mostly in English, sometimes in Deutsch

Thoughts on the ‘science’ of economics

From my favorite blog on economics & politics, good stuff [and, as most of the times, long and not exactly easy to read. But worth it!]:

Copy follows.

Joan Robinson’s “Introduction to Modern Economics”
Posted on April 15, 2014 by Lambert Strether

By Rumplestatskin, a professional economist with a background in property development, environmental economics research and economic regulation. Follow him on Twitter @rumplestatskin. Cross posted from MacroBusiness.

Imagine a modern economics textbook comprising of three parts, with the last two being Analysis and Modern Problems. What do you think would the first part would be called?

I doubt your answer was Economic Doctrines. But that’s exactly how Joan Robinson began her textbook An Introduction to Modern Economics back in 1973.

For Robinson, rebuilding modern economics teaching meant starting with an understanding of evolving economic doctrines. As such, she begins her revolutionary textbook with a summary of the defining battles within economic philosophy, tracing the key players and their moral and logical arguments since the writings of Fançois Quesnay in the 18th century.

Robinson’s book, written with John Eatwell, was supposed to offer a fresh new way to teach economics that would replace the ‘Samuelson’ approach to economic teaching. It failed to do so. In fact it failed so catastrophically that it never gained one tenth the circulation of Samuelson’s principles text in its short publishing history, and has been all but forgotten in modern discussions about rewriting the economics curriculum. So unpopular is this book that it is deemed unworthy of shelf space at my university library, and instead resides in an off-site library storage facility.

But its popularity should definitely not be a guide to its quality.

For those who may never read the book I want to highlight some of the more interesting content that you won’t easily find elsewhere, and that is perhaps even more important and relevant today than forty years ago when the book was first published.

As a recently trained economist one of the more shocking things about Robinson’s textbook is the way many core features of neoclassical economics are brushed away in a sentence or paragraph as mere metaphysical reasoning. She defines such reasoning as being “applied to a use of language that conveys no factual information, describes no logical relations nor gives precise instructions and yet is calculated to affect conduct.” One such concept is utility, which is described as follows when it is first introduced

Utility is the characteristic of commodities which makes individuals want to buy them, and individuals buy commodities to enjoy utility consuming them.

Another metaphysical concept is that of profit maximisation; which is purely defined in terms of itself. While it may seem a little smug of Robinson to dismiss these ideas, the unscientific nature of metaphysical concepts renders much of the economic approach to generating knowledge utterly useless. Not a week passes when I don’t see a new economics paper or seminar that makes appeals to unmeasurable and unknowable concepts, defined purely in terms of themselves, that exist precisely a story-telling devices. Just a few days ago I sat in a seminar where labour markets where being ‘modelled’ in terms of an unquantifiable concept of search efficiency, which could not be defined without circular reasoning, and offered no testable predictions.

Another feature of Robinson’s book is that unlike our new Australian learning standards in economics, her text includes the following index items

Moral considerations, 2-3, 42, 313; see also Metaphysics, Politics and Social Justice.

Slogans, 1, 3, 9-10, 59

For anyone with a mainstream economics education these terms would seem wildly out of place. Even the mere suggestion of morality in economics these days will cast you as an outsider and ruin your career prospects. Economists love to see themselves as value free, and collectively ignore the reality that any welfare analysis is inherently a moral analysis.

When discussing the rise of the neoclassicists, Robinson writes critically of their core construct of the Walrasian equilibrium.

Walras himself realised that it is not practicable to reach the equilibrium position by trail and error, but he imagined that buyers and sellers could proceed by shouting out demands and offers, finding the equilibrium set of outputs and prices before production and trade took place.

His modern followers seem to have given up pretending that this is possible, and content themselves with finding conditions necessary to ensure that at least one position of equilibrium exists.

Oh my. She really did just say that a great bulk of academic economists have simply given up on reality to content themselves with mathematical game-playing. Which implies that much of neoclassical theory itself is unable to be reconciled with real processes in the economy.

