Tag: Krishna Bharadwaj

Revisiting J. H. Clapham’s ‘Empty Economic Boxes’

This blog post revisits the economic historian J. H. Clapham’s1922 classic paper ‘Of Empty Economic Boxes‘ published in The Economic Journal, and raises some critical questions about the continued use of constant returns to scale (CRS hereafter) assumption in marginalist (or neoclassical) microeconomics and macroeconomics. In 1926, Piero Sraffa took Clapham’s 1922 paper as a starting point to mount a more devastating logical critique of Marshallian notions of increasing returns and the representative firm; this was published as part of a symposium in the Economic Journal.

What is returns to scale’ According to marginalist economics, the technique of producing a commodity may be represented by a functional relationship between inputs (say, k’and l) and output (say, y): y’= f(k,l). If all the inputs are multiplied by a positive scalar m, and the resultant output is expressed as mr’y, then r’represents the magnitude of the returns to scale. If r = 1, the technique exhibits CRS, if r < 1, it exhibits diminishing returns to scale (DRS), and if r’> 1, it exhibits increasing returns to scale (IRS).

Despite the ‘advances’ in mainstream economics research, the marginalist theory of value and distribution still requires the CRS assumption (and the diminishing returns to a factor assumption) to make several key claims. The aggregate production function employed in the Solow growth model is assumed to exhibit CRS. And the Solow growth model forms the core of supply-sidegrowth accounting exercises which are used to make policy prescriptions (for a critique of one such exercise for the Indian economy, see Joshi & Thomas 2013).

The central argument in Clapham’s article is that the categories of diminishing returns, constant returns, and increasing returns industries are ’empty economic boxes’. In other words, from the standpoint of actual economies, these categories lack empirical and historical content. Consequently, industries cannot be classified into one or the other box a priori.

Clapham asks: what does AC Pigou (in his Economics of Welfare) mean when he writes ‘when conditions of diminishing returns prevail’ (p. 305)’ According to Clapham ‘constant returns…must always remain a mathematical point, their box an empty one’ (p. 310). He acknowledges that different kinds of returns have a ‘logical’ and ‘pedagogic value’ which ‘goes so prettily into graphs and equations’ (p. 312). How can we then use this framework to draw policy conclusions given the inability to classify industries a priori into constant, diminishing, and increasing returns’

The following observation by Clapham is insightful and worth thinking about further. He writes that diminishing returns must be balanced with increasing returns to arrive at constant returns (p. 309). Surely, this makes no conceptual sense and neither does it have any basis in empirical reality. As Clapham puts it, with CRS ‘the conception of the balance of forces, man’s organization versusNature’s reluctance, was worked out’ (p. 309). In other words, is CRS an expression of the balancing of the symmetrical forces of IRS (‘man’s organization’) and DRS (‘Nature’s reluctance’)’ For a visual representation, see the images below. If so, it would add to the symmetrical concepts found in the marginalist toolbox, most notably that of supply and demand. However, beyond the ease of exposition symmetry provides us, is it really how the actual world works’

Source: meritnation.com

CRS, DRS, and IRS posit an a priori functional relationship between labour (L) and capital (K), the ‘factors of production’ and output (Y) for an individual firm and for an economy: Y=f(L,K). While the idea underlying the production function, whether industry-level or aggregate-level, that outputs are produced by inputs is commonsensical and intuitive, its expression as a mathematical function isn’t as benign. Since marginalist economics requires continuous functions (often, of a monotonic nature) to ensure the existence of equilibrium, the ‘f’ is able to map infinitesimal combinations of Land Kto a unique Y. This ‘one-way street’, to use Sraffa’s phrase in his 1960 classic Production of Commodities by Means of Commodities(see my blog post Sraffa), between ‘factors of production’ and output is conceptually unsatisfactory because it misses a fundamental aspect about modern economies: the structural interdependence between inputs and outputs. In addition, it assumes that capital goods (K) are infinitely divisible, a very difficult assumption to uphold.

