History of Modern Non-Marxian Economics: From Marginalist Revolution through the Keynesian Revolution to Contemporary Monetarist Counter-revolution

605 Pages·1985·62.558 MB·English

by  Antal Mátyás D. Sc. (Econ.) (auth.)

HISTORY OF MODERN NON-MARXIAN ECONOMICS
HISTORY OF MODERN
NON-MARXIAN ECONOMICS
From Marginalist Revolution through the
Keynesian Revolution to Contemporary Monetarist
Counter-revolution
Second edition
ANTAL MATYAS D. Sc. (Econ.)
Head of Department of the History of Economic Thought,
Karl Marx University of Economics, Budapest
Macmillan Education
© Akademiai Kiad6, Budapest 1980, 1985
Softcover reprint of the hardcover 2nd edition 1985 978-0-333-38957-7
Originally published in Hungarian as
A MODERN POLGARI KOZGAZDASAGTAN T0RTENETE,
es
Kozgazdasagi Jogi Konyvkiad6, Budapest
Translated by Istvan Veges
Translation revised by Hugo Radice (Parts 1-9) and Peter Tamasi (Part 10)
Second, revised and enlarged English Language edition
published 1985 by St. Martin's Press as a co-edition with Akademiai Kiad6, Budapest
All rights reserved. For information, write:
St. Martin's Press, Inc., 175 Fifth Avenue, New York, NY 10010
First published in the United States of America in 1985
Library of Congress Catalog Card Number 84--40658
ISBN 978-0-333-36608-0 ISBN 978-1-349-18005-9 (eBook)
DOI 10.1007/978-1-349-18005-9
CONTENTS
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II
Part One
The foundatioiB of modem no&-Marxian economics
Chapter I. A general survey of subjective economics in the 1870s . . . . . . . . . . . . . . . . . . . . . . . . 15
Chapter 2. The subjective interpretation of value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chapter 3. Jevons's attempt to determine the equilibrium exchange ratio by means of marginal
utility................................................................ 23
Chapter 4. Marshall's attempt to build the demand function on the principle ofd iminishing utility 27
Chapter 5. Gossen's second law.................................................... 32
Chapter 6. The law of costs according to the followers of the marginal utility theory . . . . . . . 35
Chapter 7. A critique of the marginal utility theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Chapter 8. Walras's and Cassel's general equilibrium theory............................ 52
The Walrasian concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
The Casselian concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Chapter 9. Marginal productivity theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
General characteristics. Approaching the problem from the viewpoint of the
history of science . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
The law of returns with partial factor change, or returns to proportion . . . . . . . 70
The demarcation of the spheres of returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Returns to scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
The law of returns with partial factor change in the case of a finite number of
production techniques with a fixed capital-labour ratio for each technique . . . . 81
The marginal productivity approach as a theory of income distribution . . . . . . . 83
A critique of the marginal productivity theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Chapter 10. Bohm-Bawerk 'sand Samuelson's attempts to find a measure of the volume of capital
good~................................................................ 103
Bohm-Bawerk's average production period ......... ; . . . . . . . . . . . . . . . . . . . . . . 103
Samuelson's factor-price frontier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
5
Part Two
Farther development of the equilibrium theory of price fonnation
Chapter I. The transformation of subjective value theory into the logic of rational choice.... 119
Chapter 2. Allempts at constructing the demand curve by the indifference-curve approach . . . 123
The contributions of Edgeworth, Fisher and Pareto . . . . . . . . . . . . . . . . . . . . . . . . 123
Hicks's contribution to the further development of the theory . . . . . . . . . . . . . . . 128
The main characteristics of the indifference-curve approach . . . . . . . . . . . . . . . 128
How do we find the optimum combination of commodities for the consumer? 130
The income--consumption curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
The price--consumption curve. An attempt to derive the demand curve by means
of indifference-curve analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
The two effects of a price change. Their separation represented graphically . . 134
The demand curve of Giffen goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
A critique of the indifference-curve analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Revealed preference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
A few comments on the revealed-preference approach . . . . . . . . . . . . . . . . . . . . 145
Chapter 3. An auempt to derive the supply curve from the behaviour of the profit-maximizing
entrepreneur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Introductory remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
The system of isoquants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
The system of isoquants in the case of factors with continuous but limited
substitutability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
The main characteristics of the system of isoquants . . . . . . . . . . . . . . . . . . . . 147
The determination of the cost-minimizing factor combination for producing a
given output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
A few remarks on the isoquant system based on continuous substitution . . 154
The elasticity of substitution and the capital-intensity function . . . . . . . . . . . . . 157
Leontiers production function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
The isoquant in the case of perfect substitution between factors . . . . . . . . . . . . 165
The cost function...................................................... 165
General characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Short-run cost function in the case of continuous substitution . . . . . . . . . . . . . 166
Introductory remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
