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In reply to OPE-L 3203:

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

**Next message:**Allin Cottrell: "[OPE-L:3207] Re: Re: Re: capitalist mode of production"**Previous message:**Fred B. Moseley: "[OPE-L:3205] Re: Re: capitalist mode of production"**In reply to:**A.B.Trigg@open.ac.uk: "[OPE-L:3203] RE: Re: Accelerated ACcumulation"**Messages sorted by:**[ date ] [ thread ] [ subject ] [ author ]

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