John Eatwell (2008; first published in 1987), in his entry on ‘returns to scale’ published in The New Palgrave Dictionary of Economics, also notes the apparent symmetry between IRS and DRS but points out its spuriousness. While there is no evidence of functional relationships in Adam Smith and David Ricardo, Smith’s discussion of division of labour, capital accumulation, and economic growth indicates that he recognised scale-enabled technological progress and Ricardo recognised diminishing returns to land, a non-reproducible input in production. Subsequently, Alfred Marshall, in his Principles of Economics, ‘attempted to formulate a unified, symmetric, analysis of returns to scale which would provide the rationale for the construction of the supply curve of a competitive industry, derived in turn from the equilibria of the firms within the industry’ (Eatwell 2008, p. 140). This point was initially noted by Sraffa 1926, and later much more thoroughly investigated also by Krishna Bharadwaj (1978).

It is well understood that the question of returns to scale is important in the construction of the supply curves which are integral for the marginalist price theory. Therefore, a thorough critical study of mainstream price theory and a renewal in the interest in rival price theories (found in Ricardo, Marx, Sraffa, and Kalecki, among others) are warranted. This is crucial because it is value or price theory which provides us with the economic possibilities a competitive economy generates. If it generates unemployment and worsens inequality, we know that intervention of a particular kind is necessary. However, if it generates full employment and reduces inequality, then it supports the idea of making markets more competitive and reducing government intervention.

REFERENCES

Clapham, J. H. (1922), “Of Empty Economic Boxes.”‘The Economic Journal,’vol. 32, no. 127, pp. 305-14.

Eatwell, John (2008), ‘Returns to Scale’. In: Durlauf S.N., Blume L.E. (eds.) The New Palgrave Dictionary of Economics. London: Palgrave Macmillan.

Sraffa, Piero (1926), “The Laws of Returns under Competitive Conditions.”‘The Economic Journal,’vol. 36, no. 144, pp. 535-50.

Acknowledgement

I thank Mohib Ali for his helpful comments.

 

Arun Bose: An Introduction to His Life and Work

This blog post introduces you to the economist Arun Bose (1919-2003) who made important contributions to Sraffian and Marxian literature. Bose was called a ‘Sraffian Marxist’ alongside Ronald Meek and Ian Steedman by Samir Amin in a 2015 article in the Monthly Review. Despite his substantial corpus of published writings, his work seems to have been largely forgotten within India. Therefore this essay provides an introduction to his life and work and ipso facto is a modest attempt at generating interest in Indian economic thought specifically (and more generally in the history of economic thought). In the past, blog posts which fall into this theme dealt with the economics of Krishna Bharadwaj and VKRV Rao. And what follows is a condensed version of Section II of my article ‘Arun Bose on Sraffa: Value Theory and Demand‘ published in Artha Vijnana as part of a 2018 special issue dedicated to the ‘Indian Reception of Piero Sraffa’s Economic Contributions’.”

Born in Calcutta, Bose had become interested in Marxian political economy by the end of high school. He completed his undergraduate studies (Tripos) at Cambridge University between 1937 and 1940. One of Bose’s recollections of Cambridge is the following: ‘During extra-curricular sessions, both Maurice Dobb and Piero Sraffa discussed economic theory and Marxian political economy, leaving an indelible impression on my mind’. Moreover, Bose was actively involved in student movements there and also joined the Communist Party of Great Britain. In the decade following this, Bose worked as a full-time activist in the Indian communist movement.’

Around 1957, Bose decided to resume his study of economic theory. Under the Commonwealth Universities Interchange scheme, he spent a year at Trinity College, Cambridge in 1960-1. Subsequently, he was asked to join the newly founded Kirori Mal College in Delhi at the behest of the economist B. N. Ganguli and the English professor Sarup Singh. B. N. Ganguli is the author of Indian Economic Thought: Nineteenth Century Perspectives (1977), one of the handful of books dedicated to Indian economic thought. In memoriam, the Economics Department at Kirori Mal has organised public lectures under the auspices of Arun Bose Memorial Lectures.’

