Yet another important video upload! Thank you. I guess you're fully aware of this yourself, so this is mostly for other viewers of this video: The fundamental problem with Marshall's theory is not that he drew his graphs rather squiggly, but rather that even in their simplest, linear form (which is found at the opening of most contemporary introductory economics textbooks), the graphs and the theory they're supposed to illustrate still suffer from underdetermination. For even if: Psupply=a+bQ Pdemand=c+eQ (b > 0, e < 0 as the argument goes, but that's irrelevant here) You can only have one observed P and Q for each point in time t. Therefore, you cannot find numerical solutions for a, b, c and e, not even with time series. You do have fewer fudge factors than with Marshall's messy graphs, but even in its simplest possible ("modern") form, the theory is still underdetermined.
I was about to comment that. One of the textbooks they gave me in university uses that linear form. I cannot remember if it was Gregory Mankiws or another one written by an argentine author.
I hope that you somehow read this comment. I am currently a 2nd year computer science student in the Philippines. Thank you for everything that you've taught me through your videos.
@@joaolisboa7775 The economy, there's all these signals going back and forth from consumers to producers about increases and decreases in supply and demand!!!!
A question from a comrade of mine: Hello mr. Cockshott. I have been following your work for about a year now and have decided to recommend your previous videos and articles on supply and demand to a good friend of mine who is economically a center-right and also a well-qualified worker in the financial sector.Their response was rather interesting, as they argued that while your article wasn't wrong, it didn't say anything useful either. According to them no one in their right mind ever use S&D theory to determine the price or value of a good. Rater, they say, that S&D curves should be treated as a simple intuitive rule for students to easily understand how certain actions of companies or events in the market would effect the price and not a method of calculating the real predictions about the price (as it obviously can't succeed at it). As an proof of that modern economists don't subscribe to such a theory they gave an example of how currently a lot of money is being poured in to develop predictive computer algorithms for the prediction of future prices of goods. So if modern economics reject the notion that S&D determines value, what exactly is the point of these set of videos and articles? I have been reading through your latest book recently and have found it being mentioned again,afterwards being contrasted with the LTV, which can actually make predictions. So is the only takeaway here that LTV is superior to Neoclassical theory on the grounds of predicting price and value, or is there more to it?
The point is that supply and demand theory is what replaced the classical labour theory of value in economics from the end of the 19th century. It claimed to be a scientific theory of price, but in practice was just an ideological tool to displace knowledge of the prior scientific theory developed by Smith, Ricardo and Marx. It remains the principle ideology that is taught to students. Its main function remains to prevent people actually looking at the labour theory of value since that is politically threatening to capital. So far, the AI algorithms that may be developed to predict prices are not taught as a theory to economics students.
@@paulcockshott8733 Thank you for the quick response! I will pass it along. The question struck me as a little odd since what this financier apparently said sounds less like an argument and more like an admission that neoclassical economics is empty of empirically verifiable content.. but perhaps that's just my dogmatism talking. Thank you for your work! I was very influenced by TANS when I read it a few years ago. I'm glad to see that you are still producing videos and I think I will watch a bunch of them while sheltering in place :)
@@apostleofazathoth7696 "neoclassical economics is empty of empirically verifiable content" It is. There is no neoclassical measure of heterogeneous capital, nor is there a good definition of it at the end of the day. Joan Robinson noted that at different rates of interest/profit you can have different quantities of capital in the neoclassical production function sense, but the same amount of physical machinery. This is why a 'labor theory of value(ish)' solution was latter argued to be a possible solution in order to create an aggregate amount of capital goods reduced to a homogenous quantity that wasn't based upon expected profits. These were highly academic debates between top MIT economists and economists in Cambridge University called the Cambridge Capital Debates, and it is well acknowledged the neoclassical economists lost: (en.wikipedia.org/wiki/Cambridge_capital_controversy)
@kreitzlega I do not think a peaceful transition to socialism is possible in most capitalist countries unless there is an initial democratic revolution.
Your comparison between the Newtonian explanation of gravity with Marshall’s supply and demand is very apt but it could be even better with the comparison of the new findings of modern physics on gravity and the amount of free constants they have now. Just to counter the argument of modernity.
Some broader coverage is given in this set of lectures that I have yet to video docs.google.com/presentation/d/1zOkJF4lnmsoi17TASopyUs-jlMUxJRNYMlvCo7iJ9L4/edit?usp=sharing
Modern physics actually DECREASED the number of free constants because: 1: if you think about it, all the exceptions and premises where Newton's law is valid ARE free constants that we didn't knew existed,; and 2: Through the use of Planck units you eliminate the constant G. Neoclassical economics went the reverse way: From the more general labor theory of value to the specific scenario where price already matches labor value, there is perfect knowledge and perfect competition (which is just an absurd scenario) and slight turbulences around it are given by supply and demand equalization processes.
@@paulcockshott8733 Did you ever make this video, or do you have any plans to? I count myself lucky to have found this link buried in these comments, as I've been reading through the slides and have already learned so many good new concepts for thinking about what science actually is and how it materially develops through historical/sociological processes. I'm sure most of your viewership would benefit a lot from a video on these slides.
Marshall's curves would be fine if he always stipulated that supply curves were ALWAYS completely horizontal at the "natural price" of the commodity. If we are abstracting away from frictional costs of capitalists retooling production (which Marshall certainly is), then even the slightest increase in the price of a commodity above its equilibrium value will entail an above-average rate of profit for the production of that commodity. In the language of Smith, the market price will be exceeding its "natural price." If we take this thought experiment to its logical extreme, as long as that price remains elevated, it will induce an infinite amount of capitalists to flood into that sector, and the quantity supplied will rocket towards infinity from even an infinitesimal increase in the price of the commodity (hence the completely horizontal supply curve). Of course, long before the supply of the commodity rockets towards infinity, the increased competition among the sellers of the commodity will drive the price back to its equilibrium (or temporarily below it). With the supply curve fixed as a horizontal line given by conditions that can be experimentally observed (i.e., what are the costs of the necessary inputs and the average rate of profit), that reduces the number of free variables and makes the theory at least a bit closer to being scientific.
So I see this criticism works for this original conception of supply and demand, but what about modern economics? Have they not adjusted the theory in response to these criticisms?
Just now arrived at this video, very interesting topic. However, I got the impression that the point made at 15:50 could be expanded. Not only it assumes the viewer knows Marshall's theory, it also jumps to the algebraic implication - that the function itself changes, or put another way that coefficients are not constant. I mention this because basic economic courses gloss over this point. They take supply and demand coefficient as given in any moment of time, with adjustments ocurring only in the constant, not really in the "slope"
@@LibertarianLeninistRants That makes sense. Whenever something is cut off in a video, I cry in despair realizing a bit of information was lost. So that's why I probably shouldn't work in archives - I'd tear my hair out at any damage suffered by anything.
Not only logic. Logic is important but you also have to see if those concepts are actually describing material world accurately. There are things that can be logic but not real.
But wouldn't Marshall argue that the supply and demand curves are determined by the individual decisions of many people? And therefore it is scientific in principle, it's just that there are far too many variables to measure? Like psychology, human behaviour can be explained by the science of chemistry/physics/past experience, but it is just too difficult to measure at the present time. Just because you can't predict/verify a theory right now in a practically way, making it an unscientific theory, it doesn't automatically make it a false theory e.g. String Theory
Odd that you mention string theory, the objection that I raise against Marshall is exactly what many physicists say about string theory. For an account of these objections see www.goodreads.com/book/show/27578.Not_Even_Wrong . More generally, although Marshallians may say that supply and demands curves are supposed to be statistical aggregates, that does not affect the practical problem of operationalising the theory. The orthodox economist recognise this and call it the 'identification problem' www.sjsu.edu/faculty/watkins/identification.htm but the existence of the fundamental problem does not shift their allegiance to Marshall's incoherent theory since that allegiance is fundamentally political.
@@paulcockshott8733 I’m a Marxist playing the devils advocate btw. None of the unified theories are testable right now, e.g. quantum loop gravity. But string theory is seen as the most likely candidate. But this is a bit different because we know for certain the standard model is incorrect and require a new theory for non-political reasons. As you showed in another excellent video, LTV already has a sound logical explanation and a >95% correlation with the input/output tables. The Marshal theory also seems ridiculous to me for another reason (I’m not certain this objection makes sense). If the value of a commodity is determined by some fixed number of coefficients, they must be mathematically related to some other set of coefficients corresponding to a different commodity, since they can be exchanged. And so, to the coefficients of all commodities. Madness.
