The Economics of Kenneth Arrow

There are a bunch of criticisms of general equilibrium. Some of these were begun by Arrow himself. If you have prices that are out of equilibrium, can you adjust them to be in equilibrium? If you see the whole demand curve, then you could. But imagine you just know that there is unfulfilled demand for some goods, and excess supply for other goods. If you just make small adjustments in prices to lower excess demand or supply, will you eventually converge on market-clearing prices? Arrow showed that the answer is: it depends.

Value theory was entombed by Marx' followers. Marx offered a theory that was a) a positive theory on how the economy functioned, b) a normative theory on why capitalism was immoral, and c) a mechanical explanation on why capitalism was doomed. In terms of a and c it has failed. I don't even think this is a damning criticism of Marx -- Smith and Ricardo were wrong about plenty as well. The neoclassicals moved on from Ricardo, but Marxists have refused to move on and instead of enveloped "the theory of value" in a cloud of words to insulate Marx from criticism. Mysteriously, while Smith and Ricardo can be criticized, critics of Marx are always "missing the whole point of the theory".

Economics is not all of social science. The core of economics is the study of markets, though it touches on history, or psychology, or sociology. Markets were pretty peripheral for most of human history, and historical, or psychological, or sociological explanations are more important. Maybe you can explain everything that has ever happened for all of human history, but I sure can't.

Marxists do not, in fact, tell people that they are "wrong" about subjective judgements, but they do say that you are wrong to say that my house is $1 even if it is valued at $100k. You are free to value it at $1. Further, both Marx's and Ricardo's theory stipulate the value of commodities given that they are already objects of demand. For Marx, the theory of socially necessary labour time is the window into that observation.

Subjective value theory actually aims to do something more - to accumulate all these preferences in order to explain price. It reconciles objective facts about the world with the fact that people have preferences - and Smith, Ricardo and Marx are no different in that respect.

>In terms of a and c it has failed.

Plenty of Marxian economists and philosophers of economics would support, with various strength, both a and c. For instance, they argue that value comes to the forefront in explaining crises, and several empirical models (such as by Shaikh and Cockshott, although I have my reservations about their theories) confirm high correlation between the best measures of labour values we have and the prices actually observed in those sectors. That's not to say that the theory explains everything (e.g why a Nike shoe costs more than an Adidas) but it was never meant to - Marx stipulated that it ought to explain the value of commodities, not the price, and that the price-form, through such things as copyrights and patents, obscures the objective labour content. The key is that (1) it doesn't make sense to apply Marx's theory of value to individual commodities, (2) Marx's theory explicitly applies to freely reproducible commodities under capitalist modes of production. Thus, collector's items (like fine art) and items not freely reproducible (like Nike shoes) are not covered. There is, however, some work in incorporating those, in the notion of "general intelligence" and the prominence of financial labour.

>Mysteriously, while Smith and Ricardo can be criticized, critics of Marx are always "missing the whole point of the theory".

Not at all, but Marx can't be criticised on the same terms, because his theory is fundamentally different. If you want to criticise Marx then you can't do so on the terms of Smith and Ricardo - there is a reason, for instance, that despite his encyclopedic knowledge of political economy, Marx claimed that the tendency for the rate of profit to fall was one of his proudest achievements - despite it being in Ricardo.

>Markets were pretty peripheral for most of human history, and historical, or psychological, or sociological explanations are more important.

I disagree. The materialist perspective is that men make history, but they do not do so as they choose, only under circumstances transmitted from the past. The leap from commodity production to generalized commodity production in capitalism was decisive, and as Marx and Darwin agreed, the past is the key to the present.