Between 1963 and 1965, Bose closely engaged with Sraffa’s Production of Commodities by Means of Commodities (1960). Bose published a comment in Economic Weekly (now Economic & Political Weekly) in response to Krishna Bharadwaj’s review of Sraffa’s book entitled ‘Value through Exogenous Distribution’. Bose also published responses to the reviews of Sraffa’s book by Roy Harrod and David Collard respectively in the Economic Journal, one of the main international vehicles for the dissemination of economic ideas. And in 1965, he published an article on Sraffa’s book in the Economic Journal. And during this period, they corresponded; Bose sent Sraffa five letters to which he received responses to all but one (more details about the correspondence is available at the online archives of Trinity College).’

Bose’s next publication was after six years: an essay on Marx in the 1971 volume of the History of Political Economy; it continues to be an important journal devoted to the history of economic thought. Next year, he published another essay on Marx in Science & Society. After another brief hiatus from publication, he published a book in 1975 titled Marxian and Post-Marxian Political Economy; he gave a series of lectures at the Indian Statistical Institute (ISI), Calcutta with the same title. Bose acknowledges Sukhamoy Chakravarty for reading the book draft and for familiarising him with modern linear economic theory (Chakravarty had also reviewed Sraffa’s book which had appeared in 1961 in Arthaniti, the journal of the Department of Economics, University of Calcutta). I reproduce an excerpt from the book’s preface where Bose describes his reason for being impressed with Sraffa’s work:

‘Piero Sraffa impressed me with his conviction that it was perfectly possible, though difficult, to develop a theory of political economy into an exact science, based on absolute precision of concept ‘ however much we may approximate in empirical work ‘ which would be wielded as effectively as a surgeon’s or a welder’s tools, to dissect or dismantle, and then reassemble the ‘unseen’ interconnections of the economic process, whose cognition is essential for revolutionary political action’ (p. 11; also reproduced in my Artha Vijnana article on p. 29).’

He went on to publish two follow-up books: Political Paradoxes and Puzzles (1977) and Marx on Exploitation and Inequality: An Essay in Marxian Analytical Economics (1980). While a visiting fellow at the Delhi School of Economics (DSE) during 1976-7, Bose delivered lectures on capital theory. (Today, in India, to the best of my knowledge, capital theory is a full course (albeit elective/optional) only at the University of Hyderabad; Bharadwaj had played an important role in designing their MA Economics curriculum along with Amiya Bagchi, Amit Bhaduri, and K. L. Krishna.) A year before his retirement from Kirori Mal College in 1985, Bose published a letter in the Economic & Political Weekly titled ‘Piero Sraffa’; this was in response to P. R. Brahmananda’s obituary of Sraffa in 1983, also in the form of a letter. Brahmananda had himself engaged with Sraffa’s book in a set of three articles in 1963 in the Indian Economic Journal; these were later reproduced in the first volume of the 4-volume Piero Sraffa: Critical Assessments edited by J. C. Wood (1995, Routledge).’

After his retirement, Bose employed his ‘Sraffian Marxist’ approach within a wider social scientific framework to explain India’s socioeconomic condition. In this period, he published the following: an article each in Economic & Political Weekly (1986) and International Review of Sociology Series I (1987); and two books in 1989 titled Theories of Development of Material and Human Resources and Education: Requiem or Rethinking’ and India’s Social Crisis: An Essay on Capitalism, Socialism, Individualism and Indian Civilization. In his Idea of India, Sunil Khilnani identifies India’s Social Crisis as an important contribution to ‘historical sociology’ (p. 218).’

To conclude, there are enough published works by Arun Bose for someone who is interested in writing a dissertation or thesis in the area of Indian economic thought. Moreover, his notes, manuscripts, and correspondence are available for purposes of research at Nehru Memorial Museum & Library (NMML) although I personally found them to suffer from poor penmanship. It is extremely vital that we engage with the ideas of economists such as Arun Bose who provide an alternative way of understanding our economic surroundings.’

