[OPE-L:809] Re: More Digression

Duncan K Foley (dkf2@columbia.edu)
Fri, 19 Jan 1996 07:52:20 -0800

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On Tue, 16 Jan 1996, John R. Ernst wrote:

> Duncan,
> Thanks for your response. (OPE-792) Let me comment on your
> last point first.
> Duncan says:
> Most of the discussion about the transformation problem takes place at a
> pretty abstract level, where the main concern is about the consistency of
> certain theoretical frameworks and interpretations. I assume that people
> tend to argue these issues through on the assumption of an economy
> without technical change and in long-run equilibrium because that is the
> simplest case analytically, and the theoretical issues are all present
> there without the need to grapple with the complexity of more realistic
> models. In fact, I think it is a sound methodological procedure to
> require someone to explain their interpretation, say, of the labor theory
> of value in this context before one can understand how it might apply to
> more complex, and more realistic, cases.
> John says:
> I had not intended to move to any discussion of the transformation
> problem per se but as you indicate out we seem to be approaching it.
> You are right that it appears sound to start with a simple case first
> and then move to the complex. I suppose my point is that in dealing
> with this "simple" case as we turn to the more complex we often
> find ourselves in disagreement with Marx. To be sure, he may
> be wrong but I think it is worth making sure we are right. Let
> me explain.
> If in a model using simultaneous valuation, with the usual assumptions,
> I compute the value of the constant capital to be, say, 1000, and
> proceed to calculate a set of relative prices using those values,
> redundant or otherwise, there are many concepts that can be dealt
> with in this simple type of model. Once that exercise is finished,
> how do we deal with technical change? That is, if due to increases
> in productivity the value of the constant capital falls to 500 in the
> next period using the same procedures, how do we capture that loss
> in value? Is that loss to be used immediately in computing relative
> prices?

I don't see any basic conceptual problem here. If you introduce technical
change explicitly into the model, the relative prices in each period will
reflect whatever pricing assumption you make, given current technology,
and old machines will be devalued at those prices. The owners of those
machines will experience a capital loss. There are a number of ways of
modeling behavior under these circumstances, depending on whether you
want to assume the losses are anticipated or not, etc.

> Again, I come back to my questions concerning capital loss
> as well as moral depreciation and note your comments concerning
> each. Yes, capital is devalued with technical change, but how
> do we capture that loss using models that assume equilibrium?
> Can we incorporate within those models "moral depreciation",
> which, as you remark, seems to be part of capitalists' pricing
> strategies, albeit in crude form?
I don't see what conceptual problem would arise in carrying out this
project. I think it is not so easy technically to write down this type of
model in a tractable form and keep track of the relationships.

> ____________________________
> A Point of clarification:
> Your lack of understanding of my "conscious effort to
> prevent nominal price decreases" is understandable. I
> was trying to indicate a difference between the economy
> today and that of Marx's time. That is, for Marx, it
> seemed reasonable to assume that as a capitalist innovates
> he would voluntarily reduce the price. Competition would
> then force the price down so that the individual value and
> social value correspond. Today we see little of that save
> perhaps, as you note, in the computer industry. But, perhaps
> more important is the conscious effort of those attempting
> to "control" the economy via fiscal and monetary policies
> to prevent drastic price decreases.
Fiscal and monetary policies presumably influence the value of money
overall, not the relative prices of particular sectors, which is what
creates the capital gains and losses you're talking about above. If the
value of money changes through inflation, all holders of the state's
obligations have a capital gain or loss.


> John