Find counter arguments by entering NameVs… or …VsName.
The author or concept searched is found in the following 11 entries.
| Disputed term/author/ism | Author |
Entry |
Reference |
|---|---|---|---|
| Capital | Garegnani | Harcourt I 8/9 Capital/GaregnaniVsSamuelson/Garegnani/Harcourt: Garegnani's articles are especially concerned with critiques of Samuelson's 1962(1) paper, and of the demand and supply theories that derive from Wicksell, Marshall, and Hicks [1932](2). He shows that Samuelson's assumptions amount to confining the analysis to a world in which there is a pseudo-neoclassical production function, that is to say, a set of comparisons of stationary states which allow us to spell out associations and relationships which are seemingly akin to the processes that would occur in an all-purpose, malleable one-commodity world. 1.Samuelson, P.A. [1962] 'Parable and Realism in Capital Theory: The Surrogate Production Function', Review of Economic Studies, xxix, pp. 193-206. 2. Hicks, J. R. [1932] The Theory of Wages (London: Macmillan). |
Garegnani I Pierangelo Garegnani The Theory of Value and Distribution in Economics: Discussions between Pierangelo Garegnani and Paul Samuelson Milton Park 2012 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
| Collective Goods | Economic Theories | Rothbard III 1030 Collective goods/Economic theories/Rothbard: Many attempts have been made (…), to salvage the concept of the "collective" good, to provide a seemingly ironclad, scientific justification for government operations. Molinari: Molinari, for example, trying to establish defense as a collective good, asserted: "A police force serves every inhabitant of the district in which it acts, but the mere establishment of a bakery does not appease their hunger." RothbardVsMolinari: But, on the contrary, there is no absolute necessity for a police force to defend every inhabitant of an area or, still more, to give each one the same degree of protection. Furthermore, an absolute pacifist, a believer in total nonviolence, living in the area, would not consider himself protected by, or receiving defense service from, the police. On the contrary, he would consider any police in his area a detriment to him. Hence, defense cannot be considered a "collective good" or "collective want." Similarly for such projects as dams, which cannot be simply assumed to benefit everyone in the area.(1) De Viti De Marco: Antonio De Viti De Marco defined "collective wants" as consisting of two categories: a) wants arising when an individual is not in isolation and b) wants connected with a conflict of interest. RothbardVsDe Viti De Marco: Vs a) The first category, however, is so broad as to encompass most market products. There would be no point, for example, in putting on plays unless a certain number went to see them or in publishing newspapers without a certain wide market. Must all these industries therefore be nationalized and monopolized by the government? Vs b) The second category is presumably meant to apply to defense. This, however, is incorrect. Defense, itself, does not reflect a conflict of interest, but a threat of invasion, against which defense is needed. Furthermore, it is hardly sensible to call "collective" that want which is precisely the least likely to be unanimous, since robbers will hardly desire it!(2) Immaterial goods/service: Other economists write as if defense is necessarily collective because it is an immaterial service, whereas bread, autos, etc., are materially divisible and salable to individuals. RothbardVs: But "immaterial" services to individuals abound in the market. Must concert-giving be monopolized by the state because its services are immaterial? Rothbard III 1031 Samuelson: In recent years, Professor Samuelson has offered his own definition of "collective consumption goods," in a so-called "pure" theory of government expenditures. Def Collective consumption goods/Samuelson: Collective consumption goodss according to Samuelson, are those "which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good." For some reason, these are supposed to be the proper goods (or at least these) for government, rather than the free market, to provide.(3) VsSamuelson: Samuelson's category has been attacked with due severity. Professor Enke(4), for example, pointed out that most governmental services simply do not fit Samuelson's classification - including highways, libraries, judicial services, police, fire, hospitals, and military protection. In fact, we may go further and state that no goods would ever fit into Samuelson's category of "collective consumption goods." Margolis: [Julius] Margolis(4), for example, while critical of Samuelson, concedes the inclusion of national defense and lighthouses in this category. But "national defense" is surely not an absolute good with only one unit of supply. It consists of specific resources committed in certain definite and concrete ways - and these resources are necessarily scarce. A ring of