A conversation based on John Stuart Mill and the theory of value.
Obviously I don’t find this stuff as interesting as you do. But have just, admittedly quickly, looked at JSM’s theory of value. I can’t see how this stacks up: “almost equally disastrous [as the Keynesian Revolution] was the Marginal Revolution which undermined the classical theory of value”. Which of Mill’s 17 propositions does it undermine?
The Marginal Revolution starts with Marginal Utility. And let me mention that Mill was the greatest and most influential utilitarian philosopher in history, yet he absolutely refused to incorporate utility into his economic analysis, as noted here. The abstract begins:
“The concept of utility, which stood at the heart of J. S. Mill’s utilitarian moral philosophy, played only a minor role in his account of economics. The economic idea of (individual) utility, as is well known, neither inspired Mill directly nor excited his attention when developed in the work of other economists.”
And the reason in part, as discussed in my forthcoming book, was, and I argue from plenty of evidence, that the introduction of utility took the analytics of the economy from the supply side to the demand side. Lots of other things I could say and do say, but I hope this is enough for you to see my point. In my textbook I go into it in much more detail but do preserve cost-benefit analysis as part of what an economist needs to understand.
There are around 1200 economists on that website but I doubt any of them will want to buy into any of this and they are typically a fractious lot. Not that it’s the reason I bought into this query, but it did stoke my annoyance that it is the editor of our local journal, who want to dispose of the two papers, including mine, that he has held in his hands for two years, that asked the initial query which began thus:
My long message emerges from a series of papers I have received from a retired physicist, Kevin Wilks, who is 95 and argues (as physicists are wont to do) that laws of physics underlie economics, in this case production itself and the industrial structure. Economies capture energy and convert it into value (my summation). He draws on Quesnay and the primacy of agriculture, which I [is] why I write to SHOE for help, both to advise Kevin and to sort things out in my own head. And perhaps Kevin is onto something; if so, it is not straight HET, so what journals or outlets cater for speculative papers by intelligent amateur economists? The main concern here is not what Quesnay really said, but why what is valid in Quesnay is absent from textbooks. Wilks argues that introductory economics should locate the dependency of what we now call the secondary and tertiary sectors on the primary sector. Textbooks would be written differently. Of course, what is valid in a body of thought need not be regarded as important, but I press on.
This chap is a complete economic illiterate who thinks that economics should be reduced to energy flows – an old and idiotic economic concept that completely omits the notion of value and pricing. My article on Mill is however beyond his ken. Is it any wonder that economics has stagnated for the past hundred years, if not actually going backwards? Actually it has gone backwards, but who is this cretin to notice? This is why it is so difficult to get published when trying to say anything against modern textbook theory runs such obstacles as this. It’s only fortunate that I am now beyond the realm of publish or perish.
Marginal utility is a demand concept for sure but I would have thought the fault which led to Keynes was the focus on demand as an aggregate not on demand per se.
Want more? Utility cannot be measured and in any case has nothing to do with relative prices, whereas the supply side of the economy and the cost structure of the economy is the way in which the resource base is allocated to different outputs.
No classical economist bought the marginal stuff in the English speaking world until Joan Robinson and Edward Chamberlain turned the concepts into diagrams.
And fwiw, marginal utility has disappeared from our texts and been replaced by indifference curves, which are just as useless, and also unmeasurable.
And this from “The Physiocrats and Say’s Law of Markets”. I by Joseph J. Spengler.
The Physiocrats and Say’s Law of Markets. I
Author(s): Joseph J. Spengler
Source: Journal of Political Economy, Vol. 53, No. 3 (Sep., 1945), pp. 193-211
The physiocrats always expressed their theory of circular flow in interclass, rather than in interindividual, terms. Notwithstanding, their theory of circular flow forced upon them several conclusions of importance. They looked upon money as an instrument whose essential function it is to facilitate the circulation of goods and services, to serve as a medium of exchange. In consequence, they recognized that commerce consists, not in buying and selling, but in the exchange of goods and services for goods and services. They thus laid the ground work for the formulation of Say’s law of markets and evoked its actual statement by their treatment of consumption and expenditure. They recognized, too, that if money ceases to perform its function, the nexus between potential purchasers and potential sellers is broken, thus anticipating Keynes; but they did not develop this theory, for they supposed that in a healthy economy founded upon their principles money would always perform its proper function. (p. 205)
Notable here is that goods exchange for goods and the circular flow is in real terms with money facilitating the exchange. This is what Say himself would include in his Treatise in 1803. What Keynes did was recast the entire process into a circular flow of money forgetting to separate out and on their own the real exchanges that simultaneously occur. In a Keynesian model, and therefore in modern macro, the real half of the process is no longer distinguished and discussed.