A Marxist/Keynesian critique of Say's Law

Economics Economics Questions
61

Thanks Astroglide.

I have a reasonable familiarity with both Walras and Schumpeter, and unfortunately I find Rothbard’s portrayal of Schumpeter’s relationship to Walras to be specious.

It is true that Schumpeter did regard Walras as the greatest economist–and this partly reflected Schumpeter’s inferiority complex towards those who appeared to be able to reason mathematically (I say appeared to be able to do so because Walras wasn’t actually able to solve the mathematical problems he set himself).

But what Schumpeter did in his Theory of Economic Development was to take Walras’s general equilibrium as a starting point, and then show that as soon as one considered the process of economic evolution, every conclusion in Walras was wrong.

This included Walras’s Law by the way, which is simply a restatement of Say’s Law.

Therefore Schumpeter didn’t “apply this theory [general equilibrium] to the real world of dynamic change”, but instead showed that once one considered dynamic change, everything in the static framework of general equilibrium was overturned. This is why Schumpeter is seen as the father of evolutionary economics today, which is one of the main challengers to the neoclassical hegemony that still dominates the discipline.

If you’d like an overview of Schumpeter’s work, you could check out my lectures in Managerial Economics, which are accessible from here.

62

Mash, definitely copy/paste this to a new thread and I would be happy to discuss it further.

If you want me to split this post off, I would be happy to do so. Just reply to this post.

63

Libertystudent,

Thank you for the offer, but I will start an expanded thread on the matter and clear up the point I was trying to make. Although this probably won’t be for a while, as I am more interested in understanding the other points I raised (which I’ll also make threads for).

NirgrahamUk,

Although I think the questions raised are related to the topic, I’ll start new a new thread as you suggest. Thank you.

64

Thanks.

This is interesting, and stands in direct opposition to Rothbard’s view on Schumpeter from above - namely, that

“…Schumpeter set himself the problem of integrating a theoretical explanation of such change into the Walrasian system.”

I will read what you say on Schumpeter from the link you provide above, and also do some additional investigation of Austrian opinions on Schumpeter.

65

You really need explanation on this? What is your knowledge of history like? Check out the Black Book of Communism (or look for the site “death by government” or whatever it’s called.) The only way anti-capitalists can try to match the toll is to include colonialism as a form of capitalism, and use the number of natives killed by disease in the case of Spanish colonists to somehow (magically) show capitalism killed millions. Besides having nothing to do with free market capitalism as opposed to imperialist states, the tally still doesn’t come close. The fact that genuine free markets have been far and few between and have not been characterised by such brutality is an argument in their favour, not against…

66

Jon Irenicus,

What I meant was I was under the impression that a lot of people on this forum had the view that we haven’t had a free market. it then follows that statist and socialist systems would obviously have to have had more killed more people.

I would really be interested to read a reply by Liberty Student regarding his definition of a capitalist. He stated that capitalists are concerned with future needs and wants and then stated that a capitalist: produce, under consume, save (accumulate capital), to reinvest in more production or productive gains, to produce, under consume and save again.All within a market system with property rights.

If we accept this as our definition can we then not further distinguish between say a capitalist that produces and consumes to the extent that they have small savings (if anything) and a capitalist which produces, saves, and reinvests, with the ultimate purpose of accumulating wealth? If these two distinctions are acceptable then it seems like the two circuits proposed by Marx and Keen are valid.

67

‘capitalist which produces, saves, and reinvests, with the ultimate purpose of accumulating wealth’

does the wealth have purchasing power?, and is that why they want more of it?. or do they just like it because mommy said they need lots of it to be good, ,and if mommy had said they should collect sand they would have lots of those instead?

68

does the wealth have purchasing power?, and is that why they want more of it?. or do they just like it because mommy said they need lots of it to be good, ,and if mommy had said they should collect stamps they would have lots of those instead?

You are asking me why someone wishes to accumulate wealth? How am I meant to know what their motivation is, there are a range of factors and reasons. I do not need to say why it occurs, other than that it does occur. Ultimately though it is a subjective preference, so at best all I can do is offer some reasons or factors which would influence a person to accumulate wealth.