Finally, we get a taste of the controversy that surrounds the definition of capital which is generally omitted from introductory texts. Robinson includes Thorstein Veblen’s view on the orthodoxy from his review of John Bates Clarks’s The Distribution of Wealth to make the point.

Here, as elsewhere in Mr Clark’s writings, much is made of the doctrine that the two facts of ‘capital’ and ‘capital goods’ are conceptually distinct, though substantially identical. The two terms cover virtually the same facts as would be covered by the terms ‘pecuniary capital’ and ‘industrial equipment’…

This conception of capital, as a physically ‘abiding entity’ constituted by the succession of productive goods that make up the industrial equipment, breaks downs in Mr Clark’s own use of it when he comes to speak of the mobility of capital; that is to say, so soon as he makes use of it…

The continuum in which the ‘abiding entity’ of capital resides is a continuity of ownership, not a physical fact. The continuity, in fact, is of an immaterial nature, a matter of legal rights, of contract, of purchase and sale.

Just why this patent state of the case is overlooked, as it somewhat elaborately is, is not easily seen. But it is plain that, if the concept of capital were elaborated from observation of current business practice, it would be found that ‘capital’ is a pecuniary fact, not a mechanical one; that it is an outcome of a valuation, depending immediately on the state of mind of the valuers; and that the specific marks of capital, by which it is distinguishable from other facts, are of an immaterial character.

What we see in this book is what I believe is an honest appraisal of economics. The myths and legends that are passed down as fact in most textbooks are shown to be anything but. Even Adam Smith’s pin factory and the lessons of division of labour are challenged.

The book does leave the reader wondering exactly how economic research should proceed. I think Robinson would be impressed by the gains made by experimental economics researchers, particularly because their findings more often than not challenge some element of neoclassical doctrine.

If you want an introduction to economics that acknowledges the rather limited knowledge generated by the field, and starts from fundamental moral foundations, then you could do worse than tracking down a copy of Robinson and Eatwell’s textbook from your local library’s storage shed.

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This entry was posted in Free markets and their discontents, Guest Post, The dismal science on April 15, 2014 by Lambert Strether.

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41 comments Christopher Fay April 16, 2014 at 3:10 am
I checked amazon for this book (maybe I should be trying Powell’s) and didn’t see that text book. There are a few other works by or about Joan Robinson, what would you recommend?

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Lambert Strether April 16, 2014 at 3:31 am
Try interlibrary loan? See the last paragraph. Or maybe there’s a samizdat copy somewhere.

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sd April 16, 2014 at 4:28 am
Click the book title link, it takes you to Amazon where used copies are available.

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Fíréan April 16, 2014 at 6:03 am
The Joan Robinson, John Eatwell book to which this thread refers is avialable, second hand and at time of writing this comment reply, through the Barnes & Noble Marketplace sellers and there editions on ebay, at the both of a price range from $10 up to $300. Hope this helps.

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Cyclist April 16, 2014 at 11:10 am
Apparently it is quite a rare book these days. My local university doesn’t have it (no surprise, really) and was showing only one copy in English at $302! It is much easier to find copies in German, Italian, Portuguese, etc…

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Richard Smith April 16, 2014 at 4:52 am
“mere metaphysical reasoning”: Robinson is trying to impale the metaphysics of neoclassical economists on Hume’s Fork (’s_fork).

As for “…a use of language that conveys no factual information, describes no logical relations nor gives precise instructions and yet is calculated to affect conduct”, this is also very C20 English moral Philosophy, see Emotivism, or Prescriptivism

Both these analyses of moral statements have an intellectual lineage that is also traceable to Hume.

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allcoppedout April 16, 2014 at 5:25 am
You can get a free flavour of the good lady here: and here:

And if you get yourself a free Jstor account:

The latter is on disguised unemployment, so she’s fill her boots today, I rather like her turns of phrase, though utility doesn’t match her ‘meaningless’ jibe. Still, a bit of emotivism is a bit of honesty in the sea of its concealment in the objective voice of rule.

