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Some supplementary explanations on Microfoundations


This study provides some supplementary explanations that are not treated or argued in Shiozawa, Morioka, and Taniguchi (2019) Microfoundations of Evolutionary Economics, Springer Japan, Tokyo. The theory developed in this book depends on three pillars: (1) the separation of prices and quantity adjustments, (2) the theory of prices, and (3) the theory of quantity adjustment processes. Section 2 explains how these three pillars depend on each other. Sections 3–8 discuss the various aspects of the book. Sections 2 and 3 explain how the book gives microfoundations to evolutionary and Post Keynesian (or post-Keynesian) economics, respectively. Section 4 clarifies how old conflicts among different strands of Post Keynesian economics are solved. Section 5 discusses an important assumption, markup pricing, which is only assumed in the traditional treatment and is explained in detail. This provides new contributions to the theory of normal-cost pricing and explains how markup rates are determined and related to profit rates. Section 6 addresses how the book’s new theory can be deemed a monetary theory of production. This book does not include an appropriate theory of inflation. However, Sect. 7 explains that the new microfoundations contain inflation theory in a negative way; that is, when inflation does not occur. Section 8 explains why an economic analysis cannot be based on methodological individualism or holism. Section 9 explains why the logical structure of the book, explained in Sects. 2 and 8 in particular, is inevitable because the economy is a self-organizing system.

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  1. I do not distinguish between Post Keynesian and post-Keynesian. Post Keynesian in this paper comprises all Keynesian stands except New Keynesians who consider price stickiness the major force that makes unemployment persistent.

  2. I do not argue other aspects of endogenous growth theory, because we already have Felipe and McCombie (2018). The notion of aggregate production function is “not even wrong”.

  3. Section 2.7 contains an error in a formula. See Aspromourgos et al. (2022).

  4. Another reason for many Sraffians to stick to the assumption was that it gives some pretext that Sraffa’s theory was not based on narrow law of constant returns to scales. However, it is not a good way to defend Sraffa’s position.

  5. Augmented Leontief matrix is the Leontief matrix augmented by a matrix that is given as matrix product of the labor input vector and the wage basket vector. Frobenius eigenvector gives the inverse of the maximal growth factor.

  6. A production period is a standard time span in which inputs are transformed into an output. Economics had a custom to consider it a year, but in the modern industrial economy (except some agricultural products) a production period is much shorter than a year, such as a day or a week for majority of products.

  7. I am preparing an independent paper “Ricardo, Sraffa, Pasinetti, and Beyond” on this theme as a part of the memorial session for Pasinetti of "International Conference on Economic Theory and Policy” (13–15 September, 2023, Meiji University, Tokyo).

  8. As to the nature of the Keynesian revolution, I know there are several kinds of stories. I have no intention to argue which is the best one.

  9. Equation (2–19) in SMT expresses a simultaneous price-adjustment process, whereas in reality firms set their product price at a convenient time for each of them. The non-simultaneous case was studied in  1978, as noted in footnote 29 on page 82, SMT. As for a new interpretation of adjustment processes like (2–19), see Section 8.

  10. In the case of vectors, I distinguish < , ≤ , and ≦. The symbol x ≤ y stands for xy (i.e., xjyj for all j) and there is some j such that xj < yj.

  11. There was another process, as an exception, in which quantity changes but exactly proportionally. It was von Neumann’s balanced-growth economy.

  12. The Appendix of Shiozawa (2014) is a revised version of a 1984 paper. For empirical researches about markup pricing, see Coutts and Norman (2013).

  13. Coutts and Norman (2013), a survey that seems to be the last one to date, does not mention this type of account. Seppecher et al. (2018) seem to be missing the markup mechanism, although their simulation may indicate conventional aspects of the markup rate determination.

  14. The exponent σ in Shiozawa (2014) is positive but two share functions express the same situation, because the variables in the numerator are exchanged.

  15. N-seller case is not analyzed in Shiozawa (2014).

  16. A few results are given in Shiozawa (2014).

  17. See my paper “Ricardo, Sraffa, Pasinetti, and Beyond” (paper read at Pasinetti Memorial session in International Conference on Economic Theory and Policy held on 13–15 September, 2023, at Meiji University, Tokyo.

  18. As I mentioned in Aspromourgos et al. (2022, p.35), this omission was suggested by Naoki Yoshiwara.

  19. Compare Lavoie (2022, p. 155).

  20. Over-capacity production often requires reducing the normal maintenance time and the breakdown risk of equipment and installations increases, although these costs are not easily estimated.

  21. This presupposes a good attribution of the fixed cost for the period. If the realized output is smaller than the expected normal output, the fixed cost for the period is not fully covered.


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This research was partly supported by Grant-in-Aid for Scientific Research (A) (General) 21K01417 of Japan Society for the Promotion of Science. The author thanks two anonymous referees and Masahiro Fujimoto, Toru Kitahara, Masashi Morioka, Hiroshi Nishi, and Kazuhisa Taniguchi for their valuable comments and discussions.

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Correspondence to Yoshinori Shiozawa.

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Shiozawa, Y. Some supplementary explanations on Microfoundations. Evolut Inst Econ Rev 20, 329–365 (2023).

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