The Yogi and the Commissar: Meanderings, Exhortations, and Explorations

‘Harold Lydall...posed for me the puzzle which subsequently gave rise to my best known article (apart from the 1969 survey of capital theory [Harcourt 1969a]), “The Accountant in a Golden Age”’ [Harcourt 1965a] (Harcourt 1999: 9).

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Professor Geoffrey Whittington, a leading researcher in accounting theory, as a sometime colleague at Cambridge, and co-author of GCH, is eminently qualified to state that:

The economist is most likely to associate Geoff Harcourt’s name with the capital theory controversies and the development of post-Keynesian economics ... However, he has also made an extremely important contribution to bridging the gap between economists and accountants in the related areas of income measurement and the measurement of the rate of return (Whittington 2007: 92; italics added).

‘In the late 1940s in Melbourne’, writes GCH (Harcourt 1999: 7), he started studying economics ‘as a schoolboy’, where one of ‘the principal textbooks’ was Hicks’s Social Framework—a book that introduced economics on the basis of the social accounting he (Hicks) had learned from Myrdal and Lindahl (Hicks 1977: 143). It is natural, then, for Hicks (1956,^{[1] [2]} 1982: 221; italics added) to note—as befits one who considered himself ‘an accountant among economists’ (Klamer 1989)—that ‘In all its main forms, modern economic dynamics is an accounting theory ¹ thus linking capital theory and accounting theory via dynamics to a monetary production theory—a draft title of what eventually became The General Theory (Keynes 1973: 381, ff and 409, ff). It is also Hicks, this time with his development of A Neo-Austrian Theory (Hicks 1973), who made the ‘truncation theorem’^[3] an integral part of the Cambridge Controversies in Capital Theory.

As such, we have all the elements of the connection between the Yogi and the Commissar—between capital theory and accounting theory, mediated by

theory.

money and dynamics. Before this unifying aspect is discussed, I have to make one detour, especially because I have mentioned money.

Not too many months after he was awarded the Nobel Memorial Prize in Economic Sciences, Prescott (2005: 523; italics added) felt he had the ‘right’—even ‘obligation’—to pronounce upon matters on which he was comprehensively ignorant:

In the 1960s there was the famous Cambridge capital controversy. This controversy bears on the issue ‘What is money? The Cambridge capital controversy was a silly one, as pointed out so clearly by Arrow (1989) ... I emphasize that this does not mean that a model with a single capital good, which is matched to the value of some capital stock statistic, is not useful in drawing scientific inference.^[4]

Just for Professor Prescott’s educative information, I would like to quote from one of the most recent articles, by GCH, on the ‘Cambridge controversies in capital theory’:

The aspect of the [Cambridge, UK] critique that was most emphasized was set within the context of capital theory. It concerned the meaning and its corollary, the measurement of capital, and its marginal product in an explanation of the distribution of the national product between wages and profits. By ‘meaning’ is meant the concept of capital to be found in the two principal alternative ‘visions’ of how capitalism works: the classical/Marxian ‘vision’...on the one hand, and the principally Fisherian ‘vision’ of the mainstream, on the other (Harcourt 2015b: 244).

We now know, or should know, more than 60 years after Robinson (1953-1954), almost 50 years since Harcourt (1969a) and, above all, almost 80 years after Sraffa’s enlightening, even frustrated, letter to Joan Robinson (Harcourt and Riach 1997: 131), what the ‘Cambridge capital controversy’ was about—and, above all, it was not ‘silly’. It was about aggregation, (functional income) distribution, switches of techniques, capital reversals, and truncation. None of these issues are even remotely considered by Prescott.

Both classics, of 1965 and 1969, one a pioneering study of the eternal link between the accountant and the theorist, the other on the plain of pure theory, have ‘stood the test of time’ (Harcourt 2012a: 33). To go back to the Yogi and the Commissar, or to capital and accounting theory, their intimate connection comes to the fore via the implication of truncation of production flows—and, hence, to dynamics and to the relevant distinction between an internal rate of return (IRR) and an accounting rate of return (ARR).^[5] Both of these, themselves, are intrinsically dynamic, fundamentally monetary-inflationary, and expectational phenomena. This is why GCH adheres to the theories in A Treatise on Money (Keynes 1930a [1971]) and The General Theory (Keynes 1936 [1973]) and to a Kalecki-(Joan) Robinson- dominated PKE.