Since the coronavirus pandemic is going to be an issue for shipping, I recommend you ask around on bunkerchan.xyz to try and get a pdf to tide you over until you can buy the real book.
"Supply and demand regulate nothing but the temporary fluctuations of market prices. They will explain to you why the market price of a commodity rises above or sinks below its value but they can never account for the value itself." Damn, it's really uncanny how obvious this stuff seems when it's spelled out like that. How could it possibly account for the value itself?
I think the easiest way of illustrating what you're talking about would be to point out how, no matter what the data points are (i.e., the prices and quantities), you can always just simply draw a bunch of Xs through them and then claim you've successfully "explained" the data. Of course, since there's no set of data points that couldn't possibly be "explained" using this method, it would be impossible for such an "explanation" to ever be falsified. (P.S. Would you consider doing a video on the Cambridge capital controversy, the neoclassical theory of income distribution, the logical problems with aggregate production functions, etc.?)
Thank you for a former answer. My mistake was that I thought the supply and demand function comes from a survey or poll. Mankiw used an example where offers and buyers were asked after price and quantity they would use. But even if it would be true in some cases it makes no sense for a whole economy.
The real problem with supply and demand theory of price, is that it implies the economy is driven by back door car salesmen , rather than production and finance
It's focused on the exchange (though in a pretty limited way as shown here) while ldv is in production. The problem is people trying to use it for other stuff, when it is purely a way of explaining market fluctuations, it shouldn't be presented as an antagonist to ldv.
The response to this i've seen is that while supply and demand curves can't be observed, they come from reasonable assumptions that conclude that there is a general equilibrium for all markets. It is this general equilibrium that economists make testable predictions about. I know of critiques of general equilibrium from Steedman and Varoufakis, but I was wondering what your response that was.
His general thing is that Marx was right and it's empirically verifiable, so given what he said in this video, it's that the equilibrium in a price is created by the amount of human labor embodied in it as related to the overall economy (Marx's "value"), and supply and demand issues will give a disequilibrium of prices away from the value
What testable predictions about VALUE does this theory make? Can you perform the types of empirical tests that can be done using Marx or Sraffa? No. You do not get any predicted set of prices for the values of output of the industrial sectors from Marshall.
Is the argument valid that the Marshallian approach is indifferent when it comes to competitive conditions vs monopoly? Shouldn't prices as observed in the market be influenced depending on whether there is competition or oligopoly/monopoly? To expand on that, how do you feel on Shaikh's critique on the notion of monopoly capital of the Sweezy school? Is it legitimate to talk about monopoly domination? Thanks!
But what if we make the curves: f(x) = a/x g(x) = b*x It would then have only 2 free variables, wouldn't that make it a valid model? Anyway, great book (HTWW), keep up the good work!
Smart suggestion. I would have to look at the implication of that. I note that the formula you give is equivalent to two assumptions 1) that there is a fixed sum of money to spend on the good, 2 that output is at a fixed cost per unit. These assumptions would fit in with or at least be compatible with the LTV but would remove one of supposed key advances of marginalism - the marginal cost critirion. Under the formula given by you, we are back in the world of Marx and Ricardo
I am conflicted this episode. What about situations where bids and asks are visible? If one looks at a supply demand graph not as an abstract mathematical model but as an ordinal graphing of demand bids and supply asks, it makes a lot of sense.
That is not how it was posed though, it is supposed to describe the whole aggregate supply. There are other ambiguities to do with time. Is the measure on the x axis a continuous flow per hour, a batch quantity per year etc. But if you were actually recording bids and asks how would you operationalise this. How do you measure what you call 'asks' for milk. Is it every time a person picks a bottle off the supermarket shelf? If so, there is no negotiation about price. You just pick up the bottle and get charged for it at the checkout. It is unclear to me how you intend to operationalise your measures.
@@paulcockshott8733 I see your point. I have seen this operationalized in platformed free exchanges in futures contracts. Something similar exists in forex, for example oanda's order flow (google images shows this in action). I believe it is unreasonable to have this in every product, but the underlying premises of supply and demand do exist. Marshall may be wrong by turning discrete variables into continuous ones, but interactions between echelons of labor time and use values do have a similar structure to supply and demand charts. Btw, I tried getting wage data from US IO tables and there was none, can you provide more info on how you calculated the labor coefficients in your LTV video?
@@paulcockshott8733 Sir can you please explain how you got labor coefficients for US io tables when the govt does not publish wage info? Im trying to recreate the graph from your LTV video.
Could I put in two requests for future videos? First, concerning your ideas about equal pay for all professions, dependent simply upon work-time. This is one of the more challenging proposals in TNS. I would like to ask some questions e.g about work intensity, jobs requiring lots of responsibility, how you deal with e.g “pay grades”, and so on. Second, about technological stagnation. It seems that, in your new book, your position is that it is due, in the end, simply to the progressively greater amount of labour that must be devoted to the upkeep of fixed capital/machinery. Would be good to hear some elaboration of, and reflection about this.
What about utility value? And the only way to quantify labor is time. What if me and another worker produce the same amount of a certain product but the other worker did it for a longer amount of time, whereas I produced the same amount in half the time the other worker did. Would the other workers product be valued more than mine just because they spent a longer time making it despite the fact that I made the same amount of the same product?? I need answers.
These points are answered clearly by Marx in Capital. Labour counts towards value to the extent that it is of average intensity and skill for the trade in question.
Ricardo, Marx, and Cockshot admit that when supply is totally inelastic demand determines price (monopoly). My memory is that Marshall admits that for the great majority of commodities the supply is so elastic that price is determined entirely by conditions of production (cost price probably for Marx). It's only with semi elastic supply conditions that the interaction of supply and demand interact to determine price (he's thinking about cases where different techniques make sense at different scales or there are large returns to scale). This is all to say that Marshall is the most classical of the Neo classicals that I've run across. The criticisms made here are of course valid but they are more damaging to the textbooks of today than they are of Marshall per se.
Great Video, but I think a much easier way of showing how the Supply and Demand model doesn't make sense is 1. how D(Q)=S(Q) could have multiple solutions (Therefore the good has no clear value) 2. how D(Q)=S(Q) could have no solutions (Therefore the good has no value at all) does my thinking process make sense in any way? I cant really think of a good example but it would make sense to me. 3. As we know the World doesn't have infinte resources therfore the D(Q) and S(Q) are defined for the inteval [0, n]. What if in that intervall D(Q) = S(Q) are not possible even if D(Q) = S(Q) in generall is possible. that may be another reason why the model doesn't make any sense.
Do you have a reference that his is his formula? Does he really have these 3 constants? I have never seen it before. Did you make it up? It seems you did 5:21.
Yes he does have them but does not make them obvious. He hides them by presenting his data as a pair of graphs, but by inspecting the graphs and solving 3 simultaneous equations for each curve you can extract the parameters for the curves. So yes he effectively published these functions by giving the graphs of them, but he disguised the algebraic absurdity of what he was suggesting behind the visual appeal of pictures. In anything other than marginalist economics you could not get away with that sort of visual trickery.
isn't supply just the amount of goods that enter the market for some given unit of time .. why would it be reasonable to represent it as depending on the total quantity of units of goods
At 15 min when you talk about observables, why are the two variables price and quantity counted as the original 7 variables? Those two are supposed to be explained by the seven factors, why are they lumped in as two of the seven?
I am not convinced by the explanation given by this video on a couple of points. Firstly, I don’t think the cancelling of supply and demand at equilibrium necessitates that price be explained by an additional mechanism. Consider the point of equilibrium for a suspended mass spring system. The combined force on the system is mg=kd. The force of gravity pulling down on the mass and the force of the spring pulling up on the mass cancel, but we only need these forces to explain the position of the mass. I don’t see why the case of supply and demand should be considered to be different. Secondly, I don’t think the two different equations, D(Q)=S(Q) and P(x)=L(x)/L(s) are comparable as the scope of the former also includes quantity as a variable. The model therefore can be used to explain why a price fixed higher than the equilibrium rate reduces the quantity sold. In order to make a fair comparison you should expand the price equation from classical economics to account for disequilibrium states where supply and demand do not cancel.
