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What’s wrong with modern economics seminar on Tuesday

August 4, 2017

This is the notice that has just been sent out from the School about a seminar I am about to present on Tuesday. You are welcome to come along but please first email Sveta to say you are intending to come:

Brown Bag Seminar – Associate Professor Steve Kates

You are warmly invited to attend the School of EFM Brown Bag Seminar Series presentation by Associate Professor Steve Kates

A Classical Critique of Modern Economic Theory

This may be the nicest thing that has ever been said about me in print and it has just been said in a major economic journal:

Steven Kates is probably the best-known present-day proponent of the old “classical” macroeconomics of Jean-Baptiste Say, James Mill, David Ricardo, and John Stuart Mill. He affirms his belief in Say’s Law—a theorem that was “accepted by every economist for more than a hundred years up until 1936, [but has] apparently [become] an impassable obstacle in the modern world,” thus blocking present-day theorists’ access to earlier understanding (Kates 2014, p. 9). Kates has “written books and papers, monographs and articles” (ibid.) in a long-sustained effort to persuade the economics profession to see its way around that “obstacle.” Most recently, in this journal (“Mill’s Fourth Proposition on Capital: A Paradox Explained” [Kates 2015]), he has focused on Mill’s puzzling “fourth fundamental proposition on capital.” The proposition states notoriously (in the modern reader’s view) that “demand for commodities is not demand for labour.” Kates evidently means to settle, once and for all, the status of that contentious proposition by providing an explanation and defence of it.

Kates makes much of the fact that economists writing after Mill—eminent theorists such as Alfred Marshall, Friedrich von Hayek, Allyn Young, and Samuel Hollander— cannot make sense of Mill’s fourth proposition.1 Their difficulty he attributes to a theoretical “discontinuity” separating their vision of the functioning of the economy from that of Mill and his contemporaries. There may indeed be a discontinuity, but that is not the point. The point is that Kates apparently does not even think of the possibility that modern theorists cannot make sense of Mill’s “paradoxical” proposition for the reason that its basic premise is no longer deemed acceptable: the fourth proposition is simply wrong.

With so many economic failures at every turn, who is to say who is right or wrong? Every one of the following is wrong if where you start is with classical theory which is what the presentation is about.

A national economy is driven from the demand side
Classical economists did not accept the existence of involuntary unemployment
Classical economists had no theory to explain recessions
Recessions can be caused by demand deficiency
Thinking of national saving as a flow of money makes sense
Lowering interest rates will increase economic growth
Unproductive public spending can make an economy grow
Profits are maximised where Marginal Revenue equals Marginal Cost
Supply and demand explains what businesses do and how markets work
You can discuss economics without discussing the role of the entrepreneur in detail

Venue: 445 Swanston Street (Between A’Beckett and Franklin), Level 10 Room 44 & 45

Date: Tuesday 8 August

Time: 1.00 – 2.00 pm

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