defense bases around New York, for example, cuts down the amount possibly available around San Francisco. Furthermore, a lighthouse shines over a certain fixed area only. Not only does a ship within the area prevent others from entering the area at the same time, but also the construction of a lighthouse in one Place limits its construction elsewhere. In fact, if a good is really technologically "collective" in Samuelson's sense, it is not a good at all, but a natural condition of human welfare, like air - superabundant to all, and therefore unowned by anyone. Indeed, it is not the lighthouse, but the ocean itself—when the Ianes are not crowded - which is the "collective consumption good," and which therefore remains unowned. Obviously, neither government nor anyone else is normally needed to produce or allocate the ocean.(4) Rothbard III 1032 Tiebout: Charles M. Tiebout(5), conceding that there is no "pure" way to establish an optimum level for government expenditures, tries to salvage such a theory specifically for local government. Realizing that the taxing, and even voting, process precludes voluntary demonstration of consumer choice in the governmental field, he argues that decentralization and freedom of internal migration renders local government expenditures more or less optimal - as we can say that free market expenditures by firms are "optimal"—since the residents can move in and out as they please. Certainly, it is true that the consumer will be better off if he can move readily out of a high-tax, and into a Iow tax, community. But this helps the consumer only to a degree; it does not solve the problem of government expenditures, which remains otherwise the same. There are, indeed, other factors than government entering into a man's choice of residence, and enough People may be attached to a certain geographical area, for one reason or another, to permit a great deal of government depredation before they move. Furthermore, a major problem is that the world's total land area is fixed, and that governments have universally pre-empted all the land and thus universally burden consumers.(5) >Collective goods/Rothbard, >Social goods. 1. Gustave de Molinari, The Society of Tomorrow. New York: G.P. Putnam's Sons, 1904. Reprinted by Taylor & Francis, 1972. p. 63. On the fallacy of collective goods, see S.R., Ibid., p. 63. On the fallacy of collective goods, see S.R., "Spencer As His Own Critic," Liberty, June, 1904, and Merlin H. Hunter and Harry K. Allen, Principles of Public Finance (New York: Harpers, 1940), p. 22. Molinari had not always believed in the existence of "collective goods," as can be seen from his remarkable "De la production de la sécurité," Journal des Economistes, February 15, 1849 , and Molinari, "Onziéme soirée" in Les soirées de la Rue Saint Lazare (Paris, 1849). 2. Antonio De Viti De Marco, First Principles of Public Finance (London: Jonathan Cape, 1936), pp. 37-41. Similar to De Viti's first category is Baumol's attempted criterion of "jointly" financed goods, for a critique of which see Rothbard, "Toward A Reconstruction of Utility and Welfare Economics," pp. 255-60. 3. Paul A. Samuelson, "The Pure Theory of Public Expenditures," Review ofEconomics and statistics, November, 1954, pp. 387-89. 4. Stephen Enke, "More on the Misuse of Mathematics in Economics: A Rejoinder," Review of Economics and statistics, May, 1955, pp. 131-33 ; Julius Margolis, "A Comment On the Pure Theory of Public Expenditures," Review of Economics and statistics, November, 19 5 5, pp. 347-49. In his reply to critics, Samuelson, after hastening to deny any possible implication that he wished to confine the sphere of government to collective goods alone, asserts that his category is really a "polar" concept. Goods in the real world are supposed to be only blends of the "polar extremes" of public and private goods. But these concepts, even in Samuelson's own erms, are decidedly not polar, but exhaustive. Either A's consumption of a good diminishes B's possible consumption, or it does not: these two alternatives are mutually exclusive and exhaust the possibilities. In effect, Samuelson has abandoned his category either as a theoretical or as a practical device. Paul A. Samuelson, "Diagrammatic Exposition of a Theory of Public Expenditure," Review of Economics and statistics, November, 1955, pp. 350-56. 