I M. BLATT IOHN Table of Contents Dynomic Economic Preface ix Book I. Preliminaries 3 Systems Chapter 1. Introduction 4 A. Purpose and limitations 4 B. Structure and contents 8 C. RelationshiP to other theories in economics 12 Chapter 2. The steadY state 16 A. Introduction 16 A B. Price determination from quantities 18 Post-Keynesian Approach C. Steady state with surPlus 22 D. Some qualitative remarks 25 E. Mathematical aPPendix 28 { Book II. Theories of Balanced Exponential Growth 30 ,[l ilr Chapter 3. Balanced growth with Leontief technology 32 A. Leontief technologY 32 l' B. Balanced exponential gtowth: quantities 35 I C. Balanced exponential growth: prices 39 D. The effect of a wage rise, and other qualitative points 42 E. Mathematical aPPendix 46 M. E. Shorpe, Inc. Chapter 4. Balanced growth with uon Neumann ARMONK, NEW YORK technologY 53 A. von Neumann technologY 53 I ('()N',I'/,;N',1'S rtii ll. (lonrlitiorrs growth b9lirr llalanccr.l cxponential Chapter 9. Schematic trade cycle models: parpt rIi nc7ip67le C. The growth theory of von Neumann 61 AB.. TInhtero adcuccetiloenra: tothr-em aucltcipellieerra tmiono del 170 767 D. The growth theory of Kemeny,-Morgurrtu.r, C. The inventory cycle 776 and Thompson (perfect thriftj' OS D. Mathematical appendix 183 !. lome qualitative points 66 F. Mathematical appendix 67 Chapter 10. Schematic trade cycle models: part II 189 Chapter A. The Hicks model 189 S. The open Leontief model A. cCoonnsduitmiopntiso n7 ulnder steady7_0s621s BC.. TThhee FGroisocdhw min omdoedl e19l 8204 B. Discretionary consumption goods and D. Mathematical appendix 211 peculiar solutions C. Peculiar solutions, or7 6none g0 Chapter 11. Econometric models of cyclical behauior 217 DE.. MThaeth Leemoantticieafl ianppupte_onudtipxu tg 7model g4 AB.. TEhceo nnoemede tfroicr mmooddeellss 222107 C. Inconsistency of the econometric Chapter 6. BAlr..o TFyhotehrm sutimhlaepotlieorysn t wocifat hgs reco ow9ni2lsr uilmrcportiyo n f)l DE.. AaMnna atahlyletesmrisnaa ti2cti2av4el aapnpaelynsdisix 222373 wi{,h consumption g6 C. Consumption within ilrc KM,l,ilrr.or.y D. Results and discussron 100 l)1) Book IV. Economics of Uncertainty E. Mathematical appcnr,lcrrr.sr,rirrrr<,t r,rirrrir. ,r,l'il;rr.tr r, rr.,rl,.,,". ilvixr,r.ir,,clrr uJ,prrrl rr ,g,irl ro,,irrncrrr1rrr.okp,'rfihaete I,tp)mlaecrye1 etnoc ec oafll Oatttiegnotpioonly :t oS uagny acrx IclccIrirn.i,tr,,'X, r,r,rrr r, , rtri,r7jrrr,,r,ry mmoordee,l .w" Tithhi sa i nstrteoadduyc-esst adteis scyiesttieomna, rnya m(aes lyo ptphoes e"do ptoe nn eDceesosnatriey)f ,\/rrrl.y ( l,)ir.hrrr.r lg{ig). consumption into the system, but without the additional compli- -- - tN't'ttol)lt(:'l'l()N t t i PITDI,IMINAIIII,)S cuasutiaoln tsh eaorisryin, gth firso mch agprtoewr tcho.n Atapinasr t sforomme ntheew dreessuclrtisp,t iaosns oocfia tthede iJnrcga rbs utht em iudecah olefs sa wliemlli tk ncyocwlen,a toa ceocnocneopmt iwstes.l l Iktn iosw snu ginge esntegdin ethear-t with the possibility of "discretionary consumption goods," i.e., thctradecycleissuchalimitcycle.Finally,thechapterconcludes goods which would not be produced at all by a "petfect thrift" with a digression on "naturaf price," relevant to the theory of etioconnaorym yco. nAsnu mepcotionno mgyo oind sw ihsi cqhu acloitnastuivmeelyr s ddifefemraenndt sfruocmh dais pcreer-- v- a- luceh ainpt eercso ngo manicds 1.0 are devoted to the most important "schemat- fect thrift economy. In particular, one can prove the existence of i",; u, opposed to detailed econometric, models of the trade cycle. some highly peculiar solutions of the equations. Furthermore, un- ft u"""t"tator-multiplier model of Samuelson and the inventory der cerbain not unreasonable conditions, these peculiar solutions cyc"l e model of Metzler are discussed in chapter 9' Chapter 10 tum out to be the only solutions of the system. tat es up in tum the Hicks model, the Frisch model, and the Good- Chapter 6 retums to balanced growth, but this time with con- win model. sumption permitted. The effect of consumption is to alter, dras- Econometricmodelsofcyclicalbehaviorarediscussedinchap- tically, the nature of the solutions. In the perfect thrift system, terll.Thisisnotacriticaldiscussionofeconometricsassuch the rate of growth of the economy equals the rate of retum to in- lirrut later), but rather the chapter is devoted to explaining, vestors and is strictly limited: only a few discrete values (or per- ind cr"iotic-"izsin g, the stabitity results commonly obtained from such haps only a single