Some Defunct Economist - 7/18/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- In the comment section of this post on Edgar Allan Poe's insights into value theory, an anonymous commenter writes:

"Richard Whately (Anglican Archbishop of Dublin) had argued for marginalist
analysis in a book he published in 1831. Poe may have heard of his views because
Whately also published books on rhetoric and logic. It's from Whately we
get the term "Catallatics"[sic]. "

This is Whately's entry in the New School's history of economic thought website. And on their page on the marginal revolution, they identify Whately's predecessor, Nassau Senior, as another early critic of the Classical position, although his piece on the subject seems to have been published after Whately's. As the commenter says, Whately also argued that political economy should be called "catallactics" - the science of exchanges. This, of course, is something that Mises picked up later.

- In this post I suggested it was worth looking into what Keynes actually said about the relationsihp between output and employment, given the apparent breakdown of Okun's Law. I've had a chance to do something of a review of Chapter 20, on "The Employment Function". He doesn't mention corporate liquidity preference specifically (he does mention it in his chapter on liquidity preference), but he does mention employment as a function of output (and output is obviously going to be diminished by liquidity preference). I don't think this is quite adequate. Think of it this way - liquidity preference as treated by Hicks influences aggregate demand - it influences what people are demanding from firms, and an increase in liquidity preference is going to depress that demand. Insofar as we have a derived demand for labor, this is going to reduce employment. Keynes accounts for this. But part of that aggregate liquidity preference is corporate liquidity preference. But you can also think of businesses as having three factors of production: capital, labor, and liquidity. An increase in liquidity preference isn't just going to influence the demand for labor through it's effect on aggregate demand - it also comes in through the relative valuation of labor, capital, and liquidity by the firm itself. This, as far as I can tell (and I obviously haven't had time to review the whole book) doesn't seem to be accounted for by Keynes. By the way, pg. 286-289 would be an interesting read for anyone who thinks Keynes ignored the relationship between the capital structure and employment.

- Mark Thoma quotes from Michael Kalecki's 1943 piece on "The Political Aspects of Full Employment". That was neat to see - I had actually stumbled across this article myself a couple days ago when I was looking up an old article by Keynes that Garrison had cited.

- Mattheus von Guttenberg quotes George Selgin on "Praxeology and Equilibrium". I'm trying to use this "some defunct economist" page to go over more distant history of economic thought, but since Selgin is responding to guys like Hayek and Lachmann, who have passed, I'll make an exception in this case. This is the portion that Guttenberg quotes:

"To summarize, “general equilibrium” is a moving target. Its location is
determined, not by any objective conditions, but by the confines of people’s
imaginations. In order for the target to be reached, people either must become
perfectly dull or they must become perfectly content. In either case, it must be
true that they have exhausted their abilities to conceive of new means for the
elimination of uneasiness (the general end of all action). So long as people are
neither completely dull nor completely content, they must necessarily act. To
ask whether general equilibrium can ever be achieved is therefore to ponder the
exhaustibility of people’s imaginations. It is to wonder whether innovation and
unexpected change will disappear. This is an area of inquiry that concerns
philosophy of mind and not praxeology, which is concerned with action. All that
can be said with certainty is that people, in acting, employ imagined means to
their fullest extent (action is equilibrating) and that, if their actions are
successful, their imagination and understanding are not based upon illusion and
result in increased well-being (action is socially coordinating)."