Re: [OPE-L] Ajit's Paper on Sraffa and Late Wittgenstein

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Sun Jun 04 2006 - 13:41:31 EDT

Dear Ian,

Sorry to be responding to you after so many days. I
was busy finishing one paper, only after that I could
get to your paper that you were so kind to send me. As
yet I have read only the first part –that is the part
on Sraffa—and have not yet gotten to the part on Marx.
So my comments will be only on Sraffa part. First of
all, let me congratulate you on writing a very fine
paper—something that has become very rare these days,
particularly in the Marxist tradition on value theory,
but then your paper is more in Sraffian tradition !
Now to criticisms.

Your basic point is that if you make Sraffa’s
‘surplus’ into ‘necessities’, then his system reverts
back to his ch.1 of ‘production for subsistence’
system, and in this system labor theory of value
prevails, as Adam Smith had already noted. As a matter
of fact, if this exercise turns out to be right, then
the talk of labor theory is superfluos since in this
case labor inputs can be substituted with
commodities—as Sraffa’s ch. 1 does.

Now the question is how do you do it, and can it be
done ? Now, to turn Sraffa’s surplus system into a
subsistence system you first reduce Sraffa’s wage
laborers into horses (some people out there who know
duddly da of Sraffa but think that they have all their
phoney baloney criticisms worked out should note that
Sraffa’s wages are ‘money’ wages and not
commodity-bundle wages) . On this basis you throw the
wage part from the net output side back to the input
side, which is more faithful to Marx. Then your next
step is to argue that within capitalist system, a
capitalist will not invest unless there is a return to
capital assured. Thus there is a price to capital
investment and profit is its price that must be paid
to bring about that investment. This, of course, is
the inducement theory and brings your approach close
to the Austrian approach to capital theory. Now,
without going into any details, here I would like you
to think of two questions. (1) Can you determine the
price of investment on the basis of the inducement
theory of price of capital investment ?—In your paper
you first determine the rate of profits from Sraffa’s
surplus equations and then throw them back on the
input side at a later stage, which creates a
conceptual contradiction in your model. In any case,
the second question I would like you to think about is
: even if it may sound plausible to think in terms of
inducement from an individual capitalist’s point of
view, does it work when one thinks for the system as a
whole ?

Now, let me turn to your novel idea of bringing ‘money
capital’ and price of ‘money capital’ in the model. I
think here you have gone wrong. Let me explain why ? I
think the fundamental mistake you commit is that you
forget that there is something called ‘commodity
capital’ in the hands of the firms all the time and
therefore they do not need ‘money capital’ advancement
from the capitalists’ households for production. Let
us suppose that your numeraire commodity is the money
commodity. After the production period is over all the
firms will hold their gross outputs, including the
firms producing the numeraire commodity. These firms
will use their numeraire commodity to buy other inputs
from other firms and also labor power and those
laborers in turn will again use their money to buy
other consumption goods. This puts the money in the
hands of other firms who in turn go about buying
inputs from other firms and also labor power. Thus the
money commodity circulates through the system, and
given your assumption of simple circulation schema,
gets completely absorbed in the system as inputs or
and consumption, including consumption by the
capitalists. Thus there is no need for an infusion of
money capital for the system to go around. As a matter
of fact your procedure amounts to double counting the
capital investment.

I hope in the light of my two recent papers you would
make some changes to your representation of Sraffa’s
system. Your matrix equations assume constant returns
to scale, but Sraffa’s does not—notice Sraffa’s
equations are always in terms of gross outputs and not
in terms of unit outputs. The case of ‘beans’ are not
important. In Sraffa’s context, which takes a given
system at any point of time, if ‘beans’ exist then he
has to take that into account and show that if the
rate of profits go beyond a certain rate in the basic
goods sector then the system cannot maintain equal
rate of profits and all positive prices at the same
time. I would say, giving up equal rate of profits is
no big deal in this case. But in your case, since you
are taking long-term equilibrium case, ‘beans’ should
simply disappear as the capitalists producing beans
will find it more profitable to quit bean production
and move into producing something basic. I hope some
of the comments were helpful. Cheers, ajit sinha

--- Ian Wright <wrighti@ACM.ORG> wrote:

