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Time in economic theory

from Frank Salter and RWER issue 81

Despite economic cycles being the norm from the beginnings of the industrial revolution, major areas of economic thought present equilibrium as an appropriate basis for analysis. Blaug (1998, p.23) comments “indeed real business cycle theory is, like new classical macroeconomics, a species of the genus of equilibrium explanations of the business cycle (which would yesteryear have been considered an oxymoron).” The formal treatment of time is eschewed.

In their articles, The Production Function and the Theory of Capital, both Robinson (1953) and Solow (1955) express their concerns about the use of time in economic analysis. Robinson points out that time is unidirectional in the real world, and that some mathematical descriptions fail to reflect the fact. Solow (1955, p.102) expresses his concerns, “But the real difficulty of the subject comes… from the intertwining of past, present and future.”

Robinson (1980) continues to voice her critical assessment of the treatment of time in economic analysis. Later, no longer maintaining the concerns of his earlier insight, Solow (1994, p.47) states “Substitution along isoquants is routine stuff.”  

Setterfield (1995, p.23–24) concludes “it is not easy to introduce historical time into economic models in a manner that is at once meaningful and tractable. This is surely explained by the very nature of historical time, which must, by definition, defy deterministic, structural modelling”[1] and notes “the unwillingness of economic theorists to confront issues relating to historical time in the context of economic models”.

Boland (2005) in reviewing a three volume collection of articles, Time in Economic Analysis, by Zamagni and Agliardi (2004), concludes, “Namely, how can we build economic models where time matters because it is irreversible?” expressing his belief that this collection demonstrates the failure of economic analysis to offer any meaningful answer.

Clearly a physically valid analysis of economic development through time is required.

Frank M. Salter

  1. January 31, 2018 at 5:52 pm

    Hmm – there is non- or overtly anti-time (as in instant market clearing), there is cyclical time, there is open-ended time in which the future’s defining characteristic is its non-knowability, non-predictability if you like since none of these terms can be nailed down.

    But we can still set up a matrix of methodologies (what used to be called methods) by setting this triple against Bergson’s (classically derived) distinctions – intuition, duration and élan vital.

    • Frank Salter
      February 1, 2018 at 6:35 am

      Cyclical time: Cyclic solutions arise quite naturally from the solution of differential equations. Correctly formulated problems will automatically produce cyclical solutions.

      Open-ended time: I would introduce the term “prophesy” to describe the concept mentioned above. It is impossible to guess what some powerful individuals might decide which results in economic consequences — for good or ill.

      Time per se: Engineers continually make predictions about the future — the time to build a plant, its lifetime etc. Economists use time series data. The success of these predictions will vary, It depends on the nature of the problem. It would appear that the methods used by engineers are generally appropriate but there are many other factors which may affect the outcomes. The inability of economists to predict cyclical behaviour merely underlines the fact that the methods used are wrong. They do not solve appropriate differential equations!

  2. dmf
  3. Norman L. Roth
    January 31, 2018 at 10:59 pm

    Jan 31, 2018

    Hmmmm…mmm, M. {Frank} Salter,

    Sounds a bit like some of you are groping toward the content of TELOS & TECHNOS, a decade after it was published.
    “Spender 7”; Henri Bergson IS a STAR of TELOS & TECHNOS ! And “The events are the time”. The philosophy of Time, not exactly a welcome guest at the banquet tables of contemporary Social “Science” faculties any where, especially Economics BUT, it has been a major inspiration to me. My bibliography has lots of that stuff. But you guys are right on. Who needs any consideration of real time or any attempt to incorporate or tame the bronco of Economic history…… when you’ve got big-Nanny GE {local sector Marshallian equilibrium isn’t so bad} breathing down your neck ! The great Marshall expressed great disdain for economists of his own era for their banishment of time into the closets of their own minds. The neoclassical fellas vindicated his disdain. Time path independence has been their self imposed ruination.
    GOOGLE: Norman L. Roth, Technological Time

    • Frank Salter
      February 1, 2018 at 12:48 pm

      I am in total agreement that “time path independence has been their self imposed ruination”.

