Robinson: An introduction to economic doctrine

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Imagine a modern economics textbook comprising of three parts, with the last two being Analysis and Modern Problems. What do you think would the first part would be called?

I doubt your answer was Economic Doctrines. But that’s exactly how Joan Robinson began her textbook An Introduction to Modern Economics back in 1973.

For Robinson, rebuilding modern economics teaching meant starting with an understanding of evolving economic doctrines. As such, she begins her revolutionary textbook with a summary of the defining battles within economic philosophy, tracing the key players and their moral and logical arguments since the writings of Fançois Quesnay in the 18th century.

Robinson’s book, written with John Eatwell, was supposed to offer a fresh new way to teach economics that would replace the ‘Samuelson’ approach to economic teaching. It failed to do so. In fact it failed so catastrophically that it never gained one tenth the circulation of Samuelson’s principles text in its short publishing history, and has been all but forgotten in modern discussions about rewriting the economics curriculum. So unpopular is this book that it is deemed unworthy of shelf space at my university library, and instead resides in an off-site library storage facility.

But its popularity should definitely not be a guide to its quality.

For those who may never read the book I want to highlight some of the more interesting content that you won’t easily find elsewhere, and that is perhaps even more important and relevant today than forty years ago when the book was first published.

As a recently trained economist one of the more shocking things about Robinson’s textbook is the way many core features of neoclassical economics are brushed away in a sentence or paragraph as mere metaphysical reasoning. She defines such reasoning as being “applied to a use of language that conveys no factual information, describes no logical relations nor gives precise instructions and yet is calculated to affect conduct.” One such concept is utility, which is described as follows when it is first introduced

Utility is the characteristic of commodities which makes individuals want to buy them, and individuals buy commodities to enjoy utility consuming them.

Another metaphysical concept is that of profit maximisation; which is purely defined in terms of itself. While it may seem a little smug of Robinson to dismiss these ideas, the unscientific nature of metaphysical concepts renders much of the economic approach to generating knowledge utterly useless. Not a week passes when I don’t see a new economics paper or seminar that makes appeals to unmeasurable and unknowable concepts, defined purely in terms of themselves, that exist precisely a story-telling devices. Just a few days ago I sat in a seminar where labour markets where being ‘modelled’ in terms of an unquantifiable concept of search efficiency, which could not be defined without circular reasoning, and offered no testable predictions.

Another feature of Robinson’s book is that unlike our new Australian learning standards in economics, her text includes the following index items

Moral considerations, 2-3, 42, 313; see also Metaphysics, Politics and Social Justice.

Slogans, 1, 3, 9-10, 59

For anyone with a mainstream economics education these terms would seem wildly out of place. Even the mere suggestion of morality in economics these days will cast you as an outsider and ruin your career prospects. Economists love to see themselves as value free, and collectively ignore the reality that any welfare analysis is inherently a moral analysis.

When discussing the rise of the neoclassicists, Robinson writes critically of their core construct of the Walrasian equilibrium.

Walras himself realised that it is not practicable to reach the equilibrium position by trail and error, but he imagined that buyers and sellers could proceed by shouting out demands and offers, finding the equilibrium set of outputs and prices before production and trade took place.

His modern followers seem to have given up pretending that this is possible, and content themselves with finding conditions necessary to ensure that at least one position of equilibrium exists.

Oh my. She really did just say that a great bulk of academic economists have simply given up on reality to content themselves with mathematical game-playing. Which implies that much of neoclassical theory itself is unable to be reconciled with real processes in the economy.

Finally, we get a taste of the controversy that surrounds the definition of capital which is generally omitted from introductory texts. Robinson includes Thorstein Veblen’s view on the orthodoxy from his review of John Bates Clarks’s The Distribution of Wealth to make the point.

Here, as elsewhere in Mr Clark’s writings, much is made of the doctrine that the two facts of ‘capital’ and ‘capital goods’ are conceptually distinct, though substantially identical. The two terms cover virtually the same facts as would be covered by the terms ‘pecuniary capital’ and ‘industrial equipment’…

This conception of capital, as a physically ‘abiding entity’ constituted by the succession of productive goods that make up the industrial equipment, breaks downs in Mr Clark’s own use of it when he comes to speak of the mobility of capital; that is to say, so soon as he makes use of it…

The continuum in which the ‘abiding entity’ of capital resides is a continuity of ownership, not a physical fact. The continuity, in fact, is of an immaterial nature, a matter of legal rights, of contract, of purchase and sale.

Just why this patent state of the case is overlooked, as it somewhat elaborately is, is not easily seen. But it is plain that, if the concept of capital were elaborated from observation of current business practice, it would be found that ‘capital’ is a pecuniary fact, not a mechanical one; that it is an outcome of a valuation, depending immediately on the state of mind of the valuers; and that the specific marks of capital, by which it is distinguishable from other facts, are of an immaterial character.

