accepting and rejecting the neo-Classical approach in economics

(Kaldor, “theories of value and distribution” ; Introductory chapter ; 1960)

When Nicholas Kaldor says, in 1960, “the conditions under which…”, he means cerebral. Those “conditions” are cerebral as they are not found in the manifest, physical world. Kaldor also seems on related territory when he mentions “abstract” and “a-priori,” in this introduction to volume 1 of his collected “essays” (“Collected Economic Essays”; 1980).

     In telling us all about his earlier life as a neo-classical fellow (he studied under Lionel Robbins at the LSE), we are given to understand that the goal is to determine economic equilibrium: “the factors determining economic equilibrium,” or the conditions of economic equilibrium. As a purely private scholar-economist my own view puts me in a different place. My economics takes me to a different place. I assume rather the opposite. To me, there aren’t any such factors or conditions: the concept doesn't seem to apply. The difference is in where we start from. We find ourselves back to the consideration of assumptions; and, we may question them, we may try to get a read on how different people assume different things. Assumptions do not merely need to be assumed. Rather we can get some bearings on where we are at with them. So, Kaldor seems to keep saying the same things. I mentioned the word "conditions," and there is also “that abstract world.” Another bit from Kaldor is where he mentions generalisations that are “derived from a few self-evident postulates alone.” I also noticed the word, “static.” 

     In his “introduction to volume one” Kaldor does really a quite excellent job of stating the whole nest of problems that relate to the self-generated neo-classical mental world (as of 1960). He discusses what he and other economists believed in economics, in the 1930s. But Kaldor eventually rejected it; and, this I hasten to add, took a while. So; He is someone who both accepted and rejected the neo-classical system of thought. Quite a feat. Most of us do one or the other, but not both, while Mr.  Kaldor first accepted then rejected.

     There also could be someone who first rejected, then decided that, if looked at more carefully, there could be a little sense to it. Not much, some. Why else would anyone have believed in it?

     Let us now read through the 1933 paper (“The Determinateness…”) in order to get, only, sentence six. This reads:

     For in any analytical study, forces whose laws of operation are known must clearly be separated from others in whose behavior [things are, Um—not so well known] and the only satisfactory way to detect and account for the influence of the latter [what he said, above, which I chose to omit, was, actually, “uniform principles” and he is en-quoting these words himself] in the real world is by assuming them away and examining what events would be like in their absence. It is, moreover, only by employing this “method of difference” [as before: the author is en-quoting his own wording] that we can hope gradually to extend the range of phenomena over which we can make generalisations.

     

     The excerpt, which I have slightly tampered with, provides us with perhaps a good example of how the more intelligent sort of neo-classical practitioner thinks (in – for example – the thirties).

     How are these “forces of operation” to be “known”? What does he mean by “known”? I would like to point out, firstly, that they are known to the economist. And what does Kaldor mean by forces (I will choose to accept “forces” here) whose laws are “known”? I want to discuss this sentence here as one which seems to invite an enormous, devastating criticism. How are these bits (or laws) known? When the “forces whose laws of operation are known [or not]” are divided into the two categories Kaldor gives (this known and the unknown stuff echoes Donald Rumsfeld, for reasons I don't know anything about), even without considering them we are able to see that both of the two categories are to be known strictly through self-referential, internal exercises. The problem is that, first, some of these laws – those that are not known – are omitted. We can accept that. Fine, then, the only way for us is to omit them. But what are left are things that are known cerebrally. Since that is so, both categories are self-referential, both are merely internal, cerebral, self-generated “knowledge.” It is all happening inside the head.

     The “static,” the “a-priori,” the cerebral—this constitutes everything he calls “known.” The division into two parts is thus in my view absurd. The “forces...are known”, claims Kaldor. Yes, but as a thought exercise. There is, he claims, a case where the “behavior of things” (my own en-quotation) is not known. In the other case, they are. This exists as a contrast to the other case. In the latter case, “forces” or “laws” are not known, they are to be assumed away because of this. So it is the case that where “there is no ‘uniform principle’” we are justified to assume these things away and then what is left are those “forces,” or “laws,” that are known. We have assumed away some things that are not known, but that is alright (we could say valid, or scientific) since it is the case that “forces whose laws of operation” are known are taken into consideration (and this has to be done, I suppose, in a most scientific manner).