I think it’s important to note that humans are not the rational creatures as suggested in rationalist theories of human action. I do not have the knowledge to comment on praxeology other than from what I understand ‘free will’ is derived from the action axiom. As I stated previously I do not accept free will and I do not accept determinism but compatibilism. I also said I have been seduced by methodological holism/collectivism, although I more than likely hold a position close to the middle of methodological holism and methodological individualism.

To begin, I’m quite proud you’ve mentioned to identify one factor. Well done. So we have Institutional factors. Which is of course Mommy but don’t forget Daddy, of course there are other family members to, who is to say that Poppy or Nanna aren’t more influential?.. Individuals are born into a social structure which influences and to an extent creates the identity of the individual. It then follows that, that individual action and motivations will also be influenced by social structures. I should note here that social structures are also created by and influenced by individuals. Both possess powers and capabilities that cannot be reduced to one or the other.

An uncertain future. I’ll quote Keynes on this. Regardless of your opinion of him, I believe he identifies one of the motivations behind the accumulation of wealth:

Money, it is well known, serves two purposes. By acting as a money of account it facilitates exchange without its being necessary that it should ever itself come into the picture as a substantive object. In this respect it is a convenience which is devoid of significant or real influence. In the second place, it is a store of wealth. So we are told without a smile on the face. But in the world of the classical economy, what an insane use to put it! For it is a recognised characteristic of money as a store of wealth that it is barren, whereas practically every other form of storing wealth yields some interest or profit. Why should anyone outside a lunatic asylum wish to use money as a store of wealth?

Because, partly on reasonable and partly on instinctive grounds, our desire to hold money as a store of wealth is a barometer of the degree of our distrust of our own calculations and conventions concerning the future. Even tho this feeling about money is itself conventional or instinctive, it operates, so to speak, at a deeper level of our motivation. It takes charge at the moments when the higher, more precarious conventions have weakened. The possession of actual money lulls our disquietude, and the premium which we require to make us part with money is the measure of the degree of our disquietude.

  • Keynes, 1937, The General Theory, The quarterly Journal of Economics. pp 215 – 216

This quote further highlights why money is also a store of wealth. Which is incompatible with Say’s Law, which only considers money being a medium of exchange.

Adam Smith suggests that individuals are motivated by recognition (Theory of Moral Sentiment). The recognition that the wealth brings may also be a factor. This can be extended further and apply to the desire to climb the social ladder and the power and opportunities it brings.

Other reasons could be that they are getting such a huge inflow of money that they do not know what to do with it.

I’ve tried to make a list of various motivations why. Obviously there are more. One thing I fail to understand is for a school which stresses subjectivity and the unknowingness of why man acts, why then would you suggest that I would have the answer as to why someone would accumulate wealth? I think the question should be, is there a group of people within society whom desire to draw more out of the system then they put in. Do they desire to produce and invest with the desire to accumulate wealth; expand the gap between their supply and demand. If there is then the circuit (M- - C - - M+) holds and Say’s law is rejected.

69

One other point. I just searched ‘accumulate wealth’ and literally the first page was filled with various methods on how to accumulate wealth. Is this just an aberration or is does this represent a desire by people to accumulate wealth?

Btw, maybe my google-fu is not up to scratch tonight, but I couldn’t find any relevant results for ‘mommy’ and ‘accumulating wealth’. [H]

p.s take that as a light hearted joke into what no doubt has been a very serious discussion.

70

firstly, i am compatabilist also. compatabilism finds free will and determinism compatable. so saying you find them incompatible makes you an incompatabilist.

methodological holism is ridiculous, meth ind, is all you need.

the point about money is its wealth storing ability is what makes it worthy as a medium of exchange, read up mises regression theorem.

you need not know more about someones motivation to accumulate wealth other than that it is wealth they are accumulating : i.e they are building a store of value, of purchasing power, of real demand, consumptive potential etc etc. this is wholly consistent with Say’s law.

