well passed the threshold for innovation.     

Enrico Barone's ‘Ministry of Production’: Content and Context

Abstract

Enrico Barone's famous article on economic planning, ‘Il Ministro della Produzione nello Stato Collettivista’ (‘The Ministry of Production in the Collectivist State’), which showed the theoretical possibility of an economically efficient collectivist planned economy, was published in Giornale degli Economisti in 1908. Barone's article has been widely cited, particularly in the comparative economic systems literature, but it has not been very widely read or analysed in recent years, and there is not much literature that places Barone's ‘Ministry’ model in the context of his other works or in its historical, social, or ideological context. The aims of this article are: (a) to analyse and clarify Barone's model in depth; (b) to place it in the context of Barone's other writings and the literature on the subject; and (c) to examine the apparent contradiction between Barone's hostility to socialism and his attempt to formulate the pure theory of the collectivist economy.     

Fisher and Wicksell on money: A reconstructed conversation

Abstract

The paper offers a reconstruction of the ‘conversation’ between Irving Fisher and Knut Wicksell on money as shown by references they made to each other's works. The first phase corresponded largely to the period between 1897 and 1911, when they proposed different explanations of the interaction between interest and prices, and incorporated aspects of each other's approaches into their own respective frameworks. This was followed by Wicksell's extended criticism of Fisher's compensated dollar plan and his bewilderment at its apparent lack of relation with the quantity theory of money (1912–1919). Finally, especially after Wicksell's death, Fisher came to support a significant part of Wicksell's monetary policy proposals, particularly in connection with the Swedish stabilisation experiment in the early 1930s. Fisher and Wicksell were both heirs of Böhm-Bawerk's interest theory, but interpreted and criticised the Austrian from different perspectives, which helps to explain the differences in their approaches to monetary dynamics.     

Sraffa and the Marshallian tradition*

Abstract

The paper retraces some of the stages in Sraffa's thinking about the work of Marshall, by drawing on unpublished material in the Sraffa archive from 1923 to 1930. It argues that Sraffa transformed his dissent – which was based on ideological grounds – into a ‘quest for the fatal error’ to demolish the logical construction of Marshallian theory. Some of his attacks were successful (for example, the critique of the relation between costs and output); other attempts failed (the critique of the ‘normal rate of profit’ and the critique of the concept of marginal productivity) since Sraffa could not find enough textual evidence to support his position.     

Stabilizing consumer choice: the role of ‘true dynamic stability’ and related concepts in the history of consumer choice theory

Abstract

It is often argued that the inability of Arrow–Debreu general equilibrium theory to produce an adequate proof of the stability of the Walrasian price adjustment mechanism was one of the program's most significant failures. This paper will not question this standard interpretation of the history of general equilibrium theory, but makes the case that characterizing the ‘stability’ question in terms of market stability– in particular the stability of the equilibrium price vector in the Walrasian general equilibrium model – actually helped to stabilize the standard model of consumer choice in general equilibrium theory and elsewhere within microeconomics. The problem of the stability of ‘consumer's equilibrium’ was much discussed early in the twentieth century, and it has recently re-emerged in a different guise as the ‘endowment effects’ and ‘reference dependencies’ of contemporary behavioral economics, and yet it disappeared from mainstream discussion during the period 1950 to 1980. This paper argues that shifting the discussion from the intra-agent stability of the individual consumer to the inter-agent stability of the competitive market contributed – despite its ultimately negative impact on general equilibrium theory – to the long period of stable normal science consumer choice theory enjoyed during the middle of the twentieth century.     

Marx,Sraffa, and Surplus: Observations Prompted by Garegnani (2018)

ABSTRACT

In a posthumously published article, Pierangelo Garegnani (2018. ‘On the Labour Theory of Value in Marx and in the Marxist Tradition.’) depicts Marx’s project in Capital as that of ‘developing systematically the theory of Ricardo and [the] implications of social conflict’ implied by Ricardo’s ‘surplus approach to value and distribution’. This paper argues to the contrary that Marx’s theory of surplus value and exploitation differs from (neo-)Ricardian surplus theory in fundamental ways, and modifies Garegnani’s simple Sraffian model to illustrate the distinctive implications of Marx’s theory.     

Keynes and probability: An assessment

Abstract

Most interpreters agree that Keynes had a wide-ranging, complex, ‘vision of the world’, which underlies his theoretical contributions. Whenever this is forgotten, as happens in the so-called neoclassical synthesis, not only the original Keynesian spirit goes lost but also, and especially, we lose substantive bricks for our theoretical constructions. The paper considers an important instance of this general rule; namely Keynes's views on the logic of probability, meant as the field concerning human behaviour in an uncertain world (hence connected to, but distinct from, the pure theory of probability, meant as a field of mathematics). The paper begins by recalling the main aspects of the classical and frequentist approaches to probability and the main criticisms they received, pertaining among other things to the limits of their applicability. We then consider Keynes's own views, stressing three aspects: the definition of probability as pertaining to the field of logic, the notion of uncertainty and of the ‘weight of the argument’, the ‘theory of groups’. We then discuss the subjective approach of de Finetti, Ramsey and Savage, and contrast it with Keynes's own views. Finally, we consider the implications of our analysis for the interpretation of Keynes's General Theory, and of his attitude towards econometrics.     

Estimating a monetary policy reaction function for the dominican republic

Abstract

The paper specifies and estimates a hybrid McCallum–Taylor monetary policy reaction function for the Dominican Republic (DR). The estimated reactions suggest that the Central Bank of the DR has been biased towards targeting the exchange rate. These findings are in line with the evidence on the fear-of-floating characteristic of developing countries. An evaluation of the estimated rule's historical performance shows that monetary base growth below (above) that implied by the ‘average’ policy reaction is associated with better (worse) macroeconomic performance.