[OPE-L:3830] Re: Rational Expectations/Transformation

Date: Sun Sep 17 2000 - 12:46:06 EDT

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John, I agree with you entirely about the transformation problem.

> 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.
> John

Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321 E-Mail michael@ecst.csuchico.edu

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