     When we ask how they were known, we see they were known only by the mind. Yet this same mind also assumed away other phenomena. Or “forces,” which could mean many things, really, including “behaviors,” which word may not have been so commonplace in the thirties, compared to today, in psychology and economics, among other places. So, the objection here is that what is “known” (according to Kaldor’s view as of the 1930s) are the behaviors—presumably something like buying and selling. These are known by mind, by the mind—only that. There is a backstory here. We are looking at something. Some persons looked at some others persons who were engaged in buying and selling practices—trade, in other words. That person then calls himself an economist. He says that he (or she--however I do not see the females who “know” these things) knows things. That’s great; but, what? That which she “knows” turns out to be assumptions. Everything comes from the same place—the mind.

     How about turning it around? Wouldn’t it be much better to assert rather that we do not know exactly what is going on in this buying/selling world? This world we call, for lack of a better name, economics. That is not what they do. These men say: “we do know.”

     This is the kind of assertion they make, but when we look? Then it is clear that nothing is really known. It is assumption after assumption, case after case of merely listing possible realities or assumptions. What is actually known is much less than Kaldor’s use of the word “known” would seem to indicate. From observation of the world, what we know, is this. Persons are in fact buying and selling things to each other. They sell a lot of things. They almost always use money, too, so that not only are goods transferred. Also money is. Many times the monies used are obtained on credit, and this is where bankers come into it. More we do not know. We do not know that (these are Kaldor’s examples, numerically listed to the number of six, in this first piece) “a closed economy” can be assumed, or that there is “perfect knowledge,” or that there is “perfect competition.” (Kaldor also has something called “direct exchange,” which seems to be another conceptual necessity to make all of this stuff function properly.) Then he adds a fifth and sixth consideration as regards problems involving time, and concludes by saying “these assumptions we may thus regard as the ‘accepted framework’ of static theory…” (We should note another self-en-quotation.) He then adds that in the case where there are those who (even in the thirties) contest this framework, they do so in a particular way. (It has to do with the word “determinateness,” b.t.w., where, once again, even the very word “determinateness” apparently needs to be self-en-quoted.) This seems to be Kaldor’s practice (of putting things in quote markings), but I want to say that he is a very thorough person and clearly has given much thought and study to these things that he at one time accepted, later rejects.

So, once again, my problem with Kaldor’s presentation is that everything is determined by the mind, including both the category of what laws by which forces act or what forces we are able to know, and that other set of complimentary forces or laws or behaviors we don't know. The result is we have no way to say where one is to make the cut. Yet such a division into two categories is defended, this in the opening paragraph of “introduction to volume one.” There is nothing, or almost nothing, that is “known” or else on the other hand somehow suffers from something like “no uniform principle,” which allows us to leave those factors off since both are uniform. This is because both come from the mind, nowhere else. And if there are some phenomena of economics that are validly known, it is just these general everyday observations. All businessmen know about that. In fact, all of the fancier things (that only the economist knows) like “forces,” factors, laws, behaviors and whatever are creations of mind. And since these are cerebral only, my argument is that none can be “known” any more than any other. There is nothing definitively known at all—nothing to base a science on.

     I feel that, properly understood, this is very important refutation of ideas within the area of economics. The “known” forces are just as mysterious as the “unknown” forces, and everything collapses with that observation. His confidence in “forces whose laws of operation are known” is clearly mistaken. We see it when we ask about how they are “known” at all.

For in any analytical study, forces whose laws of operation are known must clearly be separated from others in whose behavior no such “uniform principles” have yet been detected; and the only satisfactory way to detect and account for the influence of the latter in the real world is by assuming them away and examining what events would be like in their absence.

    

   

Note: Kaldor, “essays on value and distribution,” second ed; Holmes and Meier Publishers, Inc; New York; 1982