"UE: in what sense is any genuine worker ownership not also private ownership?" In that it is owned by private individuals, it is private. However, in that it is collective and therefore owned by many, it is not 'private' in that one person cannot exclude everyone else.

From the vox article: "In summary, people’s choices between labour and leisure demonstrate that they value higher consumption in an absolute sense, not just a relative sense." Does any economist *actually* think people smoothly trade off between work and leisure? No mention of power relations or anything? Anyone? Bueller?

Then it just seems like a definitional problem. For it is true that a more monopolised market will probably have higher prices. Honestly, I don't even think the 'aggregate' price level is a particularly meaningful concept.

@luis Worker ownership of the means of production!

What's wrong with his observation? Even within neoclassical economics, monopolists set a price higher.

Evan, "This is trivial for any *finite* number of firms, but false for an *infinite* number of firms." This seems wrong to me. As Keen says, infintesimals aren't zero. The firm will still have an inftintesimal effect on demand. "This statement is just plain wrong. My guess is that marginal revenue doesn't mean what you think it means. Take a look at Chris' link (posted above) and go to equation 3 and read the explanation directly beneath it." I have read the links - it was badly phrased. My point is that if the firm acts as a 'price taker,' its own MC=MR calculation will be incorrect. "But Steve Keen is saying something much stronger than that. He is saying that profit maximising firms will set q where ***Market*** MR = mraginal cost, regardless of the number of firms. The rest of us would say that is only true if n=1, or if all the n firms collude to form a cartel." Ah, OK. But is it not true that the MR and demand curves will still diverge even if they don't behave collusively?

"UE it just depends on your production function. If you use Cobb Douglas and K=0 then output is zero and marginal product of labour is defined, at zero...Not for first time, I can't resist: you should have learnt some more economics before you started unlearning it." Sigh. You can differentiate a Cobb-Douglas production function with K set to zero if you want, and get zero. That doesn't show anything, except you have mastered very basic mathematics. Alternatively, you could pay attention to what I'm actually saying, which is that labour and capital must be employed simultaneously; in the real world, unlike in C-D world, you cannot add more and more of one to squeeze more and more out of the other. Hence, there is no coherent 'MPL' because the function is discontinuous or 'lumpy' and therefore NOT differentiable. "If you have a production function in which output may be produced with labour alone, then MPL is whatever it is." This is literally impossible. I challenged you to produce anything without using some form of 'capital' (which, being the catch all it is, uses land, which you have to exist on).

Sometimes I think 'supply and demand' is another way of saying 'bargaining power.' For example the measure of unemployment obviously impact's labour's bargaining power, but this can also be shown by a supply curve.

It is worth noting that marginal productivity - among its many flaws - has the problem of being indeterminant for labour or capital alone. For example, what is the marginal productivity of a taxi driver without his taxi? Or an office worker without his computer? This ties in with the bargaining power story. Since things can only be produced by labour and capital together, it makes sense that the distribution of this product would be determined by bargaining power.

As always with this chapter, I can't shake the feeling that everyone here is missing the point. First, we are discussing a model of perfect competition. There is no need to invoke empirical reality - if we want to do that, then abandoning perfect competition altogether would be a start. Secondly, there is no need to invoke Cournot or collusion for Keen's basic argument, which is that no matter how small a firm is, its actions will always have *some* effect on the market price. If it is truly a profit maximiser, it will recognise this and produce slightly less than where MC=MR. If it doesn't by assumption (begging the question of if there is some central authority setting price, which is stupid), then it will not quite maximise profits and will cause a small decrease in the market price. If every firm does this, MR and demand will diverge in the same way as they do under a monopoly market. And yet none of this is discussed in textbooks, on courses or elsewhere. The basic truth is that Keen has noticed an inconsistency somewhere. You can move the problem by assuming what you want, but the mechanics he identifies are correct within the model.

"If you let x be anything you want, well, the theory doesn't have much content. You can always find an x that fits the facts and makes the theory "true"." Not that I disagree with what preceded this, but the testable hypothesis is that firms actually use this method to price items, which you can verify by asking them.

