Knowledge that Transforms

Two recent books evaluating modern economics from the standpoint of the philosophy of science are examined: Hollis and Nell, Rational Economic Man, and Rosenberg, Microeconomic Laws. The former, severely critical of orthodox economics, advocates a philosophy of radical rationalism and construes Marxian economics to be its necessary consequent. The latter, adopting an empiricist philosophy of science, concludes that orthodox microeconomics rests on sound foundations. The paper goes on to make some remarks on the role of the philosophy of science as a scholarly discipline.

This paper is an analysis of the information content of sealed-bid market prices. Using sealed-bid prices, a simple expression is developed to estimate price lists and market shares in the sealed-bid market. Empirically, the estimates accurately reflect the firms' actual price lists. A means of detecting changes in the price lists is suggested. It is shown that price lists allocate market shares, and the market shares are estimated. In the industry studied, price lists were used to allocate market shares and limit price competition in the sealed-bid portion of the industry.

The effects of an unexpected change in income taxes are studied in a model with full rational expectations. In the short run, aggregate supply is quite price elastic because commitments to pay predetermined wages are made 1 or more years in advance. The model also recognizes the limited response of investment to unexpected developments in the short run. The paper finds that much of the effect of unexpected tax policy operates through inflationary expectations--an economy with rational expectations is more responsive to tax changes than is one with naive expectations.