My Mistake

In 1988, I published an article in the Journal of Macroeconomics that used the Hicksian IS-LM apparatus, already falling out of favor, to extend some of the macro instability ideas of my 1984 efficiency-wage book. I was exploring inherent problems of reconciling marketplace and workplace exchange, attempting to find some common ground with the growing literature on economy-wide coordination failure. Coordination modeling, at that time still closely associated with Leijonhufvud (1968), was working through the implications of the obvious nonexistence of the Walrasian auctioneer. My mistake was naming the article, the innovations of which were rooted in intentional price-mediated exchange in highly specialized workplaces, “Another Auctioneer Is Missing”. The red-herring concept of a workplace auctioneer, corresponding to its marketplace counterpart, surely misled many readers.

Leijonhufvud was focusing on the nature and role of the notional price administrator required in spontaneous market clearing, the famous Walrasian auctioneer. My focus, made explicit once meaningful wage rigidity (MWR) was coherently derived from axiomatic model primitives in the GEM Project, has long been the nature and role of intentional workplace wage administration, reflecting real and obvious intra-establishment efforts, that effectuates the efficient pricing and use of labor resources inside highly specialized firms. An important outcome of intentional price administration is the powerful constraints imposed by rational labor pricing in the large-establishment venue (LEV) on decision-rule optimization in the marketplace venue. The Project demonstrates that an important condition of continuous general equilibrium in modern economies is that almost all employees are pushed off their market supply schedules. Workers in the small-establishment venue (SVGE) cannot obtain preferred rent-paying, rationed LEV jobs for which they are qualified. LEV workers, recipients of the chronic rents, must accept the workweek hours scheduled by their employers, typically fewer than desired. In generalized-exchange macroeconomics, employees in both venues experience constrained, continuous decision-rule equilibrium while simultaneously confronting chronically rationed good jobs and hours.

As insightfully modeled by Barro-Grossman (1971), chronic, time-varying wage rents induce restrictions on income and consumption not present in the Walrasian model, creating significant spillover effects in other markets. After taking account of the rational GEM quantity restrictions, consumption is determined largely by income and wealth and investment outlays by expectations of pure profit. Interest rates play a secondary role in each spending category. (Chapter 6) Given that continuous decision-rule equilibrium is now consistent with the failure of markets to clear, intentional workplace wage administration is able to anchor dynamic system equilibrium in a way that requires market-price discovery to satisfy much more reasonable tasks that does Walrasian modeling. In a fundamentally important analytic innovation, the tatonnement process is no longer required to produce general multi-market clearing in order to be coherent. That counterfactual, unworkable responsibility has been a debilitating defect in mainstream coherent macroeconomics since the Second Industrial Revolution. (Chapter 5)

My paper should have been named something along the lines of “The Intentional Workplace Labor-Price Administrator”. The capacity of the generalized-exchange macro model class to transform the mythical, unconvincing Walrasian Auctioneer into a recognizable process of price discovery with costly, asymmetric information is a testament to the power and relevance of the GEM Project. (Chapter 5)

Blog Type: Wonkish Saint Joseph, Michigan