71

Upon further investigation, it appears that Mr. Schumpeter clearly and unequivocably was NOT an Austrian economist. Failing a direct analysis of Schumpeter’s work itself, again here I must rely upon and refer you to the work of (yet another Austrian theorist and historian) Jorg Guido Hulsmann. I apologize for this appeal to authority, but my abounding ignorance of Schumpeter requires it. Suffice it to say that I am far from alone in holding the work of Mr. Hulsmann in very high regard. I thus consider the following excerpts from his work Mises: The Last Knight of Liberalism to be sufficient evidence contra Schumpeter:

Two years younger than Mises, Joseph Alois Schumpeter immediately rose to international fame when, barely twenty-five years old, he published a 600-page treatise on economic methodology with the title Wesen und Hauptinhalt der theoretischen Nationalökonomie (The Nature and Essence of Theoretical Economics). p. 162

For Schumpeter, the only basis for scientific propositions was observation of the exterior world. And the only suitable method of economic enquiry was to follow the approach that had proven successful in the natural sciences. In short, he was a positivist who believed that the only method that could yield “facts” was observation of the exterior world. p. 166

He advocated the same views that Milton Friedman presented more than forty years later in his famous essay on economic methodology. But while Friedman’s presentation was sketchy and detached from the presentation of the actual doctrine, Schumpeter’s Nature and Essence made a 600-page case for positivism in economics. p. 167

In short, Mr. Schumpeter’s methodological positivism stands in direct opposition to praxeology, the methodological fount of all Austrian economics, properly defined.* Austrian economists have always eschewed, indeed heavily criticized, methodological positivism. Thus, it is impossible to correctly conceive of Mr. Schumpeter as being an Austrian economist. (Regardless, moreover, of whether or not Mr. Schumpeter can be properly characterized as a Walrasian theorist.)

*On methodological distinctions within Austrian economics, and the definition of what properly constitutes Austrian economics, see Murray Rothbard’s “The Present State of Austrian Economics”, 1992.

72

To enforce their harebrained schemes, yes.

73

He shares positions with Austrian economists but I think his views on business cycles and his methodological precepts exclude him from belonging to the school. He’s more of a fellow-traveller. Is this really important for a discussion of Say’s Law though?

74

Mr. Keen believes so. Do you have a point here?

75

Yeah. I want to know how whether Schumpeter is or isn’t an Austrian relates to the validity of Say’s law. That’s the “point” of what I said.

76

A capitalist is someone who engages in capitalism, which is a value free activity as far as I am concerned.

I wrote the rest of my post, somewhat irritated that Mr. Keen included my humour and or social life as part of the discussion, while avoiding a clear answer for his sloppy use of the term capitalist. It may or may not be 100% accurate, I’m not going to go back and read it.

Mr. Keen is certainly entitled to his thoughts and opinions on wealth, but I am somewhat taken aback that an “Associate Professor of Economics & Finance” would make the sort of offhand mischaracterizations of capitalists and capitalism in the manner of a sensationalist like Naomi Klein, and not a trained economist.

The issue with your conclusion, is that you presume to know what wealth is. It could be an abundance of free time. It could be freezers loaded with food. It could be a fleet of classic cars. It could be adopting 100 street urchins and sending them to school.

Mr. Keen took it one step further, and said

We’ll forget the bit about opulence for a minute because it’s Mr. Keen’s value judgment, not part of an objective definition. Mr. Keen is claiming that capitalists are not just people engaged in capitalism, but they are doing so for the accumulation of wealth and power. Since praxeologically speaking, everyone is trying to improve his circumstances, ie. increase wealth, then we’re left with a definition of someone who seeks power, presumably over others. To tighten up this definition, when prompted to name two such capitalists, Mr. Keen names the uber wealthy and politically fascist.

So this leads me to a question.

If a capitalist is someone who seeks power (presumably based on the examples, political power, power over the property of others) then what is someone who uses private property ownership to engage in exchange for the purpose of improving his personal satisfaction with no political aspirations whatsoever? That is to say, someone who engages in peaceful, moral, personal market exchange, coupled with production exceeding consumption, leading to capital accumulation, reinvested for higher productivity.

What is an efficient political atheist market actor by the definitions of Mr. Keen?

77

Mr. Keen believes so. This is clear in his argument above.

78

Is it not?

79

ha ha, priceless.

how could it be?

80

Not really. It seems like a side discussion. That is why I asked how it relates.