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

From: Ian Wright (wrighti@ACM.ORG)
Date: Fri Jun 09 2006 - 15:58:44 EDT

Hi Paul

I think we're making progress on this issue. Aside to Ajit: I hope to
respond to your messages over the weekend.

> Ian you have to be aware that you are introducing some new and
> unfamiliar meanings to terms here. The normal definition of a quantity
> of money capital is just X pounds  not X pounds for Y years.

A confusion can arise because a "quantity" can mean either a real
quantity or a nominal quantity. A quantity of a commodity is an actual
quantity. The price of a commodity is a nominal quantity that refers
to an actual quantity. It is very easy to lose sight of this
distinction when we talk about the commodity money-capital and its
price. That we've had some terminological confusions is understandable
in this case. So I'll try to be as precise as I can.

A quantity of money-capital is a quantity of actual money, whereas its
price is a nominal reference to a quantity of actual money.

Enter any shop and we see items for sale at 1$, 2$ etc. They are not
on sale for 1$/year, 2$/year etc. That's because a price is a label
with no reference to time, rather its an exchange ratio against money.
Also, prices don't tell us anything about the rate at which
commodities are sold.

This same intuition holds for the price of money-capital. It is on
sale at the price of r. But knowing that its price is r does not tell
us "how fast" that nominal price can be converted into quantities of
actual money. This is why r is also not related to time. In addition,
it cannot be because in the circular flow r is also r=S/(C+V).

However, actual quantites of money-capital are "sold" over the
production period and at this point the dimension of time comes in.
The rate at which the commodity money-capital is "sold" determines the
rate of return over the production period, because only when a
commodity is exchanged is its nominal price realised as quantities of
actual money. Hence, the profit received, the actual (not nominal)
rate of return, does occur over a specified period of time, which
matches your intuitions about profit being received per annum.

That the actual return is received in a period doesn't mean that the
price of money-capital is quantified with respect to time.

> If you define capital as value / time, you are using the term
> in a way that is quite unconventional, and probably incompatible
> with your definition of commodity capital. It looks to me as
> if when faced with a problem about the 'price of money capital'
> you are redefining capital so as to make interest a price.

I hope the above comments address your concern about this.

> If there is no money commodity how are you able to talk of
> money capital?

Yes, this is a subtle bit. If I had also decided to include a
money-commodity, I think the potential for confusion would have been
even greater!

The circular flow does not have a money-commodity. Think of the
quantities of actual money as quantities of paper money or symbolic
money without intrinsic value. This stock of money is never produced
and never destroyed. It circulates around, but at one point in its
circulation it changes its function from means of exchange to
money-capital. It changes function when in the hands of capitalists,
due to the social relations of the capitalist firm. Money-capital,
unlike means of exchange, has a price and the quantity supplied
returns to its owner.

> What I am trying to say Ian is that the time step analysis of Sraffa
> is an approximation to a continuous flow analysis as one decreases
> the size of the timestep.


> If one accepts that, then one can 'stop
> the clock' at any point in the process and get approximately the same
> picture subject to stochastic noise. In accountancy practice, this
> 'stopping of the clock' is done annually or quarterly.
> If one looks at the accounts of a firm at any such instant, their
> capital account breaks up into a number of categories per example:
>                                 Assets                      Liabilities
> Fixed capital                   10,000,000
> Stocks of raw materials          1,000,000
> Stocks of work in progress         500,000
> Cash                             2,000,000
> Payments due for goods
> delivered                        3,000,000
> Payments due for goods
> received                                                    3,100,000
>                                 --------------------------------------
> Net assets                      13,400,000
> The firms need to keep a part of their capital as money capital
> in order to buffer themselves for the variation in times at which
> bills fall due.

I accept this.

> If profit equalisation occurred, which of course
> I don't accept,

Neither do I empirically.

> but if it did, then the firm will want to earn
> say 10% on its full 13,400,000. Sraffa, advisedly I think, did
> not introduce the concept of money capital to his analysis. You
> are explicitly doing so, in that case it has to appear in
> your accounts.
> You say: <<there is not an identifiable "point in
>  time" when a firm both owns the working-capital and the
>  commodity-capital that was bought with it.>>
>  At all identifiable points in
> time  firms hold both cash and commodities. The money
> never goes away, it is conserved. It may move from one firm
> to another, but it never vanishes.

I agree that the money is conserved. But if we "stop the clock" and
see both working-capital and commodity-capital in the firm this does
not negate my point that after an exchange of working-capital for
commodity-capital one party has money and one party has a commodity.
One party does not have both the money and the commodity.

> If you are drawing up profit
> equalising accounts that money capital has to appear somewhere.
> You can not invoke money capital as a concept and then
> omit it from your accounts.

Flow rates of money-capital with respect to unit outputs are in the
circular flow matrix. Actual quantities of money-capital appear in the
quantity equations.

Best wishes,

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