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Home / Coordination Problem / G. L. S. Shackle on Alan Coddington’s THEORIES OF THE BARGAINING PROCESS

G. L. S. Shackle on Alan Coddington’s THEORIES OF THE BARGAINING PROCESS

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This upcoming term I am teaching Microeconomics II, and in preparing for the class I have been revisiting so many ideas and concepts that I obsessed over with my good friend Dave Prychitko as we worked our way through the microeconomics sequence and our study of the theory of general competitive equilibrium.  We had a great teacher for Microeconomics II ... Michael Alexeev ... and while he demanded that we learn the technical material inside and out, he also encouraged Dave and I to explore different perspectives and the history of the debates/discussions, which we did in class, in directed readings, and in papers during our PhD studies.  Dave and I, a few years after our graduation from GMU, edited a 2 volume reference work that was made up of the various Market Process Theories we

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This upcoming term I am teaching Microeconomics II, and in preparing for the class I have been revisiting so many ideas and concepts that I obsessed over with my good friend Dave Prychitko as we worked our way through the microeconomics sequence and our study of the theory of general competitive equilibrium.  We had a great teacher for Microeconomics II ... Michael Alexeev ... and while he demanded that we learn the technical material inside and out, he also encouraged Dave and I to explore different perspectives and the history of the debates/discussions, which we did in class, in directed readings, and in papers during our PhD studies.  Dave and I, a few years after our graduation from GMU, edited a 2 volume reference work that was made up of the various Market Process Theories we had studied with Alexeev's assistance and our own initiative/curiosity.  The publisher's description of the volumes reads:

Market process theory is principally concerned with explaining how the market moves towards a state of general economic equilibrium and how production and consumption plans become coordinated. Market Process Theories presents in two volumes the most important articles by leading economists which contribute to an understanding of the processes of economic coordination.

Volume I examines classical and neoclassical theories; it suggests that many classical writers can be interpreted as having anticipated a more dynamic disequilibrium analysis, and evaluates Marxian process theory also in this light. Other topics include analyses of price adjustment models, stability and disequilibria and a discussion of the challenge of increasing returns. Volume II deals with criticisms of standard theories such as institutionalism and post Keynesian criticisms. It also offers an exploration of the Swedish influence in the field with papers on the theory of savings and the concept of monetary equilibrium among others. Austrian economics is the subject of the final section, which explores such topics as the meaning of competition, process analysis and price and quantity adjustment.

The volumes consist of 37 articles from 1928 to 1995, and the content is divided as follows Volume I: Part I: Process in Classical Economics Part II: Marxian Process Theory Part III: Formal Market Process Models in Neoclassical Economics Part IV: The Challenge of Increasing Returns • Volume II: Part I: Institutionalist Approaches and Post Keynesian Criticisms Part II: The Swedish Influence on Market Process Theory Part III: The Central Concept of Austrian Economics: Market Process.

My theoretical interest have always been directed at price theory and market process theory from my undergraduate studies, that includes my obsession with the idea of economic calculation which I think is central to understanding economics.  But this also entails certain methodological and analytical commitments -- closed form models of choice, and single exit theorems of interaction simply are not attractive to me, however logically beautiful or intellectually disciplining they may be.  As an economic student you need to learn them, but not I would contend as either "as if" descriptors of human behavior or as "normative benchmarks" against which to judge human behavior, but as a "foil" which aids in our efforts to understand the open-ended nature of human choice, and the social process of economic coordination through time.

The institutional framework, as well as the various best strategy responses and the "aids to the human mind" in forming the responses, and pursuing those strategies move to center stage in economic analysis as a result.  In short, property, prices, and profit-and-loss, and the respective functional significance of each forms the core of any theory of market coordination.  Furthermore, I would argue that the problem situation to be analyzed in studying the complex coordination required of modern commercial society should never be trivialized through heroic assumptions introduced for mathematical tractability reasons, but always problematized if we hope to truly grasp the power of Adam Smith's "higgling and bargaining" to produce F. A. Hayek's "marvel of the market".  In this regard, consider the following passages from G. L. S. Shackle's foreword to Alan Coddington's Theories of the Bargaining Process (Routledge, 1968).