What Can Indian Economists Learn From Sismondi’

Although J.-C.-L. Simonde de Sismondi (1773-1842) lived in Geneva and wrote on economics, history and public policy, his concerns about the role of political economy is valid even today, especially for India. Marx considered Sismondi to be the last classical economist. Sismondi engages with the economics of Adam Smith, David Ricardo and J B Say in his 1819 work New Principles of Political Economy: Of Wealth In Its Relation to Population. This work has been translated into English by Richard Hyse in 1991 (available at Google Books). According to Sismondi, the objective of Political Economy is to ensure that majority of the population live a happy life.

Indian realities

Sainath informs us that India has seen over a quarter of a million farmers’ suicides between 1995 and 2010. The total figure according to National Crime Records Bureau (NCRB) is 256,913. And, since 1998, at least 15,000 farmers have committed suicide very year. More unsettling is that fact that the total number of farmers have been declining significantly. In Andhra Pradesh, it is alleged that 90 farmers committed suicide, that too, in rain-fed areas, in the last few weeks.

The inflation of food articles has reached double digits. Food inflation doubly affects the actual cultivators. Since, the prices are fixed by the Government (minimum support prices), the price rise does not benefit the actual cultivators. Secondly, their ability to purchase their usual consumption basket also falls when price rise. It is in this context that M S Swaminathan’s reminders need to be understood. He rightly asserted: ‘If agriculture goes wrong, nothing else can go right for this country.’

Very recently, Dreze and Sen pointed out the nature of the asymmetrical growth that is driving India with a majority of the population living without access to basic amenities. They concluded their article in the Outlook by stating that one of the ways forward is to have a ‘radical broadening of public discussion in India to development-related matters’rather than keeping it confined to simple comparisons of the growth of the gnp, and naive admiration (implicit or explicit) of the high living standards of a relatively small part of the population. An exaggerated concentration on the lives of the minority of the better-off, fed strongly by media interest, gives an unreal picture of the rosiness of what is happening to Indians in general, and stifles public dialogue of other issues.’ In other words, how much has the socio-economic condition of majority of the Indian populace (who happen to be farmers and weavers) improved’

Sismondi

In the hurry to build sophisticated DSGE models and while working out monetary and/or fiscal solutions to inflation and economic growth, it is often forgotten that actual human livelihood is at stake. How can Indian agriculture not be a necessary component of the curriculum in economics’ Within economics, steep walls which cannot be crossed exist between agricultural economics, macroeconomics, monetary economics, labour economics, development economics, etc. The so-called specialization in these fields (to be understood as literature which is not easily accessible or comprehensible to an economist from another field) has reached alarming levels. Sismondi says the following on the nature of economic inquiry:

However, I believe I should protest against the manner, so often superficial, so often false, in which a work on the social sciences is judged in the world. The problem which they offer to resolve is tangled in quite another way than those that arise from the natural sciences; at the same time it appeals to the heart as well as to reason. The observer is called upon to recognize unjust sufferings that come from man, and of which man is the victim. We cannot consider them coldly and pass them over, without seeking some remedy‘(Sismondi 1819: 13).

Maybe, the idea of modern science does not allow investigators to be moved by the ‘object’ under study. Nevertheless, as Sismondi reminds us, economic problems and their solutions affect people (who are not ‘objects’) in a significant manner. The state of Indian farmers and weavers is certainly to be given attention, especially in terms of livelihood building, through providing employment and incomes in a dignified manner.

The following lines from Sismondi echoes what Dreze and Sen recently pointed out as regards Indian growth:

If they find a tremendous accumulation of riches, an improved agriculture, a prosperous business community, manufactures which multiply without end all products of human industry, and a government that disposes of almost inexhaustible coffers, as in England, they call the nation opulent that has all these things, without stopping to inquire whether all those who work with their hands, all those who create this wealth, are not reduced to mere subsistence; whether every tenth member among them must not apply each year to the public welfare; and whether three-fifths of all individuals, in a nation that is called rich, are not exposed to more privation than an equal proportion of individuals in a nation called poor (Sismondi 1819: 22).

