[OPE-L] Review of _ Unholy Trinity Labor, capital, and land in the new economy_

From: glevy@PRATT.EDU
Date: Tue Feb 14 2006 - 10:01:59 EST

Those who are concerned about complexity theory and dynamic analysis and
its relation to Classical and Marxian theory will be interested in a
recent (2006) review by Barkley Rosser of the short (2003) book by Duncan

In solidarity, Jerry


Unholy Trinity: Labor, capital, and land in the new economy. Duncan K.
Foley. 2003. London: Routledge, 98 pages, index.

      Duncan Foley's Unholy Trinity: Labor, capital, and land in the new
economy is the sixth in the series of Graz Schumpeter Lectures
published by Routledge, all relatively slim volumes elucidating
themes arguably related to Schumpeter, if just peripherally, and
that usually summarize major arguments of the authors (previous
authors were Stanley Metcalfe, Brian Loasby, Nathan Rosenberg, Ian
Steedman, and Erich Streissler).  In this one, which deals with
questions of induced technological change in several sections, Foley
attempts to provide an integration of ideas that have evolved
through his varied career, from high general equilibrium theorist
(Foley, 1967), through deep student of Marxian economics (Foley,
1986), to complexity theorist (Foley, 1994; for more detailed
discussion of his personal and intellectual path see Colander et al,
2004, Chapter 7).  A central argument is that the classical
political economists, not just Marx but also Adam Smith and Malthus
with Ricardo (largely lumped together in his analysis), developed
ideas that are well suited to representation and understanding using
the methods of modern complexity economics, themes of dynamic
out-of-equilibrium self-organization in systems with boundedly
rational agents, in contrast to the requirements for full Walrasian
general equilibrium that he studied early in his career.

       The book consists of five chapters.  The first and longest,
Complexity, self-organization, and political economy, presents the
core arguments of the book.  He argues for a direct link from
classical political economy to modern complexity theory as
operating through biology and evolutionary theory, from Malthus to
Darwin to Kauffman (1995).The second, Innovative capitalism and the
distribution of income, develops a model combining the
distributional dynamics in a growth cycle model or Richard Goodwin
(1967) with the innovations possibilities schedule analysis of
Charles Kennedy (1964).  In the third, Can political economy save
us from global warming? he suggests that introducing properly
priced land into his Goodwin-Kennedy model shows that the answer to
the chapter's title question might be yes.  The fourth, The new
economy and the population of the earth, shows that there may be
two stable equilibrium levels of global population, a low
income-high population Malthusian one and a high income-low
population Smithian one.  These reflect the conflict between the
increasing returns through the division of labor arguments of
Smith, seen as supported by Marx, with the diminishing returns due
to fixed land arguments of Malthus, seen as supported by Ricardo.
The fifth chapter briefly recapitulates and comments.

      A major success of the book is Foley's central argument that the
classical vision, especially that of Smith and Marx, can be seen as
a predecessor to modern heterogeneous agent complexity models.  The
economy self-organizes out of the interactions between agents who
are heterogeneous and boundedly rational, even as no part of the
economy may be in equilibrium (although some parts may be).  He
adduces the classical idea of long-run normal prices around which
markets fluctuate as centers of gravitation, as the key to systems
with order and organization that may nevertheless always be out of
equilibrium, even if in some sense these centers of gravitation are
long-run equilibria (which may nevertheless themselves evolve with
technological change).  This emergence of a macro-level order out of
an essentially micro-level disorder stands in sharp contrast with
the new classical vision of macro-order arising from general
micro-level equilibrium associated with representative agents with
rational expectations.