> Hi Ajit
> > Ian, I don't understand what you mean by "price of
> > money capital r", no such concept is there in
> Sraffa.
> Certainly Sraffa never discusses such a thing.
> Nonetheless it is
> implicit in Sraffa's starting point.
> Take Sraffa's surplus representation of an economy.
> Add two additional
> pieces of information that Sraffa does not
> explicitly consider: the
> composition of the real wage and the composition of
> capitalist
> consumption. It then follows that money-capital is a
> commodity and r
> is its price.
> It's important to take this step in order to
> properly formulate
> real-cost accounting, something that Sraffa never
> manges to do. I
> agree that Sraffa does not talk about real costs,
> except for oblique
> asides to labour values. That's because he omits the
> value-theoretic
> principle of objective real cost.
> > The dated labor aproach only shows that the price
> of a
> > commodity can be resolved into only wages and
> profits
> > in the case that there is some positive wages.
> This is
> > referring to Adam Smith's idea that price is
> resolved
> > into wages, profits, and rent. The method of Smith
> was
> > silightly different but the work I'm doing on
> Smith
> > now will show that his method was robust. The idea
> > that Sraffa is alluding to Smith here is also
> clear
> > when he at the outset declares it as "cost of
> > production aspect", a term Marx used for Smith's
> > "additive theory". In any case, the purpose of
> this
> > chapter was to show that the Austrian notion of
> > quantity of capital determination on the basis of
> > 'period of production' was logically flawed.
> The dated labour representation also makes Sraffa's
> earlier point that
> only when r=0 are "the relative values of
> commodities are in
> proportion to their labour cost, that is to say the
> quantity of labour
> which directly and indirectly has gone to produce
> them". Stick r=0
> into Sraffa's dated labour representation and you
> get the (incorrect)
> formula for labour-values used by all neo-Ricardian
> critics of Marx's
> value theory, from Samuelson onwards.
> My point is Sraffa is wrong at this point, because
> it is a real-cost
> accounting error to leave the price of
> money-capital, r, unreduced to
> its labour cost.
> > There is no such thing as a commodity called
> "money
> > capital" in Sraffa.
> Yes I know. And from a value-theoretic perspective
> this is the crucial
> flaw in Sraffa's representation of an economy.
> Sraffa omits the very
> commodity that distinguishes simple commodity
> production from
> capitalist reproduction. However, money-capital is
> implicit within his
> theoretical framework: all one needs to do is to
> distribute Sraffa's
> surplus in physical terms, not just nominal terms.
> > I have not read your paper and my computer advises
> me
> > not to open your web because its address is of a
> type
> > that may contain problems. So if you send me your
> > paper by attachment, I'll read it and get back to
> you
> > after sometime, as I can't promise to read it
> > rightaway. But I think you are on a wrong road.
> > Bringing any idea of capitalist consumption in the
> > problem of value and price determination is a red
> > herring.
> I'll send you a copy.
> > What do you mean by "self-replacing equilibrium"?
> Do
> > you mean something like Marx's simple reproduction
> > schema?
> Yes.
> > In any case, I don't think Sraffa's equations
> > care for equilibrium at all. But other Sraffians
> > disagree with me.
> Not all. Ravagnani at least would agree with you. I
> think also Roncaglia.
> > I have just completed a paper which
> > critiques Garegnani's interpretation of Sraffa's
> > prices as centre of gravitation. I'll send you the
> > paper privately and not burden the list with it.
> Thanks. I'll read it.
> > I don't understand why you keep introducing your
> terms
> > into Sraffa? There is no such thing as "real cost"
> or
> > determination of "real cost" in Sraffa's book.
> That is true. Sraffa misses the simple and important
> value-theoretic
> principle of real-cost. However -- it is there in
> Sraffa, if you know
> how to look for it.
> > And the
> > idea that if the system is not in equilibrium then
> > neither cost (real or whatever) or labor values
> are
> > determinable is simply wrong. You must mean
> something
> > more than what you are saying here.
> Tell me why it is wrong.
> > Ian, you are taking a wrong road. Stop and
> rethink.
> > First of all, I'll advise that a good way of
> > understanding the whole business of value theory
> is
> > not to first join a team and try to play for that
> > team. What I mean is that there is no need to
> start of
> > my saying, "I'm going to defend or prove that Marx
> was
> > right". I started of that way, and that led me to
> > waste a lot of time.
> Woah there! That is not my starting point.
> The metaphor of wrong roads and wrong turnings is
> apposite.
> The point you have reached in value theory is to a
> large extent
> predicated on the existence of the transformation
> problem. This place
> is quite odd: it denies the possibility of any real
> cost, non-price
> invariant over economic configurations, such as
> Marx's labour values.
> As Mirowski explains, without such invariants or
> conservation
> principles, the possibility of formulating causal
> laws of economic
> change is lost. You have made this point yourself,
> and valiantly tried
> to turn it into a virtue, such as your invocation of
> Hume's scepticism
> regarding the objectivity of causal laws, or
> borrowed Wittgenstein to
> suggest that the concept of value belongs to a
> heremeneutically closed
> language game, which is the source of philosophical
> errors, or pointed
> out that the direction of price changes are
> crucially dependent on the
> choice of numeraire.
> But what if Sraffa threw you off-track and you have
> taken a wrong turning?
> Yes, let's think about this, but don't pre-judge and
> assume that I'm
> the one wandering through the woods.
> Best wishes!
> -Ian.
=== message truncated ===

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