Reading Mankiw in Seattle

April 14th, 2013

A while back Nick Rowe challenged amateur internet econocranks (my word, not Nick’s) like me to actually go read an intro econ textbook. (He was specifically targeting the author of Unlearning Economics — who I, at least, don’t consider to be an econocrank, he’s far better-versed than I am,  though Nick might.)

I took him up on the challenge, and am finally writing up my thoughts because I need to reference this from another post.

Figuring I ought to go straight to the belly of the beast, I picked up a used copy of Greg Mankiw’s Principles of Microeconomics. I didn’t read every word — I’ve been poring through various econ textbooks online, plus innumerable papers and blog posts, for years, so I knew a lot of it already. But I did go through it fairly carefully (especially the diagrams), and it had some of the effect that Nick was hoping for. Some of the things that I didn’t think were (sensibly) covered in intro econ, in fact are. And not surprisingly given my autodidact’s typical spotlight (and spotty) pattern of knowledge, I learned quite a few new things.

But still, my overall impression was amazement at what is not covered, and in particular what is not covered right up front.

In place of Mankiw’s nostrums about tradeoffs, opportunity costs, margins, incentives, etc., I would expect to see discussion of the fundamentals that underpin all that:

Value. What in the heck is it? How do we measure it? This was the topic of the opening class in my one accounting class, at the NYU MBA school. Basically: accounting for non-accountants, teaching us to deconstruct balance sheets and income statements into flows of funds. A darned rigorous course, taught by a funny and cranky old guy, formerly on the Federal Accounting Standards Board, with a young assistant prof playing the straight man and the enforcer. That first class was one of the most valuable (?) I’ve ever sat through.

The phrase “theory of value” doesn’t even appear in Mankiw’s text, even though he uses the term “value” constantly, and it’s obviously a term that has some import in economics. Imagine an undergraduate who’s had zero exposure to the ideas of subjective versus objective value, or the centuries of (continuing) discussion and debate on the subject, trying to parse the following sentence, and think critically about what it really means.

…we must convert the marginal product of labor (which is measured in bushels of apples) into the value of the marginal product (which is measured in dollars).

Money. What is it? What’s its value relationship to real goods, and in particular real capital? How is it embodied in financial assets? Where did it come from? (Hint: from credit tallies and for coins, military payments of soldiers, not barter between the butcher and the baker. That’s an armchair-created fairy tale.) The phrases “medium of account” and “medium of exchange” don’t appear in the book. Since economics is all about monetary economies, this seems like a significant omission.

Utility. The most fundamental construct in economics — the demand curve — is derived from utility maps. But Mankiw doesn’t even mention the term until page 447, where it’s discussed as “an alternative way to describe prices and optimization.” Alternative? There’s no discussion of ordinal and cardinal utility, or of the troublesome doctrine of revealed preferences (which 1. is the doctrine that allows economists to avoid talking about utility, 2. constitutes a circular definition, and 3. is never mentioned in the book).

All this gives me a feeling of indoctrination into a self-validating, hermetically sealed body of beliefs floating in space, with no egress outside that bubble, into thinking about the thinking going on therein. There are huge and not-wacky bodies of thinking out there that seriously question what goes on inside, often refuting it on its very own terms, and in the words of its own most eminent practitioners.

Yes, you could argue that I’m asking too much of undergraduates, but I would suggest that you’re asking too little (or the wrong thing) of undergraduate professors.

Is Mankiw teaching his “customers” to understand — the hallmark of the North-American higher-education system, in my opinion, compared to most other countries — or is he teaching them to adopt an undeniably ideological world view (no, neoclassical economics is not purely “positive,” not even close), and to just go obediently through the motions as prescribed in the textbook? In my opinion, he’s doing the latter.

I’m tempted to suggest that this is all true because (neoclassical?) economists don’t have a coherent or non-circular theory of value, and  money, and utility. (Neither do I, but I’m working on it!) But saying that would make me sound like an internet econocrank.

Cross-posted at Angry Bear.

  1. JKH
    April 15th, 2013 at 02:17 | #1

    Superb post.

    The whole series lately has been excellent – I’m only catching up now.

    “That first class was one of the most valuable (?) I’ve ever sat through.”

    Exactly the same frequency of exposure here, with exactly the same relative evaluation. If I think anything about economics, it’s about the fundamental and fatal empirical disconnection such standard teaching has with respect to accounting. In fact, my preferred top-down nesting hierarchy for logical dependence is economics, finance, and accounting, with accounting being the sine qua non for coherence in the other two. It’s a necessary but not sufficient condition. The problem is that the chief counterargument from a traditional establishment who think otherwise is a very weak gun pointed ineffectively at the straw man of a sufficiency claim, which is not the point at all. The correct necessity argument suggests to me a required revolution in economic thinking and teaching. By contrast, however, I am not at all preoccupied by concepts such as value, money, and utility. These things consist of common sense in my view – which should be exercised in the context of a revealed accounting complexity in economic structure, combined with the effort of pure literal and logical imagination – from tabula rasa. Start over, economics.

    “All this gives me a feeling of indoctrination into a self-validating, hermetically sealed body of beliefs floating in space, with no egress outside that bubble, into thinking about the thinking going on therein.”


    P.S. the post Keynesians have made some good progress, but not enough, with certain sub-groups embracing their own reality distortion fields for reasons of normative portrayal

  2. Charles Johnson
    April 15th, 2013 at 04:45 | #2

    Having worked in the area of regulatory economics as a mathematician for over 35 years, I concur with the assessment that economic theory is “a self-validating, hermetically sealed body of beliefs floating in space, with no egress outside that bubble, into thinking about the thinking going on therein.” By comparison, much of mathematics has applications in physics and engineering and even in social science research, and many mathematicians are pursuing aspects of mathematical theory that are themselves “floating in space,” but connections to other established mathematical theories prevent those aspects from being merely a “body of beliefs.”

    It seems to be the objective of economic theorists to replicate the pure logic of mathematics in the pursuit of developing a consistent, coherent body of theories that hold for all circumstances. This is surely a futile and silly task and attempts to treat is as such lead to results that would be comical if it weren’t for their consequences in the world.

  3. JKH
    April 15th, 2013 at 05:11 | #3
  4. beowulf
    April 15th, 2013 at 09:58 | #4

    Lorie Tarshis’s 1947 textbook The Elements of Economics was 100 octane Keynesian. There was such a political backlash (Bill Buckley trashed Tarshis in God and Men at Yale) that every Keynesian textbook thereafter, starting with Paul Samuelson’s, hedged it with classical economics. Tarshis’s Chapter 28 (The Determinants of Investment) may be of some interest.

  5. April 15th, 2013 at 11:45 | #5

    @JKH “and the beat goes on”

    Oh dear. I sure hope we’re enjoying this.

  6. April 15th, 2013 at 11:57 | #6


    Very interesting. Thanks.

  7. April 15th, 2013 at 12:04 | #7

    See Jamie Galbraith, Can We Please Move On? on teaching economics.

    “It is time to get on with it. We need a replacement for neoclassical economics. A new curriculum.  Let’s build it.  Let me suggest a few key characteristics of what should follow.”

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