The dependence of average fixed cost per unit of product on the volume of
output........................................................... 167
The dependence of total variable cost on the volume of output . . . . . . . . . . 167
The dependence of average variable cost on the volume of output . . . . . . . . 169
The dependence of marginal cost on the volume of output . . . . . . . . . . . . . . 170
The dependence of average total cost on the volume of output . . . . . . . . . . . 170
6
Long-run cost function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Cost function based on Leontiefs production function . . . . . . . . . . . . . . . . . . . 174
The curve of production possibilities-the transformation curve. . . . . . . . . . . . 176
The equilibrium condition on the supply side in the case of pure competition at the
firm level............................................................. 181
Some critical comments on the determination of the equilibrium condition of
the firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
The equilibrium condition on the supply side in a purely competitive industry . . . . 186
Chapter 4. The 011llines and critique of a modern variant of general equilibrium theory . . . . . . 194
Chapter 5. The welfare effects of pure compelition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Part 1'hree
Tbe emergeace aDd development of the moden aoa-Marxiao theory of market forms
Chapter I. Introduction........................................................... 219
Chapter 2. Price determination in a monopoly situation................................ 222
Total revenue function and marginal revenue.............................. 222
Equilibrium under monopoly. The Cournot point.......................... 224
Some differences between monopoly and pure competition . . . . . . . . . . . . . . . . . . 226
Chapter 3. Chamberlin's theory of monopolistic competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
The condition of .. price equilibrium"..................................... 229
The condition of .. product equilibrium" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
The condition of equilibrium in the case of manipulation through selling costs . 232
Chapter 4. The problems of market equilibrium in duopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
Chapter 5. In the presence ofm onopolistic elements the efficiency criteria ofp ure competition no
longer apply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Chapter 6. The classification of market forms by Triffin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Chapter 7. A critique of the non-Marxian interpretation of monopoly . . . . . . . . . . . . . . . . . . . . 248
Part Four
Tbe role of the time factor in ecoaomic analysis
Chapter I. General characteristics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Chapter 2. The analysis of problems relating to delayed adjustment by means of the Cobweb
Theorem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
Chapter 3. The period analysis of the Stockholm School. The role of expectations 273
Part Five
Some applkatioas of ecoaometrics in ecoaomic research
Chapter I. General characteristks.................................................. 281
Chapter 2. Ragnar Frisch's allempt to measure the marginal utility of money . . . . . . . . . . . . . 284
7
Chapter 3. Attempts to formulate the macro-economic production function in terms of
econometrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
The CoblrDouglas production function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
A critique of the CoblrDouglas production function . . . . . . . . . . . . . . . . . . . . . . . 292
Attempts to compute the elasticity of substitution by econometric means -
the CES function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
Part Six
The problem of uniting history and logic in non-Marxian economics
Chapter I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 I
Chapter 2. The viewpoint of the German historical school . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303
Chapter 3. The viewpoint of the .wcio-legal school . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Chapter 4. Eucken 's attempt to resolve the "great antinomy" in a historical and logical approach
to economic phenomena . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
Part Seven
Determination of the price level--attempts to fit money into the equilibrium theory
Chapter I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
Chapter 2. The determination of the price level in Irving Fisher's theory . . . . . . . . . . . . . . . . . . 316
Statement of the theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
A critique of the theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
Chapter 3. The cash-balance approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
Statement of the theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
A critique of the cash-balance approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Chapter 4. Wiche/l's explanation of changes in the price level. . . . . . . . . . . . . . . . . . . . . . . . . . 328
Wicksell's attempt to integrate money theory and price theory . . . . . . . . . . . . . . . 328
The disturbance of monetary equilibrium upsets the equilibrium of reproduction 331
A critique of Wicksell's theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
Part Eight
The Keynesian turning-point in non-Marxian economics
Chapter I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
Chapter 2. The outlines of Keynes's employment theory................................ 346
Chapter 3. Keynes'.f theory of aggregate demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Consumer demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Attempts to reconcile the short-and long-run consumption functions . . . . . . . . . 354
Chapter 4. Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
Keynes's representation of the relationship between saving and investment . . . . 362
Chapter 5. The determination of the equilibrium level of national income-the multiplier effect 367
Is the saving-investment equilibrium a condition of the equilibrium of repro-
duction?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 71
The real core of the multiplier effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