In India, the wealth creators, the farmers, are forced to live below even ‘subsistence levels’ as Sainath’s commentary on farmer suicides indicate. Even though we have 53 agricultural universities in India, their contribution to the farming population is circumspect. Three to four decades before, working on agricultural economics and debating issues related to agriculture was fashionable and ‘important’. Today, it is even more important but, perhaps, not very attractive. In fact, the Government admits that the farm sector has been neglected.

Admitting that the government is neglecting research in the farm sector, the agriculture ministry has sought more funds in the next Five Year Plan (2012-2017) for significant jump in food grain production.

But, focussing on aggregate food grain production is clearly insufficient. One needs to look at the ‘production conditions in Indian agriculture’. As Sismondi points out very clearly

Commercial wealth is augmented and distributed by exchange; and even the produce of the ground, so soon as it is gathered in, belongs likewise to commerce. Territorial wealth, on the other hand, is created by means of permanent contracts. With regard to it, the economist’s attention should first be directed to the progress of cultivation; next to the mode in which the produce of the harvest is distributed among those who contribute to its growth; and lastly, to the nature of those rights which belong to the proprietors of land, and to the effects resulting from an alienation of their property (Sismondi 1819: 133).

In 1974, Krishna Bharadwaj published a book Production Conditions in Indian Agriculture. In the same period, economists such as Amit Bhaduri, Ashok Rudra, Amartya Sen, K N Raj, C H Hanumantha Rao, Pranab Bardhan, etc wrote extensively on various aspects of Indian agriculture. The issues Sismondi pointed out were discussed and debated. Bharadwaj points out the significance of examining property relations, technology, local patterns of power, etc. Moreover, she notes that non-economic variables such as tradition, customs, caste and religion determine the economic position of a farmer and thereby determines their income and asset levels. The rise in food inflation has prompted many commentators to hold employment guarantee schemes (NREGA) responsible. If agriculture generated adequate incomes (to maintain a decent and dignified life) employment guarantee would not be necessary. In other words, employment on and off farm cannot be treated as independent of each other. Further, in India, markets are interlocked through both price and non-price links (with the Government playing an ambiguous role). These interlocked markets are exploitative as it denies the following freedoms to the agricultural farmer, who is very much an entrepreneur.

(1)” What to produce’

(2)” How much to produce’

(3)” For whom to produce’

(4)” When to sell the produce’

Conclusion

As Sismondi reminds us, we cannot ignore the majority of the Indian population who do not have access to the basic necessaries of life. Agriculture provides livelihood to more than half the Indian workforce. A farmer is an entrepreneur who produces food, the most basic of all commodities. Although, it might not be academically fashionably and profitable to study Indian agriculture but as Sismondi notes: ‘We cannot consider them coldly and pass them over, without seeking some remedy.’

Krishna Bharadwaj: The Ideal Economist

Krishna Bharadwaj is an economist who made lasting contributions to economic theory. She is especially known for her understanding of the classical theories of value and distribution. In particular, she has successfully traced out the history of classical as well as neoclassical economics. This kind of conceptual history writing is important, especially for the economist who wants to apply these theories in understanding the socio-economic reality. And because of her firm grasp of various theoretical approaches in economics, she was able to judiciously analyse problems of the Indian economy. She was, in fact, the first economist to point out the exploitative nature of inter-linked markets which are prevalent in Indian agriculture. She also placed emphasis on the power relations which dominated the production structure of agriculture in India.

Apart from struggling to show the distinct and superior nature of classical economics over neoclassical economics, Bharadwaj also relentlessly worked on Indian economic issues. In particular, Bharadwaj analysed the structural linkages between agriculture and industry in India and also examined the production conditions which characterise Indian agriculture. In her latter study, she pointed out the inadequacies of neoclassical economics in understanding Indian agriculture. She particularly criticised the application of production functions. In addition, Bharadwaj explained the origin of neoclassical economics and how it suffers from various logical as well as other methodological issues.