      Another success is his reemphasis of the classical political
economics concern with the distinctiveness of each of the
traditional factors of production, labor, capital, and land, in
contrast with the implication of neoclassical production functions
that they are all essentially identical as scarce, rent-generating
sources of production.  He cites the arguments of the English
Cantabridgians in the Cambridge capital theory controversies of the
1960s and 1970s (Harcourt, 1972) in railing against the neoclassical
production function as a useful concept in understanding the real
evolution of technology and production.  Even so, just as he accepts
the critique of aggregate production functions, he argues that in
complex self-organizing economies, the aggregate of capital is an
important abstraction as the classical political economists thought,
with this importance showing up through the induced technological
change approach.

      It must also be agreed that the applications of these ideas to
essentially environmental themes in the third and fourth chapters
are largely successful.  However, I found these less stimulating and
ultimately somewhat more conventional than the arguments put forth
in the first two chapters.  That properly pricing environmental
assets may increase the likelihood of the economy being on a more
sustainable long-run path is quite in line with arguments from the
most conventional neoclassical models.  However, it must be admitted
that the agreement in principle with more conventional approaches is
not necessarily a bad thing in this case.

      So are there some caveats to have regarding this generally elegant
and well argued set of essays, aside from the caveat lector Foley
himself provides at the end of his first chapter that he uses
standard differential equations models for much of the book rather
than the simulation models more favored by many complexity
economists?  Of course.  One of these is a failure to fully cite
certain earlier observers who saw the link between complexity and
self-organization and linked this especially to the Smithian vision
of classical political economy.  He does cite some students of
increasing returns, notably Alfred Marshall and Allyn A. Young
(1927), but neither of these really had a full idea of the complex
dynamics of interacting heterogeneous agents.  One who did, and came
to understand modern complexity theory from its origins in physics,
was Friedrich Hayek (1967).  He made this argument regarding
self-organization in market economies.  Indeed, even the principal
promulgators of the general equilibrium theory itself have all in
various ways understood its limits and suggested directions implying
a complexity perspective, from Walras' speculations about dynamic
adjustment mechanisms (Walker, 1996) to Arrow (Colander et al, 2004,
Chapter 10) and even Debreu (1974).

      Another matter is his treatment of chaotic dynamics, which in his
first chapter he contrasts rather sharply with complex dynamics,
dismissing the former as an equilibrium concept in contrast with the
more open and dialectically evolutionary self-organization of
complex systems.  This seems overdone to this observer who sees the
two as more closely linked.  He recognizes some similarities: both
kinds of systems involve endogeneous erratic fluctuations.  While
chaotic ones involve a definite equilibrium and a locally unstable
but globally stable fluctuation that can be characterized for
forecasting statistically, he sees the complex ones as not
forecastable at all and as completely open.  However, his vision of
the classical self-organization involves fluctuations around centers
of gravitation that gradually evolve.  He even notes that this is
the pattern to be expected from the Malthusian demoeconomic system,
which he sees as the direct predecessor of modern complex dynamics.
But it is well known that the Malthusian system can easily generate
fully chaotic dynamics (Day, 1983).  While a single equation chaotic
system will not generally evolve, there is nothing preventing the
equilibria of a set of chaotic equations from doing so.  As regards
the question of dialectics, chaotic dynamics most generally arise
from a conflict between something pressing hard against something
else, as in snapback repellor dynamics or a population erratically
overshooting an ecological carrying capacity, a sharp conflict.  The
line between chaos and complexity looks both fuzzier and narrower
than Foley has drawn it here.

      This discussion of chaos and complexity slides into a closely
related discussion, that of the relation between equilibrium and
complex self-organization.  Now it is perhaps too easy to see Foley
as striving to move beyond the general equilibrium notions of his
earliest papers to his more generalized recent view.  There is an
endogenously evolving order, but no equilibrium really.  Or more
precisely, for thermodynamical systems, self-reproducing
organization occurs far from the long run equilibrium that might
exist (or itself evolve).  However, he does briefly recognize that
complex systems might well contain subsystems that do exhibit
equilibria, such as the stable temperature of blood in a more
broadly non-equilibrium organism.