8
Chapter 6. Keyru?s 's theory of money and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
A critique of the Keynesian theory of interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
Chapter 7. Post-Keynesian micro-theory of the demand for money . . . . . . . . . . . . . . . . . . . . . . 399
Chapter 8. Hicks's and Hansen's attempts to determine the rate of interest and national income
simultaneously by means of the IS and LM curves . . . . . . . . . . . . . . . . . . . . . . . . . . 402
Chapter 9. The labour market in Keyru?s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409
Chapter 10. A summary appraisal of the Keynesian theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416
Chapter 11. Kaldor's attempt to create a distribution theory on a Keyru?sian a.r distinct from a
marginal productivity basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Part Niae
Growdl theories ill _..Marxim ecoaomics
Chapter 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
Chapter 2. Growth models built upon a Keynesian theoretical basis . . . . . . . . . . . . . . . . . . . . . . 433
General characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
The accelerator effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435
Domar's growth theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441
Statement of the theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441
A critique of Domar's theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443
Harrod's growth theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
The equilibrium rate of growth, G.,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
The G and G. rates of growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
Some critical comments on Harrod's growth model . . . . . . . . . . . . . . . . . . . . . . 452
Hicks's trade-cycle theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457
The Hicksian model of growth at a constant rate . . . . . . . . . . . . . . . . . . . . . . . . 457
The explanation of the cyclical movement of reproduction . . . . . . . . . . . . . . . . 461
An evaluation of the Hicksian trade-cycle theory . . . . . . . . . . . . . . . . . . . . . . . . 467
Chapter 3. Neo-classical growth models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470
General characteristics. Factors influencing the rate of growth . . . . . . . . . . . . . . . 470
Solow's attempt to reduce the rate of growth of per capita output to two
components and to construct an aggregate production function by statistical means 475
The golden-age growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
Optimum rate of the investment ratio and the golden rule of accumulation . . . . 483
Embodied technical progress and the vintage model . . . . . . . . . . . . . . . . . . . . . . . . 489
The theory of induced technical progress as the alternative neo-classical theory of
equilibrium growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493
An appraisal of the theory............................................ 501
The amount of technical change treated as an endogenous variable . . . . . . . . . . . 504
Eltis's model........................................................ 506
Some critical remarks on neo-classical growth theories . . . . . . . . . . . . . . . . . . . . . . 511
9
Chapter 4. Kaldor's growth theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
Statement of the theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
Some critical comments on Kaldor's growth model. . . . . . . . . . . . . . . . . . . . . . . . . 527
Part Tea
Tbe theoretical reflection of the problems of iaftatioa aad uaemploymeot iD coatemporary
-.Marxian economics
Chapter 1. The Phillips curve doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
The post-Keynesian explanation of the movement of money wages and of inflation 533
Critical comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537
Chapter 2. Friedman's monetarist counter-revolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541
The main characteristics of the economy of the United States after the Second
World War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541
Friedman's principal statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543
The determination of nominal national income in Friedman's theory . . . . . . . . . 547
The effect of unanticipated inflation...................................... 551
An attempt to answer some problems raised by monetarism . . . . . . . . . . . . . . . . . 554
Is the government really unable to influence employment and output'! . . . . . . . . 558
Chapter 3. The new micro-economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562
The search model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562
Critical comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565
Chapter 4. The new classical macro-economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569
The major characteristics of the theory. The hypothesis of rational expectations 569
Disputation of the efficiency of government spending in the 1970s . . . . . . . . . . . . 572
The explanation of business cycles in the new classical macro-economics . . . . . . 574
Critical comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575
Chapter 5. Cost-push inflation ......................................... :. . . . . . . . . . . 580
Chapter 6. The new macro-economics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
The so-called non-Walrasian model. The non-market-clearing paradigm....... 585
The disequilibrium model or the equilibrium model with rationing . . . . . . . . . . . 588
Critical comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Chapter 7. The new-new micro-economics. The contract theory of the market . . . . . . . . . . . . . 595
The A-8-G model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Okun's model......................................................... 596
Some specific statements of new-new micro-economics . . . . . . . . . . . . . . . . . . . . . . 598
Critical comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602
Author lnrkx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605
Subject lnrkx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
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