5. Charles M. Tiebout, "A Pure Theory of Local Expenditures," Journal of Political Economy, October, 1956, pp. 416 - 24. At one point, Tiebout seems to admit that his theory would be valid only if each person could somehow be "his own municipal government." Ibid., p. 421. In the course of an acute critique of the idea of competition in government, the Colorado Springs Gazette-Telegraph wrote as follows: „Were the taxpayer free to act as a customer, buying only those services he deemed useful to himself and which were priced within his reach, then this competition between governments would be a wonderful thing. But because the taxpayer is not a customer, but only the governed, he is not free to choose. He is only compelled to pay.... With government there is no producer-customer relationship. There is only the relation that always exists between those who rule and those who are ruled. The ruled are never free to refuse the services of the products of the ruler.... Instead of trying to see which government could best serve the governed, each government began to vie with every other government on the basis of its tax collections.... The victim of this competition is always the taxpayer.... The taxpayer is now set upon by the federal, state, school board, county and City governments. Each of these is competing for the last dollar he has.“ (Colorado Springs Gazette-Telegraph, July 16, 1958) |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
| Collective Goods | Samuelson | Rothbard III 1031 Collective goods/Samuelson/Rothbard: Many attempts have been made (…), to salvage the concept of the "collective" good, to provide a seemingly ironclad, scientific justification for government operations. Samuelson: In recent years, Professor Samuelson has offered his own definition of "collective consumption goods," in a so-called "pure" theory of government expenditures. Def Collective consumption goods/Samuelson: Collective consumption goodss according to Samuelson, are those "which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good." For some reason, these are supposed to be the proper goods (or at least these) for government, rather than the free market, to provide.(1) VsSamuelson: Samuelson's category has been attacked with due severity. St. Enke(2), for example, pointed out that most governmental services simply do not fit Samuelson's classification - including highways, libraries, judicial services, police, fire, hospitals, and military protection. In fact, we may go further and state that no goods would ever fit into Samuelson's category of "collective consumption goods." >Collective goods/Rothbard, >Social goods. 1. Paul A. Samuelson, "The Pure Theory of Public Expenditures," Review ofEconomics and statistics, November, 1954, pp. 387-89. 2. Stephen Enke, "More on the Misuse of Mathematics in Economics: A Rejoinder," Review of Economics and statistics, May, 1955, pp. 131-33 ; Julius Margolis, "A Comment On the Pure Theory of Public Expenditures," Review of Economics and statistics, November, 19 5 5, pp. 347-49. In his reply to critics, Samuelson, after hastening to deny any possible implication that he wished to confine the sphere of government to collective goods alone, asserts that his category is really a "polar" concept. Goods in the real world are supposed to be only blends of the "polar extremes" of public and private goods. But these concepts, even in Samuelson's own erms, are decidedly not polar, but exhaustive. Either A's consumption of a good diminishes B's possible consumption, or it does not: these two alternatives are mutually exclusive and exhaust the possibilities. In effect, Samuelson has abandoned his category either as a theoretical or as a practical device. Paul A. Samuelson, "Diagrammatic Exposition of a Theory of Public Expenditure," Review of Economics and statistics, November, 1955, pp. 350-56. |
EconSamu I Paul A. Samuelson The foundations of economic analysis Cambridge 1947 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
| Economics | Buchanan | Boudreaux I 79 Economics/Buchanan/Boudreaux/Holcombe: In one of his earlier papers, “Economics, Welfare, and Political Economy,” published in 1959, Buchanan identified two distinct yet related roles that the economist can legitimately play. The first is that of the “economist” as such; the second is that of the “political economist.” The sole role of the economist per se is to improve humankind’s understanding of the workings of the economy, including how economic activity is likely to be altered when changes in the economic environment occur. Boudreaux I 80 Politics: These might be policy changes, such as changes in tax rates or new regulations, but these might instead be changes in other factors, such as adverse weather that cuts crop yields. Economists pursue this goal through research and analyses that permit them to make predictions about the effects of such changes in the economic environment. Political economics: In contrast, when the economist steps into the role of political economist, the reason for doing so is to help citizens choose better rules under which they live. Nevertheless, like the economist, the political economist’s task is not to impose his or her own values or preferences on others. Political decisions: It is not the job of either the economist or the political economist to recommend, much less insist upon, this policy or that. Such a role, Buchanan believed, is reserved for individuals only in their capacity as citizens. The political economist’s function is merely to propose changes in rules and institutions to which individual citizens can either