      I believe that I am now attempting to explain the significance of time treated with physical and mathematical validity using differential equations in a discipline which has eschewed physical time and the precise use of physical units. One which does not integrate differential equations but uses their formalism in qualitative descriptions but not quantitative solutions. It is very difficult to understand what is the best way of doing this. Clearly the first step was the publication of my analysis. I am now trying to explain its significance, although North, in his Nobel lecture, examined this, even though he felt such a paper would never be written. Now, it has. It now needs economists to realise that the new paradigm which invalidates neoclassical analysis has been developed.

    • Craig
      February 1, 2018 at 7:16 pm

      @Norman Roth

      What specific economic and monetary policies do you suggest in your book Telos & Technos?

  4. Norman L. Roth
    February 2, 2018 at 7:45 pm

    M. {Frank} Salter

    The purpose of “a new paradigm” is not to “invalidate” or act as an inspired counter-punch derived from but against any other one. It is contained in the almost forgotten ideal of nineteenth century German Scholarship: “Verstehen & Erklarung”.

    i.e. It must explain & clarify the same subject material in a more empirically encompassing, clearer & falsifiable way. The fresh paradigm ‘meister’ may not necessarily have started with the old one in mind. And the new one may address itself to the world in such completely different terms, that it cannot even be compared in a one- to -one correspondence with the “old paradigm”.
    Please consult page 172 of the 197 page edition of TELOS & TECHNOS for an example of such a comparison. I don’t know the page it’s on in the 256 page edition.

    With Respect, NORMAN L. ROTH

    • Craig
      February 2, 2018 at 10:56 pm

      Correct Norman. Can you give us some policies that align with the paradigm you’re referring to in Telos and Technos?

  5. Norman L. Roth
    February 2, 2018 at 10:56 pm

    Feb. 02, 2018

    Please reference FRANK SALTER, Feb.01, 2018 at 12:48 PM

    Mr. Salter,
    The only one I can think of who has the capability to referee your claim to have “Developed the new paradigm..” is M. Lars Syll.

    Norman L. Roth

    • Frank Salter
      February 3, 2018 at 8:10 am

      The normal validation is from peers. I have submitted my analysis. The paper demonstrates that it passes all the tests of scientific validity — its predictions align with reality.

      The next steps must be taken by others. Over this I have no control. So far no one has challenged my analysis. If they think it wrong, I would appreciate their comments. I appreciate that transient mathematics is new to economic theorising. Transients are the norm in the real world. Equilibrium is very rarely reached in any aspect of reality. That economic cycles are always present proves that the economy is always transient. There is never equilibrium. I contend that this shows that the new paradigm must be transient.

      It is two hundred and forty two years since Adam Smith published the Wealth of Nations. The RWER Blogs show how little has been achieved in that time in producing valid quantitative descriptions. Clearly continuing along a failed path will never achieve useful results.

      It is for all of you to confirm or deny my analysis. Please do so.

    • Frank Salter
      February 3, 2018 at 8:14 am

      Addendum: I would suggest that the valid paradigm is: Classical Transient Analysis

      • Craig
        February 3, 2018 at 9:20 am

        Transience and process are valid aspects of the new ethic/zeitgeist of economics namely the natural philosophical concept of grace as in continuous free flow as well as the new paradigm of grace as in Monetary Gifting. The natural philosophical concept of grace is also characterized by abundance as opposed to scarcity/austerity and dynamically integrative disequilibrium as opposed to static equilibrium. These two latter aspects are particularly relevant to the economy of course as capitalist economies are demand constrained as Steve Keen has said, the current paradigm of Debt Only enforces scarcity/austerity via debt deflation and the much debunked DSGE enforces the fallacious static equilibrium. The new paradigm accomplishes the requisite signature of paradigm change, that is fundamental inversions, in this case inverting monetary scarcity and equilibrium with what I refer to as “the higher free flowing macro-economic disequilibrium ratio of abundance of total demand in ratio to total retail prices.”

      • Frank Salter
        February 3, 2018 at 10:41 am

        I believe that Craig and I are using paradigm with totally different semantics. Craig appears to be using the word at a metaphysical level. My use is consistent with the Wikipedia entry “Scientific paradigm”.

