And here's to you, Mrs Robinson


Jesus loves you more than you will know (wo, wo, wo) ...I know, but I was going to talk about the other Mrs Robsinson, Joan Violet (née Maurice), the main disciple of Keynes,* as I had promised in a previous post. Joan Robinson's contributions to economics demand several posts. She has participated, as Maria Cristina Marcuzzo noted, in three Revolutions, namely: the imperfect competition, the Keynesian and the capital debates ones.

And to reduce her to those three one has to fit her contributions to growth theory into a subcategory of either the Keynesian Revolution (the extension of the Principle of Effective Demand to the long run) or the capital debates (the critique of mainstream growth theory), and omit her various other contributions to monetary theory (e.g. endogenous money and the circuit), methodology (e.g. history vs. equilibrium), Marxist economics and so on. She was prolific for sure.

There are several great reviews of her contributions in all of them, which would make my post irrelevant. But what I want to discuss is the point raised in Sergio Cesaratto’s presentation, that in the last one of those revolutions her contributions might have been seen as negative. In his exposition Sergio emphasized quite correctly her rejection, at least in certain contributions, of the notion of long term normal equilibrium positions, and, hence, the traditional method of economics.

This was done, for the most part, to emphasize the notion that history matters and that path dependency was important, since the process of reaching the equilibrium would affect the equilibrium itself. Arguably, the role of uncertainty, following Keynes and some post-Keynesians, played a role in her rejection of normal equilibrium positions.

Path-dependency is indeed an important feature of real economies, and Robinson was quite right in emphasizing its relevance.++ However, the fact that the normal or long run equilibrium positions might depend on the initial conditions and on the trajectory to its final position would render the very notion of equilibrium irrelevant for the analysis of real historical situations might not be granted.

In her view, the notion of equilibrium originated from a misleading mechanical analogy with movements in space, and shouldn’t be applied to movements in time.  However, nothing suggests that the long run position of equilibrium cannot be path dependent and actually represented by an equilibrium position. Let me suggest that the idea of the supermultiplier is, for example, a case in point. Output depends on the autonomous components of demand, and investment, as derived demand, behaves in a way which leads to the adjustment of capacity (supply conditions) to demand.  It is an equilibrating process, but not a unique one, or one that leads to a determinate path of accumulation, since alternative initial conditions (e.g. sizes of the relevant coefficients) lead to different outcomes.  Also, changes in several factors can affect the trajectory by which capacity adjusts to demand.

Further, uncertainty, or true, fundamental and non-probabilistic uncertainty was also a relevant component of Robinson’s critique of equilibrium positions. Uncertainty also suggests that historical processes are complex and could not be reduced to equilibrium analysis. This was also in line with the post-Keynesian developments in the 1970s, by Paul Davidson and others, that suggested that uncertainty was central for Keynes understanding of the functioning of the economy.

That is again true. Uncertainty was important for Keynes, and is central in the functioning of real economies. However, uncertainty does not preclude the use of equilibrium. Uncertainty implies that agents use conventions, rules of thumb in order to make decisions. In an uncertain world agents stick to social norms, and even if there is significant uncertainty on an individual basis, the institutional framework tends to reduce uncertainty. In that sense, for example, the New Deal reforms decreased to a great extent the degree of uncertainty in the functioning of the economy, and guaranteed a high degree of stability to workers.  Another example of how institutional framework would reduce uncertainty is the use of capital controls (and fixed but adjustable exchange rates) to reduce the pressures on interest rates during the Bretton Woods era. With that framework, fiscal expansion with low real rates of interest produced a normal equilibrium with low unemployment level. In other words, nothing implies that uncertainty suggests that the multiplier and accelerator processes are not operational or that normal positions of equilibrium cannot be achieved.

In my view, the two main problems to Joan Robinson’s critique of the equilibrium method in the latter part of her career are that, on the one hand, by emphasizing the independence of the investment function and of uncertainty it led to the development of a set of models (later incorrectly referred to as Kaleckian) that bring back the entrepreneur as the central figure in economic growth (the so-called profit-led regimes). On the other, and even more problematic, it took place at the same time that (as noted by Garegnani) the mainstream rejected the old notion of long term equilibrium, and started to use dominantly the intertemporal models (this ones in fact terrible mechanical analogies to movement in space).

The old classical (and indeed even the old Marshallian) notion of normal positions, which allowed for historical contingency and path dependency was abandoned by the mainstream, but that was seen by several heterodox authors as an improvement because now mainstream models were ‘capable’ of incorporating multiple equilibria and instability. In fact, Keynes point was that normal situations (and hence stable equilibrium positions) in capitalism were sub-optimal. And Joan Robinson, at least in part, is responsible for some of those heterodox (very confused) views of the development of the mainstream.


