There is an example in Bell-Curve's book of how you can use private contracts to internalise externalities. The example involves a barking dog, whom your neighbour wishes to be rid of. Your neighbour can then pay you to get rid of the dog. It is trivially simple to, in this example, replace the barking dog with a bawling infant, as the subject of paid euthanasia.
Similarly, when discussing the operation of perfect markets, one can discuss the fact that famine is a market solution. It is trivially simple to construct an example in which the Socially Efficient operation of the market is to let 90 % of the population starve to death.
While these two examples only concern themselves with demonstrating to the student that the concept of Social Efficiency should be taken with a largish pinch of salt, one can similarly subvert other topics.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
But some of the bullshit is more deeply embedded. The marginalist modeling of consumer behavior requires us to make assumptions about individual behavior that are known to be false. The marginalist modeling of production requires us to make assumptions about physical production processes that are known to be false. The marginalist modeling of factor markets requires us to make assumptions about the nature of durable productive equipment that we know to be false. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
As long as the assumptions are known to be false in the first sense, I don't have a problem. It's when they're false in the second sense that I call bullshit.
The aggregation of capital is an especially egregious case, where after the Cambridge Capital Controversies there was a pronounced shying away from reliance on the model in favor of appeal to General Equilibrium Theory, and then after the model of General Equilibrium was shown to be fatally flawed in the sense of requiring unreasonable restrictions in order to avoid a quite large number of equilibria, many of them with extraordinarily unstable dynamics, the admitted flaws of composite capital were quietly forgotten so that composite capital could stand in for the irreparable General Equilibrium theory.
And don't forget that the now known to be failed General Equilibrium model was also the recourse to the 1930 critiques by Sraffa of Marshallian partial equilibrium analysis. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