agree or disagree - accept or reject. Ideally, in Buchanan’s view, agreement would require unanimity, or something very close to it. Politics as exchange: if all, or nearly all, people must agree to a change in rules, then any proposed rule change that is approved by such a vote can confidently be assumed to be one that is truly socially beneficial rather than one that benefits some individuals at the expense of others. >Agreement/Buchanan. That is the essence of the idea of politics as exchange. likely to be altered when changes in the economic environment occur. These might be policy changes, such as changes in tax rates or new regulations, but these might instead be changes in other factors, such as adverse weather that cuts crop yields. Economists pursue this goal through research and analyses that permit them to make predictions about the effects of such changes in the economic environment. Political economics: In contrast, when the economist steps into the role of political economist, the reason for doing so is to help citizens choose better rules under which they live. Nevertheless, like the economist, the political economist’s task is not to impose his or her own values or preferences on others. It is not the job of either the economist or the political economist to recommend, much less insist upon, this policy or that. Such a role, Buchanan believed, is reserved for individuals only in their capacity as citizens. The political economist’s function is merely to propose changes in rules and institutions to which individual citizens can either agree or disagree - accept or reject. Ideally, in Buchanan’s view, agreement would require unanimity, or something very close to it. If all, or nearly all, people must agree to a change in rules, then any proposed rule change that is approved by such a vote can confidently be assumed to be one that is truly socially beneficial rather than one that benefits some individuals at the expense of others. That is the essence of the idea of politics as exchange. >Social Contract/Buchanan, >Society/Buchanan. Boudreaux I 96 Economics/Buchanan/Boudreaux/Holcombe: Def Economics/Samuelson: „Economics is the study of how men and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption, now or in the future, among various people and groups in society” (Samuelson, 1973)(2). Def Economics/Robbins: “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses” (Robbins, 1932)(3). BuchananVsSamuelson/BuchananVsRobbins: Buchanan saw two problems with this approach to economics. 1) The first problem is that in the twentieth century economists came to assume that each individual has a set of preferences, what economists call a “utility function,” that is fixed and fully known to him or her. Choices: But, Buchanan noted, if this assumption accurately describes reality, then individuals would not truly choose. If you know with 100 percent certainty that eating the peach will give you greater satisfaction than eating the pear, “choosing” the peach over the pear is a purely mechanical act. Popular language recognizes this fact with the phrase, “It’s not much of a choice,” as in, for example, saying “It’s not much of a choice” when confronted with the “choice” to pay $5 for a glass of beer or $6 for that same glass of beer. For Buchanan, the act of human choice necessarily involves some uncertainty about the merits of one option over another. As he concluded: “If I know what I want, a computer can make all of my choices for me. If I do not know what I want, no possible computer can derive my utility function since it does not really exist” (Buchanan, 1964(4): 217). Buchanan emphasized the open-endedness of choice even further by insisting that human preferences do not exist independently of the very choices that individuals make. >Rational Choice/Buchanan. Boudreaux I 97 2) A second problem with the standard textbook approach to economics is more serious. It judges how well or poorly resources are being used as if society itself is a sentient creature with its own preferences. That is, economists treat society as an individual with preferences, and then they ask if society uses (“allocates”) its resources in ways that best satisfy its preferences. >Society/Buchanan, >Agreement/Buchanan, >Decision-making/Buchanan, >Unamity/Buchanan. 1. James M. Buchanan. (1959). “ Positive Economics, Welfare Economics, and Political Economy ” The Journal of Law & Economics, Vol. 2 (Oct., 1959), pp. 124-138. 2. Samuelson, Paul A. (1973). Economics, 9th ed. McGraw-Hill. Smith, Adam. (1776/1937). An Inquiry into the Nature and Causes of the Wealth of Nations. Modern Library Edition. 3. Robbins, Lionel (1932). The Nature and Significance of Economic Science. Macmillan. 4. Buchanan, James M. (1964). “What Should Economists Do?” Sothern Economic Journal (January). |
EconBuchan I James M. Buchanan Politics as Public Choice Carmel, IN 2000 Boudreaux I Donald J. Boudreaux Randall G. Holcombe The Essential James Buchanan Vancouver: The Fraser Institute 2021 |