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allcoppedout April 16, 2014 at 6:21 am
There’s some reasonable argument on the neo-classical synthesis here:

Frankly, I can live with Samuelson. He was trying to adopt some simple science/maths assuming economic stuff might follow the models. The skewed ideological treatments come later and are neo-conservative-religious. I’m more of an invisible cloth behaviourist. Economics is much more about crime than we admit and much less complex than economists admit. Ostensibly bright people administer projects for such as the World Bank making the same mistakes so often one wonders if they have any learning capacity at all (though as this continues year in year out it is even bleaker to think they only direct learning at keeping their careers on track).

Our various recruitment and selection systems seem unexamined, particularly in terms of what leadership networks do (autopoetic self-promotion?) and how we might control that. Economic analysis in public is so naff I want to vomit. Most people seem far too stupid to realise they are being told the great bankers who take massive slices of the cake, who crashed the economy only they can handle, can be trusted to take the reigns again, after seven years getting ‘improvements’ that mean things getting worse for the rest of us, and some accounting adjustments that probably disguise they have kept doing the same old things, and a bigger crash is coming. Yet when I meet actual people they don’t seem this stupid and, indeed, seem to know.

Could this be because they ain’t read any economics textbooks?

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MaroonBulldog April 16, 2014 at 12:19 pm
If the aim of liberal education really is to free the mind, then that aim was served by my two semesters’ study of introductory economics with the then-current edition of Samuelson’s work in 1967-68. In particular, it freed my mind from the misapprehension that I could ever be interested in concentrating my studies on that sort of thing.

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allcoppedout April 16, 2014 at 2:59 pm
Total content in my 101 ‘among economists rejecting Dr Strangelove’s game (game theory) is Samuelson’. But then I don’t use textbooks.

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craazyman April 16, 2014 at 6:36 am
Wow, this sounds like beach reading! Do yuz guys really get your utility functions jacked by stuff like this? Holy Ambien, knock me out for 12 hours already.

Utility is what you thought you were getting when you weren’t, and what you were getting when you didn’t think you were. One example is eating spinach.

Equilibrium is where you were when you didn’t know you were there and where you weren’t when you thought you were. Here’s a real world example without any math:

Economics is a mental disorder. Some people are capable of clear thinking between bouts of economics and appear quite normal to the casual observer. But when they start economocizing, no matter who they are, clouds form and enclose the lofty peaks of thought in a fog-bound darkness. hahahaha

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allcoppedout April 16, 2014 at 7:19 am
How dare you Craazyman! Speak the truth that is …

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JEHR April 16, 2014 at 11:02 am
What I am beginning to wonder is: If Economics is fantasy-based and no one seemed to notice, then what other subjects of study are also fantasy-based? Maybe Political Studies? Or Political/Economics? Scary thought that.

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allcoppedout April 16, 2014 at 3:04 pm
John Kay used to say economics was worthy of debate, but management theory only fit or ridicule. Who really thinks up teaching maths to the poor sods who can’t do it?

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Schofield April 16, 2014 at 11:43 am
“Economics is a mental disorder.”

Well not really it’s a natural phenomena all part and parcel of Nature’s attempt to achieve balance through the endless interplay between “cheaters” and “cooperators” where Nature wheels in devices like Direct Reciprocity and Indirect Reciprocity to achieve that balance:-

So instead of Adam Smith’s half-baked metaphysics that we owe our well-being (dinner) not to the benevolence of the baker, brewer and butcher but to their self-interest we can in the light of today’s social-biology research say that the self-interest can’t be expressed in a stable manner without the demand. This demand in turn can’t be expressed without the active benevolence of the above three characters and other controllers of capital and that “benevolence” is driven by Nature’s devices like Indirect Reciprocity which is very much about “reputation” within a community.

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allcoppedout April 16, 2014 at 3:26 pm
… cheaters proliferate [in good times] faster than cooperators due to their lower metabolic costs. This in turn depresses the frequency of cooperators, and the cycle repeats itself. We would therefore expect to see cycling or spiraling behavior in the eco-evolutionary dynamics of these types, consistent with theoretical predictions.

