Answer:
Economic theorizing
utilizes, on the one hand, mathematical techniques and, on the other, thought
experiments, parables, or stories. Progress may stagnate for various reasons.
Sometimes we are held back for lack of the technique needed to turn our stories
into the raw material for effective scientific work. At other times, we are
short of good stories to inject meaning into (and perhaps even to draw a moral
from) our models. One can strive for intellectual coherence in economics either
by attempting to fit all aspects of the subject into one overarching
mathematical structure or by trying to weave its best stories into one grand
epic.
This paper attempts to revive an old
parable, Adam Smith’s theory of manufacturing production, which has been
shunted aside and neglected because it has not fitted into the formal structure
of either neoclassical or neo-Ricardian theory. The paper attempts to persuade
not by formal demonstrations (at this stage) but by suggesting that the parable
can illuminate many and diverse problems and thus become the red thread in a
theoretical tapestry of almost epic proportions.
The subject may be approached from either
a theoretical or a historical angle. Regarding the theoretical starting-point,
it is possible to be brief since the familiar litany of complaints about the
neoclassical constant-returns production function hardly bears repeating. The
one point about it that is germane here is that it does not describe production
as a process, i.e., as an ordered sequence of operations. It is more like a
recipe for bouillabaisse where all the ingredients are dumped in a pot, (K, L),
heated up, f(·), and the output, X, is ready. This abstraction
from the sequencing of tasks, it will be suggested, is largely responsible for
the well-known fact that neoclassical production theory gives us no [204] clue
to how production is actually organized. Specifically, it does not help us
explain (1) why, since the industrial revolution, manufacturing is normally
conducted in factories with a sizeable workforce concentrated to one workplace,
or (2) why factories relatively seldom house more than one firm, or (3) why
manufacturing firms are “capitalistic” in the sense that capital
hires labor rather than vice versa.