| Public Good | Coase | Kiesling I 42 Public good/Coase/Kiesling: (…) Coase (…) points out relevant aspects of the question that other scholars are overlooking, and he emphasizes the essential role of institutional detail and knowing that detail to be able to produce sound economic theory. Coase uses Mill and Samuelson as analytical foils. Eample: Lihgthouses: [Coase] notes that a) Mill’s argument supports government taxation to pay (private or public) lighthouse owners for their services while b) Samuelson makes a different argument, that zero marginal cost for an additional ship means that the lighthouses should be provided to everyone, and therefore through government ownership. Both Mill and Samuelson engage in a casual observation of reality, pointing out that in their day the provision of lighthouses was a government function and then deducing that private lighthouses were not sustainable due to the free-rider problem. CoasVsMill, John Stuart/CoaseVsSamuelson: Coase challenges that claim, and through it the theory they developed, with his empirical investigation of the history of the British lighthouse system. Lighthouses initially emerged as private commercial entities, but in 1836 were nationalized and operated by governments (Candela and Geloso, 2019)(1). Kiesling I 43 (…) , the British government first nationalized the lighthouses and then supervised the collection of light dues to create a General Lighthouse Fund. Different types of vessels paid different dues, some by journey and some as an annual fee, so price discrimination was reflected in their monopoly grants (foreign ships always paid more than domestic ones). Between the 16th and early 19th centuries, though, Britain had private lighthouses, the owners of which overcame free riding by collecting port fees and bundling lighting services with other maritime safety services such as pilotage and ballastage. There were also other substitute means of providing light and guidance along the coast, particularly in the 16th and 17th centuries. For instance, as Rosolino Candela and Vincent Geloso have analyzed, entrepreneurs provided floating lighthouses or lightships along the English coast, with construction funded by voluntary contributions, subscriptions, and user fees that differed for different types of vessels (price discrimination) (Candela and Geloso, 2018)(2). Institution: Coase’s examination of this rich history was detailed and showed the diversity of institutional arrangements that existed in maritime safety. For example, in a shallow port with shifting sands, having a local pilot bring the ship into port had substantial value as a private good to the ship’s captain, and the lighthouse service was a complement to such pilotage. A lighthouse owner could charge a fee for pilotage that bundled the light service with it (Candela and Geloso, 2019)(1). Such arrangements were common in Britain and elsewhere. Market: The more important way of thinking about the situation was to characterize it as a market for maritime safety services, which involved a variety of services that could be provided in a variety of ways by different private parties. Lighthouses were but one part of that broader market. Public good theory that focused only on one service often overlooked alternative institutional arrangements and, from Coase’s perspective, missed the important economic theory that would help us understand why and how such institutional arrangements emerged and were beneficial to both producer and consumer (in constrast, see Bertrand (2006)(3) for a critique of Coase’s argument). Coase: If we theorize without understanding the actual markets and institutional frameworks about which we theorize, our theories have little meaning and are no more than “blackboard economics” likely to be derided as irrelevant when economics can and does provide valuable insights. 1. Candela, Rosolino A., and Vincent Geloso (2019). Why Consider the Lighthouse a Public Good? International Review of Law and Economics 60: 105852. 2. Candela, Rosolino A., and Vincent J. Geloso (2018). The Lightship in Economics. Public Choice 176, 3-4: 479-506. 3. Bertrand, Elodie (2006). The Coasean Analysis of Lighthouse Financing: Myths and Realities. Cambridge Journal of Economics 30, 3: 389-402. |
