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When ignorance is bliss

from Lars Syll

joanThe production function has been a powerful instrument of miseducation.
The student of economic theory is taught to write Q = f(L, K) where L is a quantity of labor, K a quantity of capital and Q a rate of output of commodities. He is instructed to assume all workers alike, and to measure L in man-hours of labor; he is told something about the index-number problem in choosing a unit of output; and then he is hurried on to the next question, in the hope that he will forget to ask in what units K is measured. Before he ever does ask, he has become a professor, and so sloppy habits of thought are handed on from one generation to the next.

Joan Robinson The Production Function and the Theory of Capital (1953)

  1. July 30, 2017 at 8:43 pm

    Thank for this so inspiring quotation. Time remains the same in economics.

  2. July 30, 2017 at 10:27 pm

    Production functions are the siamese twin of preference functions. And as useless for analytical ‘insights’ into the behaviors of firms.

  3. July 31, 2017 at 6:09 pm

    Great reminder!…

  4. August 1, 2017 at 4:27 pm

    I agree with all. But what do you do in replacing production function? Please remind:

    It take a theory to beat a theory.

    What theory or conception do you propose instead of production function? If you have no prospectus to replace production function, the production function continues to function as you observe just now, for example, in the Dynamical Statistical General Equilibrium model.

    • August 2, 2017 at 4:39 am

      Sorry. I made an error. Dynamical Statistic General Equilibrium should read Dynamical Stochastic General Equilibrium.

  5. August 3, 2017 at 7:09 am

    Has nobody an idea to replace production function? In this blog site, there are many posts and replies which are critical to the present mainstream economics, but very few constructive proposals.

    The most simple way to replace production function is to adopt constant input coefficients. A production is described as input-output relations:

    s a0, s a1, … s aN ⇒ s e(i).

    Here s is the scale of production; s a0, …, s aN are various inputs to the production and s e(i) is the volume of product i. We should assume a similar relation for each product.

    This is linear (constant returns to scale) production relations. It is only valid in a certain range of validity, but it represents represents well the input-output relations in the real world. More complication is possible but it is important to construct a firm theory for a standard state of the real economy.

    Please note that the volume of output is to be determined before the inputs are determined. In the traditional production function, this relation is quite obscure. The production function assumes that a product A can be made by any combination of inputs (as a part of capital). Such a production is possible only in the most primitive “bricolage” economy. Production function can represent no modern industrial production. If a neoclassical theory is based on the above production function, it can be an economic theory of an imaginary primitive economy but cannot be a theory of modern industrial economy.

    • August 3, 2017 at 4:33 pm

      Yoshinori

      Would that we could deal with this as humorously and pithily as Joan Robinson! But it seems to me the production function is merely training economists what to look for in the bottom line of monetary accounts.

      If an engineer wishes to make a real object, he may start off using this to give himself some idea of what is economically feasible (a tentative budget), but he then designs in outline what he wants and how to make it given the tools and “nuts and bolts” already available, assesses whether the result can be produced for the money available, and redesigns it until it can. In short, the real production function is where you want to end up; the theoretical one is at best a starting point for this iterative process (Newton’s Method) which is hopefully in the right parish. When economists do the sums, you end up with products like the electrification of British railways, which is being abandoned because it is currently running at four times over budget.

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