You got this wrong and I will use your analogy to explain (at least how I think it's right): marshallian theory just records points for each of the two "external" forces acting on the mass in directions -x and x and then "interpolates" to form the two curves. Where they intersect, a "true" equilibrium is declared (--> price). But this approach remains completely agnostic on the fact that a) the force acting in the direction -x contains the elastic response of the spring (depending on k) and b) the force acting in x contains the body weight of the mass (m*g). In fact, and please work the vertical spring example on your own in case I made a mistake, for an external differential force acting on the mass (lets call it ΔF), the position of equilibrium y1 is y1 = y0 + ΔF/k, where y0 is the equilibrium under the gravity field. When the "Demand" and the "Supply" are equal, you get y1=y0. So, to sum up, "demand" and "supply" forces do not simply correspond, in the spring analogy, to the downwards body weight pulling and elastic upwards resisting forces respectively, but in the general "observable" counteracting forces which contain the latter ones. P.S. - If I remember correctly, Marx even draws a parallel between Value (capital V) and Mass in the first chapters of the first Volume, which further reinforces my argument.
@@galerkinb3139 I don’t think your comment contradicts the point I was making. You are right to clarify that “supply” and “demand” are not specifically analogous to the weight and spring force, but more generally to the sum of the forces acting in each direction. Hence if we add more components, which can exert force on the mass, to the system, each new component adds to the existing “supply” or “demand” directions. Which section are you specifically referring to? Iirc Marx uses weight as an example of a property that allows dissimilar objects to be compared, is that it? My analogy was supposed to explore something different, what information do we need to explain the point of equilibrium. To state it explicitly, price corresponds to the displacement of the mass and the two quantities correspond to the forces acting in each direction. It is with this analogy in mind we can understand why the Classical Econ understanding of equilibrium is wrong. Using the way Marx puts it in VP&P, at the moment when upwards and downwards forces equilibrate each other they are still acting on the mass. It is absurd to say the forces cease to act. Hence, just as the displacement of the mass continues to be explained by both upwards and downwards forces at equilibrium, so too price continues to be explained by the supply and demand at equilibrium.
@@bernardmandaville3456 But it does contradict it because it is only the mass that results in a force and an opposite but equal force within a gravity field. The other forces from the other components would cause the body to move away from the equilibrium (to a new equilibrium). The section I am referring to is the first 3 chapters of Volume 1, although it's been some time since I read it. "To state it explicitly, price corresponds to the displacement of the mass and the two quantities correspond to the forces acting in each direction." Exactly. And all I am saying is that in the configuration of a vertical system of mass-spring, there is an initial displacement due to the mass being in a gravity field. That is the analog of the "natural price" or "value"(cost of production). Other displacements occurring due to additional forces cause a further variation of price. But that doesn't contradict or refute the LTV, which is interested of the "natural price" (see my first reply to you). You use the system mass-spring to explain why LTV is wrong but it is exactly this analog that is in correspondence why LTV because they both rely on an underlying measure (mass - value) and a field (gravity - competitive commodity production). What the marshallian "theory" does is write down points on the plane that correspond to different levels of "action" and "reaction", interpolate through those points to generate 2 lines and then declare the intersection as the "price". Pure sophistry.
@@galerkinb3139 I think you have misunderstood the third law of motion, the equal and opposite reaction is the pull of the mass on the Earth. If you have an unsupported mass there is no “initial displacement” or initial equilibrium, the unbalanced forces will cause the mass to accelerate towards the Earth in a state of free fall. It needs some kind of support like the spring in order to reach an equilibrium in the first place.
@@bernardmandaville3456 Thanks for your consideration but I think I understand the laws involved. I didn't include inertia effects(motion) because it isn't needed (and it isn't implied from your first response). We analyze it as a quasi-static system. The spring simply hangs from a roof and we attach a mass. Without any external forces and being in a gravity field, the mass will move to its (natural) equilibrium position from the position of the unstrained length of the spring (if you account motion, after a brief period of dumped oscillation). This is the state that corresponds to the natural price. I hope this clarified what I said and all in all, is enough for you to understand how your analogy is not exactly correct.
great video. i'm glad i found this, thr capitalist explanations of value always seemed very meaningless even before i started discovered labour origin of value
If (theoretically) everything would be automatised, what would that mean for the labor theorie of value? Would machines be counted as constant capital because they are machine wich do not get payed or would they count as variable capital because they work?
I have one quick query. Why did you model Marshall's curves as polynomials. This doesn't make sense to me because a quadratic curves down but then curves back up implying that demand increases with lower price but then there's a price point at which a higher price causes an INCREASE in demand. Since you say "at least quadratic" this behaviour would be true of any polynomial whose highest power is even and neglecting added complexities. The supply curve then experiences similarly odd behaviour by randomly levelling off in supply at a random price point then continuing upward. I would've thought better curves to model these behaviours would be exponentials: one of positive Q for supply and one of negative Q for demand. If modelled as for example: D(Q) = e^(-AQ+B) S(Q) = e^(CQ+D) ...these could have anywhere between 1-4 free variables as you could theoretically have 0 values for B and D and have A and C equal. I don't think this ultimately affects your larger point about Marshall trying to seduce us with curves but I was curious about this? Am I reading too much into what's just an example?
I was wandering how this theory of Marshall is defended today? Anybody got an article? Also I hade some lets say intuitive feeling, that we would maybe need to understand how subjectivist or marginalist theory of value relates to this. anyways thanks for this video!
Блеск и нищета европейской политической экономии. Спрос и предложение устанавливаются в результате рыночного акта обмена. То есть, возможны только и исключительно внутри товарной экономики. А если экономика не товарна? То это вообще не экономика. Другими словами, если я выращиваю пшеницу для потребления - это не экономика. А вот если на продажу, то это экономика. Если сам и для себя - то это не труд, или труд, но не имеющий стоимости. А если продаю себя как рабочую силу, то это труд, и он имеет стоимость. Дальше Рикардо, Смит и Маркс с их теориями стоимости и прочим спросом и предложением. Вот сколько стоит вскопать один гектар простой лопатой? Если речь о наемном труде, то на сколько договорились, столько и будет стоить труд. А если труд не наемный? Ведь мы же понимаем, что даже вскопать "для себя" чего-то, но стоит. Потому что расход калорий будет одинаков, и он вообще не зависит от характера труда (наемный или "для себя"). А "цена вопроса" будет потрачена как раз на воспроизводство себя как рабочей силы, то есть на компенсацию потраченных калорий. Получается, что рынок, спрос и предложения являются единственным способом измерения. Сколько за вещь (труд) дают, столько она и стоит. В чем логический изъян такой политической экономии?
I cannot agree with this, because i consider this model to be valid enough for industries with rising marginal costs, for example the oil industry. Rising demand will lead to rising prices, which then allows the "marginal oil field" (the more expensive oil field) to be brought into use. It's not valid for most industries or the economy in general, because most industries have constant or falling marginal costs, and costs of production serve as the basis of price.
@@paulcockshott8733 What was the response, where there any criticisms? This seems like it should have fairly wide ranging implications for the field if true.
Your video just shows that demand and supply curves are difficult to measure. But they're not impossible, instrumental variables offers one approach. It doesn't show thats its a totally made up concept like you claim at the end. Like gravitational potential energy is hard to measure but it still works as a concept
No that is a bad analogy. You can measure both the gravitational and kinetic energy of the moon at different parts of its orbit by simulataneous measurments of angular velocity and radar rangefinding. No difficulty there, the difference is that there are no independent meaures of the supply and demand curves other than the prices you observe and which the curves are supposed to explain. The physics example has no free variables that can not be tied down by observation.
@@paulcockshott8733 OK how about the heisenburg uncertainty principle then. We can not measure both the momentum and the position of quantum particles. Therefore by your logic quantum particles don't exist. And it's not even that bad when it comes to supply and demand, they are just curves which are tricky to empirically identify, not impossible. You actually make an error in the video. You say lets assume only demand is the one that changes. Then you try and estimate demand. But instead you should look at supply which by assumption doesn't change. Then you can enough observations to work out the curve. Although you also have to justify your assumption that supply doesn't change.
@@Mroka729 The problem is symetrical the proponents of Marshall can only hope to measure one curve if the other does not change, but since they do not assume elsewhere that only one changes, they have no basis for assuming that such curves ever exist. On your physics analogy, the physicists conclude that particles do not simultaneously have well defined positions and momenta, you can only observe one or the other. If you detect a photon on a plate you know its position but not where it came from. The conclusion that they give is that the momentum prior to hitting the plate was random and undetermined. The observable in this case is the x,y position on the plate. They conclude that there is no deterministic law governing the path taken to get to that position. The economists have p,q price and quantity as their observable. If they were consistent with the physicists they would say that what led up to that was a random non-deterministic process. Instead they have fantasy curves that intersect at p,q . Physicists would laugh at the suggestion that the the position at which a particle hit the plate was the intersection of two, in principle unknowable, curves.
