From[Bill Williams 2 March 2004 7:30 PM CST]
In a posting today [From Rick Market 2004.03.02.0910)] takes off from
from a grotesque mis-representation of Keynes' work to generate still
further mis-representations.
Keynes, it is supposed suffered Rick indicates from the dreaded
affliction of behaviorism. Lacking access to a pair of Princess
Lady Diana's sunglasses Keynes gets it all wrong.
This attribution of a position of behaviorism to Keynes is a bit
doubtful since Keynes was an admirer of Freud. And Keynes also put
a great deal of weight upon the role of instincts and what he called
the "animal spirits." In the Keynesian analysis economic agents
were considered as active participants in determining the conduct
of the economy.
There is also the connection between Keynes and the American
economist John R. Commons. Commons work in turn had a close
connection to the work of Pierce, Veblen and Dewey. The Pierce,
Veblen and Dewey linage has been one of the early centers
of opposition to behaviorism. Historically, Rick is apparently
entirely unaware of this connection. Psychologically, it is
not correct to suppose that Keynes's work can be dismissed
because he made the mistake of adopting behaviorism as his
psychological foundation.
Rick launches this message using a mistake made by Peter Small
in which Small says that,
> "Now if for a given number of employees the employer is making a
> profit (i.e.,the value of what the employees produce is greater than
> the amount needed to pay them). There is an incentive for the
> employer to employ more people;
As a matter of logic, what Small asserts in the sentences above is
incorrect. Anyone with a modest training in economic theory should
see the error immediately. (However, apparently neither Rick nor
Bill Powers perceived the elementary mistake in Peter's statement.)
As it stands Peter's description of the situation that an employer faces
is in error. As a result the discussion by both Rick and Bill Powers is
to greater or lesser extent contaminated by Peter's error.
Is it worth pursuing the issue when the basic presupposition is
mistaken? As a matter of constructive inquiry, almost surely not.
As, is well known startling results can be derived by starting with
a contradiction. So, ordinarily people try to avoid reasoning that
begins with a fallacy. But, it can be instructive to trace how
arguments develop when they being with premises that are
contradictory.
And,
Small confuses two very different matters. One is the employer
who is supposed, in the macro-economy to "in fact" be making
a profit. The other is a very different matter regarding the employer
"expecting" to make a profit. This confusion on Small's part between
an actual profit that has been realized-- a matter which can only be
determined after the labor has been hired, the work done and paid, and
the resulting output sold, and the employer's
_EXPECTATION_
of making a profit should I think invalidates any claim that Small might
make to be a dependable interpreter of Keynes' work. Realized profits
in the Keynesian system are not a part of the causal loop. The loop
runs through expectations rather than past experience.
Peter, before making this elementary mistake said,
> Actually, the ideas behind The General Theory are very simple
If, the ideas behind the _Gen Th_ were actually simple, then we wouldn't
expect to see Small making so basic a mistake in his attempt to translate
what Keynes said into simpler terms. Keynes used a technical language
for a purpose-- the ideas which he was introducing were novel and the
economists of his day were habituated to think in a way that made it
difficult for them to see what Keynes meant. So, if Keynes' ideas are
simple, which in itself implausible, then they are despite their simplicity
evidently too complex for Small to accurately comprehend.
However, Small, despite making a basic error between Keynes's
analysis of an entrepreneur's expectations, and what the books of
the entrepreneur show after his product is sold, and he has paid his
bills, Rick Marken without noticing this elementary mistake apparently
believes Small's mistaken claim that
>
> ...this is the substance of the Theory of Employment."
Rick doesn't know Keynes' work sufficiently well to be in a position to
distinguish between Keynes' actual position, and the mistaken
interpretation which Small provides.
Rick says,
This sounds like a stimulus-response model of employment.
Keynes, as I have pointed out above at length treated the behavior of
economic agents as something other than the "stimulus-response"
conception characteristic of behaviorism. And, I will again point out
that Small's argument is not a competent expression of Keynes' analysis
of employment.
However, Rick, oblivious to Small's mistake, goes on to say that,
It says that profit (p) drives employment (e), so that e = f(p).
