A Fundamental Contradiction in Standard Rent Theory: A Case Study on Varian's "Intermediate Microeconomics"

In this paper, I examine Varian’s treatment of rent in his textbook on Microeconomics. I argue that he holds contradictory conceptions: sometimes rent is defined as surplus over cost whereas sometimes it is defined as cost, as the opportunity cost of fixed factors. I start by arguing that the distinction between fixed and variable factors is not the key for the definition of rent; ultimately, it is monopoly. Varian’s conception of rent is, essentially, Ricardo’s: rent is extraordinary profit turned rent. On the basis of a selfinconsistent notion of opportunity cost, Varian introduces the idea that rent is the opportunity cost of land, when what he actually defines is the opportunity cost of not renting the land. I also critically examine the related notion of “producer’s surplusâ€, and show that Varian’s treatment repeats the same contradiction as in rent.

Profit as Cost versus Profit as Surplus over Cost: A Case Study on Varian's "Intermediate Microeconomics"

On the analysis of Varian’s textbook on Microeconomics, which I take to be a representative of the standard view, I argue that Varian provides two contrary notions of profit, namely, profit as surplus over cost and profit as cost. Varian starts by defining profit as the surplus of revenues over cost and, thus, as the part of the value of commodities that is not any cost; however, he provides a second definition of profit as a cost, namely, as the opportunity cost of capital. I also argue that the definition of competitive profit as the opportunity cost of capital involves a self-contradictory notion of opportunity cost.

Mas-Colell, Whinston and Green Versus Scitovsky on Profit and Utility Maximization

I contrast the theoretical foundation of profit maximization of Mas-Colell, Whinston and Green’s “Microeconomics†against that provided by Scitovsky in a paper of 1943. Whereas Mas-Colell, Whinston and Green try to show that profit maximization can be derived from utility maximization, Scitovsky categorically states the contrary view. I argue, first, that the foundation provided by Mas-Colell, Whinston and Green is not sound and, secondly, that Scitovsky’s line of reasoning opens a better way to model business behavior.profit maximization, utility maximization, business behavior

A new look at Marx's refutation of Ricardo's refutation of the labor theory of value

This paper was presented at the 2011 Annual Conference of the European Society for the History of Economic Thought, held at Bogacizi University, Istanbul, from 19 to 21 May 2011.labor theory of value, Ricardo, Marx

A Fundamental Contradiction in Keynes' Conception of Income

I contend that Keynes provides two contradictory definitions of aggregate income. According to the first definition, which is the dominant in Keynes as well as the standard in current Macroeconomics, the full value of output becomes income in the aggregate. This view can be traced back, at least, to Adam Smith. According to the second definition, on the contrary, not the full value of output becomes income, but only the part of it not required to make up for capital consumption. This view can be traced back to the Physiocrats. In the “General Theoryâ€, Keynes inconsistently appeals to these two contrary views, as I show by analyzing his treatment of the concept of “user costâ€. In chapter 3, user cost becomes income and investment gives rise to income; in chapter 6, in the first half, approximately, user cost does not become income and investment does not give rise to income. I contend that the first definition is wrong, whereas the second is right. The first definition of aggregate income leads to the erroneous principle that investment gives rise to income. The second definition implies that investment does not give rise to income, but to a change in capital.national accounting, income accounting, Keynesian economics

Lowndes and Locke on the value of money

This paper was presented at the 11th Annual Conference of the European Society for the History of Economic Thought (ESHET).value of money, monetary theory, english monetary history, history of english banking

MQLV: Optimal Policy of Money Management in Retail Banking with Q-Learning

Reinforcement learning has become one of the best approach to train a computer game emulator capable of human level performance. In a reinforcement learning approach, an optimal value function is learned across a set of actions, or decisions, that leads to a set of states giving different rewards, with the objective to maximize the overall reward. A policy assigns to each state-action pairs an expected return. We call an optimal policy a policy for which the value function is optimal. QLBS, Q-Learner in the Black-Scholes(-Merton) Worlds, applies the reinforcement learning concepts, and noticeably, the popular Q-learning algorithm, to the financial stochastic model of Black, Scholes and Merton. It is, however, specifically optimized for the geometric Brownian motion and the vanilla options. Its range of application is, therefore, limited to vanilla option pricing within financial markets. We propose MQLV, Modified Q-Learner for the Vasicek model, a new reinforcement learning approach that determines the optimal policy of money management based on the aggregated financial transactions of the clients. It unlocks new frontiers to establish personalized credit card limits or to fulfill bank loan applications, targeting the retail banking industry. MQLV extends the simulation to mean reverting stochastic diffusion processes and it uses a digital function, a Heaviside step function expressed in its discrete form, to estimate the probability of a future event such as a payment default. In our experiments, we first show the similarities between a set of historical financial transactions and Vasicek generated transactions and, then, we underline the potential of MQLV on generated Monte Carlo simulations. Finally, MQLV is the first Q-learning Vasicek-based methodology addressing transparent decision making processes in retail banking

Dornbusch and Fischer on Capital and Income

In this paper I critically analyze the relationship that professors Dornbusch and Fischer establish among the concepts of GNP, NNP and aggregate income. In principle, aggregate income is NNP; indeed, the whole point of introducing the concept of NNP is to determine what is the income of the economy in the aggregate. The definition of NNP excludes depreciation from aggregate income. But depreciation must be made good, and it must be so out of current production. On the ground that the factors that produce the goods that make up for depreciation must be paid, Dornbusch and Fischer conclude that the value of the portion of current output that makes up for depreciation becomes income in the aggregate. Since it is indubitable that the value of the other portion of output (that which consists of the goods not required to make up for depreciation) becomes income too, then it follows that aggregate income is GNP, not NNP. Then, Dornbusch and Fischer hold contradictory views. The cause, which I attempt at diagnosing in this paper, is a miscomprehension of the nature of capitalistic production.national accounting, accounting identities, capital accounting, national income accounting

Profit and Cost in "Modern" Post-Marxian Profit Theory: A Case Study from Varian's "Intermediate Microeconomics"

In this paper, I examine the treatment of competitive profit of professor Varian in his textbook on Microeconomics, as a representative of the “modern†post-Marxian view on competitive profit. I show how, on the one hand, Varian defines profit as the surplus of revenues over cost and, thus, as a part of the value of commodities that is not any cost. On the other hand, however, Varian defines profit as a cost, namely, as the opportunity cost of capital, so that, in competitive conditions, the profit or income of capital is determined by the opportunity cost of capital. I argue that this second definition contradicts the first and that it is based on an incoherent conception of opportunity cost.