Hi professor, hope you are well and staying in safe self isolation. Would it be possible for you to do a video on pandemic economics given the current situation? Such as how a planned socialist economy, like the one you propose would handle things? In one of your previous videos you argued why you think UBI is a bad idea, yet I see no alternative in the short term to maintain a lockdown without providing UBI to everyone, unless you want millions of people to fall through the cracks.
At 5:00, the main nonsense is your absurd claim that a demand curve is a second order polynomial. There is no way it can be a polynomial at all, as it simply posits a discreet statistical distribution of potential buyers' utilities, which are nothing but subjective opinions. At no time did Marshall claim his hand-drawn representation followed any sort of algebraic function. That is just some nonscience you made up. We can't even say definitely if the demand (or supply) curve is concave or convex at any given point on its length, so calling them "functions" is absurd. You could as sensibly claim that the statistical distribution of people's weight is a second (or whatever) order polynomial. It has no scientific validity whatever. It's just nonscience with no relevance to economics or reality. Sometimes statistical distributions can be approximated by orderly mathematical functions like the Gaussian or normal distribution -- which is not a polynomial -- but more often they can't. Supply and demand curves are effectively just sigmoids of real-life quantities, and can't be approximated by algebraic functions.
@@roylangston4305 that is the fraud of Marshall. Draw curves and it looks as if you have explained something. If it is not a straight line it is at least a 2nd order polynomial. It is not a "statistical distribution", firstly because no error bars are shown, secondly because there is no conceivable set of observations by which the two curves can be estimated, third, because it is nowhere presented as a probability density function. It is literal hand waving with chalk not science.
@@paulcockshott8733 wrote: "that is the fraud of Marshall." There is nothing fraudulent about it. You are just makin' $#!+ up and falsely attributing it to Marshall. "Draw curves and it looks as if you have explained something." And when the curves are a reasonably accurate representation of the phenomenon you are explaining, maybe you have. "If it is not a straight line it is at least a 2nd order polynomial." No, it is not a polynomial at all. It's just a representation of a bunch of data points, like people's height. It's not even continuous. "It is not a "statistical distribution"," Yes it is. A demand curve is just how many of the item would be purchased at each possible price, like how many people in a given population are at least x cm tall. You can draw a curve to represent those data, and that is a statistical distribution. It has nothing to do with polynomials. "firstly because no error bars are shown," Huh?? There is no requirement that a HYPOTHETICAL statistical distribution have ERROR bars. What on earth do you incorrectly imagine you think you might be talking about? "secondly because there is no conceivable set of observations by which the two curves can be estimated," Garbage. You could just ASK PEOPLE how many of the item they would be willing to buy at each price, and sellers how many they would be willing to sell. Market research by actual firms -- with which you are self-evidently entirely unfamiliar -- does that sort of thing all the time. Now, of course, they can't actually ask everyone, but they can get a representative sample that enables them to estimate for the whole population, just as you can measure the heights of a representative sample of people to get an idea of the distribution of heights for the whole population. "third, because it is nowhere presented as a probability density function." Because that is not what it is. It is just a representation of a sigmoid, the total number of the item that could be sold at each price, like how many people in a given population are at least x cm tall. "It is literal hand waving with chalk not science." It is a conceptual framework to aid understanding of how the intersection of supply and demand determines price, not empirical data about a particular product. Give your head a shake.
14:31 Just a nitpick but it couldn't have corn if it goes the far back. Corn came from the new world so it wouldn't have been in Europe in the 13th century.
I feel like this whole mathematical thinking about economy not giving in the slighest to Marx falls into the category: Proper math used on flawed ideas.
He’s illustrating the point that in general demand is less as price is higher and higher as price is lower. Disputing this by digging into the mathematical minutiae of the illustration of this concept is myopic and irrelevant.
If applying a theory in order to test it (and subsequently finding it inadequate) is myopic and irrelevant, that says more about the theory than the person testing it.
That people can afford to buy less of something expensive than something cheap says little about value. That price rises when demand is high and falls when it is low, is something Marx and the classicals would agree with. The question is high or low relative to what? The answer of Smith, Ricardo and Marx is that the standard is the natural price or labour value. The aim of the Marshallian theory is to displace labour value and make supply and demand the explanation for equilibrium price not disequilibrium deviations of price from value. If he is attempting to go beyond Ricardo, then we are quite entitled to undertake a formal analysis of his theory to see if it makes any predictions at all about prices - which it does not.
Mr. Cockshott needs to retake Economics 101. Supply and demand are not numbers. They are functions. Functions cannot 'equal' each other. Socialists often claim that supply and demand can't be determining prices and only determine irrelevant and temporary "fluctuations", because at the equilibrium point of sale - the average price - supply and demand are supposedly equal. Toothpaste has an equilibrium price, cars have an equilibrium price, gold has an equilibrium price. If all these products have "equal" supply and demand at the price of sale, what causes some products to have different prices than others? Shouldn't supply and demand, if they are "equal," be exerting "equal" upward and downward pressure and therefore have no net effect on price? Shouldn't that mean there must be some other explanation for why some things are cheap and some are expensive? But this criticism is completely wrong. And the reason it's completely wrong is the Economics 101 reason that supply and demand are absolutely *not* "equal" for products at the equilibrium price of sale. The two things that are actually equal in equilibrium are *quantity supplied* and *quantity demanded.* Supply and quantity supplied are two entirely different things that socialists have incorrectly combined into one. Likewise for demand and quantity demanded. What socialists claim to be a contradiction is in fact not a contradiction at all. Ferraris, for example, are sold at equilibrium, a price where the quantity supplied equals the quantity demanded. But, simultaneously, the demand for Ferraris is somewhat high and the supply is incredibly low. It is the supply and demand, which are by no means necessarily "equal" at the equilibrium price (whatever that might even mean) that determine value and price.
Of course they are functions, I am explicit about this in the talk. The point is that if you look at Marshalls examples or those in standard modern textbooks like Samuelson they are second or third order polynomial functions and as such each has either three or four free variables. We thus have a total of 6 or 8 free variables in the explanatory functions for 2 observables : price and quantity.
Also read Debunking Economics 2nd Ed by Steve Keen where he talks about the supply and demand model failing if one correctly applies their assumptions. In other words, the supply curve doesn't exist and the demand curve can have any shape it wants except for double backing.
You are one of the few voices of reason in this world.
Facts
And logic
i install gentoo three times a day
Yet another important video upload! Thank you.
I guess you're fully aware of this yourself, so this is mostly for other viewers of this video:
The fundamental problem with Marshall's theory is not that he drew his graphs rather squiggly, but rather that even in their simplest, linear form (which is found at the opening of most contemporary introductory economics textbooks), the graphs and the theory they're supposed to illustrate still suffer from underdetermination.
For even if:
Psupply=a+bQ
Pdemand=c+eQ
(b > 0, e < 0 as the argument goes, but that's irrelevant here)
You can only have one observed P and Q for each point in time t.
Therefore, you cannot find numerical solutions for a, b, c and e, not even with time series. You do have fewer fudge factors than with Marshall's messy graphs, but even in its simplest possible ("modern") form, the theory is still underdetermined.
Yes you are quite right, even the simplified form which some, not all current profs give, has the same underdetermination problem.
I was about to comment that. One of the textbooks they gave me in university uses that linear form. I cannot remember if it was Gregory Mankiws or another one written by an argentine author.
Always happy to see a new upload
Welcome back Prof. After seeing this video I really have to start rethinking about Economics.
I hope that you somehow read this comment. I am currently a 2nd year computer science student in the Philippines. Thank you for everything that you've taught me through your videos.
That kind of message makes the effort worth while. Would you like more computing talks?
An excellent debunking of a common strawman argument against the LTV.
Supply and demand literally crushes LTV. this video is bunk.
@@Cd5ssmffan Why?
@@joaolisboa7775 The economy, there's all these signals going back and forth from consumers to producers about increases and decreases in supply and demand!!!!
Love to see two of my favorite socialists on CZcams cross over like this!
@@Cd5ssmffan What is meant by signals and how are such connected with demand and supply?
A question from a comrade of mine:
Hello mr. Cockshott.