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| Rate of Return | Fisher | Harcourt I 159 Rate of return/Fisher/Pasinetti/Harcourt: Pasinetti(1) distinguishes two meanings of Fisher's 'rate of return on sacrifice' or 'rate of return over cost'. a) The first is the rate of interest at which two techniques (options, projects, going concerns, economic systems) are equi-profitable, i.e. that rate of interest which when used as the discount factor equalises the present values of two alternative streams of expected receipts (Fisherian incomes) and expenditures - call it RF1. >Franklin M. Fisher. b) The second relates to the ratio of the expected increase in perpetuity in the production of a commodity to the withdrawal from consumption or other uses of the present annual flow of the commodity, the withdrawal or sacrifice being needed to make the investment that will make the increase in production possible. If we assume that all prices and the rate of profits are given, this may be expressed as a ratio of physical quantities - the expected increase in production over the necessitated withdrawal now from the current production stream, a saving which may then be translated at a constant price ratio into the necessary investment. Harcourt I 160 Call it RF2 and notice that we get a choice of technique rule - the project is or is not worth doing according to whether or not RF2 is greater or less than the current rate of interest (or profits). >Reswitching/Economic theories. Example: Pasinetti's distinction between the two concepts may be illustrated by the following example. Consider a going concern, say, an enterprise that produces a given rate of output using a given set of capital equipments and a given labour force. If we know the current level of prices, including the real-wage rate (and we make the usual assumption that current events are expected to continue into the future), clearly we could estimate the concern's current rate of profit. Now suppose a new opportunity arises. Harcourt I 161 The enterprise uses some of its current output to save and invest in the equipment associated with the opportunity. We suppose - vitally - that all prices remain unchanged. As a result of installing the equipment the level of output rises. With unchanged prices, the increment of output per period may be related to the saving (equals investment) that brought it about and, thus, the value of RF2 calculated. In general the value of RF2 will not equal the rate of profit of the going concern before the opportunity arose. Now it might be that in the economic system as a whole there exists a constellation of wages, prices and the rate of profits at which both the old and, now, the new situation of the enterprise would look equally profitable to the enterprise. There is no necessity about this and probably, in general, no such constellation exists. Even if it does exist, however, the rate of profit at which the two situations are equi-profitable would not coincide with the old rate of profit, or with the new one, or with the value of RF2 calculated for the change. Fisher introduces the infinite options case in which diminishing returns prevail - given sacrifices now lead to successively smaller and smaller permanent increments of production - and suggests that we will choose the option at which the marginal rate of return on sacrifice equals the rate of interest. Moreover, his marginal rate of return on sacrifice when applied to the economy as a whole tends 'to the traditional notion of a marginal product of capital' and, Pasinetti [1969](1), p. 511, claims, 'represents something which is not only independent, but actually a determinant, of the rate of profits.' He refers the reader to the following passage in Fisher [1930](2), p. 176. Harcourt: We can scarcely exaggerate the importance of the concept of 'rate of return over cost' and of its special variety 'marginal rate of return over cost' as an element in our account of the conditions determining the rate of interest. It supplies, on the physical or technical or productivity side of the analysis, what the marginal rate of time preference supplies on the psychical side. Fisher's examples relate to individuals but Pasinetti takes it that their application is to be wider, i.e. to the whole economy. Dealing with individuals in situations of perfect competition allows us, of course, to treat prices and rates of profits as given. The critics of neoclassical analysis suggest that this reasonable assumption ceases to be so when we deal with the whole economy because, then, any change of r, no matter how small, changes the whole pattern of relative prices, see Pasinetti [1969](1), p. 511. But at a switch point relative prices are constant, otherwise it would not be possible for two equi-profitable techniques (eco- nomies, islands of stationary states) to co-exist in different proportions: see Samuelson [1961](3). Harcourt I 162 PasinettiVsSamuelson: But Pasinetti's interpretation of Fisher's arguments takes us further than a consideration of the switch-point case: (…) one technique only is the most profitable at any given value of r. 1. Pasinetti, L. L. [1969] 'Switches of Technique and the "Rate of Return" in Capital Theory', Economic Journal, LXXIX, pp. 508-31. 2. Fisher, Irving [1930] The Theory of Interest (New York: Macmillan). 3. Samuelson, P. A. [1961] 'A New /Theorem on Nonsubstitution', Money Growth and Methodology, published in honour of Johan Akerman (Lund Social Science Studies, Vol. 28) (Lund: C. W. K. Gleerup), pp. 407-23. |
F.M. Fisher I Franklin M. Fisher Disequilibrium Foundations of Equilibrium Economics (Econometric Society Monographs) Cambridge 1989 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
