Dear list-members

Alan Freeman said
> I would be interested to know if we agree with Gary that the distinction arose only with Keynes' intervention.

The General Theory, Ch 21 "The theory of prices", p293: "The division of economics between the theory of value and distribution on the one hand and the theory of money on the other hand is, I think, a false division.  The right dichotomy is, I suggest, between the theory of the individual industry or firm and of the rewards and the distribution between different uses of a *given* quantity of resources on the one hand, and the theory of output and employment *as a whole* on the other hand."  Keynes felt this new dichotomy was an essential contribution of the book and commented in the preface to the French edition (p xxxii) that "important mistakes have been made through extending to the system as a whole conclusions which have been correctly arrived at in respect of a part of it taken in isolation".

Regards

Andy

Dr Andy Denis
Director of Undergraduate Studies
Economics Department
City University London
London EC1V 0HB
+44 (0)20 7040 0257
http://www.staff.city.ac.uk/andy.denis


-----Original Message-----
From: Alan Freeman [mailto:[log in to unmask]]
Sent: Wednesday, August 31, 2011 7:31 PM
To: [log in to unmask]
Subject: Re: [SHOE] is macro prior to micro?

As several people have pointed out, this is a strange discussion because the
distinction between micro and macro did not really appear in the literature
until late on. I would be interested to know if we agree with Gary that the
distinction arose only with Keynes' intervention.

There is a danger in retrofitting the categories we now use onto the
economists that were writing before the categories emerged - the
'whig-historical' method. We cannot make the prior assumption that these
categories are valid. Thus the classicals may in fact have been correct in
not making such a distinction. They seem to have achieved quite a lot
without it. Hence, to search around for some predecessor of the micro/macro
distinction, in the classical literature, risks futility and irrelevance if
not downright misrepresentation.

As a mathematician by training I am always puzzled by the way economists
deploy the category 'prior'. It is never clear whether they mean 'prior in
deductive sequence', 'prior in time', 'prior in logical necessity' or
'causally prior'. These are four entirely distinct concepts. I suspect that
the modern use of 'prior' arrived as a consequence of general equilibrium.
Without general equilibrium, the word is perfectly clear and unambiguous -
it means 'before in time, and therefore, necessarily prior in cause' (since
the future cannot cause the past). A similar difficulty dogs the peculiar
usage that economists make of the word 'determine' which functions as kind
of sly algebraic substitute for 'cause'.

Dobb, Theories of Value and Distribution since Marx, CUP 1973, p185,
provides a very lucid discussion of this issue in assessing Marshall's
critique of Jevons. Speaking of Jevons sequence of reasoning to the effect
that 'cost of production determines supply' - 'Supply determines final
degree of utility' - 'Final degree of utility determines value', Marshall
writes

"Now if this series of causation really existed, there could be no great
harm in omitting the intermediate stages and saying that the cost of
production determines value. For if A is the cause of B, which is the cause
of C, which is the cause of D, then A is the cause of D. But in fact there
is no such series". He then, according to Dobb, 'develops his own view of
"mutual determination" (which he regards as the "greatest objection of all")
to Jevons's presentation, he ends by inverting the order of Jevons's
statements ("a catena rather less untrue than his can be made")

        Utility determines the amount that has to be supplied
        The amount that has to be supplied determines cost of production
        Cost of production determines value,
        Because it determines the supply price which is required to make the
producers keep to the work.'

The curious thing about this sequence is that the future does in fact
determine the past: the amount that 'has to be supplied' determines the cost
of production, yet, the amount that has to be supplied is not known at the
time that production takes place. 'Determination' works backward in time.
Dobb cites Marshall's principles, Appendix I, p818, as the source of these
remarks.

One cannot but suppose that Marshall's awareness of this logical difficulty
influenced the critical weight that he assigned to the criterion of mutual
determination, which mutated into general equilibrium and Samuelson's
endorsement of Walras as the true founder of modern economic method.
Yet there is an unsolved problem. Determination, or priority, in time, has
been concealed rather than removed. What has since happened, in my view, is
that conceptions such as 'priority' have come to take the place of time, in
the discourse of economics. If we bring back time, then a lot of things
become clearer. This is why, on many matters, the classical and indeed the
founding marginalists, reasoned in a way that is not properly understood
today. It is, in my view, a superior way to reason, and that is why we
should not superimpose on them a way of reasoning that they could not
conceivably have resorted to.

Alan