I have been following your work for about a year now and have decided to
recommend your previous videos and articles on supply and demand to a
good friend of mine who is economically a center-right and also a
well-qualified worker in the financial sector.Their response was rather
interesting, as they argued that while your article wasn't wrong, it
didn't say anything useful either. According to them no one in their
right mind ever use S&D theory to determine the price or value of a
good. Rater, they say, that S&D curves should be treated as a simple
intuitive rule for students to easily understand how certain actions of
companies or events in the market would effect the price and not a
method of calculating the real predictions about the price (as it
obviously can't succeed at it). As an proof of that modern economists
don't subscribe to such a theory they gave an example of how currently a
lot of money is being poured in to develop predictive computer
algorithms for the prediction of future prices of goods.
So if modern economics reject the notion that S&D determines value,
what exactly is the point of these set of videos and articles? I have
been reading through your latest book recently and have found it being
mentioned again,afterwards being contrasted with the LTV, which can
actually make predictions. So is the only takeaway here that LTV is
superior to Neoclassical theory on the grounds of predicting price and
value, or is there more to it?
The point is that supply and demand theory is what replaced the classical labour theory of value in economics from the end of the 19th century. It claimed to be a scientific theory of price, but in practice was just an ideological tool to displace knowledge of the prior scientific theory developed by Smith, Ricardo and Marx. It remains the principle ideology that is taught to students.
Its main function remains to prevent people actually looking at the labour theory of value since that is politically threatening to capital.
So far, the AI algorithms that may be developed to predict prices are not taught as a theory to economics students.
@@paulcockshott8733 Thank you for the quick response! I will pass it along. The question struck me as a little odd since what this financier apparently said sounds less like an argument and more like an admission that neoclassical economics is empty of empirically verifiable content.. but perhaps that's just my dogmatism talking.
Thank you for your work! I was very influenced by TANS when I read it a few years ago. I'm glad to see that you are still producing videos and I think I will watch a bunch of them while sheltering in place :)
@@apostleofazathoth7696 "neoclassical economics is empty of empirically verifiable content"
It is. There is no neoclassical measure of heterogeneous capital, nor is there a good definition of it at the end of the day. Joan Robinson noted that at different rates of interest/profit you can have different quantities of capital in the neoclassical production function sense, but the same amount of physical machinery. This is why a 'labor theory of value(ish)' solution was latter argued to be a possible solution in order to create an aggregate amount of capital goods reduced to a homogenous quantity that wasn't based upon expected profits. These were highly academic debates between top MIT economists and economists in Cambridge University called the Cambridge Capital Debates, and it is well acknowledged the neoclassical economists lost:
(en.wikipedia.org/wiki/Cambridge_capital_controversy)
Are you ever going to create a "marxist economic theory versus classical economics for dummies" video series, this went waayy over my head hahaha
Do you mean orthodox economics? There are a lot of people who would consider marx a classical.
Marx is literally a Classical.
*Neoclassical
This is better than ASMR
what is ASMR?
@kreitzlega You just did ;)
@kreitzlega I do not think a peaceful transition to socialism is possible in most capitalist countries unless there is an initial democratic revolution.
Paul Cockshott did you learn what ASMR is? lol
@@isabellecross2742 no
Your comparison between the Newtonian explanation of gravity with Marshall’s supply and demand is very apt but it could be even better with the comparison of the new findings of modern physics on gravity and the amount of free constants they have now. Just to counter the argument of modernity.
Some broader coverage is given in this set of lectures that I have yet to video docs.google.com/presentation/d/1zOkJF4lnmsoi17TASopyUs-jlMUxJRNYMlvCo7iJ9L4/edit?usp=sharing
Modern physics actually DECREASED the number of free constants because: 1: if you think about it, all the exceptions and premises where Newton's law is valid ARE free constants that we didn't knew existed,; and 2: Through the use of Planck units you eliminate the constant G. Neoclassical economics went the reverse way: From the more general labor theory of value to the specific scenario where price already matches labor value, there is perfect knowledge and perfect competition (which is just an absurd scenario) and slight turbulences around it are given by supply and demand equalization processes.
Guoldisney Basically what I meant. The numbers on constant didn’t increase with new findings but instead decreased.
@@bruhb7611 Oh, I understood the opposite. We are on the same boat on this then, sorry!
@@paulcockshott8733 Did you ever make this video, or do you have any plans to? I count myself lucky to have found this link buried in these comments, as I've been reading through the slides and have already learned so many good new concepts for thinking about what science actually is and how it materially develops through historical/sociological processes. I'm sure most of your viewership would benefit a lot from a video on these slides.
Marshall's curves would be fine if he always stipulated that supply curves were ALWAYS completely horizontal at the "natural price" of the commodity. If we are abstracting away from frictional costs of capitalists retooling production (which Marshall certainly is), then even the slightest increase in the price of a commodity above its equilibrium value will entail an above-average rate of profit for the production of that commodity. In the language of Smith, the market price will be exceeding its "natural price." If we take this thought experiment to its logical extreme, as long as that price remains elevated, it will induce an infinite amount of capitalists to flood into that sector, and the quantity supplied will rocket towards infinity from even an infinitesimal increase in the price of the commodity (hence the completely horizontal supply curve). Of course, long before the supply of the commodity rockets towards infinity, the increased competition among the sellers of the commodity will drive the price back to its equilibrium (or temporarily below it).
With the supply curve fixed as a horizontal line given by conditions that can be experimentally observed (i.e., what are the costs of the necessary inputs and the average rate of profit), that reduces the number of free variables and makes the theory at least a bit closer to being scientific.
So I see this criticism works for this original conception of supply and demand, but what about modern economics? Have they not adjusted the theory in response to these criticisms?
marxism is not a religon but neo classical economics is
I wish I was good enough at maths to understand this
Just now arrived at this video, very interesting topic. However, I got the impression that the point made at 15:50 could be expanded. Not only it assumes the viewer knows Marshall's theory, it also jumps to the algebraic implication - that the function itself changes, or put another way that coefficients are not constant. I mention this because basic economic courses gloss over this point. They take supply and demand coefficient as given in any moment of time, with adjustments ocurring only in the constant, not really in the "slope"
Your last sentence got cut off slightly.
What is it we must actually look at to find if something's true?
the logic behind a concept I guess
@@LibertarianLeninistRants That makes sense.
Whenever something is cut off in a video, I cry in despair realizing a bit of information was lost.
So that's why I probably shouldn't work in archives - I'd tear my hair out at any damage suffered by anything.
Not only logic. Logic is important but you also have to see if those concepts are actually describing material world accurately. There are things that can be logic but not real.
@@sherbertherman5919 You have the same disease I have)))
But wouldn't Marshall argue that the supply and demand curves are determined by the individual decisions of many people? And therefore it is scientific in principle, it's just that there are far too many variables to measure? Like psychology, human behaviour can be explained by the science of chemistry/physics/past experience, but it is just too difficult to measure at the present time.
Just because you can't predict/verify a theory right now in a practically way, making it an unscientific theory, it doesn't automatically make it a false theory e.g. String Theory
Odd that you mention string theory, the objection that I raise against Marshall is exactly what many physicists say about string theory. For an account of these objections see www.goodreads.com/book/show/27578.Not_Even_Wrong . More generally, although Marshallians may say that supply and demands curves are supposed to be statistical aggregates, that does not affect the practical problem of operationalising the theory. The orthodox economist recognise this and call it the 'identification problem' www.sjsu.edu/faculty/watkins/identification.htm but the existence of the fundamental problem does not shift their allegiance to Marshall's incoherent theory since that allegiance is fundamentally political.
@@paulcockshott8733 I’m a Marxist playing the devils advocate btw.
None of the unified theories are testable right now, e.g. quantum loop gravity. But string theory is seen as the most likely candidate. But this is a bit different because we know for certain the standard model is incorrect and require a new theory for non-political reasons. As you showed in another excellent video, LTV already has a sound logical explanation and a >95% correlation with the input/output tables.
The Marshal theory also seems ridiculous to me for another reason (I’m not certain this objection makes sense). If the value of a commodity is determined by some fixed number of coefficients, they must be mathematically related to some other set of coefficients corresponding to a different commodity, since they can be exchanged. And so, to the coefficients of all commodities. Madness.
At my school I always told econ teacher that it was bullshit. I wish I had math then to disprove this graph
Proff. Cockshott, hi, i'm from México.
How can I get your new book?
Since the coronavirus pandemic is going to be an issue for shipping, I recommend you ask around on bunkerchan.xyz to try and get a pdf to tide you over until you can buy the real book.
Either Amazon or from Monthly Review website
"Supply and demand regulate nothing but the temporary fluctuations of market prices. They will explain to you why the market price of a commodity rises above or sinks below its value but they can never account for the value itself."
