From: Ian Wright (wrighti@ACM.ORG)
Date: Sun Jun 04 2006 - 16:34:27 EDT
Hi Ajit Thanks for taking the time to provide feedback -- I really appreciate it. > 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. Do you mean that in this case any commodity type can form a real-cost basis? If so I agree. However, I don't think it possible to establish a theory of value without dynamics, so I'm comfortable with this conclusion. The real-cost results cannot establish Marx's theory of value, although it can show that the neo-Ricardian criticism of it misses the mark. > 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. Yes. Except treating the real wage as an input needn't imply that the wage is "subsistence" (I'm not sure what the can mean, by the way). Closing Sraffa's system -- i.e. throwing the net output back to the input side -- does imply self-replacing equilibrium however. > Then your next step is to argue that within capitalist system, a > capitalist will not invest unless there is a return to capital assured. I don't rely on counterfactuals. If I imply that I do then I've made a presentational error, so my apologies if so. I'm trying to take Sraffa's (original) objectivism to its logical conclusion, for example only counting inputs and outputs at the "factory gates" and ignoring subjective motivations. In a state of self-replacing equilibrium, capitalists supply working capital for the production period and receive a return that they spend in the market for consumption goods. Such material exchanges of goods and money can be counted. > 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. My guess is that a state of self-replacing equilibrium will radically under-determine the theory of value, as you've already suggested. I think different people will prefer different interpretations of the very same mathematics. The concept that profit is the price of money-capital follows as a logical necessity from Sraffa's starting point -- on condition that (i) we decide to model a state of self-replacing equilibrium, and (ii) we fully specify that state, by specifying the physical distribution of the net product. If I'm an Austrian then so is a special case of Sraffa ... > 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. I will try to think, but I don't quite follow you, especially as I don't think there is any inducement theory here. Perhaps the following remarks might help the discussion. Sraffa's surplus equations, subject to certain technical restrictions necessary to interpret the equations as representing a state of self-replacing equilibrium, are equivalent to the closed system of equations (the "circular flow"). We can map back and forth between the two representations of the same economy. In the circular flow representation, the rate of profits is determined simultaneously with the distribution of real income, including capitalist consumption. In this representation, there cannot be any talk of ordering, such as "throw them back on the input side at a later stage". The solutions of the system of simultaneous equations is mutually determined all at once. It may appear that the rate of profits is determined from Sraffa's surplus equations and then later thrown back on the input side only because I carefully deduce the circular flow representation from Sraffa's starting point. The ordering appears in the deduction of Sraffa's system to circular flow. But each step of the deduction exists "all at once" -- as this is a system of simultaneous equations. The step-by-step deduction simply brings out information that already existed in the starting point. We can look at this another way. Alternatively, we could have started from the circular flow representation and then later "opened" the system to yield Sraffa's surplus equations (and some new kinds of surplus equations -- but this is a detail). > 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. Could you define "commodity capital"? Do you mean an amount of money, the "working capital" for the period of production? Or do you mean the actual physical input goods that are transformed by labour into the output? I'll assume that you mean an amount of money. In which case, "commodity capital" and "working capital" are probably synonyms in this context. > Let us suppose that your numeraire commodity is the money > commodity. There is no money commodity. Only symbolic money throughout. But I don't think this affects the point you are trying to make. > 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 think this is an misinterpretation that is unfortunately easy to make. I think the problem is that the meaning of money-capital is quite subtle. The first point to note is that there is not an additional infusion of money from capitalists into the system. Rather, the circulation of money is more complex compared to simple commodity production. There is now an additional circuit of money between firm and capitalist accounts, and a new function of money, the ability to command a return. The gross revenue held in firm accounts is transferred to capitalist accounts, the owners. A part of this money is simulaneously transferred from capitalist accounts to firm accounts to cover the input costs of the "next round" of production. This is the working capital (or commodity capital) held in firm accounts. Only the residual is retained by capitalists to spend on consumption goods -- their profit. So there is a *net* transfer of money from firms to capitalists. All this is consistent with Kalecki's principle that capitalists earn what they spend. You may think there is double-counting if you interpret the transfers between firms and capitalists in gross terms. But at no point is there both money-capital in capitalist accounts and working capital (or commodity-capital) in firm accounts. Rather, it's the very same "physical" money. The subtle issue is the change in the function of money, from means of exchange in the price equations, to money that is a commodity with a price (money-capital) in the input-output matrix. This functional change of the very same physical money is dependent on the property relations that exist in the capitalist firm, sketched in 4.2. Introducing money amounts to the input-ouput matrix is not novel (e.g. Leontief), but this concept of money-capital probably is. However, the concept of money-capital logically follows from Sraffa's starting point. It cannot be avoided once the physical distribution of the surplus is specified. If there is double-counting then I'd expect this to manifest as a mathematical contradiction. I'd be interested if one can be found. > 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. I don't think that matters, unless I've missed something. As long as I do not vary the scale of production while keeping the technical coefficients unchanged, then I am not assuming constant returns. > 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 think you're missing something more important here. You think "beans" should disappear because you assume that the rate of profit is determined by the basic subsystem. In a fully specified state of self-replacing equilibrium the rate of profit is not determined by the basic subsystem, it is determined by the system as a whole. The "beans", in this case, are "blocking goods" or, to use a biological term, "limiting factors" on the rate of growth of the system. The crucial question is whether the "beans" are also inputs. We do not know the answer to that if we stick with Sraffa's undistributed surplus. All kinds of confusions arise if we uncritically apply Sraffa's surplus representation to model a state of self-replacing equilibrium. Either the surplus is fully distributed or the circular flow is interrupted; in the latter case we (arguably) have no idea what is going to happen next, although we can make some statements about prices if we decide to specify the distribution of nominal income. Ajit, I hope we can continue this exchange, if you have the time and inclination. Best wishes, -Ian.
This archive was generated by hypermail 2.1.5 : Fri Jun 30 2006 - 00:00:03 EDT