value) can exist for this common rate, on purely models. In conventional wisdom, the econometric models show technological grounds. With consumption allowed, this is still true .ruu,rvthattheunderlyingbasiceconomyisstableabout.itsequi- for the rate of return, but it is false for the rate of growth. The lat- iinrirr-. Chapter 11 provei that this conclusion is untenable' The ter is free to take any value between instant collapse of the econ- Jata, when analyzed properly, show that the conventionally ac- omy and the maximum which is achieved in a perfect thrift sys- Frisch -oa"t (a staUte system) is completely excluded' tem. The actual value is related to the frugality, or lack of it, of ""pBt"oao k IV is on the economics of uncertainty. chapter 72 con' the investors; it is not determined by the price system, nor does it tains a detailed criticism of the theory of expected utility' some alter the price system. rational people may indeed use expected utility concepts for order- The final chapter of book II, chapter 7 on dynamic stability, is ing theii pr"fur"rr"", among uncertain prospects' But-it is wrong the heart and center of this work. This chapter contains the proof tfr"at att raiional people musiorder their preferences in that fashion' of the basic dynamic instability theorem for a perfect thrift Leon- The chapter contains a number of arguments in favor of this view' tief system, it shows that input substitution possibilities do nof de- Thematterisimportantinrelationtoinvestmentevaluationun. stroy, or even seriously alter, this result, and the chapter ends with der uncertainty, the subject matter of chapter 13' Everyone' at a discussion of the relevant stability literature. least after Keynes, ugr""t that investment is terribly important' It may be noted that book II is restricted to "disaggregated" y"t, trr" standard trr"6rv of investment evaluation is in a very sad growth theories and therefore contains no discussion of neoclassi- shape. It has no place for the method which most businessmen use cal one-sector or two-sector growth models. This work does nof to decide on their investments in plant and machinery, the so-called aim for encyclopedic coverage of the literature. The aim is not to "pay-back time" criterion. The iheory presented in chapter 13 is "cover," but rather to "uncover," what is of main imporbance in ,rL* ura, unlike the conventional theory, is compatible both with that literature. Specific reasons for omission of neoclassical aggre- a pay-back time criterion and with the presence of true uncertain- gated growth models are given in section 7D;3 there one will also ty oi tfre future in the sense of Frank Knight (1921)' rather than find the reasons for omitting all of tumpike theory and related beingrestrictedtothemerelyrisky,butnot:uricertain,..lotteries,, subjects. of the usual approach. Book iV is not in itself dynamic economics' Book III is devoted to theories of the trade cycle (what is termed but develops tools for such a study' the business cycle in America). Chapter 8 is general, but very im- Book V retums to discuss three topics which were touched on portant for what follows. The chapter starts from dynamic insta- earlieranddeferredforlaterconsiderationinordertoexpeditethe bility, showing that this condition need not lead to ridiculous con- flow of the argument. clusions about the global behavior of the system. Next there ap- 4prior references to limit cycles can be found in Samuelson (.19-3-!a)' Good- *t;(ie;;;ieof, rszu;si[*,'t' (1e61, 1e65), and rorre (1e77)' 3Thir i* a short notation for chapter 7, section D. lN'l'ltol)l t(:'l'loN I3 I2 PIIITI,IMINARII'S Chapter 14 goes into more detail on the nineteenth-century trade miquo is prcsented explicitly in chapter 15, but his ideas are cycle, in particular relation to Ricardo's predictions regarding fundamental for just about everything in this book. landlords and industrialists. .Ihe relationship to the classical economists, Adam smith and Chapter 15 contains the Tableau Economique of Francois Ques- David Ricardo in particular, is of a more mixed nature. on the one nay (1760). He was one of the most important of all economists, hand, "classical" assumptions are used throughout, for example, a and his contribution tends to be neglected unfairly and unduly. minimum subsistence wage which is converted into a fixed stan- This chapter is not a simple presentation of the Tableau in its orig- dard bundle of wage goods. on the other hand, some of the main inal form. Rather, it is a