Damn, it's really uncanny how obvious this stuff seems when it's spelled out like that. How could it possibly account for the value itself?
I think the easiest way of illustrating what you're talking about would be to point out how, no matter what the data points are (i.e., the prices and quantities), you can always just simply draw a bunch of Xs through them and then claim you've successfully "explained" the data. Of course, since there's no set of data points that couldn't possibly be "explained" using this method, it would be impossible for such an "explanation" to ever be falsified. (P.S. Would you consider doing a video on the Cambridge capital controversy, the neoclassical theory of income distribution, the logical problems with aggregate production functions, etc.?)
Thank you for a former answer. My mistake was that I thought the supply and demand function comes from
a survey or poll. Mankiw used an example where offers and buyers were asked after price and quantity they would use. But even if it would be true in some cases it makes no sense for a whole economy.
Paul about to end Marshalls whole career!
The real problem with supply and demand theory of price, is that it implies the economy is driven by back door car salesmen , rather than production and finance
It's focused on the exchange (though in a pretty limited way as shown here) while ldv is in production. The problem is people trying to use it for other stuff, when it is purely a way of explaining market fluctuations, it shouldn't be presented as an antagonist to ldv.
@@metaprocrastinator3005 LTV is also false, but not for the reasons most economists say why
@@karimmoop9560 why it is?
The response to this i've seen is that while supply and demand curves can't be observed, they come from reasonable assumptions that conclude that there is a general equilibrium for all markets. It is this general equilibrium that economists make testable predictions about. I know of critiques of general equilibrium from Steedman and Varoufakis, but I was wondering what your response that was.
His general thing is that Marx was right and it's empirically verifiable, so given what he said in this video, it's that the equilibrium in a price is created by the amount of human labor embodied in it as related to the overall economy (Marx's "value"), and supply and demand issues will give a disequilibrium of prices away from the value
What testable predictions about VALUE does this theory make? Can you perform the types of empirical tests that can be done using Marx or Sraffa? No. You do not get any predicted set of prices for the values of output of the industrial sectors from Marshall.
Is the argument valid that the Marshallian approach is indifferent when it comes to competitive conditions vs monopoly? Shouldn't prices as observed in the market be influenced depending on whether there is competition or oligopoly/monopoly?
To expand on that, how do you feel on Shaikh's critique on the notion of monopoly capital of the Sweezy school? Is it legitimate to talk about monopoly domination?
Thanks!
These are big questions which I hesitate to answer in a short format.
But what if we make the curves:
f(x) = a/x
g(x) = b*x
It would then have only 2 free variables, wouldn't that make it a valid model? Anyway, great book (HTWW), keep up the good work!
Smart suggestion. I would have to look at the implication of that. I note that the formula you give is equivalent to two assumptions 1) that there is a fixed sum of money to spend on the good, 2 that output is at a fixed cost per unit. These assumptions would fit in with or at least be compatible with the LTV but would remove one of supposed key advances of marginalism - the marginal cost critirion. Under the formula given by you, we are back in the world of Marx and Ricardo
Awesome video thanks for sharing!
Comrade I would be grateful you could provide a comprehensive reading list for a novice Marxist-leninist
I am conflicted this episode. What about situations where bids and asks are visible? If one looks at a supply demand graph not as an abstract mathematical model but as an ordinal graphing of demand bids and supply asks, it makes a lot of sense.
That is not how it was posed though, it is supposed to describe the whole aggregate supply. There are other ambiguities to do with time. Is the measure on the x axis a continuous flow per hour, a batch quantity per year etc. But if you were actually recording bids and asks how would you operationalise this.
How do you measure what you call 'asks' for milk. Is it every time a person picks a bottle off the supermarket shelf? If so, there is no negotiation about price. You just pick up the bottle and get charged for it at the checkout. It is unclear to me how you intend to operationalise your measures.
@@paulcockshott8733 I see your point. I have seen this operationalized in platformed free exchanges in futures contracts. Something similar exists in forex, for example oanda's order flow (google images shows this in action). I believe it is unreasonable to have this in every product, but the underlying premises of supply and demand do exist. Marshall may be wrong by turning discrete variables into continuous ones, but interactions between echelons of labor time and use values do have a similar structure to supply and demand charts. Btw, I tried getting wage data from US IO tables and there was none, can you provide more info on how you calculated the labor coefficients in your LTV video?
@@paulcockshott8733 Sir can you please explain how you got labor coefficients for US io tables when the govt does not publish wage info? Im trying to recreate the graph from your LTV video.
Could I put in two requests for future videos?
First, concerning your ideas about equal pay for all professions, dependent simply upon work-time. This is one of the more challenging proposals in TNS. I would like to ask some questions e.g about work intensity, jobs requiring lots of responsibility, how you deal with e.g “pay grades”, and so on.
Second, about technological stagnation. It seems that, in your new book, your position is that it is due, in the end, simply to the progressively greater amount of labour that must be devoted to the upkeep of fixed capital/machinery. Would be good to hear some elaboration of, and reflection about this.
Each of these would be quite a meaty topic, I will consider them as possibilities - but bear in mind that I get lots of requests like this.
Yes, of course.
What about utility value? And the only way to quantify labor is time. What if me and another worker produce the same amount of a certain product but the other worker did it for a longer amount of time, whereas I produced the same amount in half the time the other worker did. Would the other workers product be valued more than mine just because they spent a longer time making it despite the fact that I made the same amount of the same product?? I need answers.
These points are answered clearly by Marx in Capital. Labour counts towards value to the extent that it is of average intensity and skill for the trade in question.
Ricardo, Marx, and Cockshot admit that when supply is totally inelastic demand determines price (monopoly). My memory is that Marshall admits that for the great majority of commodities the supply is so elastic that price is determined entirely by conditions of production (cost price probably for Marx). It's only with semi elastic supply conditions that the interaction of supply and demand interact to determine price (he's thinking about cases where different techniques make sense at different scales or there are large returns to scale). This is all to say that Marshall is the most classical of the Neo classicals that I've run across. The criticisms made here are of course valid but they are more damaging to the textbooks of today than they are of Marshall per se.
Great Video, but I think a much easier way of showing how the Supply and Demand model doesn't make sense is
1. how D(Q)=S(Q) could have multiple solutions (Therefore the good has no clear value)
2. how D(Q)=S(Q) could have no solutions (Therefore the good has no value at all)
does my thinking process make sense in any way? I cant really think of a good example but it would make sense to me.
3. As we know the World doesn't have infinte resources therfore the D(Q) and S(Q) are defined for the inteval [0, n]. What if in that intervall D(Q) = S(Q) are not possible even if D(Q) = S(Q) in generall is possible. that may be another reason why the model doesn't make any sense.
Excellent video
fantastic and simple, as it should be.
The supply and demand curves were later explained by marginal substitution theory. But they had their own problems
Do you have a reference that his is his formula? Does he really have these 3 constants? I have never seen it before. Did you make it up? It seems you did 5:21.
Yes he does have them but does not make them obvious. He hides them by presenting his data as a pair of graphs, but by inspecting the graphs and solving 3 simultaneous equations for each curve you can extract the parameters for the curves. So yes he effectively published these functions by giving the graphs of them, but he disguised the algebraic absurdity of what he was suggesting behind the visual appeal of pictures.
In anything other than marginalist economics you could not get away with that sort of visual trickery.
isn't supply just the amount of goods that enter the market for some given unit of time .. why would it be reasonable to represent it as depending on the total quantity of units of goods
That is a sensible definition you give, a good engineering one, but economists prefer their fictive definition.
At 15 min when you talk about observables, why are the two variables price and quantity counted as the original 7 variables? Those two are supposed to be explained by the seven factors, why are they lumped in as two of the seven?
I am not convinced by the explanation given by this video on a couple of points.
Firstly, I don’t think the cancelling of supply and demand at equilibrium necessitates that price be explained by an additional mechanism. Consider the point of equilibrium for a suspended mass spring system. The combined force on the system is mg=kd. The force of gravity pulling down on the mass and the force of the spring pulling up on the mass cancel, but we only need these forces to explain the position of the mass. I don’t see why the case of supply and demand should be considered to be different.
Secondly, I don’t think the two different equations, D(Q)=S(Q) and P(x)=L(x)/L(s) are comparable as the scope of the former also includes quantity as a variable. The model therefore can be used to explain why a price fixed higher than the equilibrium rate reduces the quantity sold. In order to make a fair comparison you should expand the price equation from classical economics to account for disequilibrium states where supply and demand do not cancel.