What we see in this book is what I believe is an honest appraisal of economics. The myths and legends that are passed down as fact in most textbooks are shown to be anything but. Even Adam Smith’s pin factory and the lessons of division of labour are challenged.

The book does leave the reader wondering exactly how economic research should proceed. I think Robinson would be impressed by the gains made by experimental economics researchers, particularly because their findings more often than not challenge some element of neoclassical doctrine.

If you want an introduction to economics that acknowledges the rather limited knowledge generated by the field, and starts from fundamental moral foundations, then you could do worse than tracking down a copy of Robinson and Eatwell’s textbook from your local library’s storage shed.

Tips, suggestions, comments and requests to [email protected], plus follow me on Twitter @rumplestatskin

Comments

  1. migtronixMEMBER

    Awesome post rumples thank you. I’m enjoying your expanding erudition and had not come across this work before, her methodology, terminology and conclusions (at least as far as you’ve outlined them here) very much mirror my concerns , I can see I’ll be casing 2nd bookshops this easter – although I am a member of the Melbourne athenaeum, I’m sure there’ll be a copy there.

    Cheers for a great early/insomnia read man.

    • +1, Rumples. I treasure my copy of Robinson’s The Accumulation of Capital 1965. She is very good on land. I will have to look out her Introduction. Thanks.

      • That sounds very interesting. Land economics and land rent is Rumplestatskin’s major blind spot.

        “……a great bulk of academic economists have simply given up on reality to content themselves with mathematical game-playing. Which implies that much of neoclassical theory itself is unable to be reconciled with real processes in the economy……”

        I agree, except with the proviso that there is plenty of good literature in urban economics that is being ignored today; in which case it is the classic literature that explains real life processes, and modern navel-gazing that doesn’t. Like Alfred Marshall, Robert Murray Haig, Richard U. Ratcliff, William Alonso, and Lowden Wingo over the decades, on the connection between transport system flexibility, the supply of land, and economic land rent.

        Based on Collyer’s comment, it sound like I might have to check out Joan Robinson. Can you tell me more?

        I strongly believe that the biggest and wealthiest property investors know only too well how economic land rent works, and are paying the piper to play the right tune on regulations and advocacy, allegedly to “correct for market excesses”. The extraction of zero-sum economic rent that results is a primary moral crisis of our time. Meanwhile hardly even one academic or advocate actually has the clarity of the big property magnates, in their published work and presentations. And I strongly suspect that enlightened people get discouraged through certain channels, from saying certain things; which goes for many of the most responsible bureaucrats and regulators as well as the academics. And what gets into the MSM.

  2. I see utility as the underlying real benefit of the use of a commodity, with utility modified by perceived benefit (be that additional or reductive) that together creates a value of desire.

    Then I see demand as being a combination of desire and the capacity to fund a purchase.

    • From there for example it can be argued that the most efficient implementation of a market economy is one where the difference between the expressed perception of utility and underlying real utility in a market is minimal.

      • Actually, I would argue that consumer surplus matters. Most prices are set by competition, not by utility. Consumer surplus could be said to be the gap between utility and actual price.

        The flipside of this is extractive economic rent. This erodes the gap between utility and price, usually to the point that some proportion of the population cannot afford the price at all, whereas they would have been able to in the absence of the rentiers power over them.

  3. Concur,

    Synthetic a priori and ex nihilo axioms concocted from Elizabethan to Edwardian economic [cough sociopolitical theory] metaphysical morals is about as relevant to our present day enviroment as blood sacrifices to appease the gawd[s – for a good harvest [higher equity valuations] or national virility [GDP].

    skippy…. Thanks for highlighting Robinson, Rumples, especially when so many other stripes are suffering some sort of reductive logic inbreeding. Good on you.. Cheers!

      • Reminds me of…….

        http://www.vanityfair.com/politics/features/2004/02/hitchens200402

        “……Many and various are the New York tales that are told of professor Sidney Morgenbesser. During a conference of linguistic philosophers at Columbia University, he interrupted the pompous J. L. Austin, who was saying that while many double negatives express a positive—as in “not unattractive”—there is no example in English of a double positive expressing a negative. Morgenbesser’s interjection took the form of the two words “Yeah, yeah.” Or it could have been “Yeah, right.”

        On another occasion, he put his pipe in his mouth as he was ascending the subway steps. A policeman approached and told him that there was no smoking on the subway. Morgenbesser explained—pointed out might be a better term—that he was leaving the subway, not entering it, and had not yet lit up. The cop repeated his injunction. Morgenbesser reiterated his observation. After a few such exchanges, the cop saw he was beaten and fell back on the oldest standby of enfeebled authority: “If I let you do it, I’d have to let everyone do it.” To this the old philosopher replied, “Who do you think you are—Kant?” His last word was misconstrued, and the whole question of the categorical imperative had to be hashed out down at the precinct house. Morgenbesser walked……”

  4. Great post. This post and the likes of Keen and others outside the orthodoxy it becomes clear that economics is a cult. It has inherited ideas from the past which is won’t change. It won’t alter the logic or question the propositions of its foundation. Dangerous basis to make public policy.

