[OPE-L:3905] Re: Re: Re: Re: Re: Re: Marxists AND Sraffians Misinterpreting Sraffa

From: Steve Keen (s.keen@uws.edu.au)
Date: Fri Sep 29 2000 - 23:19:49 EDT

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A couple of comments. Firstly on my take on the neoclassical response to
Sraffa: since their underlying analysis is static equilibrium in nature, I
don't believe it's open to them to sidestep Sraffa's critique by
postulating that input and output prices differ. If both input and output
prices are equilibrium, and yet both are different, then somehow what the
equilibrium is has changed in the "slice of time" between input and output.
Sorry, not an argument that I can buy--any more than, for example, the
Sonnenshein-Mantel-Debreu constraints which permit aggregation of consumer
preferences (one of the bizarre additional assumptions needed to make GE
coherent, which Andrew alluded to earlier). So I don't believe they have
meaningfully "nullified" the Sraffian critique. Instead, what they have
done is Lakatos describes as adjusting the "protective belt" of their
paradigm to protect the "hard core" from criticism, but in a manner which
actually contradicts part of that "hard core". Again in Lakatos' terms, I
see it as a degenerate scientific research program.

Also a general observation on dynamic methodology. I am, I hope, clearly an
advocate of dynamic over static reasoning--that was the basis of my
critique of Ian Steedman's attack on Kaleckian pricing theory. I am equally
critical of much which has been written in a Marxian vein which has also
been static in nature.

However, one side effect of this is that I am also a stickler for doing
dynamics properly. I have grave doubts that TSS would pass this test; I
will confirm or rebut that opinion after reading Andrew's 1999 ROPE paper
and the 1996 Freeman/Carchedi book, however--I don't see any point in
debating this issue just yet.

One final "however" is that, ironically, whether TSS does or does not pass
a test of consistent dynamic methodology is a side issue to my real
critique. This is that TSS, and all previous variants of Marxian economics,
take the labor theory of value as either a premise, or a logical deduction
from a negative methodology which ruled out any other potential sources of
surplus value. I dispute this, arguing instead that the proposition that
labour is the sole source of surplus value is contradicted by Marx's own
positive logical method.

