Slides from the 2016 PK Conference

1. Contributions of Tarshis:
An Ontological Perspective
Fahd Rehman
Assistant Professor/Research Fellow
Suleman Dawood School of Business (SDSB), LUMS, Pakistan

2. Outline
 Introduction
 Intellectual Influences
 Theorizing and Ontology
 Policy Proposals
 Conclusion and Future Research

3. Introduction
 Harcourt presented the contributions in a chronological
order
 Economic analysis based on realism
Lorie was aware of historical process and factual
background
 Objectivity in analysis and wrote engaging and
appealing economics textbooks
 Modification of thoughts with historical events
 Uphold broader Keynesianism and infuse details with
his evolving thoughts
 Unified framework to integrate theories of value, income
determination, growth and distribution and finance
 Sources of strength as economist

4. Intellectual Influences
 Joan Robinson
Imperfect Competition revolution
Beggars thy neighbors: distribute poverty unfairly
 Richard Kahn
Inverted L shaped cost curve
Extension of short period determination of price and
output to the price level and aggregate output
 Marshall
Representative firm
Strength: Solve aggregation problem and consistent
with fallacy of composition
Weakness: Lack of precision (achieved through
mathematization of economics)

5.  Hall and Hitch
Mark up pricing-variable cost+
overheads+profit
Mark up pricing and marginal method gives
identical results
 Keynes
Broad outlines are the same, modify the fine
details
Made General Theory consistent with
national income accounts
Analyze factors associated with propensity to
consume and private investment
Demand for consumer goods decline, the
inducement to investment would decline showing

6. Keynes as intellectual chameleon
Advise Meltzer since Keynes, sometimes, alludes to
a day and other a long run
Rapid fluctuations in price level bring uncertainty of
expectations which in turn impact the interest rate
 Shaw
Money creation as a process of financial
intermediation (realistic)

7. Theorizing and Ontology
 Labor could not be considered as a statistical average
since this would mask certain characteristics. For
instance, the economic interests of wheat producers
differed from bread ones.
 Employers compete with other employers in certain
domains while they join hands to resist the rising
demand of wages
 Favored labor unions on the grounds they increase
the share of labor in the national income by affecting
the degree of monopoly of business firms
 Large corporation vs labor union brought a balance
 Good theory aided in determining the relations to be
investigated while bad theory yield false clues
 State of confidence of business community affects the
expected yield

8. Theorizing and Ontology
Economic realism
It is, of course, useful to understand how decisions would
be reached if businessmen worked with estimates made to
the nth decimal point-including allowance for the
uncertainty of the estimates. But if we carry this too far, if
we permit our thinking to be the prisoner of the analytical
scheme, we gain a spurious elegance and accuracy at
heavy cost- the loss of contact with reality and an
insensitivity to what really makes the wheels turn” (1966; p.
423)

9. Theorizing and Ontology
 Measurement with theory: Statistical data to illustrate
an economic phenomenon
 Integrate economic theory based on realistic
assumptions, facts and observations
 Analysis turned out to be different from Keynes
regarding money and real wage over the trade cycle:
Money and real wage were procyclical
 Notion of equilibrium to analyse the capitalist economy
i.e. equilibrium price and actual price were closed to
each other due to thoughtful experiment
 Short period from objective side i.e. size of plant and
number of firms
 Differentiate between short and long period by taking a
dynamic view of competition

10. Theorizing and Ontology
 Explain the dynamics of commodity production by
extending short period to long one
 Disguised unemployment in the agriculture sector
during depression since demand for agri products fall
and supply increase due to reverse migration
 Significant contribution of Aggregate Supply function
which led to stagflation and criticized the 45 degrees
 Public investment increased output and employment in
the short and long run and there was no end of worth-
while projects
 Public and private investment are complementary
 Inflation affects the personal distribution of income
since income transfer takes place from low to high
income classes. Powerful groups maintain their
relative position so hinted towards conflict inflation

11. Theorizing and Ontology
 Debt affects the personal distribution of income since
particular bondholder is different from a particular tax
payer
 He dismissed the ideology that high debt affects the
confidence of business firm and government becomes
director competitor of business firm
 Remained faithful to logical time since post Keynesian
scholars favour historical time to extend short period to
long one
 Novel approach of linking theory of price, theory of
income determination, theories of distribution and
growth provided a unified framework
 Price setting behavior of firm is the key
 Tarshis criticized the post Keynesian scholars on the
ground of realism of assumption i.e. assumptions were

12. Policy Proposals
 Proposals attacked monetarism and favor Keynesianism
To tackles stagflation, monetarists primary objective is to fight
inflation at the cost of unemployment
Monetary restraint slowed down the global trade which
aggravated the international debt problem
Progressive taxation on high income classes, cut sales and
value added taxes on business firm
World economy-a closed system
Coordinated expansion to break out of the problem of
inflation, unemployment and international debt
If all countries simultaneously try to reduce their debt, it
would increase the debt burden by hinting to fallacy of
composition
 High unemployment affects the psychology of society
People hold on to jobs and devise protectionist schemes
which in turn lead to uncompetitiveness in a society

13. Policy Proposals
Direct action of the people in the absence of collective action of the
government
 Favor general principles, common goals and fine details
left to the implementing countries
 Malfunctioning of international monetary system
Speculative capital flow grew before 1971 and
growth of Euro Dollar Market
 Debt Servicing/Export ratio is the key to gauge the
debt paying capacity
 Inflation has distributional consequences for personal
income

14. Conclusion
Ontology provides insights into an
economic phenomenon
Theorize and support his opinions
with facts
Delineate pattern out of data
Never uses econometrics and apply
mathematical modelling
Engage reader with real life
examples

15. Questions and Comments
Thank You