Joan Robinson is the most surprising theorist never to be awarded a Nobel Prize in Economics. She made fundamental contributions to understanding the limits of mainstream competitive market-centric theory, perhaps helping to explain why an economics establishment deeply committed to competitive market equilibrium was cool to her contributions. Less broadly understood, she also played a central role in John Maynard Keynes’s long gestation of his General Theory of Employment, Interest, and Money (1936) and the consequent birth of modern macroeconomics.
Robinson was a central figure in the Cambridge Circus, which met to debate Keynes’s ideas about macro instability, and was thought to be the member along with Richard Kahn who could get Keynes to change his mind. Lawrence Klein argued that a 1933 article by Robinson was the literature’s first account of the basic tenets of the General Theory. We know that she was an ardent believer in Keynes’s work. If anything, Robinson was more committed to its significance than the great man himself. Her quote in Peter Clarke’s book (2009) about that time is illustrative: “There were moments when we had some trouble in getting Maynard to see what the point of his revolution really was.”
The Great Idea
Robinson pioneered the important idea of imperfect competition, in which optimizing firms exert some control over product pricing short of monopoly. She put off many establishment economists by asserting that, in highly specialized economies, perfect competition was a special case and actual behavior was more closely captured by what she named “monopsony”. Most interesting to the GEM Project, she extended the monopsony model to the labor market, using it to attack neoclassical postulates that Keynes had targeted: W=VMP=MRS, where W denotes the wage paid, VMP is the value of labor’s marginal product, and MRS is labor’s marginal rate of substitution between work and leisure.
Robinson’s attack, however, only wounded the familiar postulates, which were adjusted to accommodate her criticism without fundamentally altering the mainstream role of the disutility of work in anchoring rational wage determination. Most critically, rational wage recontracting retained its capacity to prevent involuntary job loss in response to adverse demand disturbances. It is the oft-repeated story. Robinson’s failure to microfound meaningful wage rigidity (MWR) pushed her into a corner from which she had no effective defense against the postwar generation of theorists’ reassertion of neoclassical macroeconomics. That insurrection eventually pushed the General Theory out of mainstream thinking.
GEM Helping Hand
Joan Robinson never paid much attention to the huge changes in workplaces that occurred in her lifetime. If she had, she could have opened up another avenue of her work on the limits of the marketplace in pricing and allocating labor resources. I believe she would have been quick to recognize this approach, impeccably rooted in inherent employee-employer information asymmetries, as exceptionally powerful.
Instead, the rigorous analysis of information-challenged workplaces was long delayed, eventually constructed in GEM Project. As a contribution to economic theory, it is kind of a big brother to monopsony, able to accomplish a great deal more than Robinson’s market-centric labor modeling. Most relevant to the Cambridge Circus, the Project microfounds MWR, the rational suppression of labor-price recontracting, and the rational existence of involuntary job loss. Robinson would have had a much more complete picture of labor pricing and use; Keynes and his macro revolution would have been invulnerable to challenge from resurrected neoclassical general-market-equilibrium modeling; and policymakers’ most valuable stabilization tool (discretionary management of total spending) would have become consistent with optimization and equilibrium – the two fundamental tenets of economic theory,
Is the Game Worth the Candle?
What made Robinson early contributions so extraordinary is that they came when she had no official position at Cambridge. (Her husband was on the faculty and was a minor member of the Circus.) She had no salary supporting her writing of The Economics of Imperfect Competition (1933), one of the most important economics books ever to come from Cambridge University. Such were the barriers faced by ambitious women that even Keynes had great difficulty securing her a position in the department he dominated. The use of lots of candles is justified in continuing to cast light on that determined discrimination by establishment economists, who stubbornly assigned high priority to protecting the status-quo.
Even more candles are justified when one thinks through the hypothetical implications of Joan Robinson having a much more complete picture of labor pricing and use coincidentally with the writing of the General Theory. Think of all the wrong turns that macro theorists have made in the generations that followed the publication of Keynes’s great book that could have been avoided. The huge wasted effort on job-search theory, attempting to make voluntary job quits motivate the flood of forced layoffs in recessions, comes quickly to mind.
The cumulative score of the Helping-Hand game: Worth it: 14 (Lewis, Solow, Harris-Todaro, Bernanke, Lucas, Samuelson, Kerr et al, Okun, Hicks, Sraffa, Hayek, Keynes, Burns, Robinson). Not worth it: 0. As the score builds, keep in mind the major objection of mainstream theorists to generalized-exchange macroeconomics. Adding a second (workplace) venue of rational exchange is too much work; its benefits are not worth the effort. Is that rationale looking more and more ridiculous?
Blog Type: Wonkish Saint Joseph, Michigan