| Rate of Return | Pasinetti | Harcourt I 159 Rate of return/Fisher/Pasinetti/Harcourt: Pasinetti(1) distinguishes two meanings of Fisher's 'rate of return on sacrifice' or 'rate of return over cost'. a) The first is the rate of interest at which two techniques (options, projects, going concerns, economic systems) are equi-profitable, i.e. that rate of interest which when used as the discount factor equalises the present values of two alternative streams of expected receipts (Fisherian incomes) and expenditures - call it RF1. >Franklin Fisher. b) The second relates to the ratio of the expected increase in perpetuity in the production of a commodity to the withdrawal from consumption or other uses of the present annual flow of the commodity, the withdrawal or sacrifice being needed to make the investment that will make the increase in production possible. If we assume that all prices and the rate of profits are given, this may be expressed as a ratio of physical quantities - the expected increase in production over the necessitated withdrawal now from the current production stream, a saving which may then be translated at a constant price ratio into the necessary investment. Harcourt I 160 Call it RF2 and notice that we get a choice of technique rule - the project is or is not worth doing according to whether or not RF2 is greater or less than the current rate of interest (or profits). >Reswitching/Economic theories. Example: Pasinetti's distinction between the two concepts may be illustrated by the following example. Consider a going concern, say, an enterprise that produces a given rate of output using a given set of capital equipments and a given labour force. If we know the current level of prices, including the real-wage rate (and we make the usual assumption that current events are expected to continue into the future), clearly we could estimate the concern's current rate of profit. Now suppose a new opportunity arises. Harcourt I 161 The enterprise uses some of its current output to save and invest in the equipment associated with the opportunity. We suppose - vitally - that all prices remain unchanged. As a result of installing the equipment the level of output rises. With unchanged prices, the increment of output per period may be related to the saving (equals investment) that brought it about and, thus, the value of RF2 calculated. In general the value of RF2 will not equal the rate of profit of the going concern before the opportunity arose. Now it might be that in the economic system as a whole there exists a constellation of wages, prices and the rate of profits at which both the old and, now, the new situation of the enterprise would look equally profitable to the enterprise. There is no necessity about this and probably, in general, no such constellation exists. Even if it does exist, however, the rate of profit at which the two situations are equi-profitable would not coincide with the old rate of profit, or with the new one, or with the value of RF2 calculated for the change. Fisher introduces the infinite options case in which diminishing returns prevail - given sacrifices now lead to successively smaller and smaller permanent increments of production - and suggests that we will choose the option at which the marginal rate of return on sacrifice equals the rate of interest. Moreover, his marginal rate of return on sacrifice when applied to the economy as a whole tends 'to the traditional notion of a marginal product of capital' and, Pasinetti [1969](1), p. 511, claims, 'represents something which is not only independent, but actually a determinant, of the rate of profits.' He refers the reader to the following passage in Fisher [1930](2), p. 176. Harcourt: We can scarcely exaggerate the importance of the concept of 'rate of return over cost' and of its special variety 'marginal rate of return over cost' as an element in our account of the conditions determining the rate of interest. It supplies, on the physical or technical or productivity side of the analysis, what the marginal rate of time preference supplies on the psychical side. Fisher's examples relate to individuals but Pasinetti takes it that their application is to be wider, i.e. to the whole economy. Dealing with individuals in situations of perfect competition allows us, of course, to treat prices and rates of profits as given. The critics of neoclassical analysis suggest that this reasonable assumption ceases to be so when we deal with the whole economy because, then, any change of r, no matter how small, changes the whole pattern of relative prices, see Pasinetti [1969](1), p. 511. But at a switch point relative prices are constant, otherwise it would not be possible for two equi-profitable techniques (eco- nomies, islands of stationary states) to co-exist in different proportions: see Samuelson [1961](3). Harcourt I 162 PasinettiVsSamuelson: But Pasinetti's interpretation of Fisher's arguments takes us further than a consideration of the switch-point case: (…) one technique only is the most profitable at any given value of r. 1. Pasinetti, L. L. [1969] 'Switches of Technique and the "Rate of Return" in Capital Theory', Economic Journal, LXXIX, pp. 508-31. 2. Fisher, Irving [1930] The Theory of Interest (New York: Macmillan). 3. Samuelson, P. A. [1961] 'A New /Theorem on Nonsubstitution', Money Growth and Methodology, published in honour of Johan Akerman (Lund Social Science Studies, Vol. 28) (Lund: C. W. K. Gleerup), pp. 407-23. |