* Richard Kahn would be the other candidate, but his contributions to the Keynesian Revolution were considerably less visible, if admittedly incredibly important, with the formalization of the multiplier on the top of the list. Kalecki and Kaldor, although quintessential Keynesians, were not disciples of Keynes in a direct way, and Sraffa, although personally close, and contrary to what some think, very favorable to the idea of effective demand, was not a disciple proper either.

++ Note that path-dependency is not exactly the same as hysteresis, a point raised by Mark Setterfield. I’ll expand on this on another post.

PS: A paper in which some of the pros and cons of Robinson's approach to economics, in particular on money and growth, is available here (subscription required).

Comments

  1. Interesting post. I think the confusion over the definition of equilibrium is a significant barrier to engagement with the mainstream.

    Having said that, I fully expect the mainstream to retreat to another definition of equilibrium whenever we finally nail what they actually mean by it, ending with the inevitable tautology. So I won't hold my breath for getting it right.

    On a Robinson related note, I feel that somebody should gather a collection of her fantastically brief line put downs. I can think of 3 off the top of my head:

    "The real wage of each type of labour is supposed to measure its marginal product to society...of course this is a very comforting doctrine for professors of economics but I fear that once more the argument is circular. There is not any measure of marginal products except the wages themselves. In short, we have not got a theory of distribution. We have nothing to say on the subject which above all others occupies the minds of the people whom economics is supposed to enlighten."

    "Schumpeter is Marx with the adjectives reversed."

    "Not only that, the doctrine of diminishing marginal utility applied to income itself…justifies Trade Unions, progressive taxation and the Welfare State, if not more radical means to interfere with an economic system that allows so much of the good juice of utility to evaporate out of commodities by distributing them unequally...on the other hand the whole point of utility was to justify laisser faire."

    “This is an ideology to end ideologies, for it has abolished the moral problem. It is only necessary for each individual to act egoistically for the good of all to be attained.”

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    1. I have collected some of Robinson´s remarks. See:

      Antonio Garrido, “John Robinson and the Post-Autistic Economics Movement”, post-autistic economics review, issue no. 22, 24 November 2003, article 6, http://www.paecon.net/PAEReview/issue22/Garrido22.htm

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    2. I think the reason why Robinson rejects the notion of sraffian equilibrium (or rather the Garegnani interpretation of it,- long period centres of gravitation- because Sraffa himself never talked about equilibrium) is because it have not any sense out of a Marxian model where wages are paid as a bundle of commodities (in Sraffa´s they are a % of national income) and because this concept remember the neoclassical notion of long run equilibrium.

      I have a paper about it -sorry, just in Spanish-see:


      • 2011:”Postkeynesianos y Sraffianos. ¿Es posible alcanzar un acuerdo?” Nómadas, Revista Crítica de Ciencias Sociales y Jurídicas
      http://www.ucm.es/info/nomadas/MA_sraffa/antoniogarrido.pdf

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    3. Sraffians certainly use the notion of long term normal equilibrium, but it's hardly Sraffian. It's actually the conventional view of equilibrium used since at least Adam Smith. Modern Arrow-Debreu GE models have departed from it, but it's still very much in use in every undergraduate manual and in policy advice around the world (recommend this paper http://www.jpe.ro/poze/articole/44.pdf). I think the reasons for her dismissal are, as I said, associated to her believe in the importance of path dependency and uncertainty, both Keynesian (post-Keynesian if you prefer) traits, that tend to emphasize the short term (like Kalecki's notion that the long run is just a collection of short run positions).

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  2. As I understand it, Joan Robinson was also important in her contributions to development economics.

    I don't consider the comment about Schumpeter to be a put-down. I think she once said something like, "I could never get the notion of intertemporal equilibrium to stand up long enough to knowk it down."

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  3. Not sure the retreat to the short term equilibrium notion with the intertemporal models has been a confusion. I think it was a deliberate way of avoiding (or at least is what they thought) the problems with the definition of capital. Of course without a normal long run position with a uniform rate of profit the very notion of competition (free entry), which was central for the surplus approach understanding of capitalist economies is gone. Agreed that she had fantastic put downs. Most famous probably: "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists." Also, agreed that on Schumpter it's not clearly a put down. Although I always resisted the urge of comparing the former with Marx. No doubt he 'borrowed' a lot from Marx (e.g. the whole creative destruction), but he did believe in a circular flow that was Walras GE, and he did think that the entrepeneur, the individual Nietzschean superhero, was the driving force of capitalism.

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  4. Andrés Lazzarini tells me that I messed up in including Marshall, as one that allowed for historical contingency and path-dependency. And he is right, since the marginalist view (even Marshall's) implies that the system moves necessarily to an optimal equilibrium level. For example, the optimal equilibrium always means full employment in the labor market (not several possible levels according to circumstances). The point was that Marshall did accept, unlike, modern neoclassical economics, long term normal positions.

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