Re: [OPE-L] equilibrium and simultaneous vs. sequential determination

From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Sat Sep 22 2007 - 12:28:19 EDT

Quoting Ian Wright <wrighti@ACM.ORG>:

> Hi Fred
> Sorry for the delay in replying. Although your equations are simple
> you I do not yet see how they can be interpreted as equilibrium
> prices.
> Since the ki and Ki are given and have units of money then they
> themselves must be functions of the PPi. So currently your equation
> PPi =  ki +  rKi
> does not say very much. I'd need to see the PPi's on the RHS too.

Hi Ian,

I think this equation says as much as needs to be said - how the total
profit is distributed to individual industries according to the capital
advanced, which is taken as given.  The prices that are thus determined
are long-run equilibrium prices because they yield equal rates of
profit and they change only if the productivity of labor changes.

> Given your suggestion that it is possible to combine equilibrium and
> sequential determination feel free to time subscript the PPi on the
> RHS; say something like:
> PPi(t) = f(PPi(t-1)) + r g(PPi(t-1))
> where f is the function that describes how cost prices ki are related
> to prices of production, and g is the function that describes how
> stock prices Ki are related to prices of production.

Time subscripts are OK with me, as long as it is understood that (t-1)
does not refer just to the start of the circulation period (when the
inputs are purchased), but to any time between the start and end of the
circuit (when the output is sold).  If ki changes any time between the
beginning and the end of the circuit, then the current ki is taken as
given in the determination of PPi(t).

> I think it will
> be easier however if we simplify and discard stocks and replace the Ki
> with ki.

OK with me.

> Then we can take the analysis further.

I look forward to further discussion.


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