A bunch of yeasts know more about economics than humans. What could be rational about economics when human beings are animals with emotions and only part of a walking hologenome in which bacteria can influence our behaviour. Economics is typical of subjects based on a rational-legal fantasy notion of man.

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Schofield April 17, 2014 at 4:53 am
All of which boils down to a least one line of reasoning which homo sapiens are capable of understanding that ultimately as a eusocial organism we cannot have our survival individually at the expense of others. Since money is largely permission for how we spend a great deal of our time understanding what it is and where it comes from directly relates to how we use it to pursue the above line of reasoning.

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Hugh April 16, 2014 at 7:06 am
The economics of the last 40 years has been nothing other than an anti-populist, pro-wealth, pro-elite, pro-corporatist propaganda exercise. Neoliberalism is its political manifestation and uses an amalgam of neoclassical and libertarian ideas as its intellectual substrate. As with all propaganda, the point is not to be true, or even rational, but to dominate the discourse. And to do so to such an extent that even critics will find themselves using the language of this discourse and so accepting many of the ideas contained in it.

Modern economics is essentially a con. As noted, it cuts the economy off from its social/moral dimensions which is imperative in order to justify vast accumulations of wealth held by a few, gained by looting the many. It uses concepts like utility which can scarcely be defined let alone quantified. Or like equilibria which do not exist at all but which allow drawing pretty and convincing lines in regression to means which likewise do not exist. Or like jobs and unemployment which do not mean what most people think they mean. It is not that modern economics is off by a little, or even a lot. It is rather a distraction, a weapon of class war, meant to keep us from talking about the kind of society we want to live in and how to achieve it and to keep us talking in terms of its ideas, its numbers, and its constraints.

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skippy April 16, 2014 at 7:51 am
Pretty much Hugh…

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Saddam Smith April 16, 2014 at 8:29 am
Excellent post!

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Banger April 16, 2014 at 12:22 pm
It is stunning how this bit of easily debunked nonsense got such a hold on the educated elite.

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allcoppedout April 16, 2014 at 4:54 pm
Some very strong support for these views here:

And this is an example of work that could be repeated across all countries.

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JGordon April 16, 2014 at 7:47 am
How should economics research proceed?

Well that is easy enough to answer: economics should be disbanded and everyone working in the field ought to retrain as psychics or astrologers. This will improve society dramatically because psychics and astrologers can be quite entertaining and interesting while they’re laying on their metaphysical BS–as opposed to economists, who, generally speaking, are just boring (and depressing) dullards–even though they’re in the same line of work. A lateral move into astrology would do wonders for the value they bring to society and those around them.

As to whether we should have any trying to measure The Economy in the first place, the answer is no. What a useless way to spend time that could be instead spent on real stuff.

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MaroonBulldog April 16, 2014 at 1:20 pm
“Economics research”: the phrase begs resort of a familiar quotation of Einstein: “If we knew what we were doing, it wouldn’t be called research, would it?”

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allcoppedout April 16, 2014 at 8:40 am
I’m sure Hugh is right. There are some book-keeping functions in the mass of muck economic and more general business books we can make use of. I once read the stuff to try and find rational argument against. This is fruitless because the other side is doing propaganda. The communicative rationality of fair play is not in force. Joan came from a time when one could be swayed by Marxism without being a red under the bed. There were many others. Then along came the Thatcher and Reagan puppet show.

How about this for Craazyman’s ‘beach reading for the brain dead’:
‘If a firm is absolutely reckless in calculating its costs and revenues, then the
Darwinian law of the survival of the fittest will probably eliminate it from the
economic scene. Therefore, those firms which actually do manage to survive cannot be completely oblivious to the maximization of profits. But that does not mean every firms is
seeking desperately to squeeze out the last little ounce of profit from every
transaction. As soon as it becomes of any considerable size, it can afford to relax a
little in its maximizing activities. … Consider a firm that is maximizing its profits in a
fairly sensible manner. … It does this without [marginal cost and marginal revenue]
curves, just by feeling its way to the optimum by trial and error.’ (Samuelson somewhere)

One might say ‘pissing it up the wall may not allow the company to survive’. Note the crass use of Darwinian survival of the fittest – no longer how evolutionary biology thinks.

