[OPE-L] monetary macro interpretation

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Thu Jun 01 2006 - 14:27:35 EDT

Ian, you're a bit further ahead than me. I have a 36-hour a week job
as documentalist and cannot devote myself fulltime to these issues.

You wrote:

That's an interesting question. I have zero expertise in national
income accounting. Why not divide the total price of the net product
by the average wage rate?


Sorry, I am not sure which "money capital" you specifically refer to here
(expenditure on inputs, or a money stock), and I fail to see the point of
dividing the net product by the wage rate. I do agree that a good scientific
theory should work in the simplest or purest cases to which it applies,
i.e. the equations should equate.

Quickly, the point I am trying to make here, requires no sophisticated math
specialist understanding of national accounts methodology though, only
simple accounting sense. In calculating an aggregate like GDP, we have to
move somehow from observed prices charged to an aggregate ideal price which,
although nobody ever actually paid that price, would constitute the gross
value added as a matter of objective fact (ideal price=objective value).

To extrapolate this ideal price - which is the supposed "real" exchange
value or trading value of the net output, under uniform (standard) valuation
assumptions - requires a complex accounting calculation, based - like all
accounting - on a value theory. Specifically, we need, logically, five kinds
of non-arbitrary principles (or conventions, or assumptions) for our
estimation procedure:

- principles of value equivalence (or comparability),
- principles of value conservation,
- principles of value transfer,
- principles of value newly added
- principles of value consumed (or destroyed).

In order for these five types of principles themselves to be non-arbitrary,
they have to be rooted in objective reality, in real economic relations.
Subjective theories of value are absolutely of no use here, because if value
is purely subjective,  then each price, whether real or ideal, expresses a
unique subjective preference. Wonderful warm fuzzies, but absolutely no good
for accounting or economic science I think.

In that case, we would get arbitrary calculations and double counting (it is
not so much really that we're adding apples and pears, but that we cannot
add them up at all, because the prices do not belong to the same object
class, each price is qualitatively unique - as I like to say, the great
thing about prices is that they are numbers, and once you have some numbers,
you can compute and show off your mathematical skill; but the next question
is what those numbers refer to exactly).

The starting point of the national accountant is observed real prices
charged, and from there s/he reasons, we suppose, in a non-arbitrary way to
the ideal price, using various assumptions and imputations etc. The inverse
transformation problem is then the problem of how you get these five kinds
of principles mentioned in the first place, and how you ensure that they are
non-arbitrary conventions. You could be like Stalin, and say "compute these
prices following this procedure, or else you head will roll", but that is an
argument from authority (argumentum ad verecundiam, or ipse dixit), not a
scientific argument. The transformation problem here is, that if I am to
compute my ideal aggregate price consistently, I require non-arbitrary
value-referents which, though rooted in objective reality, themselves cannot
be obtained from the observed prices charged.

What does the average vulgar economist do? Parodying Samuelson, "Contemplate
the two discrete entities of  'real prices charged' and 'ideal prices'.
Write down one. Now transform by taking an eraser and rubbing it out. Then
fill in the other one. Voila! You have completed your transformation
algorithm." But that procedure is obviously not satisfactory for economic
science or accounting science.

Marx never concerned himself with this type of inquiry in detail, and that
was, I think, a grave omission. What Marx does say is "even if there were no
chapter on 'value' at all in my book, the analysis I give of the real
relations would contain the proof and demonstration of the real value
relation." His claim is thus that he has obtained a systematic theory about
the five principles mentioned in a non-arbitrary way. But the missing link
is an argument which shows why non-arbitrary price calculations ultimately
have to refer to an objective concept of value which is not reducible to
price relations. Such an argument is only implicit in Marx's text, but not
made explicit. To be precise, Marx argues that ultimately what makes the
value of commodities comparable is the fact that they are all the products
of human labour. But this is logically conclusive, because we could just as
well argue that what makes the value of commodities comparable is that they
have a price, real, ideal or imputed. In this regard, I think Kozo Uno was
perfectly justified in rejecting Marx's exposition of the theory in Cap. 1
part 1.

Interestingly - this is an aside - "Hayek argued that people have little
knowledge of the world beyond their immediate surroundings and this is what
forces them to be price-takers - the crucial ingredient that makes the price
system work. If, on the other hand, a particular agent's knowledge were
greater, agents would then refuse to act as price-takers but rather make
decisions in a way which would manipulate their environment to their
advantage thereby destroying the price system. In a complex, uncertain
environment, Hayek argues, agents are not able to predict the consequences
of their actions, and only this way could the price system work."
http://cepa.newschool.edu/het/profiles/hayek.htm This is essentially an
argument in favour of public ignorance of prices ("the dumb masses do not
know what's good for them, and that is good"), with which I disagree.
Ignorance may be bliss, but as Marx commented to Weitling, ignorance never
helped anybody else.

If my argument is mistaken, I'd like to know why (after all, I am not a
professional economist).


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