Showing posts with label capital controversy. Show all posts
Showing posts with label capital controversy. Show all posts

Sunday, July 12, 2015


After weeks of googling myself, I am pleased to announce that my working paper on human capital augmented production functions is finally live on RePEc. You can view it here. You might recognize the theoretical proof from a previous post I wrote on here a few months ago while the paper was still in development.

What is in the paper that was not in the blog post are as follows:

  1. A reasonable review of the literature
  2. A simulation to drive the point home
  3. Zombie puns
Enjoy, and leave comments below. Or cite me in a rejoinder - that would be cool too!

UPDATE: In the interest of transparency and what I meant to do but just forgot (thanks to Robert Vienneau for reminding me), here are my R scripts. I apologize in advance about the run time of the second one:

Humbug Simulation
Success Simulation
If you have any trouble with the scripts, make sure you clear your R environment from one before running the other.

Thursday, June 11, 2015

#tbt Joan Robinson 1972 The Second Crisis of Economic Theory

More often than not I find my curmudgeonly self channeling the snark of Joan Robinson. To me, Robinson was the best economist to ever live.

First, Robinson, unlike many (dare I say most?) economists is actually concerned with economic history and the history of economic thought. To her, a theory was only as good as it was able to explain a particular situation that actually happens in the real world.

Second, Robinson rarely, if ever used math. The distinct advantage to this approach is that she actually talks about real things. So focused was Robinson on real things instead of math, that she led the charge on the UK side of the Capital Controversy which ultimately demonstrated the folly of neoclassical production functions theoretically, mathematically and empirically.

In this particular piece, she takes on the economic orthodoxy's response to the "Second Crisis" - that of increasing inflation coupled with economic stagnation. To her both crises - that of the great depression and that of the great stagflation - evidence a fundamental failure to seriously consider the questions Keynes tried to evoke: How do we maintain near-full employment, and what is employment for?

Download the article here

Wednesday, May 20, 2015


This post I wrote for the New School Economic Review blog seems relevant again in light of Paul Romer's paper on "mathiness." It's a shame when heterodox economists get raked over the coals for criticizing the bad math of mainstream economics. Here's what I wrote back in December:

In the mainstream of economics, we find instead a core of ideologues – high priests interested in indoctrinating their students with a mathematical metaphysics out of accord with actual evidence. These reactionaries latch onto any theory which fits their dogmatic canon and runs on the presumption that markets and privatization are good. Since the 1960’s up until the present the discipline has shifted not only rightward, but inward. Those who object to the theoretical underpinnings of economics by demonstrating them to be inconsistent, misguided, or circular are pushed to the margins of the profession and met with a wall of silence. So, who is really protesting against mathematical formalism?

Read the rest at the New School Economic Review

Thursday, May 7, 2015

#tbt Anwar Shaikh 1974 Laws of Production and Laws of Algebra: The Humbug Production Function

The cornerstone of New Classical economics is the production function. The function was largely an ex-post explanation of a phenomenon of labor and capital quantity indices over short periods, commonly referred to as the Cobb-Douglas. Despite the interventions by Joan Robinson, Pierangelo Garegnani, Luigi Pasinetti, and others, the New Classical economists defended the functional form of the Cobb-Douglas on the basis of its empirical consistency. This evidence, such as the 1957 paper by Robert Solow in the Review of Economics Statistics, was held up as proof positive that the Cobb-Douglas form was the iron law of production.

Then Anwar Shaikh wrote his Humbug paper, and all that changed. Okay, well actually nothing changed. Solow was then editor of the Review of Economic Statistics in which his 1957 article appeared. In order to respond to Solow's seminal work in the same venue in which it appear, Shaikh agreed to a railroading. Shaikh had to agreed to allow Solow to reply to the article and not write a followup rejoinder. As with the rest of the Capital Controversy, the Humbug paper was ignored into oblivion.

What the Humbug paper showed was quite damning for the burgeoning New Classical school of economics. It showed that the Cobb-Douglas form equation did not arise as the result of some iron law of how the factors of production convert raw materials into output. Instead, the functional form was the necessary algebraic result of accounting identities themselves. The Cobb-Douglas function, rather than describing production, actually described income distribution.

To drive this point home, Shaikh created per capita income and capital data that spelled out the word "HUMBUG" on a coordinate plane. Using this nonsensical - and frankly impossible - data, Anwar showed that the same empirical results could be derived from ANY data, so long as it conformed to a proper aggregate accounting framework. Thus, Shaikh showed that the very notion that marginal productivity determined the composition of factor inputs was weak at best. So long as all income distribution is accounted for, any index numbers for labor and capital out of wages and profit will yield results in the form of a Cobb-Douglas function. The residual, rather than being total factor productivity as interpreted by New Classical economists and their descendents, was actually the geometric mean of the wage and profit rate each weighted by the wage and profit shares, respectively.

Download the Article Here

Thursday, April 30, 2015

#tbt Luigi Pasinetti 1966 Changes in the Rate of Profit and Switches of Technique

So the Cambridge capital controversy is currently my favorite thing in straight economic theory. One of my favorites is this one by LL Cool J L. L. Pasinetti. In it, he tests the theoretical underpinnings of the Solow growth model.

Pasinetti builds a two-sector economic model with two available technologies: one with relative capital intensity in one sector, one in the other. He shows that the demand for capital is not monotonically downward-sloping across industries, as maintained by neoclassical theory. Either each industry responds to unique rates of interest which are uncorrelated with any sort of leading market rate (e.g., interbank lending rate), or some industries genuinely do exhibit Giffen-like behavior with respect to capital. In either case, this approach demolishes the notion that you can aggregate or disaggregate factor demand in any meaningful way. Any generalizations derived from macroeconomic data says nothing about underlying microeconomic phenomena.

Unfortunately, the capital critique has been ignored into oblivion in most corners of the economics profession, but I know I'm not the only one trying to bring it back.

Download the article here