You got this wrong and I will use your analogy to explain (at least how I think it's right): marshallian theory just records points for each of the two "external" forces acting on the mass in directions -x and x and then "interpolates" to form the two curves. Where they intersect, a "true" equilibrium is declared (--> price). But this approach remains completely agnostic on the fact that a) the force acting in the direction -x contains the elastic response of the spring (depending on k) and b) the force acting in x contains the body weight of the mass (m*g). In fact, and please work the vertical spring example on your own in case I made a mistake, for an external differential force acting on the mass (lets call it ΔF), the position of equilibrium y1 is y1 = y0 + ΔF/k, where y0 is the equilibrium under the gravity field. When the "Demand" and the "Supply" are equal, you get y1=y0. So, to sum up, "demand" and "supply" forces do not simply correspond, in the spring analogy, to the downwards body weight pulling and elastic upwards resisting forces respectively, but in the general "observable" counteracting forces which contain the latter ones.
P.S. - If I remember correctly, Marx even draws a parallel between Value (capital V) and Mass in the first chapters of the first Volume, which further reinforces my argument.
@@galerkinb3139 I don’t think your comment contradicts the point I was making. You are right to clarify that “supply” and “demand” are not specifically analogous to the weight and spring force, but more generally to the sum of the forces acting in each direction. Hence if we add more components, which can exert force on the mass, to the system, each new component adds to the existing “supply” or “demand” directions.
Which section are you specifically referring to? Iirc Marx uses weight as an example of a property that allows dissimilar objects to be compared, is that it? My analogy was supposed to explore something different, what information do we need to explain the point of equilibrium. To state it explicitly, price corresponds to the displacement of the mass and the two quantities correspond to the forces acting in each direction.
It is with this analogy in mind we can understand why the Classical Econ understanding of equilibrium is wrong. Using the way Marx puts it in VP&P, at the moment when upwards and downwards forces equilibrate each other they are still acting on the mass. It is absurd to say the forces cease to act. Hence, just as the displacement of the mass continues to be explained by both upwards and downwards forces at equilibrium, so too price continues to be explained by the supply and demand at equilibrium.
@@bernardmandaville3456 But it does contradict it because it is only the mass that results in a force and an opposite but equal force within a gravity field. The other forces from the other components would cause the body to move away from the equilibrium (to a new equilibrium).
The section I am referring to is the first 3 chapters of Volume 1, although it's been some time since I read it.
"To state it explicitly, price corresponds to the displacement of the mass and the two quantities correspond to the forces acting in each direction."
Exactly. And all I am saying is that in the configuration of a vertical system of mass-spring, there is an initial displacement due to the mass being in a gravity field. That is the analog of the "natural price" or "value"(cost of production). Other displacements occurring due to additional forces cause a further variation of price. But that doesn't contradict or refute the LTV, which is interested of the "natural price" (see my first reply to you). You use the system mass-spring to explain why LTV is wrong but it is exactly this analog that is in correspondence why LTV because they both rely on an underlying measure (mass - value) and a field (gravity - competitive commodity production). What the marshallian "theory" does is write down points on the plane that correspond to different levels of "action" and "reaction", interpolate through those points to generate 2 lines and then declare the intersection as the "price". Pure sophistry.
@@galerkinb3139 I think you have misunderstood the third law of motion, the equal and opposite reaction is the pull of the mass on the Earth. If you have an unsupported mass there is no “initial displacement” or initial equilibrium, the unbalanced forces will cause the mass to accelerate towards the Earth in a state of free fall. It needs some kind of support like the spring in order to reach an equilibrium in the first place.
@@bernardmandaville3456 Thanks for your consideration but I think I understand the laws involved. I didn't include inertia effects(motion) because it isn't needed (and it isn't implied from your first response). We analyze it as a quasi-static system. The spring simply hangs from a roof and we attach a mass. Without any external forces and being in a gravity field, the mass will move to its (natural) equilibrium position from the position of the unstrained length of the spring (if you account motion, after a brief period of dumped oscillation). This is the state that corresponds to the natural price. I hope this clarified what I said and all in all, is enough for you to understand how your analogy is not exactly correct.
17:58 See Rick Roderick on Baudrillard Fatal Strategies
great video. i'm glad i found this, thr capitalist explanations of value always seemed very meaningless even before i started discovered labour origin of value
Yes
If (theoretically) everything would be automatised, what would that mean for the labor theorie of value? Would machines be counted as constant capital because they are machine wich do not get payed or would they count as variable capital because they work?
The labour necessesary will drop, so values will decrease a lot
I have one quick query.
Why did you model Marshall's curves as polynomials. This doesn't make sense to me because a quadratic curves down but then curves back up implying that demand increases with lower price but then there's a price point at which a higher price causes an INCREASE in demand. Since you say "at least quadratic" this behaviour would be true of any polynomial whose highest power is even and neglecting added complexities. The supply curve then experiences similarly odd behaviour by randomly levelling off in supply at a random price point then continuing upward. I would've thought better curves to model these behaviours would be exponentials: one of positive Q for supply and one of negative Q for demand. If modelled as for example:
D(Q) = e^(-AQ+B)
S(Q) = e^(CQ+D)
...these could have anywhere between 1-4 free variables as you could theoretically have 0 values for B and D and have A and C equal.
I don't think this ultimately affects your larger point about Marshall trying to seduce us with curves but I was curious about this? Am I reading too much into what's just an example?
You can make a quadratic curve up or down depending on the constant you put in front of q squared, if it is negative it curves down
@@paulcockshott8733 Ah OK I see so you're taking positive Q values and neglecting the negative. That makes sense. Thanks for clearing that up.
I was wandering how this theory of Marshall is defended today? Anybody got an article? Also I hade some lets say intuitive feeling, that we would maybe need to understand how subjectivist or marginalist theory of value relates to this. anyways thanks for this video!
I mean if it's unfalsifiable then you can make up any number of convenient "defences" for it.
This video cut you off at the end in the middle of a sentence.
Блеск и нищета европейской политической экономии. Спрос и предложение устанавливаются в результате рыночного акта обмена. То есть, возможны только и исключительно внутри товарной экономики. А если экономика не товарна? То это вообще не экономика. Другими словами, если я выращиваю пшеницу для потребления - это не экономика. А вот если на продажу, то это экономика. Если сам и для себя - то это не труд, или труд, но не имеющий стоимости. А если продаю себя как рабочую силу, то это труд, и он имеет стоимость. Дальше Рикардо, Смит и Маркс с их теориями стоимости и прочим спросом и предложением.
Вот сколько стоит вскопать один гектар простой лопатой? Если речь о наемном труде, то на сколько договорились, столько и будет стоить труд. А если труд не наемный? Ведь мы же понимаем, что даже вскопать "для себя" чего-то, но стоит. Потому что расход калорий будет одинаков, и он вообще не зависит от характера труда (наемный или "для себя"). А "цена вопроса" будет потрачена как раз на воспроизводство себя как рабочей силы, то есть на компенсацию потраченных калорий. Получается, что рынок, спрос и предложения являются единственным способом измерения. Сколько за вещь (труд) дают, столько она и стоит.
В чем логический изъян такой политической экономии?
I cannot agree with this, because i consider this model to be valid enough for industries with rising marginal costs, for example the oil industry. Rising demand will lead to rising prices, which then allows the "marginal oil field" (the more expensive oil field) to be brought into use. It's not valid for most industries or the economy in general, because most industries have constant or falling marginal costs, and costs of production serve as the basis of price.
That is Ricardo not Marshall
@@paulcockshott8733 It is compatible with Marshall's model in that case.
@@ArilandoArilando Marshall was just repeating something that was well known in 19th century political economy on this.
@@paulcockshott8733 It is true enough he didn't really add anything of value to the basic Ricardian model of rent.
Have you submitted this argument as a peer reviewed paper?
Yes a variant of it appeared in Critique a year or so ago
@@paulcockshott8733 What was the response, where there any criticisms? This seems like it should have fairly wide ranging implications for the field if true.
@@almusquotch9872 No response, critique though is a review broadly sympathtic to Marxist economics
Your video just shows that demand and supply curves are difficult to measure. But they're not impossible, instrumental variables offers one approach. It doesn't show thats its a totally made up concept like you claim at the end. Like gravitational potential energy is hard to measure but it still works as a concept
No that is a bad analogy. You can measure both the gravitational and kinetic energy of the moon at different parts of its orbit by simulataneous measurments of angular velocity and radar rangefinding. No difficulty there, the difference is that there are no independent meaures of the supply and demand curves other than the prices you observe and which the curves are supposed to explain. The physics example has no free variables that can not be tied down by observation.
