This is a reply to Patrick's 3951, and indirectly to Rakesh's 3953 (in that it provides a simple example of what I regard as a dynamic analyis). Here's an 'executive summary' of the Samuelson argument Paul C referred to (shorn of extraneous ideological nonsense). The reference is to Samuelson, P. and von Weiszacker, C. 1972. 'A new labour theory of value for rational planning through the use of the bourgeois profit rate', in The collected scientific papers of Paul A. Samuelson, Vol. 3, Cambridge, Mass.: MIT Press, which I'll refer to as SW. The essence of theq argument can be expressed in terms of a setup built upon Marx's ideas in the Critique of the Gotha Programme. Let workers be paid in labour tokens (one per hour) and let the goods in the public stores be "priced" in labour tokens. We want to achieve macroeconomic balance, in the sense that that the aggregate value of the goods in the stores equals the aggregate issue (and expenditure, ignoring saving, taxation, etc.) of labour tokens on those goods. We also want to get individual prices "right", in the sense that we'll get to the best allocation of resources if we respond by producing more of any goods in excess demand, and less of any goods in excess supply, at those prices. How should the rational plan prices be determined? In a static economy (no technical change, no growth of the workforce) it's easy: goods should be priced at the standard Marxian values (or vertically integrated labour coefficients, VILCs, if you prefer). But in an economy undergoing growth of the workforce or technical progress such pricing will be wrong, and will fail to achieve macro balance. Here's an illustration. Suppose an economy produces two goods, grape juice (G) and wine (W). Each requires a unit labor input but grape juice requires it one period in advance of consumption while wine requires it two periods in advance. To determine the plan prices, perform the thought experiment of having the economy specialize entirely in each of these goods in turn. Let L(t) = total labor supply at time t, equal to the number of labor tokens issued at that time (and spent, within the same period). Q(j,t) = quantity of commodity j available for consumption at time t, in physical units. P(j,t) = market-clearing price of commodity j at time t, defined as L(t)/Q(j,t). This price, expressed in labor-tokens per physical unit, balances the quantity of the commodity currently available against the total expenditure of tokens in the same period. Suppose population and labor supply are growing at a compound rate g, while production technology is static. As of time t, given the unit labor requirements for each commodity, we have Q(G,t) = L(t-1) Q(W,t) = L(t-2) P(G,t) = L(t)/Q(G,t) = L(t)/L(t-1) = (1+g) P(W,t) = L(t)/Q(W,t) = L(t)/L(t-2) = (1+g)^2 The rational price ratio is not 1:1 (as it would be according to the VILCs), but rather P(W,t)/P(G,t) = (1+g)^2/(1+g) = (1+g). Here the rational prices, or "synchronised needed labor costs" in SW's terminology, are equal to the labor contents marked up at a compound rate of (1+g). "Synchronised labor costs, as defined here, are seen to be interpretable as the ordinary embodied labor requirements for a fictitious system in which every... [input] coefficient of the actual system is blown up by the growth factor (1+g). What is the rationale for this expansion? "In each time interval the population is larger, and if we make the assumptions that: "a) there is no saving, b) total income is equal to total labor expended, c) the length of the working week is unchanged, "then it follows that the total expenditure of income in each time period will be greater than the labor hours used in production during the previous period. This will induce an inflation of prices above their values." (SW, p. 313) The case where labour-saving technical progress is proceeding at a rate g is formally identical. Again it calls for "marking up" the past labour input in forming rational plan prices. There's one twist: with labour-saving technical progress you'd get the right prices by using historic labour embodied rather than the VILCs computed in terms of the current I-O matrix. Note that a one-time improvement in technology would not call for a divergence of rational plan prices from simple "values" -- only a non-zero ongoing rate of technical progress does that. This is a case where dynamic analysis has something to tell us over and above a static comparison of "before" and "after" a discrete technical change. Allin Cottrell.
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