These days utility can be broken down so that we can, in principle, see all that my partner, driving a German diesel blue technology car, taking a blind lecturer to work is doing in regards of planet burning and the obvious good things. We could compare this in ‘opportunity cost’ against a more technology presented education with universities less isolated from our civic body. We don’t. And in principle we could have a big data approach to understand what work we can do, what we need to do against a reasonable scientific morality and how to produce a money system that supports this rational effort. None of this is even worth doing unless we confront the ‘treated like shit/let them eat cake’ liberalism ingrained through centuries (of poverty, war and some worthwhile developments). And we must confront, at the same time, how people treated equally can get on doing the stuff we want without poverty motivation, including population control and the work no one wants to do.

My guess is economics currently denies sensible book-keeping – it’s a real advantage for a firm to be able to cook its books to tide it through bad times. Money is not what we think it is and will be seen in the future as a crude heuristic largely irrelevant to sensible production we have allowed to be the tail wagging the dog. The theory of comparative advantage we work with could only have been worked out by 18th century toffs with no concern where their next meal was coming from.

I don’t think the argument should be against economics. It should concern what technology and knowledge we have now and whether we can make a fresh start informed by the history of the mistakes of economics. Money is essentially something ‘we the people’ create (even if current creation methods are perverse and in the hands of crooks) to share out rewards of building. Throughout history we have given control of money to oligarchs who supervise the work for their own ends. In this, we have allowed them to pervert money into capital, something it can never sensibly be.

Pass me a cold one Craazyman. I’ve lost the plot of this beach party,

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Patricia Marino April 16, 2014 at 8:42 am
Thanks for this. I haven’t read this one, but Robinson’s _Economic Philosophy_ is one of my favorite books — pulls no punches and written in a super engaging style. In Chapters 2 and 3 she shows how changes in definitions of terms like “value” and ” utility” resulted in dramatic changes in economic results and conclusions. She makes a case that some of these changes were made for ideological reasons — that is to say, theorists hoping for a certain outcome were motivated to use certain definitions. This shows in a concrete way how the abstract aspect of basic economic concepts (she uses “metaphysical” for these aspects but I don’t think she means outside-the-material world, more like conceptual/definitional) plays a real role in what conclusions we come to think are true. Brilliant and under-appreciated. Now I will try to get a hold of this textbook!

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MaroonBulldog April 16, 2014 at 12:53 pm
Economics is too much founded on a priori reasoning, by which I mean to say, the notion that human beings can establish that certain propositions are true based only what we come to conclude by thinking about them. This is a fallacy. Logic can only demonstrate that conclusions must be sound if the premises are sound; logic cannot demonstrate that the premises are sound in the first place. Premises can only be tested by scientific methods of observation and experiment, but there we run straight into the difficulties and objections of Hume’s skeptical epistemology–causality is unobservable. We accept the conclusions of physical science and engineering disciplines for pragmatic reasons–they seem to work tolerably well in the real world, even though they are open to fundamental epistemological objections. Economics is exposed to the same epistemological objections as physical science and engineering disciplines, but economics too often fails to work tolerably well.

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allcoppedout April 16, 2014 at 3:37 pm
As you say later, one A Smith never saw a pin factory, Every barking economist I met had no clue about man as a species or evolution as cooperative-competitive. I’m pretty sure I could take bacteria from people who have had gastric band surgery and just by transferring the microbes, help fat people get thin (current problem danger of killing people). So who or what is doing the rational-legal shit in that ‘human action’?

Some smug upper-middle class view of humanity that reads encyclopaedias but never sees crap work in a pin factory or on a jack tuna boat is at work.

