[OPE-L:4912] Re: Sraffa's Non-Proof

Ajit Sinha (ecas@cc.newcastle.edu.au)
Mon, 5 May 1997 02:56:21 -0700 (PDT)

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At 04:26 PM 4/28/97 -0700, Andrew Kliman wrote:
>A reply to Ajit's ope-l 4844.
>Ajit thinks I'm suggesting that Sraffa made a "silly mistake." I am not.
>I've merely proved that he failed to demonstrate that, given an economy with a
>surplus that undergoes simple reproduction and has stationary exchange ratios,
>there is a unique rate of return on capital advanced. And that's all I've
>ever claimed.
>We can debate whether Sraffa was referring to a mythical economy without
>"dollars," or whether he intended his constructions to have some bearing on
>actual economies. That would make for an interesting discussion, perhaps, but
>note well that I and Ajit have been talking all along about "an economy,"
>i.e., any economy.

If you think that you are dealing with a 'real' economy, you would be quite
wrong. In economics the word 'real' is used only as a rhetorical devise, and
has implied impact only on feeble minded. As I have argued that the kind of
theory of prices you are proposing is quite incoherent and so has nothing to
do with either 'real' or unreal economy. But for the argument sake, let me
point out just a couple of points. you have single, so-called 'actual',
prices for one kind of commodities. However, in the real world situation you
would generally find that if you buy some thing in great bulk then you pay a
smaller price than when you by in smaller quantity. For example, if you are
constructing a house of your own, then the price of the housing materials
you would be paying be most likely higher than what a big developer would be
paying for the same materials. Your theory does not take this into account
but it happens every day. Thus your prices are abstract and not real or
actual prices. Secondly, when you take the input prices as given and work
out the output prices as prices of production by equalizing the rate of
profit, there is no guarantee that these prices would be the actual prices.
Most likely, the actual prices would diverge from your prices of production,
even if your theory was correct, due to infinite accidental reasons. Thus
your prices again are abstract prices and not actual or real prices.

>Ajit's response in ope-l 4844 implicitly concedes this. In response to my
>demonstration that the profit rate measured as a ratio of $ can be lower than
>Sraffa's 25 0f prices fall between time of input and time of output, Ajit
>notes that there are no $ in Sraffa's hypothetical construction. This tacitly
>acknowledges that the profit rate is not determined solely by technology, real
>wages, and relative profitability in the actually-existing capitalism in which
>I live, which uses U.S. dollars, or the actually-existing capitalism in which
>he lives, which uses Australian dollars, or the actually-existing capitalism
>in which he lived before, which uses Canadian dollars. It thus tacitly
>acknowledges that I was right when I stated that Sraffa had failed to prove
>the proposition in question.

I did not concede anything. I simply suggested that your arguments were
theoretically sloppy, and you needed to work out your critique in a more
rigorous fashion. The theory of relative prices are not worked out in fiat
money terms. Marx's prices are also not in fiat money terms but commodity
money terms as in Sraffa. To introduce fiat money in your theory you need to
first introduce government, monetary institutions, and other institutions
that control the supply of fiat money, which is responsible for maintaining
the value of fiat money. Now, in your example, the value of fiat money is
rising, however *all* relative prices are holding. In this case, the rate of
profit must remain 25% as before. Because, the real value of 'capital' would
not change, and the profit must be calculated on the real value of
investment and not on the nominal value of investment. Cheers, ajit sinha