Re: [OPE] constant returns to scale

Dear Martin,

your references are familiar to me as a
Scandinavian, even Åkerman - and I think we can
agree that this is not a large literature. I also
agree on your evaluation of Adam Smith. And I do
not have much answers yet, but I time over and
time again find it strange that such a highly
relevant topic as IRS do not get more theoretical
and empirical treatment from left wing
economists. We have to take such an important
aspect of reality - capitalist and socialist -
into consideration. Precisely how depends on the analytical question at hand.

Regards
Anders

At 21:51 01.10.2008, you wrote:
>" So how do you handle increasing returns to
>scale? What pricing mechanism is appropriate?"
>
>Dear Anders,
>
>Well, I don't have any answers at this point in
>time, but clearly the issue of IRS is one of the
>most relevant, and also the most ignored,
>questions in economics. It is noticeable for
>example, that Adam Smith, so hailed as the
>founding father of economics, is ignored
>completely on the questions of scale (or "space"
>or whatever term one finds relevant), even
>though his first three chapters of the WoN deals
>with this topic exclusively. What he says, is
>that demographic shifts, introduction of
>roundabout methods of production, division of
>labour, and innovations (at the shop floor as
>well as in science) intertwine with the
>accumulation of capital, i.e. growth. This has
>been almost completely neglected in modern
>mainstream (I am skeptical about the term
>"neoclassical" because so much of today's
>mainstream does not really fit the term), who
>have instead looked to his theory of value, for
>methodological queues (while though rejecting
>the value theory). However, his theory about the
>modus of the manufacture, is really analogous
>for any other modern branch today, such as IT-production.
>
>On the topic of equilibrium for example, is
>there any passage in the WoN where Adam Smith
>actually says that the market will produce
>stable equilibrium? He says that "market prices"
>will "gravitate" towards their "natural prices".
>But if we take his first three chapters
>seriously (that is, if we assume that the
>economy is in perpetual motion), it will become
>obvious that Smith did not believe in any long
>term equilibriums. Or at least, that he did not
>think this to be any interesting point of departure.
>
>In the 20th century there were economists who
>elaborated on the topic of scale, but I don't
>think they are being taught anywhere now. Allyn
>Young, Gunnar Myrdal, Johan Åkerman and Nicholas
>Kaldor were a few of them (I mention two Swedish
>economists because they are famous to me).
>Kaldor's "The Irrelevance of Equilibrium Theory"
>and Young's "Increasing Returns and Economic
>Progress" are two of the best articles written
>ever. I give them to some of my students in
>history of economic thought. But really, their
>work should be incorporated into all the basic textbooks in 101 economics.
>
>I agree completely with you that the debate
>between Mises and Lange is really not
>interesting when you take topics such as scale
>into consideration. Instead, I think actually
>Allyn Young had a better theory to explain the
>failure of Soviet socialism, even though he
>actually did not live to see much of it. Below
>are some books and articles that I can recommend on the topic of scale.
>
>I wish there was more I could bring to the table
>on this topic, because it really deserves more attention.
>
>All the best
>Martin
>
>
>Kaldor, Nicholas, 1908-. - Economics without
>equilibrium / Nicholas Kaldor ; with a preface by James Tobin. - 1985
>
>A. Young, "Increasing Returns and Economic
>Progress", The Economic Journal, vol. 38, no. 152, (Dec., 1928)
>
>Myrdal, Gunnar, 1898-1987. - Economic theory and
>under-developed regions / by Gunnar Myrdal. - 1963[1957] - 5. impr.
>
>Skott, Peter. - Kaldor's laws cumultive
>causation and regional development / by Peter Skott. - 1989
>
>Toner, Phillip. - Main currents in cumulative
>causation : the dynamics of growth and development / Phillip Toner. - 1999
>
>J. Åkerman "Samhällsstruktur och ekonomisk
>teori" (Social Structure and Economic Theory)
>
>
>-----Ursprungligt meddelande-----
>Från: ope-bounces@lists.csuchico.edu
>[mailto:ope-bounces@lists.csuchico.edu] För Anders Ekeland
>Skickat: den 1 oktober 2008 20:57
>Till: Outline on Political Economy mailing list
>Ämne: RE: [OPE] constant returns to scale
>
>
>Let me throw the question of *increasing* returns to scale (IRS) into
>the debate. IRS is the great taboo of neo-classical economics, but
>very important in real life, especially for the real big firms. In
>the extreme Microsoft, but also IKEA or any other volume producer.
>
>IRS is what any rational capitalist want to have, very often have
>since there are always some fixed costs. In the "knowledge" economy -
>where research and development costs in the wide sense are getting
>more important since production is getting more and more automatized
>(ICT, global standardisation etc.) - and thinking, programming,
>design, organisation almost as labour intensive as it always was, IRS
>maybe becoming even more important than in the Fordist economy.
>
>Without taking IRS into account no "results" regarding market
>socialism versus market capitalism has any bearing on real life. In
>real life IRS leads to firms loosing in competition - this
>elementary fact - and the social costs/gains of this competitive
>selection process are never discussed. That makes such Mises vs.
>Lange debates "academic" in the negative meaning of that word.
>
>So how do you handle increasing returns to scale? What pricing
>mechanism is appropriate?
>
>Regards
>Anders
>
>
>At 17:08 01.10.2008, you wrote:
>
> > > Measuring marginal costs is impractical centrally or in a
> > de-centralized fashion,
> >
> > > because they vary with level of output. You can assume this away and then
> >
> > > assume constant returns to scale, so that MC = Average Cost, but
> > this then has
> >
> > > none of the efficiency advantages of MC pricing. This is quite
> > independent of the
> >
> > > incentive problems to which you refer.
> >
> >
> >
> >Hi Michael W:
> >
> >
> >
> >Yes, but don't most Marxian models also assume constant returns to scale?
> >
> >
> >
> >I suppose this would be legitimate in a static model, but surely any
> >
> >truly dynamic model of growth and capital accumulation must not assume
> >
> >this. This must be the case since technological change in means
> >
> >of production and the processes of the centralization and concentration
> >
> >of capital require (and, indeed, express) economies of scale.
> >
> >
> >
> >In solidarity, Jerry
> >
> >
> >
> >
> >
> >
> >
> >
> >_______________________________________________
> >ope mailing list
> >ope@lists.csuchico.edu
> >https://lists.csuchico.edu/mailman/listinfo/ope
>
>_______________________________________________
>ope mailing list
>ope@lists.csuchico.edu
>https://lists.csuchico.edu/mailman/listinfo/ope
>_______________________________________________
>ope mailing list
>ope@lists.csuchico.edu
>https://lists.csuchico.edu/mailman/listinfo/ope

_______________________________________________
ope mailing list
ope@lists.csuchico.edu
https://lists.csuchico.edu/mailman/listinfo/ope
Received on Thu Oct 2 02:08:55 2008