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JGordon April 16, 2014 at 9:10 am
Well, how should economics research proceed in the future? It shouldn’t. People should not even be thinking up ways to measure The Economy in the first place, since there are plenty of way better things we could be doing with their time than engaging in such silliness.

But more importantly, humanity would be well served if all economists were to make a lateral move into astrology; after all economists and astrologers are in the same line of work already (so it would not be much of a cultural shock). This would be a win-win because astrologers can be quite entertaining while they go about their metaphysical pontifications whereas economists are just depressing dullards who probably dislike their meaningless work anyway.

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JGordon April 16, 2014 at 9:13 am
Oh I didn’t realize my previous comment was under moderation. I thought I’d been cut off from the internet at that time. Bummer!

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Crazy Horse April 16, 2014 at 9:18 am
Delusion is the Opium of the People. Without it we would all cease to perform our prime function as consumers. Why, we might even believe in conspiracies like Global Warming that was clearly invented by a single professor in East Anglia and perpetuated by Al Gore.

We should celebrate, not criticize professions like Economics that help us maintain our somatic state.

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allcoppedout April 16, 2014 at 11:15 am
My understanding of general probabilities suggests to me an astrologer might occasionally be right. Johns (2002) offers a causal theory of chance; roughly, the chance of an event is the idealised epistemic probability of the event, given a maximal specification of its (possible) causes. Astrology beats even economics in being absurd and impenetrable and thus is less likely to be proved wrong (when right) on logical analysis on count-back of the reasons it claimed in maximal specification of possible cause. So JG should be arguing for economists to take a step up to astrology, rather than a lateral move.

Johns, R. 2002, A Theory of Physical Probability, Toronto: University of Toronto Press Beach Reading Club.

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MaroonBulldog April 16, 2014 at 1:56 pm
Adam Smith never visited any pin factory. He read about one in an encyclopedia and wrote about what he read. Some “scientist”.

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Dan Kervick April 16, 2014 at 11:01 pm
Interesting. Day after day, Naked Capitalism visitors read posts on the mortgage industry, and then write comments on them, although most, I suspect, have never visited and mortgage mill. What a bunch of dummies, huh.

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MaroonBulldog April 16, 2014 at 11:53 pm
Adam Smith wrote his pin factory story as though he knew it to be true, when he didn’t. That doesn’t make him a dummy, but it does make him deceptive: he suggested a familiarity with a subject that he did not have. And, as Lambert’s link to the pin factory story shows, Joan Robinson believes Smith, or at least generations of his disciples, drew erroneous conclusions from the story he did write. If her view is correct, these errors might have been avoided.

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Dan Kervick April 16, 2014 at 10:58 pm
The ridiculous stream of kneejerk anti-intellectualism on this thread is profoundly depressing.

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MaroonBulldog April 17, 2014 at 12:09 am
I’ll take the bait: Maybe the anti-intellectualism–if that is the most apt description–is inspired by the subject matter of the post. Joan Robinson herself famously quipped that the reason one studies economics is to learn to avoid being fooled by economists.

In the interest of full disclosure, maybe I should admit: I am a lawyer. Economists are often expert witnesses. I am weary of the pretensions of expert witnesses.

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skippy April 17, 2014 at 12:56 am
please unpack anti-intellectualism

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MaroonBulldog April 17, 2014 at 2:20 am
Dan’s choice of word, not mine.

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skippy April 17, 2014 at 2:28 am
Was directed at Dan, MaroonBulldog, thought the queue was sufficient to denote.

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allcoppedout April 17, 2014 at 4:31 am
I just like some understanding of what life is like for workers. Seems to me decent folk would want to lend a shoulder to the wheel. The intellectuals write out the non-intellectuals simply because they don’t write, lack representation and never sweat alongside others in work. In short, we miss context. So much so that some newsroom shiny person claims what they do is work.
And in stuff like this is an intellectual point that we might change things considerably if rich and educated had to get down a scrub toilets, rent houses in London from their pay and so on.

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