[OPE-L:3829] Rational Expectations/Transformation

From: John Ernst (ernst@pipeline.com)
Date: Sun Sep 17 2000 - 12:25:01 EDT

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It seems to me that the ability to predict the life time
of fixed capital not only effects the falling rate of profit
and crisis but also the manner in which we deal with the
"transformation problem." Consider two of the more traditional
ways of approaching the transformation problem.

1. Embodied labor values aka direct prices to prices of production.

If a technique using fixed capital is to be used only as long
as a newer technique is not more profitable, the change in the
units in which one measures profitability will generally change
the estimated life time of the fixed capital itself since the
ratio of fixed to circulating capital will change in most cases.
Thus, another unknown is added to variables used in the transformation
procedure making a solution impossible. Put another way, the
rational expectations of the economic life times of the elements of
fixed capital would generally have one set of correct estimate
if exchanges were at values and a another set of correct estimates
if exchanges were at prices of production.

2. Given only the physical units used in production.

Here we assume values are "redundant" and merely look at the various
techniques available. To be sure, in cases where one technique can
be compared with another using only physical units, the task is simple.
Generally, this is not the case. Further, if, like Marx, we assume
that the economic life time is less than the physical life time of
fixed capital, then we would need to know the economic life times
of the means of production used as fixed capital in order to compute
a set of relative prices. But again the decisions on whether or not
to adopt new techniques as well as decisions concerning discontinuing
older techniques is one that can generally be made only when one knows
the prices. But in order to know the prices one needs to know how
long a technique will last before it is discontinued.

Thus, the task of generating a set of relative prices using only physical
quanitiies is generally impossible within the Marxian framework.


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