For Bharadwaj, theory was only a tool to understand the questions and problems which arose from the social reality. This is why, she promoted the teaching of different economic approaches in Centre for Economic Studies and Planning (CESP) at Jawaharlal Nehru University (JNU), such as classical, Marxian, Keynesian as well as Walrasian. As Prabhat Patnaik writes in a foreword of The Krishna Bharadwaj Memorial Lecture, ‘according to her [Bharadwaj]…we had to evolve a research-cum-teaching agenda of our own. No centre in India could flourish, by international standrads, merely by mimicking what was happening abroad, merely by showing proficiency in solving problems which were posed abroad. The problems has to be rooted in the social reality of our own country, and the effort to grapple with them had to be, very consciously, located within the intellectual endeavour of our country…[However] Her emphasis on taking up problems rooted in the Indian social reality was not a plea for turning one’s back upon theory or theoretical struggles. On the contrary, her plea for investigating our real problems, was simultaneously a plea for a richer theory, a theory with a body to it, one which is all the more powerful because it has been used for investigating real problems facing economies like ours.’

From her work on economic theory and its applications to the Indian economy, what becomes clear is her philosophy that economic theory should be based on concepts which can be observed and be amenable to measurement in reality. This is one of the reasons why she criticised the demand and supply theories; for, values were determined by subjective utilities. Another quality worth mentioning is her firm belief that economic theories are not mere intellectual constructs; rather, they arise out of a particular socio-historical situation, often to promote a certain ideology. In her R C Dutt Lecture, which was later published as a book in 1986, she makes it clear that the emergence of demand and supply theories were primarily a reaction against Ricardo and Marx. For, in both Ricardo and Marx, a conflict of interest is visible between social classes. In order to promote the ‘idea’ of a just and harmonius system, the theories (especially the labour theory of value) of Ricardo and Marx were criticised as being limited, and an alternative was proposed. This new theory completely did away with social classes. Individuals were chosen as the primary unit of analysis. Social classes, actually was modified into ‘factors of production’. A very interesting and important methodological shift, with powerful political implications! All the factors of production were assigned equal importance, and it was also shown how both labour and capital recieved incomes according to their contribution to the production process. That is, a capitalist system, with free mobility of labour and capital and with clear property rights (contracts), is essentially a just and stable system.

To conclude, the following are the reasons why Krishna Bharadwaj is an ideal economist. (1) She had an in-depth understanding of the various theoretical approaches in economics, be it, Marxian, Classical, Neoclassical, Austrian or Keynesian. (2) She did not blindly apply these theories (mainly Classical and Marxian) to understand the Indian economy; instead, her inquiry was based on extensive empirical observations, which made the theory richer. (3) She considered it very necessary to understand the history of economic theory, especially because of the historical specificity of all theories. Also because, most theories are responses to certain socio-political events or interests. (4) Lastly, she applied all her experience in setting up a new centre, which paid close attention to both economic theory and its application to the Indian economy, in close connection with other disciplines.

References

Bhaduri, Amit (1992), Krishna Bharadwaj, Economic and Political Weekly, Vol. 27, No. 10/11 (Mar. 7-14, 1992), p. 490.

Bharadwaj, Krishna (1963), ‘Value Through Exogenous Distribution’, The Economic Weekly, August 1964.

Bharadwaj, Krishna (1986), Classical Political Economy and the Rise to Dominance of Supply and Demand Theories, Calcutta: Universities Press.

Harcourt, G C (1993-94), ‘Krishna Bharadwaj, August 21, 1935 – March 8, 1992: A Memoir’, Journal of Post Keynesian Economics, Vol. 16, No. 2 (Winter, 1993-1994), pp. 299-311.

Patnaik, Utsa (1991), ‘Krishna Bharadwaj: 21 August 1935 – 8 March 1992,’ Social Scientist, Vol. 19, No. 12. (Dec., 1991), pp. 63-67.

Patnaik, Prabhat (1996), Foreword, in Time as a Metaphor of History: Early India, by Romila Thapar, The Krishna Bharadwaj Memorial Lecture, New Delhi: Oxford University Press.

Roncaglia, Alessandro (1993), ‘Krishna Bharadwaj, 1935-1992. In Memoriam’, Metroeconomica, Vol. 44, No. 3, pp. 187-194.