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Date: | Fri Mar 31 17:19:22 2006 |
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To Lawrence:
I may not have been sufficiently precise. When I say
that the principal goal of the neoclassical economists
was to evaluate interventionist arguments, I do not
mean that the neoclassicals (or Austrians) are
interventionists or non-interventionists. My argument
is that methodologically individualism is required to
evaluate most arguments relating to intervention,
whether they are for or against it.
To Alan:
I assume that you are writing about the Marshallian
theory of the firm. I am not a Marshall scholar so I
cannot attest to his intentions. But I learned the
micro theory and I teach it as an imaginary construct
that we use because of the complexity of market
interaction. It helps us comprehend competition and
how, under certain conditions, _individual action_
causes consumer wants to be satisfied (economic
efficiency or the invisible hand). Its advantage over
general equilibrium theory is that in teaching it, we
are inclined to refer to incentives as opposed to
dependent variables or simultaneous equations. I
suppose that there is a danger in misleading gullible
students into thinking that u-shaped costs curves are
drawn in the corporate board room.
As I recall, the idea of a representative firm was
attacked very early as being unrealistic. But that
attack misses the point, except in the sense that the
model may have been improperly used to characterize
real production.
Pigou and followers began to use Marshallian firm
theory to defend interventionist arguments - for
example, in the _monopolistic competition revolution_.
This was a misapplicationm, as became evident several
decades after Coase's 1937 _The Nature of the Firm_.
Coase depicted the firm as an employment compact among
independent agents. This led ultimately to the new
institutionalist theory of the firm, which is about as
individualistic as one can get. The "modern theory"
has also been used in the evaluation of
interventionist arguments, particularly with respect
to antitrust and regulation. There is a sense in which
it re-revolutionized the theory of intervention in
order to correct for monopoly. (It has other uses in
business administration and business history.)
Pat Gunning
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