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

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Mon Jun 05 2006 - 10:22:41 EDT

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

> ...I don't rely on counterfactuals. If I imply that
> 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.
Yes, but counting inputs and outputs at the factory
gate will most likely leave you with non-equilibrium
situation. Your condition that the situation must be
in equilibrium introduces the notion of demand into
the model, which is a subjective aspect. Secondly, you
cannot argue that the observed inputs and outputs at
the factory gate, which specifies your methods of
production, will give you the correct price solutions
in the case of the system finally adjusting to the
equilibrium unless you assume constant returns to
scale. Finally, if you are arguing from the
perspective of 'every effect must have sufficient
cause',which you appear to be doing, then you will
have to specify the sufficient cause for the return to
capital investment that you are simply presupposing in
your model. I'll say something more about your
interretation of Sraffa's objectivity later.
> ...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.
But Sraffa's self-replacing state does not imply
"equilibrium" in the case of a system that always
produces surplus. The equilibrium condition is an
extrenous condition imposed by you on Sraffa's system.
I'm willing to grant you both the constant returns
assumption and the equilibrium assumption if you say
that an interpretation of Sraffa is not your purpose
but rather you are interested in deducing certain
properties of Sraffa's system under these two
assumptions--that would be fair enough. I think the
idea of observed methods of production and equilibrium
will go together only if you assume constant returns
>... 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.
But then how come you are not short of one equation?
In your system, the aggregate of the column must be
equal to the right hand side of the corresponding row,
which means only n-1 independent equations but you
need to solve for (n-1) prices plus the rate of
profits r. Since I'm not a mathematical person like
yourself, I'm urging you to check for this one more
>... Could you define "commodity capital"? Do you mean
> 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?
Commodity capital is not in the form of money but in
the form of commodities only. During the period of
production all your inputs including commodity wages
are commodity capital in the hands of the firms. After
the production period the gross outputs are the
commodity capital in the hands of the firms, some of
this capital could be converted into revenue.
... 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
accounts, and a new function of money, the ability to
command a

The gross revenue held in firm accounts is transferred
to capitalist
accounts, the owners.
You don't know the "gross revenue" unless you know the
prices. But they are not yet determined in your model.
The book keeping exercise is not yet possible. The
firms have gross physical outputs, and that's all you
know that they have. You cannot know what is the money
equivalent of this gross output (and here by money
equivalent I mean its value in terms of the numeraire
commodity. If you are thinking in terms of paper money
then you have additional problem of specifying the
values of those papers)before you have solved the
system of equations.
...  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
money-capital in capitalist accounts and working
capital (or
commodity-capital) in firm accounts. Rather, it's the
very same
"physical" money.
The only "physical" money you can have in the system
is the numeraire commodity and it will circulate in
the system in the manner I had explained earlier.
Otherwise, you have "money" in terms of book keeping.
In either case, the explanation I had given in the
last mail works.
...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.

If money is a commodity, which is part of the
input-output matrix, then obviously it is the
numeraire commodity and its price is fixed at 1,
because it is a numeraire commodity. The idea that it
has another "price" which is equal to "r" is, I think,
a conceptual contradiction.
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.
If I understand you correctly, conceptually what you
are doing is to say that "r" of Sraffa's system should
be treated as cost. At certain level, this is nothing
but restating Adam Smith who also insisted that proft
was a necessary cost. But that should not change the
accounting of Sraffa's system. I think there has to be
some mistake of mathematics in your system and you are
the best suited to catch it.

Now I'm running out of time to write about Sraffa's
'objectivism', so I might take an opportunity to do so
in the next mail. It seems you are relying on Kurz and
Salvadori's interpretation of one of Sraffa's notes on
the nature of surplus. I'm not sure whether you have
read the whole passage, as they quote only a small
part of a long piece. I have a slightly different
interpretation of the passage from theirs but I'll not
go into it at this stage. I hope my comments were
helpful. Cheers, ajit sinha

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