Re: [OPE-L] book review of Kliman's book

From: Philip Dunn (hyl0morph@YAHOO.CO.UK)
Date: Wed Nov 21 2007 - 19:40:10 EST

On Tue, 2007-11-20 at 11:34 +0000, Paul Cockshott wrote:
>         I am posting I review of Kliman’s book to the list, that was
>         sent to me by an old friend. I post it with his permission.
>         I find it quite a devastating critique of Kliman.

p. 5
"Let us suppose that we are in n-good world and there is a sector X
which produces a non-basic good and does not use itself as an input. Let
us also suppose that there is continuous increase in labor productivity
in this sector; whereas in all other sectors (including gold sector) the
labor productivity remains constant. In this case the price of the
commodity X would continuously fall. Let us suppose that the
commodity-capital worth $100 in terms of gold was used as inputs
(including wages) in time 0, which produces 100 units of X in the
beginning of period 1. Let us suppose that in period 0 the price of X
was $1.2/X. However, since the capitalists have introduced more
productive technology in period 0, the price of X falls to $1/X in the
beginning of period 1. Kliman argues that this means that capitalists in
the sector X have made zero profits. But this is simply not true. Since
in period 1 the capitalists would need only 80% of the inputs that they
used in period 0 to produce the same 100 units of X, they can continue
their business as usual at the same level and pocket $20 as profit. In
his examples of continuous technical changes, Kliman forgets that even
if prices of inputs remain the same and the price of output is falling,
it does not imply that the rate of profit must fall; because the
quantity of inputs needed to produce the same amount of output must also
continuously shrink due to rise in labor productivity. If the sector X
was a basic sector, then a continuous rise in labor productivity in this
sector would have a complicated effect on all prices. Okishio (1961)
showed that in this case the prices must change in such a way that the
uniform rate of profits in the system rises. Kliman, on the other hand,
has no theory of prices. He simply takes arbitrary prices at two
different periods and concludes: Voila! ‘I proved Okishio wrong!’ But
Kliman has a problem, which Okishio does not. As I show in our
example above, Kliman’s reasoning suggests that the capitalists in
sector X are making zero profit but still we find that they can run
their business as usual at the same level and yet pocket $20 for their
enjoyment. Where from do they get this $20?"

Magic. The $20 was part of the original capital advanced. To recover
this is not to make a profit, even if it released as cash. They can,
indeed, pocket $20 for their enjoyment but this is known as consuming
capital (unproductively).

Schoolboy howler after schoolboy howler.

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