The equation doesn't say anything-- the agency doing the talking is Rick.
And, the equation is based upon Small's mis-representation. As I will
show later on, the statement that employment is a function of profit,
is an absurdity. What the statement asserts, but Rick doesn't know
enough about macro-economic theory to see this, is that employment
is always zero. In effect there is no economic employment and therefore
no output, and no economy.
If Rick knew the Keynesian system, he would have recognized Small's
error, and realized that in the Keynesian system it is the _EXPECTATION_
of profit rather than an actual profit that provides the motivation for the
Keynesian system. What psychological premises are consistent with the
system that Keynes developed remains a matter of controversy. But,
behaviorism is not the most prominent candidate for the task.
Rick, however, oblivious to Small's fundamental mistake continues, saying,
But p is also a function of e, so that p =g (e). So profit and employment
are variables that exist in a closed loop relationship to each other,
making
an open-loop, S-R analysisinvalid.
I am not sure why Rick thinks this argument is needed. In my understanding
the S-R analysis is never a valid argument in application to a living
system-- which an economy-- consisting of living systems -- obvious is a
representative-- of a sort.
I think that I would agree with Kenny that Rick's distinction between an
open-loop and a closed_loop system may be a bit confused. Is a dog
chasing its tail an open-loop or a closed-loop system. I think various
people might give various answers.
Rick proceeds to consider the issue
I think the appropriate analysis of the relationship between profit and
employment would views p as a controlled variable,
Further on I present arguments why this viewing p (profit) in a macro-
context as a controlled variable is an absurdity.
influenced by external
disturbances (d, the factors that affect the employer's income from sale
of
what is produced) and the level of employment, e.
Rick says that p (profit) is a controlled variable. But, it might be asked,
who
is controlling p (profit). Is the employer in a position to control for
profit?
In the aggregate-- which is the context of this discussion-- we can sum all
of the current transactions. On one side of the balance sheet we will have
total sales. On the other side we can add up total purchases. Another way
of speaking about this characteristic of a transaction is to speak of
monetary
costs and monetary output. The fascinating thing about the aggregate, or
one of the fascinating things, is that in the aggregate monetary production
(sales) are equal to monetary costs (purchases by entrepreneur's). Now,
profit can be defined as the monetary production (the sales side of the
entrepreneur's balance sheet) minus the monetary costs of that production,
the factor inputs (the entrepreneur's purchases). If we consider the nature
of a transaction we may notice that what is a sale on one side of a
transaction
is a purchase on the other side. When this insight is transferred to the
balance
sheet of the aggregate economy the results is what many people find to be
an unexpected result, that since sales equal purchases in the aggregate
profits are always equal to zero. Now, control loops are marvelous things
but one thing they can not do is force the two sides of an identity to take
on
values so that one side of the identity doesn't equal the other side of the
identity. So, a number of implications can be derived-- starting from first
principles-- the nature of a transaction among them -- that provide an
explanation of why a capitalist system is liable to the difficulties that it
sometimes experiences. And, why people have so much difficulty in under-
standing how a capitalist system functions.
In part I think this difficulty that both Rick and Bill Powers experience
in understanding economic relationships has it source in an extremely
conflicted orientation regarding the economy. This seems to have the
effect of rendering economic issues fascinating at the same time that the
conflict prevents them from benefiting from anyone else's efforts.
Both Peter and Rick uncritically assume that, in the aggregate economy, it
is possible for profit (income - expenditure) to take on a positive number.
Entrepreneurs can of course _EXPECT_ that if they do this or that, that
then they will make a profit. Entrepreneurs can form whatever expectation
they wish. There is nothing to restrict the process by which they develop
expectations.
The reality, however, is that in the aggregate profits are always--
regardless of what anyone does, going to be equal to zero. I explained
this relationship at a CSG conference in Durango years ago. Powers, at
that time defended this argument, asserting that I had proved the
result that in the aggregate profits are equal to zero. I was pleased
to have his support at the time, but the reality doesn't depend upon
who believes what.
Rick goes on to say that, (and I've snipped out some stuff )
Equation (1) says that employment is negatively related to profit.
