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Contributions of Tarshis: An Ontological Perspective

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Slides from the 2016 PK Conference

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Contributions of Tarshis: An Ontological Perspective

  1. 1. Contributions of Tarshis: An Ontological Perspective Fahd Rehman Assistant Professor/Research Fellow Suleman Dawood School of Business (SDSB), LUMS, Pakistan
  2. 2. Outline  Introduction  Intellectual Influences  Theorizing and Ontology  Policy Proposals  Conclusion and Future Research
  3. 3. Introduction  Harcourt presented the contributions in a chronological order  Economic analysis based on realism Lorie was aware of historical process and factual background  Objectivity in analysis and wrote engaging and appealing economics textbooks  Modification of thoughts with historical events  Uphold broader Keynesianism and infuse details with his evolving thoughts  Unified framework to integrate theories of value, income determination, growth and distribution and finance  Sources of strength as economist
  4. 4. Intellectual Influences  Joan Robinson Imperfect Competition revolution Beggars thy neighbors: distribute poverty unfairly  Richard Kahn Inverted L shaped cost curve Extension of short period determination of price and output to the price level and aggregate output  Marshall Representative firm Strength: Solve aggregation problem and consistent with fallacy of composition Weakness: Lack of precision (achieved through mathematization of economics)
  5. 5.  Hall and Hitch Mark up pricing-variable cost+ overheads+profit Mark up pricing and marginal method gives identical results  Keynes Broad outlines are the same, modify the fine details Made General Theory consistent with national income accounts Analyze factors associated with propensity to consume and private investment Demand for consumer goods decline, the inducement to investment would decline showing
  6. 6. Keynes as intellectual chameleon Advise Meltzer since Keynes, sometimes, alludes to a day and other a long run Rapid fluctuations in price level bring uncertainty of expectations which in turn impact the interest rate  Shaw Money creation as a process of financial intermediation (realistic)
  7. 7. Theorizing and Ontology  Labor could not be considered as a statistical average since this would mask certain characteristics. For instance, the economic interests of wheat producers differed from bread ones.  Employers compete with other employers in certain domains while they join hands to resist the rising demand of wages  Favored labor unions on the grounds they increase the share of labor in the national income by affecting the degree of monopoly of business firms  Large corporation vs labor union brought a balance  Good theory aided in determining the relations to be investigated while bad theory yield false clues  State of confidence of business community affects the expected yield
  8. 8. Theorizing and Ontology Economic realism It is, of course, useful to understand how decisions would be reached if businessmen worked with estimates made to the nth decimal point-including allowance for the uncertainty of the estimates. But if we carry this too far, if we permit our thinking to be the prisoner of the analytical scheme, we gain a spurious elegance and accuracy at heavy cost- the loss of contact with reality and an insensitivity to what really makes the wheels turn” (1966; p. 423)
  9. 9. Theorizing and Ontology  Measurement with theory: Statistical data to illustrate an economic phenomenon  Integrate economic theory based on realistic assumptions, facts and observations  Analysis turned out to be different from Keynes regarding money and real wage over the trade cycle: Money and real wage were procyclical  Notion of equilibrium to analyse the capitalist economy i.e. equilibrium price and actual price were closed to each other due to thoughtful experiment  Short period from objective side i.e. size of plant and number of firms  Differentiate between short and long period by taking a dynamic view of competition
  10. 10. Theorizing and Ontology  Explain the dynamics of commodity production by extending short period to long one  Disguised unemployment in the agriculture sector during depression since demand for agri products fall and supply increase due to reverse migration  Significant contribution of Aggregate Supply function which led to stagflation and criticized the 45 degrees  Public investment increased output and employment in the short and long run and there was no end of worth- while projects  Public and private investment are complementary  Inflation affects the personal distribution of income since income transfer takes place from low to high income classes. Powerful groups maintain their relative position so hinted towards conflict inflation
  11. 11. Theorizing and Ontology  Debt affects the personal distribution of income since particular bondholder is different from a particular tax payer  He dismissed the ideology that high debt affects the confidence of business firm and government becomes director competitor of business firm  Remained faithful to logical time since post Keynesian scholars favour historical time to extend short period to long one  Novel approach of linking theory of price, theory of income determination, theories of distribution and growth provided a unified framework  Price setting behavior of firm is the key  Tarshis criticized the post Keynesian scholars on the ground of realism of assumption i.e. assumptions were
  12. 12. Policy Proposals  Proposals attacked monetarism and favor Keynesianism To tackles stagflation, monetarists primary objective is to fight inflation at the cost of unemployment Monetary restraint slowed down the global trade which aggravated the international debt problem Progressive taxation on high income classes, cut sales and value added taxes on business firm World economy-a closed system Coordinated expansion to break out of the problem of inflation, unemployment and international debt If all countries simultaneously try to reduce their debt, it would increase the debt burden by hinting to fallacy of composition  High unemployment affects the psychology of society People hold on to jobs and devise protectionist schemes which in turn lead to uncompetitiveness in a society
  13. 13. Policy Proposals Direct action of the people in the absence of collective action of the government  Favor general principles, common goals and fine details left to the implementing countries  Malfunctioning of international monetary system Speculative capital flow grew before 1971 and growth of Euro Dollar Market  Debt Servicing/Export ratio is the key to gauge the debt paying capacity  Inflation has distributional consequences for personal income
  14. 14. Conclusion Ontology provides insights into an economic phenomenon Theorize and support his opinions with facts Delineate pattern out of data Never uses econometrics and apply mathematical modelling Engage reader with real life examples
  15. 15. Questions and Comments Thank You

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