Glad to have piqued your interest! I am a UK based, male student of economics - but the rest is confidential :D

Interestingly, Nick, I think agriculture is one of the few areas that exhibits the kind of production function typically found in textbooks, so it's quite feasible that farmers are more likely to follow that kind of rule. Having said that, a lot of evidence suggests the majority of firms use a cost-plus rule (anecdotally, all of my friends who study/have studied business or some form of industry have learned cost-plus pricing and know nothing about marginalism, unless they happened to take an economics module). "Sorry, you lost me there." Let me do the rewriting, then: "I think that real world farmers likewise omit that same term, when they are alone on their farms deciding how much wheat to grow. They think about the cost of growing more wheat, and compare that to the price of wheat. This makes sense to me, because mr is very close to P, since e is very large, so they ignore the distinction between mr and P." can turn into: "…[the student] rightly assumes that few firms can have any detailed knowledge of the minimal effect of an increase in quantity on the market price. However, it should be remembered that marginal analysis does not pretend to describe how firms maximise profits or revenue. It simply tells us what the output and price must be if they do succeed in maximising these items, whether by luck or judgement." "With some trivial math (which I have probably screwed up), my "set q where mr=mc" can be rewritten as "set P equal to [1/(1-1/e))]mc"." To me this isn't the same as the usual cost-plus rule, which is AVC + x%. I know there are different versions but fundamentally there is no need to invoke marginal or even economic concepts.

Thanks for engaging with (and agreeing with?) Keen, and in such a civil manner. Helps us avoid the usual vitriol of heterodox versus mainstream. Having said that, this post confuses me. Economists pride themselves on the logical consistency of their theories of profit maximisation - in fact, so much so that they seem to value it above the real world. Take a textbook I own: "…[the student] rightly assumes that few firms can have any detailed knowledge of marginal revenue or marginal cost. However, it should be remembered that marginal analysis does not pretend to describe how firms maximise profits or revenue. It simply tells us what the output and price must be if they do succeed in maximising these items, whether by luck or judgement." So what about if we replaced appropriate words to include Keen's qualifications? Surely the argument would still apply? Now, you seem to imply this is a silly perspective in your post, and we should look at what farmers actually do. I agree. So why not just accept that they use cost plus pricing and do away with the whole marginalist theory of the firm?

"Could it be that opposition to such economies is motivated in part by the sort of status quo bias that causes us to prefer present evils over potential alternatives?" Absolutely. I actually recently had a discussion on twitter about this very issue, and somebody said 'yeah, ever had an annoying coworker? Imagine if they were your boss!" Obviously they wouldn't be your boss; they'd be your equal in a democracy. But the obvious question is: imagine if your actual boss was an arsehole, which many of them are!? People also ask difficult questions about anarchist communes "what if a child is born into an abusive commune" etc., ignoring that the same logic applies on a massive scale under capitalism.

'Store of value,' to me, just means that it holds its value fairly consistently over time. This is a requirement for money so I don't understand why you exclude it.

Martin, not much to disagree with there. If anybody wants to read my post on this issue, it is here: http://unlearningeconomics.wordpress.com/2012/09/13/why-prefer-preferences/

Nick, You focus on 'time-preference' as an explanation for the interest rate, which Sraffa assumes is exogenous. But a vital part of endogenous monetary theory is, in fact, that the interest rate is exogenously set, so I don't see an issue for post-Keynesian theory as a whole (in fact my confirmation bias is feeling good as I've realised how compatible the two approaches are). Time preference could also be modeled as a result of institutional factors, which actually seems more sensible to me. Lord made some good comments about this, and your comment on motor vehicles which I am not manly enough to understand actually appears to follow more of a social trend than an individual one. Your formulation of A-D falls into a chicken and egg problem that is common in neoclassicism: where do prices come from? Sraffa examines production first (which, logically, must occur before consumption). I'm also not sure where the distribution between profits and wages comes in A-D (is it not assumed away?) Overall you seem to have to make some substantial 'tweaks' to get Sraffa. Martin, Indeed I am referring to debt deflation, though I wrote 1936 which is of course wrong (it was 1933). He abandoned the idea of debt markets in equilibrium and, as a result, that debts would not be paid was central to his hypothesis, and the problems that arose "[problems] would have far less serious results were they not conducted with borrowed money." This doesn't obliterate the idea of time preference altogether, but it does bring into question the idea that it can suffice to explain the interest rate. As you say, it's entirely possible to incorporate risk, and I'm suggesting that it is probably more important than time preference. More importantly, both risk and time preference surely depend on institutional factors, no?

