[OPE-L:5340] Re: OPE-L:5136 - Duncan's reply

Duncan K. Foley (dkf2@columbia.edu)
Sun, 13 Jul 1997 23:45:48 -0700 (PDT)

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In answer to Hans' OPE-L:5317:

>To answer Duncan's OPE-L 5316:
>> One question this raises is how, within Marx's theory, the central bank is
>> able to influence prices. In a gold standard system, for example, it can't,
>> since money prices are a reflection of gold prices.
>A capitalist economy cannot grow without the injection of purchasing
>power from the outside, as Duncan has shown in his "Realization and
>Accumulation in a Marxian Model of the Circuit of Capital", Journal of
>Economic Theory 28, 1982, pp. 300-319. How is this new purchasing
>power introduced into the economy? One important source is the
>banking system (antevalidation). The Fed endorses the lending
>decisions of the private banks by creating the money which the banks
>loan out (pseudovalidation). The Fed has some control and can
>stem an overextension of credit,

Up to this point I have no problems with Hans' position. I don't see any
difficulty in the idea that the central bank, through the control of
credit, has a role in regulating the rate of expansion of the economy.

which would generate more nominal
>purchasing power than there is actual value created in the economy,
>and therefore would allow prices to take off.

But here, I think we run into an inconsistency with Marx's theory of money
and prices. Even in a gold standard system the central bank's control of
credit could influence the rate of growth of the system, but Marx's theory
of money would not, I think, allow this to be reflected in a deviation of
prices of commodities from their gold prices, except perhaps in the very
short run. The issue that puzzles me is how you move from the rate of
accumulation or growth to the change in the price level. (Of course, we
have all learned, and tend to teach, this as axiomatic through a Keynesian
Phillips' curve.)


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu