When I wrote: .. the assertion that the butcher pursues self-interest and
does not intend the benefit the customer gets from consuming meat is only
half the story. The other half is that the customer intends to get the
benefit and pays for the meat., Sumitra Shah wrote:
Indeed it is only half the story. How and where the meat was
cooked, and by whom remains untold. Since economics deals with production,
it is an artificial neglect of not only the productive activity, but also of
the other complex motives of human beings.
I have two points to reply here.
1. What is missing?
I wrote: The other half is that the customer intends to get the benefit and
pays for the meat. I did not mention cooking as being the missing part. I
wish to argue that the failure to explicitly include the means of payment in
the models of the market resulted in the split between micro and
macroeconomics, and between trade theory and monetary theory, and even
between exchange models and trade models. If we include the payment
explicitly, then [1]micro becomes macro, and [2]trade theory becomes
monetary theory. The unresolved debates in macroeconomics are mostly about
payment, though not seen to be so. Secondly, the reconciliation between the
customers intention to derive benefit and the sellers lack of concern with
the customers benefit is crucial for [3]social choice theory, and especially
for welfare economics via Menger, Pareto and Arrow. I hope to explain this
in future posts. The failure to include payments and agreements between the
buyer and seller to reconcile their concerns with the benefit has had
crippling effects on theory.
I would not say that it was a neglect. It was a problem of worldview,
namely, how we used to see the universe of the economy. Smith and others
surely did not neglect demand when they thought about the market. The
problem was to find out a method of talking explicitly about payments. Says
Law and quantity theory of money did try to pick up the matter of payment,
but without a sharp formal articulation. So I am not convinced that it was
neglected. I am saying that it is a modeling issue of explicitly bringing
the payments into the picture. It was a failure to see something that needed
to be seen.
2. Does economics study production?
I am very puzzled by the statement Since economics deals with production, it
is an artificial neglect of not only the productive activity... I do not
understand how economics can deal with production and then neglect
productive activity artificially. I also feel dazed by the view that
economics deals with production. I thought that production as such (when not
intended for sale through the market) is a subject of a branch of biology
called ecology. In it, the principle of conservation of energy is
articulated as constrained optimization so that the mouse reaches a general
equilibrium of both production and consumption such that the ratio of
marginal utilities is equal to the ratio of marginal costs.
For gregarious animals such as ants or bees, and especially of primates and
man, there is a political structure within the group to apply a political
rule to production: from each according to ability to each according to
need. This determines division of labor and distribution of output. This is
not economics yet. Only if production is meant to be a way to earn profit
through exchange does it become a part of economics. In short, economics
studies exchange, as Whately articulated so well, and as Mises left no doubt
about it.
I realize that it is possible to be confused about Marxian political
philosophy versus Marxian economics. The talk about modes of production and
how they affect beliefs and cultures is not economics: it is political
philosophy and sociology. Marxian economics talks about exchange and theory
of value. The economics in Marx consists of the incomplete circuit CMC
(commodity-money-commodity) and MCM (money-commodity-money) in the exchange
scenario, and the labor theory of value. It is a mistake to suppose that
labor theory of value is merely a production-related matter. Ricardian trade
theory is meant to tell us that the exchange process affects the decision to
allocate labor to the production of particular goods, so that the labor
content is a response to exchange. In short, in Marxian economics, the
subject is exchange, and not production as such.
My fear is that the whole Keynesian enterprise of looking at consumption is
thrown away as artificial neglect. I am sure that long before the customer
can cook the meat, Keynes is crying about how he is going to pay for it. The
payment, in the form of money, has something rather crucial to affect how
the meat gets to the customer or fails to go. No, I am not convinced that
economics deals with production and neglects productive activity
artificially.
Blessed will be the day when someone can assure me that the customer does
not care whether he gets any benefit from the meat he buys, and that nobody
cares about payment. That day, I will happily go to the Trent River and
spend my life in production: catch fish and more fish, and then sometimes
neglect cooking it, because sushi is not taboo. I do not know about raw
meat, however.
Mohammad Gani
References
1. http://econwpa.wustl.edu/eps/mac/papers/0404/0404012.pdf
2. http://econwpa.wustl.edu/eps/it/papers/0405/0405005.pdf
3. http://econwpa.wustl.edu/eps/mic/papers/0405/0405008.pdf
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