[OPE-L:4022] Re: Re: transforming the inputs (was no subject)

From: Rakesh Narpat Bhandari (rakeshb@Stanford.EDU)
Date: Mon Oct 09 2000 - 02:26:27 EDT

In your examples, if one assume that there is one natural unit of the 
outputs of mp and wg for each  unit of value, then PV ratios become 
unit prices. This simplifies matters.

I argue that Marx sets a constraint to the transforming of the 
inputs--that the sum of their (transformed) prices of production 
should equal their total value just as the total value of the outputs 
equals the sum of their prices of production (this is the point Marx 
makes on p. 266). For some reason, you cut me off in mid paragraph 
before the constraint is fully articulated.

But this is exactly why Marx never bothered with the transforming of 
the inputs: it simply would not change the total cost price of the 
inputs and thus the value theoretic calculation of r in the second 
tableau, though of course there would be different cost prices in the 
individual branches and different kr's for the outputs. But Marx had 
shifted the theory of value from the microeconomic domain of relative 
prices to the macroeconomic domain of the average rate of profit, as 
Mattick jr has been saying for two decades.

Your iterative process breaks the constraint.

You are led to break it by modifying the cost prices on the basis of 
PV ratios derived in this period.

My claim throughout this discussion has been that the  PV ratios in 
the previous period cannot be determined on the basis of this one 
period of data. It is better to leave them and the individual branch 
cost prices unknown than to have them determined through backward 

You will respond that you are doing no such thing. Rather you are 
trying to show me what the unit prices would be, were the system in a 
state called equilibrium.

  It is only because economists feel naked without the ability to 
determine equilibrium prices that they think they have to get 
modified cost prices, no matter the absurdity of the method used, on 
the basis of unit prices that will be the same as for the outputs. If 
you can't do this, you can't compete with your fellow economists on 
their own pseudo terrain of a general equilibrium 'solution' to price 

But do note how statistically insignificant what you are doing is. 
After your first iteration:  on the basis of the PV ratios or unit 
prices derived for the outputs, the total prices of production for 
the input now are about 2% greater the total value of the inputs in 
the first tableau.

How little different would have the PVs in the previous period had to 
have been for the sum of prices of production of the inputs to equal 
the total value of the inputs as laid out in the first tableau?

Let me give you an indication. But we are going to have talk about 
real world things now, so please be prepared for the transition.

  Assume productivity had increased 5% at the end of this period 
compared to the end of the previous period (so the inputs are made up 
of 357 and 286 physical units of the mp and wg, respectively, though 
their value is 375 and 300, respectively).

Your own example shows that unit prices would have to have been about 
3 cents more for the input means of production (1.12) than for the 
unit prices of the output means of production (1.09) and the unit 
prices for the input wage goods would have been about 1 cent more 
than than the unit prices for the output wage goods (.95) . (These of 
course are not uniquely determined unit prices; there is a small 
allowable range for the couplet of the unit prices which would allow 
for the sum of the prices of production of the inputs still to be 
determined by their value after the equalisation of the profit rates. 

That is we can stipulate that prices do not change significantly, 
e.g, more than 5% interperiodically and it is still easy to show that 
there is a range in which the unit input prices sold that would have 
allowed the meeting of the constraint that the total value of the 
inputs determined the total sum of their prices of production.

Moreover, if if we use the same rate of profit for the previous 
period as this one, it turns out the ratio of the cost price for dept 
1 relative to dept 2 remains roughly the same as in this period. 
Again nothing but a small range for interperiodic change.

To anybody but an economist that Marx's transformation assumes (and 
actually constrains within realistic parameters) change in the PV's 
or unit prices over time would not be a mark against him but an 
indication of the much greater realism of his theory than your 
iterative or simultaneous method by which somehow by miracle the 
inputs are revalued (and how exactly does this happen?) by PV's which 
can only be derived *after* this period is completed.

You are willing to ditch Marx's value theory simply because you will 
not allow the saving assumption of time subscripts. Would any theory 
other than a revolutionary critique of bourgeois society not be 
allowed such a simple and completely realistic saving assumption?

Let us be clear about the nature of the intransigience we are confronting.

Again, I have given you no method to determine what the unique set of 
unit input prices were; I do not believe that solving for a vector of 
equilibrium prices is any more important in understanding capitalism 
than solving for the effects of the re-introduction of dinosaurs 
"computed" from ancient DNA would be    on capitalist dynamics.

Equilbrium has nothing to do with capitalism. It is not a real force 
which only heroic entrepreneurs can break; it is not telos towards 
which the system is headed despite the bankruptcies, unemployment and 
overcapacity around us. It is a no-thing, it is a concept imported 
from physics to make economics an apology for the chaos of capitalism.

At any rate, i don't think the determination of the unit input prices 
or the modified cost prices for each branch is important.  For I have 
shown that it was perfectly reasonable for Marx to have assumed that 
the transforming of the inputs would not change the total cost price 
as already laid out in the tableaux. That Marx assumed this is no 
good grounds to dismiss his labor theory of value as so illogical 
(all we need is time subscripts and completely reasonable 
interperiodic changes) that the Marxian law of value cannot be used 
and tested in accounting for empirical realities of capitalism.

And if it is reasonable to assume that there can be no change in the 
total cost price from the transforming of the inputs, then the value 
theoretic determination of the general rate of profit, the resolution 
of the contradiction between the average rate of profit and the law 
of value, and the two equalities all go through as sufficiently 
logical that the theory based on them can now be tested against 
rivals in terms of how well it accounts for real world dynamics.

See you on the other side of comparative statics, the oxymoron of 
dynamic equilibrium and static prices, ok?

All the best, Rakesh

This archive was generated by hypermail 2b29 : Tue Oct 31 2000 - 00:00:09 EST