      • Craig
        February 3, 2018 at 5:51 pm

        Yes we are. I’m using it in the NATURAL and EXISTENTIAL metaphysical sense which are the signatures not only of good inclusive science, but of scientific breakthrough. Science ONLY has been the paradigm of inquiry for the last 400-500 years and unfortunately has become rather rigid and orthodox. Science like food is good, delicious, necessary and resides entirely within the digestive tract of Wisdom…..which is the new paradigm of inquiry.

        It is not only time for economics to be guided by the new paradigm of Gifting it’s time that mankind learns to more broadly utilize the integrative process that better enables a leap in epistemological experience.

      • Frank Salter
        February 4, 2018 at 8:13 am

        I take it that you are not a practising scientist. The scientific method is merely to test theory against empirical evidence. If they conflict then discard the theory. I do not see rigidity or orthodoxy entering into such a simple concept.

      • Craig
        February 4, 2018 at 6:15 pm

        If you re-read my posts you’ll see that I am four square for science. Science has been the paradigm for knowledge and inquiry for the last 400-500 years. Unfortunately it has become the orthodoxy of Science ONLY. I believe this has been recognized here by Lars Syll and Asad Zamon. Orthodoxy kills and/or infects inquiry. Wisdom is inclusive of Science. We need a Wisdomics not its subset economics.

      • Frank Salter
        February 4, 2018 at 7:07 pm

        What is “the orthodoxy of Science”? Science has been developing in many different directions. New applications are being developed continually. I agree wisdom is a very precious characteristic.
        Do you think that there are prescriptions by which wisdom might be learned? I do not understand how economics might be a subset unless you are speaking of classification theory.
        Philosophy might seek to explain reality, but metaphysics is unlikely to lead to the development of solutions in the real world. They need to be based of a genuine understanding of reality and what alternative courses of action will produce.

      • Craig
        February 4, 2018 at 9:44 pm

        Science is Science. Science Only is an orthodoxy. Orthodoxies are mindsets that always exclude, reduce, inhibit looking and eventually degrade into arrogance and invalidation.

        Wisdom can be learned by studying the world’s major Wisdom traditions, all the time focusing on the meanings, purposes and experiences related there as opposed to latching onto the dogmas also found there.

        As Wisdom is the discernment process of integrating seeming opposed truths you can also habituate yourself to the integrative ethic or what I refer to as The Cosmic Code in this case:

        [ (Science x Wisdom) A Greater Thirdness-Wholeness-Oneness of Temporal-Empirical & Self Knowledge in whatever area under observation ]

        Science tends to suffer from obsessive reductionism and religion tends to suffer from obsessive wholism both of which cling to dogmas instead of being a trinity-unity-oneness gestalt like the Cosmic Code.

  6. Craig
    February 3, 2018 at 5:31 am

    If you’re not going to disclose any policies advocated in Telos & Technos all I can assume is that it is only a philosophical work. That’s fine of course, and as Telos (purpose) and Technos (action in the temporal universe) are conceptually oppositional it tells me that it may be about the integration of their separate truths which as I have posted here numerous times is the very process of wisdom. However, as I have also posted philosophy is an order of magnitude below paradigm perception. A new paradigm is a singular concept that enlightens and is thoroughly applicable via aligned policies to an entire new pattern. It’s Agriculture. It’s Helio-Centrism. It’s Machine Printing of Information….and in the case of economics and the money system and their current paradigm of Debt Only it is Monetary Gifting.

  7. Norman L. Roth
    February 3, 2018 at 7:00 am

    “Craig”, With all due respect,

    You can easily find out for yourself by reading the book, consulting the bibliography & then share your own conclusions with us as to my policy recommendations, both explicitly stated & implied. You might also consider being more forthcoming about your identity and affiliations. Do you recall the ancient & wise aphorism of the Ancient Egyptians ? “There is no royal road to learning”.

    Why not follow Frank Salter’s policy of total transparency ?

    Norman L. Roth

    • Craig
      May 21, 2020 at 7:03 pm

      90% of learning is memorization and addiction to it. Wisdom is being in the present moment and integrating the truths in apparent opposites so that one can actually see and control their own abstractions moment to moment instead of, like Marley’s ghost, them blinding and/or distracting you.

