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Jonathan F. Cogliano and Xiao Jiang

This chapter introduces agent-based modeling (ABM) as a research tool that possesses advantages for heterodox research programs. We introduce the approach in four steps. First, we discuss the uniqueness of ABMs, which lies primarily in the flexibility to incorporate vastly heterogeneous agents and to address models with high degrees of freedom. Second, we argue that the flexibility of ABMs makes them an appropriate tool for the questions raised by classical and (post-)Keynesian economists. To demonstrate this point we briefly sketch two ABMs, one which constructs an environment that captures the classical-Marxian processes of gravitation, thereby opening new pathways in value theory, and the other is a nuanced analysis of Keynesian effective demand problems and the existence of chaotic cycles in a capitalist economy. The chapter then revisits the flexibility of ABMs in order to discuss their capability of incorporating dimensions from across the broad variety of heterodox research programs.

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

This book is placed within a long tradition of formal, mathematical analysis of Marxian economics, and indeed aims to revive it. Two related streams of literature are directly relevant to our project. The first stream concerns Marxian value theory, specifically the relationship between values and prices and the labor theory of value. For Marx values are the amount of labor time socially necessary to produce— embodied in—a commodity and serve as underlying regulators of the structure and dynamics of market prices. The labor theory of value purports that there is a direct correspondence of prices to values, but this idea has run aground on a series of mathematical and theoretical issues: the so-called “transformation problem”. The transformation problem has generated a vast literature with contributions from those trying to salvage Marx’s theory as it is, those trying to show its unescapable defects, and those attempting to provide coherent reinterpretations in the spirit of Marx’s original work

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

Economic theorizing dates back to the time of Aristotle, but it was François Quesnay (1694-1774) who first formulated a model describing a whole economy, with empirical relevance and clear-cut, radical policy implications for the French economy and society. In this chapter we use his model as an introduction to input-output (IO) tables and IO analysis, focusing on a classic translation of Quesnay’s (1759) Tableau Économique into IO language by Barna (1975). From this perspective, Quesnay’s model provides an IO matrix with two commodities, corn and manufactured goods, where the corn input into the production of corn (agriculture) and manufacturing (including trade) also includes the subsistence consumption of workers as a representation of their direct labor input (as if they were cattle).

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

In the Wealth of Nations, Adam Smith considered a wide range of topics, such as the industrial revolution, the division of labor, the measure and cause of value, the cost-of-production theory of prices, supply determined prices, wages, profits, rent, a social unit of accounting, the trend in prices, banking, productive and unproductive labor, optimum investment patterns, taxation and public debt, and so on. In this chapter, and in the next, we concentrate on two central themes in Smith’s work: the increasing division of labor, and its implications for commodity exchange and prices.

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

In the previous chapter, we analyzed one of the two main themes in Smith’s work that are central to our analysis: the increasing division of labor brought about by capitalist relations of production and the effects of decentralized decision-making in competitive markets. In this chapter, we focus on the other main theme of Smith’s work, namely the implications of the division of labor, and competition, for commodity exchange and prices.

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

In this chapter, we turn to Ricardo’s theory of prices, growth and technical change in a manufacturing economy. The concept of price is that of natural or long-period prices, and from our long-period perspective we investigate questions of changing income distribution and its implications for price formation and the choice of technique. We quickly move from Ricardo’s own presentation of his theoretical framework to a modern approach allowing us to analyze wage-profit curves, balanced growth paths, the capital controversies of the 1960s, and more generally the fundamental relationships that characterize the process of capital accumulation and price formation in capitalist economies.

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Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani

In the previous chapters, we have examined classical production prices in linear models in which each industrial sector produces a single output—also known as the basic Leontief model. We have proved that, under some general assumptions on technology, production prices are well-defined, unique and strictly positive. We have interpreted these production prices as a long-period equilibrium: prices of production emerge when capitalist profit-maximizing behavior, and workers’ competition for jobs, ensure that a uniform profit rate and a uniform wage rate emerge in all sectors. Furthermore, under some additional mild assumptions, all sectors are operated in a classical long-period equilibrium.