The behaviour of inanimate objects is not governed by their possession or non - possession of conscious knowledge . It follows that in assimilating the behaviour of a society to that of an inanimate system , economists of the mechanistic school have assumed away the problem of what men can and cannot know and the influence on their conduct of the beliefs and assumptions , right or wrong , realisable or inherently self - defeating , with which they complement their knowledge or by which they develop proxies for the unknowable . When a type of situation or process presents itself , whose essence is the exploitation by one party of the ignorance of another , it is plain that mechanistic models , and even the scheme of equilibrium , designed to make conceivable the possession by every man of all the knowledge which the scheme makes useful to him , cannot dissect the heart of things.

Not ignorance and uncertainty merely , but mistakenness , belief in something which in fact is false , and further , the deliberate cultivation of uncertainty and mistakenness by one party in the mind of the other , are of the essence of bargaining . Orthodox economic analysis proceeds by saying : It would pay this individual best , in such - and - such circumstances , did he but know that those are his circumstances , to do so - and - so , let us assume that he does know and that he will do it . Equilibrium is the means of being able , without impediment of logic , to ascribe to him that complete relevant knowledge of his circumstances , without which he cannot demonstrate to himself that one course out of all possible courses is objectively the best . But when our problem , of its nature and by its essential terms , precludes us from ascribing to the individual this complete relevant knowledge , how is the economic analyst to proceed ? He may content himself with rather general propositions , such as the insufficiency of the existence of a contract zone ( within which any agreement , once reached , is better for both parties than no agreement ) as a condition guaranteeing that an agreement will be reached ; or the proposition that a contract zone need not leave the actual agreement indeterminate . These two propositions seem worth having , if nothing more can be attained , and they can be established1 from rather general and basic considerations . But Dr Coddington has shown that much more can be attained , at a price .

A need is felt by many analysts to escape from the assumption that an achieved optimum is the only thing we can understand . How in detail , by what precise sequence of steps or flow of transformation , is a new such optimum attained when the governing conditions which shaped an earlier one have been destroyed ? Is there necessarily a path which inevitably leads to a new adjustment ? What can the effect be , when different parts of the system respond with various lags to disequilibrium pressures ? Such questions lead to the search for principles determining the path of movement which a system will follow , to the devising of dynamic models characterised by equations which associate with each other events or situations of distinct dates . However , it seems that the determining of an equilibrium situation or state of affairs calls for far fewer arbitrary assumptions than that of a path of movement . The former essentially requires us to assume that people seek to satisfy tastes which are characterised by diminishing marginal rates of substitution , by means of resources which show diminishing marginal productivities ; and that they possess all the knowledge of their own responses and the technological powers of their resources , and of each other’s tastes , powers and intentions , which bears upon their own problems of choice . These are very general and , except the last , very plausible assumptions . But no comparable appeal to the basic qualities of human nature and the basic geometry , as it were , of technology can be invoked to select one particular path of movement out of an infinity of such paths .

Our understanding of the complex coordination of commercial society -- Adam Smith's common woolen coat, e.g. -- turns on our ability to articulate the process by which a consistency between expectations and intentions is achieved.  The dovetailing of plans, that Hayek and then Kirzner articulated, is critical to understanding the market process.  To truly understanding it, again, we must be willing to problematize it, rather than trivialize it.  And, that requires methodological and analytical commitments that differ considerably from the orthodoxy.

With that in mind, revisit once more Buchanan's "What Should Economists Do?" and read closely why he objections to the depiction of utility functions as well as why he argues that the model of perfect competition is so flawed an apparatus.  If optimization and equilibrium are not the tools that best help us understand the economic process, then what are we economists to do?  Well, welcome to mainline economics from Adam Smith to Vernon Smith.

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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