@@paulcockshott8733 OK how about the heisenburg uncertainty principle then. We can not measure both the momentum and the position of quantum particles. Therefore by your logic quantum particles don't exist. And it's not even that bad when it comes to supply and demand, they are just curves which are tricky to empirically identify, not impossible. You actually make an error in the video. You say lets assume only demand is the one that changes. Then you try and estimate demand. But instead you should look at supply which by assumption doesn't change. Then you can enough observations to work out the curve.
Although you also have to justify your assumption that supply doesn't change.
@@Mroka729 The problem is symetrical the proponents of Marshall can only hope to measure one curve if the other does not change, but since they do not assume elsewhere that only one changes, they have no basis for assuming that such curves ever exist.
On your physics analogy, the physicists conclude that particles do not simultaneously have well defined positions and momenta, you can only observe one or the other. If you detect a photon on a plate you know its position but not where it came from. The conclusion that they give is that the momentum prior to hitting the plate was random and undetermined. The observable in this case is the x,y position on the plate. They conclude that there is no deterministic law governing the path taken to get to that position.
The economists have p,q price and quantity as their observable. If they were consistent with the physicists they would say that what led up to that was a random non-deterministic process. Instead they have fantasy curves that intersect at p,q . Physicists would laugh at the suggestion that the the position at which a particle hit the plate was the intersection of two, in principle unknowable, curves.
It's good to do mathematics and science but I hope you do Economics
What academic papers out there that replicate the classical's thesis- supply and demand eventually gravitate toward their true value?
There are plenty of papers out showing that money value of an industries output correlates closely with the marxian labour value of its output.
This video deserves some yellow subtitles
Hi professor, hope you are well and staying in safe self isolation.
Would it be possible for you to do a video on pandemic economics given the current situation? Such as how a planned socialist economy, like the one you propose would handle things? In one of your previous videos you argued why you think UBI is a bad idea, yet I see no alternative in the short term to maintain a lockdown without providing UBI to everyone, unless you want millions of people to fall through the cracks.
At 5:00, the main nonsense is your absurd claim that a demand curve is a second order polynomial. There is no way it can be a polynomial at all, as it simply posits a discreet statistical distribution of potential buyers' utilities, which are nothing but subjective opinions. At no time did Marshall claim his hand-drawn representation followed any sort of algebraic function. That is just some nonscience you made up. We can't even say definitely if the demand (or supply) curve is concave or convex at any given point on its length, so calling them "functions" is absurd. You could as sensibly claim that the statistical distribution of people's weight is a second (or whatever) order polynomial. It has no scientific validity whatever. It's just nonscience with no relevance to economics or reality. Sometimes statistical distributions can be approximated by orderly mathematical functions like the Gaussian or normal distribution -- which is not a polynomial -- but more often they can't. Supply and demand curves are effectively just sigmoids of real-life quantities, and can't be approximated by algebraic functions.
@@roylangston4305 that is the fraud of Marshall. Draw curves and it looks as if you have explained something. If it is not a straight line it is at least a 2nd order polynomial. It is not a "statistical distribution", firstly because no error bars are shown, secondly because there is no conceivable set of observations by which the two curves can be estimated, third, because it is nowhere presented as a probability density function. It is literal hand waving with chalk not science.
@@paulcockshott8733 wrote: "that is the fraud of Marshall."
There is nothing fraudulent about it. You are just makin' $#!+ up and falsely attributing it to Marshall.
"Draw curves and it looks as if you have explained something."
And when the curves are a reasonably accurate representation of the phenomenon you are explaining, maybe you have.
"If it is not a straight line it is at least a 2nd order polynomial."
No, it is not a polynomial at all. It's just a representation of a bunch of data points, like people's height. It's not even continuous.
"It is not a "statistical distribution","
Yes it is. A demand curve is just how many of the item would be purchased at each possible price, like how many people in a given population are at least x cm tall. You can draw a curve to represent those data, and that is a statistical distribution. It has nothing to do with polynomials.
"firstly because no error bars are shown,"
Huh?? There is no requirement that a HYPOTHETICAL statistical distribution have ERROR bars. What on earth do you incorrectly imagine you think you might be talking about?
"secondly because there is no conceivable set of observations by which the two curves can be estimated,"
Garbage. You could just ASK PEOPLE how many of the item they would be willing to buy at each price, and sellers how many they would be willing to sell. Market research by actual firms -- with which you are self-evidently entirely unfamiliar -- does that sort of thing all the time. Now, of course, they can't actually ask everyone, but they can get a representative sample that enables them to estimate for the whole population, just as you can measure the heights of a representative sample of people to get an idea of the distribution of heights for the whole population.
"third, because it is nowhere presented as a probability density function."
Because that is not what it is. It is just a representation of a sigmoid, the total number of the item that could be sold at each price, like how many people in a given population are at least x cm tall.
"It is literal hand waving with chalk not science."
It is a conceptual framework to aid understanding of how the intersection of supply and demand determines price, not empirical data about a particular product. Give your head a shake.
I guess socialist iconography is important huh?
Neo-gaslightical iconomics 18:49
14:31 Just a nitpick but it couldn't have corn if it goes the far back. Corn came from the new world so it wouldn't have been in Europe in the 13th century.
You are speaking modern american english there. In English of the 18th century when Smith was writing, corn meant wheat.
@@paulcockshott8733 interesting!
I feel like this whole mathematical thinking about economy not giving in the slighest to Marx falls into the category: Proper math used on flawed ideas.
He’s illustrating the point that in general demand is less as price is higher and higher as price is lower. Disputing this by digging into the mathematical minutiae of the illustration of this concept is myopic and irrelevant.
If applying a theory in order to test it (and subsequently finding it inadequate) is myopic and irrelevant, that says more about the theory than the person testing it.
That is the point. Either it is a banal truism or it is pseudoscience. In either case it can't be used to predict or explain any economic variables.
mfmf100 the argument the video makes applies even if you assume that supply and demand curves are straight lines
@@deadmeme8011 Dude you killed him
That people can afford to buy less of something expensive than something cheap says little about value. That price rises when demand is high and falls when it is low, is something Marx and the classicals would agree with. The question is high or low relative to what?
The answer of Smith, Ricardo and Marx is that the standard is the natural price or labour value. The aim of the Marshallian theory is to displace labour value and make supply and demand the explanation for equilibrium price not disequilibrium deviations of price from value.
If he is attempting to go beyond Ricardo, then we are quite entitled to undertake a formal analysis of his theory to see if it makes any predictions at all about prices - which it does not.
Mr. Cockshott needs to retake Economics 101.
Supply and demand are not numbers. They are functions. Functions cannot 'equal' each other.
Socialists often claim that supply and demand can't be determining prices and only determine irrelevant and temporary "fluctuations", because at the equilibrium point of sale - the average price - supply and demand are supposedly equal. Toothpaste has an equilibrium price, cars have an equilibrium price, gold has an equilibrium price. If all these products have "equal" supply and demand at the price of sale, what causes some products to have different prices than others? Shouldn't supply and demand, if they are "equal," be exerting "equal" upward and downward pressure and therefore have no net effect on price? Shouldn't that mean there must be some other explanation for why some things are cheap and some are expensive?
But this criticism is completely wrong. And the reason it's completely wrong is the Economics 101 reason that supply and demand are absolutely *not* "equal" for products at the equilibrium price of sale. The two things that are actually equal in equilibrium are *quantity supplied* and *quantity demanded.* Supply and quantity supplied are two entirely different things that socialists have incorrectly combined into one. Likewise for demand and quantity demanded.
What socialists claim to be a contradiction is in fact not a contradiction at all. Ferraris, for example, are sold at equilibrium, a price where the quantity supplied equals the quantity demanded. But, simultaneously, the demand for Ferraris is somewhat high and the supply is incredibly low. It is the supply and demand, which are by no means necessarily "equal" at the equilibrium price (whatever that might even mean) that determine value and price.
Of course they are functions, I am explicit about this in the talk. The point is that if you look at Marshalls examples or those in standard modern textbooks like Samuelson they are second or third order polynomial functions and as such each has either three or four free variables. We thus have a total of 6 or 8 free variables in the explanatory functions for 2 observables : price and quantity.
Also read Debunking Economics 2nd Ed by Steve Keen where he talks about the supply and demand model failing if one correctly applies their assumptions. In other words, the supply curve doesn't exist and the demand curve can have any shape it wants except for double backing.