  5. Great post Rumple, thx for sharing. Robinson now on my “to do” reading list.

    In return, I would urge you to take a look at JW Bennett, A Breed of Barren Metal, or, Currency and Interest, 1895 —

    “Interest-taking, then, is wrong. It has no warrant in ethics. It contradicts natural law. Its logical consequences are absurdities. Its basis is an untruth, its practice an imposition. One single dollar collected that way is a dollar extorted, taken without a shadow of return. But the enormity of the amount extorted makes interest-taking a most potent factor in economic disorders.

    The scientific test of an inductive theory is the number of observed phenomena which can be explained by it. There are a number of the observed phenomena of economic science still awaiting explanation.

    1. The cause of industrial depressions and financial panics manifesting themselves periodically and extending to nations with all sorts of government and revenue systems, but all of whose financial systems are founded on rent, and interest-taking.

    2. The extremely rapid accumulation of wealth in the hands of a comparatively few non-producers.

    3. The abject poverty of a large percentage of the producing masses.

    4. The failure of improved machinery to better the conditions of the producing masses in a degree at all commensurate with the increased producing power which it has given to the laborer.

    5. The fact that non-producers receive much the largest salaries.

    6. The fact of so many laborers being doomed to involuntary idleness at times when they are most in need of employment and there is most need by others of the goods which they might produce.

    7. The fact that work is looked upon as a boon, and in times of greatest industrial depression the most extravagant undertakings seem to promote prosperity.

    8. The fact that destructive wars often stimulate industry and open up to nations new eras of prosperity, although both life and treasure have been lavishly squandered, and the laboring force of the nation made less.

    9. The tendency of unwarlike nations to fall into industrial and political slavery.

    10. The tendency of lavish wealth to undermine the integrity of the nation and lead to its decay and final destruction.

    11. The decay of the American yeoman farmer, the unprofitableness of his toil and the consequent tendency of rural populations to drift to the cities.

    12. The heavy and rapidly increasing mortgage indebtedness of the country.”

    “It will be seen how absurd this idea of interest is, if we consider that it could never be generally applied. If all were to save or lend their money out, or place it where it would produce, all should be able to collect interest, and to live without engaging in actual production. If one can live idle by the productive power of wealth, all who save wealth should be able to live idle. But we readily see that if all saved wealth, there could be no interest collected and the wealth saved would be used for consumption only. All would be obliged to work to live. We cannot conceive of a paradise of universal idleness. The wealth would be found to be unproductive. If it would be unproductive then, why not now? It is a false principle that cannot be generally applied. Try to apply it generally and the result will show the unproductiveness of wealth. Wealth is unproductive now, but it may be used as an instrument to take what others produce. This is what interest-taking means.”

    https://archive.org/stream/breedofbarren00benn#page/n3/mode/2up

    Another well worth your time is Michael Flürscheim, The Economic and Social Problem, 1909 —

    “All attacks upon interest were ineffective as long as the root of the poisonous vegetation was not touched. Finally the man of science tried to justify what was universally practiced. Only in this way can we explain the defense of interest set up by political economists: threadbare sophistries of so flimsy a fabric that custom and prejudice alone prevent every observer from seeing through them. An untutored savage would laugh at such teachings, or would think their exponents possessed by evil spirits. Try to make him understand, when he borrows one of his neighbor’s horses which the other does not need, but only keeps in reserve for an emergency, that his feeding of the horse is not a full equivalent for the loan, provided the use the animal is put to does not decrease its value. Try to make him see the possibility of a claim amounting to two horses after a certain number of years, both as young and good as the original horse was when he borrowed it, and that a time may arrive when, though the borrowed horse long since went the way of all flesh, the debt to his neighbor or his heirs shall have grown to the extent of more horses than are possessed by the whole tribe. A mere savage will never succeed in seeing the possibility, not to say the justice, of such a claim; it needs a civilized man to understand the effect of compound interest, and an economist or jurist to defend the principle. And now let us see how these gentlemen go about it…”

    http://www.grundskyld.dk/28-Economic_Social_Problem5.html

  6. 1+
    your posts are on different (higher) level compare to the ordinary everyday media gibberish

    • Yes, even if I disagree with Rumples’ position on urban economic land rent and urban planning, his intelligence is undoubted and a debate on the strongest position able to be taken on his side is guaranteed.

      I sincerely wish for his intellectual firepower to be won over from the dark side on this issue.