      Certainly within economies there are markets or other sub-parts
where the standard story of rapid movement to partial equilibrium
holds.  It is well known that double auction markets rapidly and
easily move to equilibria.  In many more competitive markets, such
as for commodities or financial assets, the dynamics we see are
probably better characterized as the evolution of temporary
equilibrium states that the markets are almost always in, rather
than as some out-of-equilibrium processes.  Probably almost no
economy is ever in a full Walrasian general equilibrium, except
perhaps briefly by accident, but many sub-parts probably are almost
always in equilibrium, and many economies appear to be in
macroeconomic equilibria, or near them, much of the time, in the
sense of aggregate supply equaling aggregate demand, even if there
is not necessarily full employment.

      Foley recognizes that there are multiple concepts of equilibrium,
but only compares the steady point of a differential equations
system one with the thermodynamic equilibrium one.  But in dynamical
systems there are quite a few others, as has been known since at
least the time of Alfred J. Lotka (1925, Chapter 9).  Foley's
analysis of the problem of complex self-organization and equilibrium
is subtle and sophisticated, but I fear that he does not fully plumb
the depths of the complexities involved in the relationship between
such systems and the equilibria of their sub-systems or the higher
forms of equilibria that may be involved in their evolutionary
dynamics.   However, this is a relatively compact set of lectures.
The book also does not deal at all with money, arguably the question
that has been the most consistent thread thoughout most of Foley's
work, a beautiful journey whose goal he admits has not arrived at
yet (Colander at al, 2004, pp. 195-196).  Thus, we cannot expect a
fully satisfying resolution of all of these matters, and it can be
pointed out they have not been solved by any others either.

      These caveats ultimately amount to relatively minor quibbles, fusses
that a very well done book is not perfect.  This neat volume is a
provocative piece of thoughtful writing that delves deeply into some
of the most difficult problems in economic theory.  That it does not
fully resolve all of them does not make it unworthy of being read or
seriously considered.  It is a fully worthy piece indeed.


Colander, D.; Holt, R.P.F., and Rosser, J.B., Jr. 2004. The Changing Face
of Economics: Conversations with Cutting Edge Economists. Ann Arbor:
University of Michigan Press.

Day, R.H. 1983. The emergence of chaos from classical economic growth.
Quarterly Journal of Economics 98, 201-213.

Debreu, G. 1974. Excess demand functions. Journal of Mathematical
Economics 1, 15-23.

Foley, D.K. 1967. Resource allocation and the public sector. Yale Economic
Essays 7, 43-98.

Foley, D.K. 1986. Understanding Capital: Marx's Economic Theory.
Cambridge, MA: Harvard University Press.

Foley, D.K. 1994. A statistical equilibrium theory of markets. Journal of
Economic Theory 62, 321-345.

Goodwin, R.M. 1967. A growth cycle. In: C.H. Feinstein (Ed.), Socialism,
Capitalism and Economic Growth: Essays Presented to Maurice Dobb.
Cambridge, UK: Cambridge University Press, pp. 54-58.

Harcourt, G.C. 1972. Some Cambridge Controversies in the Theory of
Capital. Cambridge, UK: Cambridge University Press.

Hayek, F.A. 1967. The theory of complex phenomena. In: Studies in
Philosophy, Politics and Economics. London: Routledge & Kegan Paul. pp.

Kauffman, S.A. 1995. At Home in the Universe. London: Penguin.

Kennedy, C. 1964. Induced bias in the theory of innovation and the theory
of distribution. The Economic Journal 74, 541-547.

Lotka, A.J. 1925. Elements of Physical Biology. Baltimore: Williams and
Wilkins (reprinted in 1945 as Elements of Mathematical Biology).

Walker, D.A. 1996. Walras' Market Models. Cambridge, UK: Cambridge
University Press.

Young, A.A. 1927. Economic Problems. New and Old. Boston: Houghton Mifflin.

J. Barkley Rosser, Jr.

James Madison University


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