Of course, if profits are always, in the macro-economy, equal to zero,
then the employment relation is not going to be very interesting.
Equation
(2) say that increases in profit relative to the reference for profit are
positively related to employment. Thus, equation (2) is Keynes Theory of
Employment, with r unspecified.
First Keynes says nothing of the sort. This attribution is an indication
that Rick's understanding of the Keynesian system is effectively almost
null. Perhaps his understanding is less than, null, if that is what he
misunderstands is subtracted from what, if anything, he does understand.
And, obviously if profits are always zero then there isn't any point in
considering, as Rick does, "increases in profit." Zero is zero.
Equations (1) and (2) represent functional relationships that exist
simultaneously in a closed loop. So the two equations must be solved as a
simultaneous pair in order to determine the functional relationships
between
variables in the loop. Solving (1) and (2) simultaneously for e
(employment
level) we get
e = k2k1/(1+k2k1) d - 1/(1+k2k1) r (3)
Assuming that the product k2k1 is large, k2k1/(1+k2k1) approaches 1.0 and
1/(1+k2k1) approaches 0.0 and equation (3) can be simplified to
e = d (4)
So a closed loop analysis shows that, if profit is a controlled variable,
then variations in employment level, e, are a function of disturbances to
profit, d, not to profit itself.
The idea of a disturbance to a variable that is always equal to zero is an
interesting and novel concept. Is there something profound involved here?
I doubt it. Rick's equations are, to being with based upon a misconception
Of the economic relationships that are involved. Rick was too trusting in
Assuming that Peter know what he was talking about. Rick is often far
Too trusting, but usually it is a matter of his being far too trusting of
Rick.
Still Rick despite his mistaken premise, obtains an interesting result
that I Am sure he and Peter can enjoy in discussion. I don't think that
I have any interest in the specification of a "disturbance" to a
variable that is always equal to zero.
Profit doesn't even show up as an independent variable in equation (4).
This is the sort of thing that can happen when one starts from a
contradictory and mistaken premises.
Equation (4) says that Keynes Theory of Employment is a theory (like
reinforcement theory or S-R theory in psychology) that is based on a
version
of what is called the "behavioral illusion" in PCT (see W. T. Powers
(1973)
Rick is fond of a mode of expression in which he attributes a causal agency
to
Symbols on a screen. Everyone knows, of course, that "Equations" never
really
Say anything. And, in this case, what we have is a parade in which the
"blind"
(Peter Small) are leading the blind (Rick Marken) into a pit. What Rick is
saying
has nothing at all to do with Keynes. How a disturbance to zero, is going
to
have a causal impact, well the whole thing is nonsense-beginning with
Peter Small's idea that Keynes' General Theory is"simple."
Rick goes on to repeat his mistake saying that,
(the only
action we consider in this case is employment level) that influence
profit,
Rick's idea about influence-is novel. Whatever you do to it, zero is always
Zero. So, we are back to Peter Small's original mistake, and the path down
Which Rick is headed based on Small's misconception.
factors like the level of demand for the product, desirability of the
product, an so on.
I marvel how Rick comes up with this stuff. How, is the desirability of a
Product going to influence the aggregate level of profit? Profit is a
matter
Of an accounting identity.
Keynes, like other prominent social scientists of the 20th century,
succumbed to the behavioral illusion because it is quite compelling and
because the only way to see past it is by using control theory,
What Rick indicates here is his ignorance of the number of people who "saw
Past" behaviorism before the emergence of control theory-if control theory
Can be said to have yet emerged.
the proper
application of which to the social sciences was not known until 1973, when
Powers published B:CP. Of course, now social scientists have no excuse for
succumbing to the behavioral illusion, especially those (many of whom
participate in this discussion group) who claim to understand control
theory.
A brave statement by a man who's principle claim to fame is to have
constructed
Programs (I am not going to call them models) which Bill Powers labeled
"Giant
Leaps in the wrong direction." The pseudo-analysis above is a small
hop-but
It still is going in the wrong direction.
The Attack upon Keynes is an irrational legacy that Bill's dad managed to
saddle control theory with-- at least in CSG circles.
Bill Williams