Pasinetti I Luigi L. Pasinetti Structural Change and Economic Growth: A Theoretical Essay on the Dynamics of the Wealth of Nations Cambridge 1983 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
| Social Goods | Buchanan | Mause I 2767259 Social Goods/Tullock/Buchanan: Background problem: because of the unidentifiable number of free riders who do not pay anything for the benefit of the social good, its value cannot be determined. (See also VsSmauelson). Solution/Tullock/Buchanan: the ability to approve should not be applied to individual expenditure items but to the constitutional level. Question: how to design decision rules at the political level in such a way that undesirable and unfavourable results are largely excluded. (1) Buchanan: from this, a constitutional economics based on contract theory is developed.(2) >Constitutional economics as author, >About Constitutional Economics. 1. James M. Buchanan & Gordon Tullock. The calculus of consent. Logical foundations of constitutional democracy. Ann Arbor 1962. 2. James M. Buchanan. 1990. The domain of constitutional economics. Constitutional Political Economy 1 (1): 1– 18. |
EconBuchan I James M. Buchanan Politics as Public Choice Carmel, IN 2000 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
| Social Goods | Lindahl | Mause I 276 Social Goods/Taxes/Lindahl: because of the principle of equivalence (which requires that every tax be legitimized by a benefit for the citizens on the expenditure side), Lindahl proposed individualized taxes as early as 1919, which are oriented towards the individual marginal benefit from the consumption of public goods. VsLindahl: Problem: then one comes back to the Samuelson condition and the problem that the value of the public property cannot be determined because of the undetermined number of free riders. See Social Goods/Samuelson. (See also VsSamuelson). Solutions: See Social Goods/Tullock, Social Goods/Buchanan. |
EconLind I Erik Lindahl Just Taxation - A Positive Solution in: R. A. Musgrave et al. (eds.), Classics in the Theory of Public Finance, International Economic Association 1958 German Edition: Die Gerechtigkeit der Besteuerung Lund 1919 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
| Social Goods | Samuelson | Mause I 274f Social Goods/Samuelson: Social Goods are Characterized 1. By non-rivalry: e.g. national defence: its quality is independent of how many individuals it benefits. Unlike on the market for private goods (see Markets/Economic Theories) the sum of all individuals with a marginal willingness to pay, who consume the nonrival goods together must be added up in the case of nonrivalising goods. 2. By non-exclusion: even non-paying members can consume public goods. (free rider problem). Solution/Samuelson: Assuming there were only two goods (a social and a private one); if now the appreciation for the jointly consumed good is equated with the marginal social costs of providing this good, the Samuelson condition is obtained. VsSamuelson: Problem: the Samuelson condition is virtually useless because the concrete values it should be fed with cannot be determined. ((s) Reason: the number of free riders is undetermined). See also Social Goods/Economic Theories. |
EconSamu I Paul A. Samuelson The foundations of economic analysis Cambridge 1947 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
| Social Goods | Tullock | Mause I 276 Social Goods/Tullock/Buchanan: Background problem: because of the unidentifiable number of free riders who do not pay anything for the benefit of the social good, its value cannot be determined. (See also VsSmauelson). Solution/Tullock/Buchanan: the ability to approve should not be applied to individual expenditure items but to the constitutional level. Question: how to design decision rules at the political level in such a way that undesirable and unfavourable results are largely excluded. (1) Buchanan: from this, a constitutional economics based on contract theory is developed. (2) 1. James M. Buchanan & Gordon Tullock. The calculus of consent. Logical foundations of constitutional democracy. Ann Arbor 1962. 2. James M. Buchanan. 1990. The domain of constitutional economics. Constitutional Political Economy 1 (1): 1– 18. |
EconTull I Gordon Tullock Arthur Seldon Gordon L. Brady, Government failure: A primer in public choice Washington 2002 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
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