# [OPE-L:3206] Re: RE: Re: Accelerated ACcumulation

From: Andrew_Kliman (Andrew_Kliman@email.msn.com)
Date: Mon May 15 2000 - 13:25:02 EDT

Hi, Andrew.

You wrote:

"I'm coming into this debate late but am I right in hearing that Andrew
is arguing that the Grossmann/Bauer model breaks down because of excess
demand."

Yes.

"The reason it breaks down I would argue, is that demand is not modelled
at all. Instead of the bulk of capitalists' personal consumption being
treated as autonomous - Kalecki shows this empirically - it is treated as
a passive residual which shrinks to nothing."

It is true that capitalists' personal consumption is treated as a
residual. But that isn't the same thing as demand. You are forgetting
about the productive demand -- demand for means of production and wage
goods. All surplus-value is assumed to be "realized," so *total supply*
equals *total* demand. Demand for means of production and wage goods is
given exogenously -- the former grows at 100.a., the latter at 5%.
Since total demand is determined by total supply, and all but one
component of demand is given exogeneously, this last component,
capitalists' consumption, is a passive residual. It is the difference
between total supply and productive demand.

Now note that capitalists' consumption becomes *negative* as time
proceeds. The moment at which it becomes negative is the moment of
"breakdown." In other words, the difference between total supply and
productive demand becomes negative. Or, in still other words, productive
demand eventually exceeds total supply. Hence, "the Grossmann/Bauer
model breaks down because of excess demand."

And it really is a matter of excess demand in *physical* terms. I could
develop this point in terms of two departments, but it is easier to work
with one. So assume a single product (corn). The model is then:

W[t] = C[t] + V[t] + S[t].

K[t] = W[t] - C[t+1] - V[t+1]

W is total value, while C, V, and S are constant and variable capital and
surplus-value. K is capitalist consumption.

Breakdown occurs when capitalist consumption becomes negative:

K[t] < 0

which implies that

W[t] < C[t+1] + V[t+1].

Now note that the unit value (or price), P, of the commodity at the end
of period t must be the same as its value at the start of t+1, since this
is the same time. Hence:

W[t] = P[t]*X[t]

where X is the physical output (supply) of period t;

C[t+1] = P[t]*A[t+1]

where A is the means of production employed (demanded) in t+1; and

V[t+1] = P[t]*B[t+1]

where B is the total real wage bill, means of subsistence demanded, in
t+1.

Plugging these relations into our inequality:

W[t] < C[t+1] + V[t+1]

P[t]*X[t] < P[t]*A[t+1] + P[t]*B[t+1]

X[t] < A[t+1] + B[t+1].

So "breakdown" occurs when physical supply, X, falls short of physical
demand for means of production + subsistence, A + B.

The reason this occurs, fundamentally, is that demand for means of
production grows at a faster rate than supply of total output. Recall
that

C[t+1] = Co(1.1)^(t+1),

so that

A[t+1] = {Co/P[t]}(1.1)^(t+1).

And recall that

W[t] = Co(1.1)^(t) + (Vo + So)(1.05)^t, so that

X[t] = {Co/P[t]}(1.1)^(t) + {(Vo + So)/P[t]}(1.05)^t.

There must therefore come a time when demand for new means of production
outstrips total supply:

A[t+1] - X[t] > 0, i.e.,

{Co/P[t]}(1.1)^(t+1) - {Co/P[t]}(1.1)^(t) - {(Vo + So)/P[t]}(1.05)^t > 0

0.1*Co(1.1)^t - (Vo + So)(1.05)^t > 0

(1.1/1.05)^t > 10(Vo + So)/Co.

So, as I said, it is all a matter of excess demand in physical terms.

Andrew Kliman

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