[OPE-L:3482] Re: accumulation: disequilibrium dynamics

Steve Keen (s.keen@uws.edu.au)
Sat, 19 Oct 1996 16:03:45 -0700 (PDT)

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Gerald Levy wrote:
> A few preliminary questions for Steve K re the model he summarized
> verbally in [OPE-L:3465]:
> (1) Is there competition in your model? If so, what form of competition
> and how many branches of production?

Yes. There are n branches in the model--it is a general input-output
matrix model a la Sraffians (though dynamised, which takes it out of
their realm). I have simulated partial versions of it with 3 sectors,
though there's no reason that I can't consider, say, 10 sectors and
simulate that.

Competition is simply modelled as a tendency for markups to be equalised
across sectors. So far I have used a single variable (scalar) to
represent the rate at which differences in rates of profit translate
into changes in markups, but it can easily be generalised to a vector of
adjustment constants. This would represent different "barriers to entry"
in different sectors of the economy.

> (2) Is the size of the working population allowed to vary with
> accumulation, e.g. is the size of the IRA a variable?

No to the first question; the next version will have that. Yes to the
second: there is a nonlinear wage demand function, and fluctuations in
effective demand which result in changing demand for employment of the
(fixed) population. That is fairly easily generalised to a growing
population, but that necessitates introducing technical change
(otherwise you assume an overpopulation thesis!), hence it has to wait
for a more complicated model.

> (3) You introduce banking in a basic model without technical change. Why
> didn't you consider technical change *before* considering the finance
> sector? I.e. isn't it the demand by firms for money capital so that
> they can purchase additional v and additional and BETTER c under
> conditions of technological change and competition that is a source
> for the demand that capitalists have for borrowing funds from banks?

In this model, the source of demand for funds is transactions period.

In other words, in this model, the entries in the moneylenders books
*are* money. If a capitalist A needs to purchase inputs or consumption
items from capitalist B, A's account is debited and B's credited by the
same amount. If a banker buys something from a capitalist, the
capitalist's account is credited; if a capitalist owes a banker
interest, the account is debited. The two transfers that require in
effect "paper money" are payment of wages, and consumption by workers.
In those cases, in effect, workers are issued with "chits" by one
capitalist which are honoured by all others. Thus a capitalist's account
is debited to pay his workers, and in the same period all capitalists
whose output appears in the workers' consumption bundles are credited by
(in sum) an identical amount.

The answer to (1) is also another reason why technical change comes
after finance in this model: a whole raft of things have to be taken
account of once you introduce technical change. But capitalism can exist
in its absence, and capitalism requires finance to operate, technical
change or no.

> (4) You introduce effective demand, but you don't introduce technical
> change. What is the logic behind this ordering?

Because one can be considered without the other, and an economy without
technical change (or population growth) is simpler than one with.
Introducing technical change is "simply" a matter of allowing the A
matrix and L vectors to alter from one period to the next, but there are
lots of issues about how one does that (is technical change a sigmoidal
function of profit, for example; how does change of the A matrix and L
vector relate to movements in commodity prices and the real wage?).

Such a model is always going to be a pale imitation of technical change
in the real world, in any event. You have to maintain the fiction of a
fixed number of aggregated sectors, when in the real world, technical
change results in new industries (aeroplanes, computers, robots, etc.)
which simply didn't exist in earlier times.