A research project by David Gruber supported by the Interdisciplinary Institute for Sciences.
David Gruber has conquered or engaged with many fields, physics, law, business, investment banking, market arbitrage, math & computers for practical purposes, and now academic economics. His wonderful ability to analyze and describe how economic policy will play out in real life has been evident* for decades. It seems to have survived his path to a PhD through graduate school with all its attempts on his integrity, values and clarity. He has always been a supporter of the Institute and served as its Treasurer while on the Board of Directors.
* Examples of David’s dicta include the time Reagan cut taxes on the rich, and Gruber noted that the same people would provide about that same money to the US government; but if it were through buying the bonds that satisfy the need for cash, those rich people would get their money back WITH interest rather than donating to the common good by coughing up their fair share of taxes.
Project Description
“Economics as if people matter.” That term was coined by Herb Bernstein.
It well expresses a central problem of modern economics. Much of economics is obsessed with the politically motivated defense of various abstractions––the market, free trade, efficiency, comparative advantage, globalization, et alia. Economics has lost touch with the motivation of such earlier, and still-revered, practitioners as Adam Smith and David Ricardo––human well-being as the fundamental object of the intellectual discipline. Collectively, these abstractions are often dubbed “the neoliberal consensus.” In light of the manifold failures of the neoliberal consensus, our hope is to add to the IIS portfolio “Economics as IF People Matter.”
An initial move in that direction is a challenge to the mainstream, “neoclassical” theory that “distribution” of income, the way in which the output of production is shared between capital and labor, is the consequence of the technology we employ and the technically determined “marginal productivities” of labor and capital. By this theory, both capital and labor receive their just rewards based on their contributions to the productive outcome, and attempting to change distribution results only in a loss of output.
The neoclassical theory was challenged 70 years ago by left-wing, “post-Keynesian” economists centered about Cambridge University, England. The post-Keynesians claimed that the very notion of capital quantity underlying the neoclassical theory of distribution was fundamentally and fatally flawed, with the consequence that distribution cannot be technically determined. Rather, in a fundamentally Marxian view, they claimed that distribution is determined by the social conditions under which the “wage bargain” between capital and labor is struck. The post-Keynesians were met in rebuttal by mainstream economists centered about MIT in Cambridge MA, including Nobel prize winners Paul Samuelson and Robert Solow. The resulting dispute, never finally resolved, was therefore dubbed “the Cambridge capital controversy.”
Paul Samuelson eventually conceded to the post-Keynesians their mathematical objection. And yet nothing in economics changed! My current work endeavors to prove conclusively that this anomalous result is due to the fact that the post-Keynesians were correct in their conclusion, but for the wrong reasons, creating an intellectual limbo that has allowed the mainstream to carry on as though nothing had happened. If I am correct, the neoclassical claim that distribution is immutable must fall, opening new opportunities for public policy to enhance the outcome for workers.