completely new study, using input-output tenets of classical economics are denied explicitly. These include: concepts (which are themselves based on the work of Quesnay) the classical concept of exchange value (section 8E), the assertion with quantities and prices kept separate, thus showing how both that the ,.invisible hand,' suffices to guide and determine the way are determined within that system. the system develops (section 6D), and the dynamic stability of the Finally, chapter 16, entitled "The Quicksand Foundations of classical equilibrium state (section 7B). The denial of say's law is Econometrics," contains a detailed critique of econometric theory hardly novel after Keynes. But this denial has some interesting con- and econometric methods. It is shown that this entire theory is a ,uqr"rr"", for an evaluation of what went wrong with Ricardo's misapplication of the theory of mathematical statistics to an area pr"di"tionr about the relative position of landlords and industrial- of research in which the basic assumptions underlying mathema- ists in his long run (chaPter 14). tical statistics are not satisfied. Model builders are urged to avoid The denial of the classical concept of "value" implies that the econometric methods, since those methods produce very much approach taken here is non-Marxist. Karl Marx maintained, cor- harm and very little, if any, good. wr"h"totiye,' sthyastte tmhe. Slainbcoer twheeo drye noyf vthaelu ev aisl itdhiety eosfs etnhteia lc boanscise pfot ro hf isa stable exchange value, we do not enter into discussions of value C. Relationship to other theories in economics theorys or of the "Cambridge controversy."6 For the same reason, A detailed discussion of the relationship of this book to other the- the views proposed in this book cannot claim descent from Mam. ories in economics is, of course, entirely premature at this point. Naturally, this fact will not prevent some people from claiming Rather, the purpose of this section is to indicate to the reader that this book is nothing but thinly disguised Mancism-just as it some of the relevant issues and to locate where these issues are dis- will not prevent some other people from claiming that it is nothing cussed in the body of the work. but reactionary bourgeois propaganda. The approach taken here owes very much to that unfairly ne- Neoclassical economic theory is largely irrelevant for our study. glected genius of economics, Dr. Francois Quesnay. In his Tableau It bases itself on a definition (Robbins 1935) which we do not Economique, Quesnay sets out clearly that the economic system consider useful for dynamic economics, and most of the work is of his day, just as much as the economic system of the nineteenth tied irevocably to states of economic equilibrium. Neoclassical century or of today, is not like a "fair" with independent buyers theory has had more than a century to show what it can do in and sellers who come together only via the market. Rather, the dynamic economics. Quite enough books already exist to cover economic system has a circular flow, similar to the flow of blood *t ut tittt" there is that is realistic and useful. Thus neoclassical in the human body. The buyers are at the same time sellers, the theory has been largely ignored in this volume. A few remarks can sellers are at the same time buyers; there is thus a causal nexus be folnd in the following places: utility theory--ection 15E; op- between sales and purchases much more explicit and stringent timality theory-sections 7D and 15E; production functions- thaTnh ee nsvcisieangceed oinf ,e lceot nuosm siacys, hthaes p"aaiudc ati ohnea" voyf pWricaelra fso.r ignoring the siteyc ttihone o7cry ; -ncehocalapstseicra 1l 2g.x Towhitsh bmoookd eisls n-osfe cinttieonnd e7Dd ;a es xap cercitteiqdu eu tiol-f insight of its great founder. Indeed, the only economists who have made any significant progress in dynamic economics are those who us aEr."gr.i,i Blrloazklse)y, (ir1u9n6t? )(,r gBzuzr)m,Ie'Iiosrteisr h(i1m96a8 ()1, 9D1-9*r)e, -Pu a(s1in95e9tt.i) , (1-D9^7g7b-)!, (^s1r9a7rt.?a)' have gone back, consciously or otherwise, to the Tableau Econo- (1960), Walsi'i (1980), von Weizsdcker (1973). mique. Without the basic ideas of Quesnay, the problems of dy- 6Robirr.ot (1954); see also Blaug (1975), Bliss-(1975), C-lark (1978), Collard namic economics are insurmountable. Quesnay's Tableau Econo- ( 197 3), Hartourt'(797 7, 197 2, 197 3, 19?6a), Harris ( 197 3)'

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