  8. Norman L. Roth
    February 3, 2018 at 5:15 pm

    M. Frank Salter,

    With reference to your letter of Feb. 03, 8:10 A.M.

    I wish you the very best in getting a fair hearing from the peer review system, with which you are undoubtedly familiar. Very fortunately, Back in 2005-2007 , I got a square deal from THEM.
    By the way,The great Keynes had quite a bit to say about the transience of numbers in Economic quantification. And spurious quantification, is for contemporary Economists, almost as lethal a spoiler as their addiction to {Time} path independence. Plenty of examples given in TELOS & TECHOS. AS with policy recommendations, explicit & implicit, Does & DONTs.
    I wish I could help you in some way. Because you appear to be on the right track. But I freely admit that my Math skills are not up to the job.

    With sincere respect Norman L. Roth

    • Frank Salter
      February 3, 2018 at 5:43 pm

      Thank you very much. Your comments and support are truly appreciated.

  9. ghholtham
    May 21, 2020 at 6:19 pm

    Frank, I agree with you entirely that the neglect of time in much economic analysis is a grave weakness that has led to confusion. Your moving away from a static model, is an advance, I think. I also understand your wish to use variables that obey the quantity calculus. You achieve this having an idiosyncratic definition of output, which can be expressed in units of unaided labour time. Therein lies a difficulty.
    You want to relate your model to data to show its applicability. Actual output data are measured in monetary units. You remark that there is no problem if the monetary numeraire is an affine transformation of the units of unaided labour time. Unfortunately, there is no reason at all to suppose it is any such thing. The difficulty is reminiscent of the debates in Marxian economics of how to derive market prices from the values implied by the labour theory of value. It takes much the same time to make a Calvin Klein tee-shirt as an imitation one but they don’t retail for the same price. A trivial example, but one reproduced throughout the economy.
    Even neo-classical economists have had to accept that aggregate production functions cannot depict purely technical relations. Change relative prices and the “quantity” of aggregate output -as actually measured – changes. They assume that labour and capital, or accumulated tools if you prefer, are allocated optimally in view of market prices. That assumption is of course insupportable because adjustment cannot be instantaneous. It reflects a confusion between ex ante choices of production methods and the ability to adapt after the fact of investment – a consequence of ignoring time, as you say.
    The heterogeneity of output is very damaging to the effort to relate market values to labour time. It also calls in question your criticism of Solow not forcing his production function with capital zero to have positive output. His argument that he cannot suppose his function is appropriate to the whole history of mankind seems fair enough. A peasant farmer could pile stones together to build a wall or gather seeds and put them in the ground. But how do you produce a motor car or an aeroplane without tools? Nearly all of the products of the modern economy require some capital for any production to proceed. There is no reason to think an aggregate production function would be invariant over time.
    You justly criticise the use of aggregate production functions in macroeconomics as atheoretical “curve fitting” and that is indeed all they are. The aggregability of your own functions is only assured by their linearity. It is a convenient assumption but can it be substantiated empirically? Your assumption that there is no technical progress within projects, ie not embodied at the outset in machinery, may also be contradicted by Arrow’s finding of learning by doing in US airframe manufacture. But these are quibbles compared with the fact that your “output” is not recorded in the real world and does not correspond to market value. I believe your work would have applications in a planned economy but it does not solve the problem of producing a parsimonious characterisation of production in a modern market economy.

  10. Norman L. Roth
    May 21, 2020 at 7:06 pm

    M. {Frank} Salter,

    I strongly urge you to read Chapter 3 of TELOS & TECHNOS, especially the part beginning on page 53 of the 197 page edition..i.e. “The Willful Liquidation of Active Time in Neoclassical ..And its Persistent Consequences” ..& My explanation of the limitations of ‘Production Functions” Aggregate or otherwise, in that chapter: Also , Chapter 5, CAPITAL. There you will find most of the answers to your head-on collision with the problem of TIME & QUANTIFICATION in Economics. I would also examine my references to those who have probed deeply into those subjects in the past. You may be quite surprised at who they are. M. Holtham will be quite familiar with them. If you have any questions, feel free to consult yours truly. Please GOOGLE: Norman L. Roth

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