[OPE] Reply to critics (Cockshott mainly)

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Sat Oct 02 2010 - 09:56:33 EDT

(1) This is very unspecific, does a rise in the rate of interest increase
the
value of money relative to commodities or does it reduce the value of money
relative to commodities: do you think a rise in the rate of interest causes
inflation or deflation.

That is a complex question, because it can rise or fall depending on the
conditions we suppose to be applicable. This is obvious when we consider the
different interest rates and exchange-rates for different countries in the
global trading system. These days the inflation rate is to a large extent
determined by the monetary authorities, except when they turn out not to be
authorities, i.e. when credits can practically no longer cover debts without
defaults. A banker cannot unite the factors of production simply and
exclusively by enacting a transaction, that is the problem. In the short
term, if consumer demand falls absolutely and more money is saved as idle
funds, the effect is deflationary. In the long term, inflation may increase
because the global trading system cannot sustain a deflationary regime. In
the case of the US, the big ticket items in foreign trade are computing
equipment, oil and cars, plus various services such as financial services
dependent on market power. When Marx theorizes about the relationship
between money and commodity, considering the velocity of circulation and
suchlike, he is merely stating the theory of the effects of circulation and
how this can be influenced by production or how circulation can influence
production. Marx's basic monetary theory does not differ very much from
conventional theories about the laws of circulation; it just adds a few
insights, such as if there is no circulation, there is no market.

(2) The question is whether accumulation of capital by one person at the
expense
of another counts as net accumulation. I would say no, it is a zero sum
process. If you want to debate it, give a worked example to show the
contrary.

In the case of accumulation of capital by one person at the expense of
another, the net gain of one person is the net loss of the other. Net
accumulation occurs by one person, but not the other, and, because the net
gain is offset exactly by the net loss, there exists no net accumulation for
the both of them. To a computer scientist this idea is maybe
incomprehensible, because it seems illogical; how can positive net
accumulation and zero accumulation co-exist at the same time? However, if we
think dialectically about the whole and the parts, and different
aggregations, we can understand it. In the first case, we are netting the
result for each person. In the second case, we are netting the result for
both of them together.

Let's say at time t, A has $100 and B has $50. At time t1, f B obtains $50
from A, then B has accumulated $100. A's accumulation is negative,
namely -$50. if we now total the capitals of A and B, we can conclude that
at titme t, it totalled $150, and at time t1 it also total $150, and all
that has happened is that B has accumulated at the expense of A. I can
extend this ultrasimple example into extraordinarily complex equations, but
lack the time to do so now.

(2) Here you bring in two separate processes: The formation of mortgage
loans
on houses; Stock appreciation on those houses. The original question that I
raised was whether it was appropriate to include internal financial Assets
in the total capital stock of an economy. I said that it was not appropriate
because the process of taking out loans was just a redistribution of
monetary and
housing assets the total net worth after the loan was the same as before.
You have not dealt with this objection.

You are correct in the sense that if I have a stock of houses and I just
trade in entitlements to their ownership, then that of itself makes no
difference to the number of houses or to their Marxian value. But anybody
knows this is not how the housing market works. The total net worth is not
the same as it was before because the nature of the financial claims changes
the net worth. In crude Marxist theories and neoclassical theories, all
prices are the same kind and all markets are the same kind, but real
economists know this is not true. Capital gain on housing is not a stock
appreciation but the appreciation of a physical asset, given a steady or
growing demand for housing vis-a-vis supply. If I own title to an asset I
can borrow more funds which I can reinvest for profit. And therefore owning
title to the asset already enables an extra profit because I can obtain
extra funds to play with. If the asset increases in value, I have made a
capital gain, which I realise upon sale. The two profitable aspects can be
made to work in tandem, but not only that, the claim to future income which
the mortgage represents can be resold as a debt security (assurance) for
profit, and insurances charges can also be profitable.

(3)You raise the quite different issue
of stock appreciation. Ever since I first started to do economic time series
on the rate of profit I have taken the policy that it was best to give
profit figures net of stock appreciation, since stock appreciation just
represents a change in your unit of measurement. It leads to the illusion
during inflation that profits are higher than they really are in terms of
money of constant value.