At 12:32 PM 9/29/00 -0400, you wrote:
>Some replies to OPE-L 3888, 3891, 3892, and 3893.
>I'm glad Steve Keen and I agree. But, Steve, the "Marxist" variant of my
>airplane example did indeed "lead" to the (false) conclusion that
>airplanes CANNOT fly. The two variants of the example were NOT static
>and "dynamic/Marxian." The first variant used standard comparative
>static equilibrium methodology. But a lot of Marxist economists don't
>like to think of themselves as static equilibrium theorists, so they tell
>the story in terms of "reproducible states" rather than comparative
>statics. Thus the second variant, which reaches the same conclusion as
>standard comparative statics.
>Steve also qualified his agreement with a statement that he does not
>"regard the neoclassical response to the Sraffian critique as
>legitimate." I don't know what he means by "legitimate," so it is hard
>to repsond. I think it is undenaible that neoclassical theory in its
>present high-theory form has nullified the reswitching critique and
>critiques based on illicit aggregation of capital. But it has paid a
>rather high price. It now generates almost no results unless it imposes
>bizarre conditions like perfect foresight and complete forward markets
>for everything.
>Rakesh wrote:
>"Now what I think the critics are implicitly thinking is that we are
>simply allowing prices to vary any which way over time with no
>consideration for the constraints imposed by the reproduction of the
>system on how much freedom prices actually have to vary
>It is true that static equilibrium theorists often present the false
>binary of static equilibrium vs. a "disequilibrium" in which anything can
>happen and therefore nothing can be said. But when they apply that false
>binary to me (I won't speak for others), it is simply a straw man. It
>has no basis in anything I've written. In Marx's theory, value cannot be
>altered in exchange, so total price in the market is constrained to equal
>the total value already produced. There is also the process by which
>profit rates *tend* to equality, so price deviations from production
>prices are bounded in some weak sense.
>The reproduction of the system, however, DOES NOT impose constraints on
>prices. That is the fallacy my "Marxist" version of the airplane example
>was criticizing. It is just ass-backwards to argue that effects (e.g.,
>reproduction) determine causes rather than the opposite. If prices are
>*in fact* constrained in some fashion, by some *real* processes that take
>place BEFORE reproduction, then (for the sake of argument, and cet. par.)
>reproduction will take place as a result. That is all.
>In practice, the argument from reproduction is even worse. A prime
>example is Roemer's wholly disingenuous sleight of hand. He first says
>that if reproduction is to occur, then no stock of any good can be run
>down to zero. (That's false -- to my knowledge, there are no stocks left
>of whalebone stays for corsets -- but let it pass for now.) Then he
>says, correctly, that one way of ensuring that no stock runs down to
>zero, i.e., one SUFFICIENT CONDITION, is that there be a non-negative net
>output of everything in every period. Then he immediately turns around
>and calls this a requirement for reproduction, i.e. a NECESSARY
>CONDITION, which it most definitely is not.
>A great deal of his book (Foundations) collapses with this "error,"
>including his false "proof" that simultaneist "profit" is positive if and
>only if simultaneist/dual-system "surplus-labor" is positive (the
>"Fundamental Maxian Theorem"). In a paper forthcoming in Capital and
>Class, I show that (and how) reproduction can continually take place when
>some net outputs are negative, and that, if this is the case,
>simultaneist "profit" can be negative when simultaneist "surplus-labor"
>is positive and simultaneist "profit" can be positive when simultaneist
>"surplus-labor" is negative.
>I find it somewhat difficult to respond to Ian Hunt's post, because he
>takes me to have been criticizing the "Sraffian (simultaneous equation)
>*model*" [my emphasis], while in fact I was criticizing the comparative
>static *method* and its "Marxist" variant, the *method* of deduction from
>reproducible states.
>Futhermore, it is not fully clear to me what Ian means by "model."
>He argues that the "Sraffian price system ... is not logically invalid."
>Again, I said nothing about this. But let me point out that, when there
>exist self-reproducing non-basics with a low own-rate of reproduction
>(Sraffa's "beans"), then -- as Sraffa himself noted -- profit rates can
>equalize only if input prices and output prices diverge.
>Ian's main point seems to be that conclusions about the real world cannot
>be validly deduced from models. He writes:
>"there is a question of the degree to which it [the Sraffian system]
>corresponds to real world commodity pricing.
>"It would be logically invalid to conclude from the model that market
>in actual market economies work (even with rents included) in the way the
>model says."
>This was my point as well. The method of comparative statics and the
>method of deduction from reproducible states are invalid methods. They
>"deduce" conclusions from the mathematics of models in an invalid way.
>Valid conclusions can be deduced only with respect to the *special cases*
>to which the models refer (e.g., the properties of the static equilibria
>themselves), not to the general case. But the methods in question pass
>invalidly from the special case to the general case.
>I suppose one could attribute this to "human error," and blame the
>practitioners of the methods rather than the methods themselves. And I'm
>happy to blame them. But the "errors" are, first of all, not isolated
>instances but standard practice. Second of all, to blame only the
>practitioners and not the methods is rather like saying "guns don't kill
>people, people kill people." (This is the traditional line of the
>National Rifle Association in the US, which it uses to oppose gun
>control.) Yes, people kill people, but they do so with guns, not sealing
>wax. And yes, people deduce invalid conclusions, but they do so by
>saying in one breath that their models don't apply to the real world and,
>in the next breath, applying them to the real world by means of the
>invalid methods we're discussing.
>Ian: "A Sraffian model does not assume that everything is bought and
>sold on the same day."
>True, but no one has said the opposite.
>Ian: "As I understand it, it assumes that the "most important
>constraint" on (medium term) prices is the requirement that they pay for
>replacement of what has been used up in production together with a normal
>return on those replacement costs."
>I have discussed the notion of reproduction as a constraint above. The
>same applies to replacement.
>"How to cash out "important constraint" is a matter of debate. You could
>use an "attractor" model or a boundary model, with the constraint
>representing a condition that that separates succesful from unsuccesful
>commodity producers over the long run, if conditions remain the same."
>I'm not sure I understand this. Taking a stab, let me just say that the
>average value of a variable (e.g., average price, production price) is
>NOT in general equal to the equilibrium value of the variable (fixed
>point attractor, e.g., price at which input and output prices are equal).
>If the time path of variable X is X(t+1) = 4X(t)*[1-X(t)]; 0 < X < 1,
>then the equilibrium value is 0.75, but the average value is 0.5. The
>equilibrium is 50 0reater than the average.
>Ian: "As I understand your point (and I may well be missing it), it is
>that you
>think that this idea is wrong and that we should be looking at capitalist
>enterprises as essentially money making, where the return on outlays is
>what is crucially important. If that is right, the case should be made
>that way without too much logical embellishment: after all, it is enough
>that the Sraffian model picks out the wrong key feature to model (while
>abstracting from all the rest). Saying it is "logically invalid" just
>you can't infer from a model to reality (which is the case even with good
>models, or evenwith any of Allin's, which will not actually represent
>relative prices at any time in a commodity producing economy)"
>Well, I have taken the liberty of making more than one point. Sometimes
>my point has been that conclusions about the real world are being deduced
>invalidly from special cases, using improper methods. One example of
>that, again, is Roemer's alleged "Fundamental Marxian Theorem." Another
>is the Okishio Theorem, which invalidly concludes, on the basis of a
>comparative-static deduction from a special-case (input price = output
>price) model, that Marx's law of the tendential fall of the *real world*
>profit rate is false.
>Since my point in those cases is to expose logical error, not to argue
>about what the real world is like, I don't think the logical
>argumentation is embellishment. In other words, my critique in such
>cases is not that the underlying model is wrong, bad, inapplicable to the
>real world, etc., but that the claims of *necessity* or *impossibility*
>that have been made on its basis do not hold water.
>Sometimes I make a point that Marx's profit rate is measured on the basis
>of the actual capital advanced, not the replacement cost of capital.
>When that is my point, I argue not on the basis of logic, but on the
>basis of the textual evidence, including the ability of that measure of
>profitability to yield his theoretical results.
>Sometimes I make a point that firms care about and base their decisions
>on the rate of return measured on the basis of the actual capital
>advanced, not the replacement cost of capital. When that is my point, I
>again argue on grounds other than logic. I refer to the measures of
>profitability that firms actually use, such as internal rate of return
>and present value, which do not constrain input prices to equal output
>prices. I also argue in terms of their self-interest. If computer
>prices fall in half year after year, a firm deciding whether to invest in
>1 computer that will produce 2 computers would have to be extremely
>myopic, and dumb, to go ahead with the investment, even though the
>"replacement cost profit rate" is (2 - 1)/1 = 100%. Its actual rate of
>return would be ([1/2]*2 - 1)/1 = 0%.
>Andrew Kliman
Dr. Steve Keen
Senior Lecturer
Economics & Finance
University of Western Sydney Macarthur
Building 11 Room 30,
Goldsmith Avenue, Campbelltown
PO Box 555 Campbelltown NSW 2560
s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683
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Home Page: http://bus.macarthur.uws.edu.au/steve-keen/

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