Hi everyone, sorry I've been away so fell a bit behind. I'm writing a post so I will get into the more substantive issues there. Martin, I'm aware of Fisher (1930). But Fisher (1936) repudiated his own views on the basis that debt markets never clear and all debts are never paid, so I'm not sure why you'd appeal to him. There are also many alternative theories of the rate of interest - your (Fisher's) model seems to be based entirely on agents abstaining from consumption. But I'd agree with rsj that such decisions would be dwarfed by risk. I was also referring to the aggregation of consumer preferences rather than the interest rate. Nick, Indeed, there are problems with aggregating labour too - this is also a concern of mine! This paper is interesting: http://www2.econ.iastate.edu/tesfatsi/aggregateprodfunctions.felipefisher.pdf Robert is also correct that the conflation (1) money and capital goods (2) the rate of interest and the rate of profit are problematic. I don't agree that A-D is really just Sraffa in another form. But I will save that for later when I am not horribly jet lagged. Here's what I find odd about this: economists love ceteris paribus. But if we are holding preferences constant, dear god! The model must be worthless.

Even advanced labour market models generally talk about how excessively high wages and search 'frictions' create unemployment, which is inconsistent with the idea that wages and profits can vary a la Sraffa. I just don't think economists would be comfortable with the statement 'income distribution is largely determined by political power,' but if I'm wrong then great. Also, you said on Ryan Murphy's post that neoclassical critics don't realise the centrality of preferences. I think this is important - have you seen this essay where two economists (you possibly know Varoufakis from his commentary on the EZ crisis) identify neoclassical economics a being a methodological core consisting of 3 main components: preferences, individualism and equilibration. If you have time: http://www.paecon.net/PAEReview/issue38/ArnspergerVaroufakis38.htm I have problems with preferences. In an aggregative model like Sraffa's, you'd have to aggregate preferences which leads to well known problems such as the Sonnenschein Mantel Debreu theorem, which as I expect you know, states that aggregated preferences don't display properties similar to individual preferences without incredibly restrictive assumptions: http://en.wikipedia.org/wiki/Sonnenschein–Mantel–Debreu_theorem So how do we invoke preferences? I accept there is a constraint on production based on whether people actually want what is produced, but I don't see why it's impossible to add this to a model like Sraffa's. On (2), firstly I would generally reject the idea of an representative agent who decides between capital and consumption; I'd prefer to split into capitalists and workers (and bankers and the government). But even ignoring this, your formulation of an equilibrium is merely an equilibrium for the price of capital - it does not deal with the fundamental problems of measuring and aggregating capital (.e.g brooms versus blast furnaces). Sraffa's dated labour inputs creates a level of consistency here by giving us the value of what was required to produce the capital in question. Obviously parts of this debate would collapse into arguments about microfoundations and the Lucas Critique. I have noticed mainstream and heterodox debates tend to gravitate towards a few key issues.

@Chris Auld, I guess Stiglitz thought Samuleson and Solow also failed to understand their own models, seeing as they themselves conceded the major points. @Martin And the value of the future income depends on the rate of profit, no? 'is therefore shared by the mainstream/neoclassicals/etc.' Care to elaborate? I know there are considerations like this in monpolistic models, but as far as I'm aware income is determined by marginal productivites.

Take this in the least offensive possible way, Nick, but I'm pretty sure you're completely wrong. Cambridge UK took issue with the neoclassical treatment of capital: it's measurement, aggregation, and the concept of the MPC. The MPC is circular because the $ measure of capital is determined partly by the rate of profit, but the rate of profit is supposed to reflect the $ of capital being used. Piero Sraffa assumed neoclassical concepts like equilibrium in 'Production of Commodities' to take on neoclassical economics on its own logic. He came to several conclusions including but not limited to reswitching, The most important point I take away from it is that you must know the distribution of profits and wages before prices can be calculated.

"1. Suppose the price of fertiliser goes down, holding the prices of all the different types of food constant. Will the farmer use more fertiliser? Maybe. Probably yes. He certainly won't use less fertiliser." It will take me a couple of reads to process this post as a whole, but this stood out. If the price of fertilizer goes down it creates an income effect for the farmer's expenditure as a whole. This could change the composition of what he buys - no need to invoke giffen goods.

"Isn't socialism also concerned above all with capital creation?" It's not concerned with increasing capital accumulation, no. It's concerned with producing enough for everyone, though. You say a lot of things about efficiency. I might agree that under capitalism, worker run firms might even be more inefficient. But under socialism producers would not be looking to constantly expand, and increase production and profit. I'm not providing a blueprint. I'm just saying that if you want to critique socialism, 'it wouldn't be as productive/efficient as capitalism' is not the way to go about it.

In case anybody cares, I read a textbook: [link embedded here NR]