In national accounts, the inflation-adjusted change in the value of
inventory is usually included in gross product. This is not quite correct in
Marxian terms because only the value of the newly produced but unsold
inventory is part of gross product. The product account in national accounts
straddles the production of output value and the accumulatiuon of capital
but that just leads to some arbitrary conceptualizations. Whether you
include or exclude the stock appreciation depends on (1) what you are trying
to measure (2) what quantitative difference it makes (3) the reliability of
the inventory valuation adjustment given that at base data the way which
respondents price their inventory may be at odds with what they are really
worth ("creative accounting").

(4) Yes I would argue that the capital gain on houses is fictitious when
taken
across the economy as a whole. The teacher who sold her house in California
was no better off since she needed an equally big sum to buy an equivalent
one. The only gain is that the proportionate share of her mortgage in the
price falls. But the devaluation of debt in inflation is not the same as an
accumulation of capital, it is just a shift in the relative value of wealth
held by debtors and creditors. Another thing should be taken into account.
The rise in urban house prices during boom periods is not due to a long term
increase in the amount of labour required to make houses. There is no reason
to believe that the house building industry is unique in having a tendancy
to continually decline in labour productivity. The price of a house
comprises two parts, the land price and the replacement value that it would
cost to build an equivalent house on that plot. The appreciation in house
prices is due to a rise in the price of land not a rise in cost of building.
Treating house prices as part of the capital stock is thus always
problematic since you are in part counting land not capital.

Well I am not likely to hire you as an economist.

(5) Yes Jurriaan, but we are back to my original point, to produce twice as
much
of a commodity requires twice the expended labour. The magnitude of a
financial deal is independent of the amount of labour expended, and making a
loan of 2,000,000 requires no more labour than making a loan of 1,000,000.
The amount of revenue that a bank earns from a trader depends primarily on
the sum of funds that they are allowed to trade with not on the number of
hours they spend working.

If you know anything about labour economics you know that "to produce twice
as much of a commodity requires twice the expended labour" is false.

(6) Sraffa's dated labour is not involved with real time since there is
assumed
to be no change in the conditions of production over time periods. Thus his
'dated labour' is just a procedure for calculating labour values by
iteration rather than Guassian elimination. It is the synchronic character
of Sraffa that Kliman so objects to in his polemics against 'simultaneous
value'.

That is simply false and Kliman would confirm it. What I mentioned about
Sraffa is his computation of the value of physical inputs in terms of units
of dated labour; the iterative procedure makes no sense other than in the
dimension of time. You can of course moot an argument that dated labour is
not really dated labour but that is a different story. What Kliman is
talking about is a relationship of inputs and outputs, and he argues validly
that the equality of inputs and outputs is false. It is just that my
argument is much better than Kliman's.

(7) But information is physical not immaterial : see Landauer's article in
Physics today May 1991

Well, yeah, what is information? I've worked since 1999 in document
management and you learn about these things as you have to, to do the work.
Information is not physical other than in the trite sense that it is
reducible to a flow or strand of energy. Information is a content of the
mind which is transmitted by a material information bearer or carrier. The
material/non-material distinction is not the same as the
physical/non-physical distinction. In physics, an idea is physical insofar
as it is a blip of energy.

(8) I think your dichotomy of 'material' and 'non-material' is as mistaken
as
the type of dualist materialism criticized by Marx in his third thesis on
Feurbach. The production of services is just as 'material' as that of goods.
You have knowingly or unknowlingly invented straw man that you keep
attacking. Well as we show in the paper, if you approach two questions:
1. the creation of the wealth of nations (Smith) 2. the production of
surplus value (Marx) from the standpoint of reproduction of the production
system, this conclusion is well-grounded and indeed useful. After we wrote
our paper, I have found that at least two people reached very similar
conclusions independently: the economist Edward Wolff and the cartographer
Michael Kidron.

I did not say you distinction is not useful. I said that your productive
labour concept is a prejudice, a one-sided view which is scientifically
unsustainable, that is all. You can be a Smithian Marxist if you want but it
has very little to do with Marx's critique of political economy. You would
arrive at better conclsuions only if you studied the theory and empiria of
the division of labour much more than you do.

Jurriaan

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Received on Sat Oct 2 09:58:08 2010

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