Incidentally, the Yogi’s abode is the ideal—indeed, mythical—world of the Golden Age (Robinson 1956, 1969: 99, ff),^[6] of which by far the most lucid account, in the context of the kind of economics that is congenial to GCH, is that by Gautam Mathur (1969)—himself a Cambridge economist and an Indian patriot, if I may paraphrase GCH, and also a contemporary of GCH. It is not without significance that Mathur’s (ibid.: 413, italics added) is a ‘Revised version of paper (sic!) read at a seminar in May 1985 under the Chairmanship of Professor Geoffrey Harcourt to the members and scholars of Cambridge University, Faculty of Economics and Politics’.^[7]

GCH has continued to contribute to various aspects of capital theory, doctrine, historically, methodologically, analytically, and pedagogically, from that initial famous ‘survey’ (Harcourt 1969a), right through to Harcourt (2015b), by way of Cohen and Harcourt (2003),^[8] for example.

I myself have been fascinated by his two important joint efforts with Vincent Massaro (Harcourt and Massaro 1964a, b) and the appendix to Chapter 4 of Harcourt (1972), on clarifying difficult points in Sraffa (1960). Even here, there is the important interaction between the Yogi and the Commissar, especially with regard to depreciation formulas in Champernowne and Kahn (1953-1954) and Sraffa (ibid.). The exposition of Sraffa’s device of sub-systems to demonstrate the possibility of reduction to dated quantities of labour, using imaginative diagrams, coupled to algebra, in Harcourt and Massaro (1964b), is most ingenious.^[9]

But I would like to end this section with a remark on the continuing fascination for GCH of the accountant’s methodology. In a conversation with Jane Gleeson-White (Harcourt and Gleeson-White 2012), on the role of double-entry bookkeeping in the evolution of capitalism, interestingly discussed in her recent book (Gleeson-White 2011), I detect a greater adherence to Schumpeter than to Marx, in GCH’s vision of the evolution of capitalism—thus justifying the Veblen-Commons Award of 2010, sponsored by the Association for Evolutionary Economics, as if it needed any justification.^[10] On the other hand, the introduction of double-entry bookkeeping, without the prior, Fibonacci-inspired adoption of the Hindu-Arabic numerals to record the entries, in company, state, and national accounts, would have been a case of the story of Hamlet without the Prince.

