[OPE-L:3578] "Debunking Economics" and Marx's value theory

From: Andrew_Kliman (Andrew_Kliman@email.msn.com)
Date: Tue Jul 11 2000 - 08:28:12 EDT

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This is a response to *part* of Steve Keen's post of Monday, June 05,
2000 (OPE-L 3432). The backlog of work that has prevented me from
responding until now still prevents me from responding to the rest of the
post. I hope to get back to it soon.

I had written:

"Although my original point had nothing to do with your own approach, it
is indeed the case that your approach, and the "surplus approach" in
general, is completely incoherent. There simply is no such thing as a
physical surplus. There are positive surpluses of some things and
negative surpluses of others. Which outweighs which? How do you know?"

Steve has responded:

"Andrew, you'd better read Sraffa again. If we leave technical change out
of the picture (which is valid at this level of analysis, though it has
to be part of a general theory of capitalism), then if there are
"negative surpluses" of some commodities, eventually those commodities
will cease to be part of the input-output matrix. If the IO matrix is
dependent upon those commodities, then the "economy" will collapse."

I've read Sraffa well enough to know I'm right about this.

Let me clarify that, when I wrote that "There simply is no such thing as
a physical surplus," I was talking about the REAL WORLD. I don't deny
that "there is" a physical surplus in some imaginary worlds, e.g., corn
models. But if we're talking about the real world, then you're not
entitled to "leave technical change out of the picture," because
technical change does take place in the real world. Hic Rhodus! Hic

BUT EVEN IN THE ABSENCE OF TECHICAL CHANGE, the rest of what you say is
NOT correct. It is NOT the case that "if there are 'negative surpluses'
of some commodities, eventually those commodities will cease to be part
of the input-output matrix. If the IO matrix is dependent upon those
commodities, then the 'economy' will collapse."

Consider an economy with only two goods, A and B, in which the production
of each good requires 0.4 units of itself and 0.4 units of the other
good. The input-output matrix is thus static.

Good A is mostly produced in Australia and B is mostly produced in
Brazil. Production levels of the two goods fluctuate during the day
because daytime in Brazil is nighttime in Australia and v.v. Thus
imagine that during the *first* 12 hours of each day, 5 units of A and 15
units of B are produced, while during the *second* 12 hours of each day,
15 units of A and 5 units of B are produced. I will assume for
simplicity that wages aren't advanced; thus physical surpluses and net
products are the same thing.

The inputs and outputs are as follows:

                  FIRST HALF OF EACH DAY
                  input input output
                  of A of B
                  ----- ----- ------
producers of A 2 2 5
producers of B 6 6 15
============== == ==
Total 8 8

                  SECOND HALF OF EACH DAY
                  input input output
                  of A of B
                  ----- ----- ------
producers of A 6 6 15
producers of B 2 2 5
============== == ==
Total 8 8

                  BOTH HALVES OF EACH DAY
                  input input output
                  of A of B
                  ----- ----- ------
producers of A 8 8 20
producers of B 8 8 20
============== == ==
Total 16 16

Thus, negative surpluses of one good are ALWAYS produced. A negative
surplus of 3 units of A is produced each "morning" and a negative surplus
of 3 units of B is produced each "evening."

However, the economy DOES NOT collapse. Given sufficient reserve stocks
of A on "Day 1," production can go on indefinitely. The positive
physical surpluses of a good produced during one half of the day more
than offset the negative physical surpluses produced during the other

Steve continued:

"In other words, if a commodity is an essential part of the input-output
system of capitalism, then it *must* be that its net output is at the
minimum zero. If the system is one of expanded reproduction, then there
must be a net non-zero output of that commodity."

The above illustration shows that this isn't the case, even if we
abstract from technical change. The net output of A is -3 during the
first half of each day; the net output of B is -3 during the second half
of each day. Yet the economy's daily growth rate is 25%.

Steve again:

"There therefore *is* such a thing as a physical surplus."

No there isn't. First of all, although it might be rude of me to keep
letting reality intrude into this discussion, I must point out again that
in the real world there *is* such a thing as technical change. And when
there's technical change, there simply *is not* such a thing as a
physical surplus. There are continually positive surpluses of new kinds
of things (e.g., Pentium III computers), and negative surpluses of means
of production (e.g., 486 computers) that are used in production but not

Second, in the illustration above -- i.e., even without any technical
change -- there's continually a negative surplus of one good and a
positive surplus of the other. As I have noted, the question is: which
outweighs which? And how do you know?"

You may be tempted to just add up the daily totals as I have done and
conclude that a positive surplus of 4 units of each good is produced
every day. Sounds reasonable, but the length of a "period" is arbitrary,
so let's extend it to a millenium. During the first 500 years, a
negative net product of A is continually produced, but the economy
(reserve stocks that will be replenished during the second 500 years, of

Now, DURING this 500-year period, do we have a positive surplus or a
negative one?

You cannot appeal to your physicalist theorems to answer the question.
They all presuppose that no negative surpluses exist, so they just don't

If you would like to reject 500 years as not being "long period" enough,
and therefore outside the bounds of "science," let me make it 5000
years, 500,000 years, etc. One need only presume that we have
sufficiently small physical deficits of a good relative to the stocks
of it that are in reserve.

To say whether or not there's "a" surplus -- to do macro-theory or even
macro-measurement -- one clearly needs a *homogenous* measure. Only a
homogenous measure of value will allow you to say whether the physical
deficits of one good outweigh the physical surpluses of the other, or

Maybe money or a numeraire can serve as this homogeneous measure? No,
not unambiguously. That is because relative prices, just like activity
levels, can and do fluctuate. Even if we resort to simultaneous
valuation (input prices = output prices), the results are arbitrary and

In my illustration above, for instance, there appears to be a positive
surplus during the "day" as a whole. But if the

price of good A > (7/3)*(price of good B)

during the first half "day,"

and the

price of good A < (3/7)*(price of good B)

during the second half "day,"

then profit or monetary value added is NEGATIVE during each half "day."
It is therefore NEGATIVE thoughout the "day" as a whole.

Andrew Kliman

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