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• [1] It was to this essay that Tibor Barna (1957: 493) referred in his outstanding review of Robinson (1956),a review which GCH (Harcourt 2012b: 331) also found ‘most favourable and knowledgeable’.
• [2] Adding (in Hicks 1977: 143; italics in original) that Lindahl ‘was the father of Social Accounting
• [3] Nuti (1970), earlier, and Irving Fisher (1907: Chapter 4 and appendix), even before that, had broachedthis topic most felicitously; the latter did so as a critique of Bohm—Bawerks third ground for the existenceof a positive rate of interest, and thereby made the calculation of the internal rate of return (IRR) routine.The uniqueness of the IRR, under certain circumstances, came to dominate an aspect of capital theory(concisely summarized by Sen 1975)—and accounting theory. Incidentally, not only is Chapter III in thischaracteristically elegant book by Hicks titled Social Accounting, but he also declares, unequivocally (ibid.:13): It is the post-Keynesians.. .who, to their honour, have wrought a classical revival’—a declaration, inhis incarnation as simple ‘John Hicks’, which must gladden GCH quite unreservedly. I myself remembervery vividly that GCH went to spend a day with Hicks in May 1973—just about the time Capital andTime was officially published.
• [4] First of all, Prescott’s interpretation of the meaning of ‘scientific inference’ is as rickety as his knowledgeof the ‘Cambridge controversy on capital theory’. Secondly, the first clause in his last sentence is senseless,not only in view of the results in Zambelli (forthcoming), but also due to the central results on the‘Cambridge controversy in capital theory’, all the way from Robinson (1953—1954) to Samuelson (1966),all summed up neatly in Harcourt (1972). Thirdly, Arrow ‘pointed out’ nothing of the sort—on the contrary he chided ‘our so-called new classical friends’ for their absurd assumptions, particularly on marketclearing (cf. Arrow ibid.: 150). On the other hand, contrary to the views expressed on Arrow in his otherwise rare caustic review of Feiwel (1989) by GCH (Harcourt 1991), my own view is that Arrow was notonly seriously apologetic on the merits of general equilibrium theory, but also embarrassingly incorrect onthe technical issues of computation, computability theory, and metamathematics—particularly on thealgorithmic nature of proof (especially in the kind of mathematics underpinning general equilibriumtheory). Obviously, he is unaware that a pure mathematician of impeccable competence, G.H. Hardy(1929: 18; italics in original), had a tempered opinion about the nature of ‘proof’: ‘[T]here is, strictly, nosuch thing as mathematical proof; that we can, in the last analysis, do nothing but point; that proofs arewhat Littlewood and I call gas, rhetorical flourishes designed to affect psychology, pictures on the board inthe lecture, devices to stimulate the imagination of pupils ... The image gives us a genuine approximationto the processes of mathematical pedagogy on the one hand and of mathematical discovery on the other;it is only the very unsophisticated outsider who imagines that mathematicians make discoveries by turningthe handle of some miraculous machine. Finally the image gives us at any rate a crude picture of Hilbert’smetamathematical proof, the sort of proof which is a ground for its conclusion and whose object is toconvince’.
• [5] The criticism by Kay (1976) of Harcourt (1965a) is quite irrelevant from many points of view, some ofwhich are clearly pointed out by Wright (1978: 467-468, especially fn. 4) and Fisher (1984: 510, especially fn. 2). My own criticism of Kay (ibid.) is related to the erroneous remarks he makes on propositionII (ibid.: 450) and the notion of algorithm he invokes (p. 563), apart from the more elementary infelicities on pp. 563-564. Obvious space constraints preclude any further details on these points.
• [6] In my reading of The Accumulation of Capital I found that the concept of the Golden Age was beingused before it was formally defined! I must be wrong.
• [7] The footnote from which this quote is taken goes on to thank, among others, a ‘Dr Jayanti Ghosh’! Isurmise that this refers to GCH’s prize Indian pupil, Jayanti Ghosh, who was instrumental in gettingHarcourt and Turnell (2005) published in the influential and important Indian journal, Economic andPolitical Weekly (Harcourt 2012b: 1).
• [8] This article has, for the last 10 years, been included in my reading list for lectures on advanced macroeconomics. Graduate students at universities in Italy, Ireland, and the USA have found it an exceptionallyclear pedagogical introduction to important aspects of the Cambridge controversies in capital theory—and also a model example of writing clearly on intrinsically difficult concepts.
• [9] I must confess being one of those who believes Sraffa ‘never makes mistakes; he just makes peculiarassumptions’ (pace, Sen 1974). Thus, I am in rare disagreement with GCH(!) in Harcourt (1972: 191)that the tractor example of § 81, in Sraffa (op. cit.), is ‘wrong’. In a personal conversation, GCH told methat Sraffa had agreed, at first, that there was a ‘mistake’, but then retracted almost vociferously! This iscorroborated by the re-narration of this story in Harcourt (2012a, especially p. 42: The Pope, accordingto Sraffa, as reported by GCH, is supposed to be ‘infallible’; but in the Saivaite Hindu tradition, HinduGods are fallible. In the dialogue between the Sage Naradar and Siva, the latter says to the former: ‘A mistake in composing poetry remains a mistake, whether you show your divine eye or not.)
• [10] In my opinion, GCH deserved this award on his own; it was unfortunate he had to share it. It is analogous to Hicks and Arrow sharing the 1973 Nobel Prize—they deserved, surely, individual awards.