# [OPE-L:3281] RE: Re: RE: Re: Accelerated ACcumulation

From: A.B.Trigg@open.ac.uk
Date: Mon May 22 2000 - 08:16:20 EDT

> Hello Andrew.
> Thanks very much for stating your argument about Grossmann so clearly
> which I think is correct. The breakdown is because of insufficient
> surplus value, and hence, as you suggest, excess demand If I may I would
> like to show my critique of Grossmann using your equations. You may or may
> not agree.
>
> You assume a single product corn and state your model as:
>
> W[t] = C[t] + V[t] + S[t] (1)
>
> K[t] = W[t] - C[t+1] - V[t1] (2)
>
> W is total value, while C, V, and S are constant and variable capital and
> surplus-value. K is capitalists' personal consumption.
>
> Breakdown occurs when capitalist consumption becomes negative:
>
> K[t] < 0 (3)
>
> which implies that
>
> W[t] < C[t+1]+V[t+1] (4)
>
> Now introducing my own modifications, which I don't think are
> controversial, let:
>
> C[t+1] = C[t] + dC (5)
>
> V[t+1] = V[t] + dV (6)
>
> where dC and dV are the changes in constant and variable capital between
> periods t and t+1. Substituting (5) and (6) together with (1) into
> equation (2):
>
>
> K[t] = C[t] + V[t] + S[t] - C[t] - dC - V[t] - dV (7)
>
>
> Cancelling out:
>
>
> K[t] = S[t] - I[t] (8)
>
> where I[t] = dC + dV, that is investment I[t] is equal to the change in
> constant and variable capital. Equation (8) shows that capitalist
> consumption (K) is the difference between total profits (S) minus
> investment (I). Now this identity is open to interpretation. Grossmann
> views capitalist consumption as a residual amount of total profits left
> over after investment has been accounted for. An alternative perspective,
> following Kalecki, is to write the equation as:
>
> S[t] = I[t] + K[t] (9)
>
> For Kalecki capitalists 'as a class determine by their expenditure their
> profits and in consequence the aggregate production' (Kalecki's Collected
> Works, Vol II, p. 25). They earn what they spend instead of spending what
> they earn. Profits in equation (9) are therefore determined by investment
> and capitalist consumption, by the (productive and unproductive) spending
> of capitalists. From this perspective capitalist consumption (the main
> part of it) is autonomous, instead of being treated as a passive residual
> as in (8). Kalecki has the model
>
> K[t] = B* + bS[t] (10)
>
> Where B* is the autonomous component of capitalist consumption and b is
> the remaining smaller part which depends upon profits. Substituting (10)
> into (9) we have by manipulation:
>
> S[t] = (B*+ I)/(1-b) (11)
>
>
> In this model capitalist consumption and investment generate profits via
> the multiplier 1/1-b. Instead of treating capitalist consumption as a
> passive residual it is an active component in the generation of profits.
> As Marx writes in Theories of Surplus Value, 'the capitalists can consume
> an increasing part of their revenue' and 'to a certain extent therefore
> they also constitute a market for one another (Marx, 1969, p. 482).
>
> As is well known, Kalecki's model is an interpretation of Marx which
> represents a monetary theory of production. You assume, Andrew, a corn
> model to represent Grossmann, and I think this is very apt. Grossmann
> treats surplus value like a surplus of corn which each year is available
> for redistribution. If there is not enough available then, as you rightly
> state, there is excess demand, and the system breaks down. If, however,
> we view capitalism as a monetary economy, then capitalists are not
> constrained by such a physical surplus. Capitalists spend money M which
> via M-C-M' generates the funds which are available via the circulation of
> money capital to fund their consumption requirements. In a monetary
> economy it is capitalist (money) spending which drives the system not the
> physical surplus. Once we take this viewpoint it is nonsensical for
> capitalist consumption to drift towards zero and become negative. If we
> view some of (money) capitalist consumption as autonomous then the
> multiplier generates additional profits which provide the necessary
> funding.
>
> As Marx makes clear in Capital Volume III, it is not a shortage of surplus
> value that provides the problem for the system, but the 'monstrous
> proportions' of surplus value (Marx, 1981, 352). The onset of crisis is
> likely because this volume of surplus value cannot be realised. I agree
> with you, Andrew, that the problem in Grossmann is one of excess demand,
> but in Marx (and Kalecki) the problem is one of insufficient demand.
>
> Sorry that this is so long, but would very interested in your response.
>
> Andrew (Trigg)
>
> In reply to OPE-L 3203:
>
> Hi, Andrew.
>
> You wrote:
>
>
> "I'm coming into this debate late but am I right in hearing that Andrew
> is arguing that the Grossmann/Bauer model breaks down because of excess
> demand."
>
> Yes.
>
> "The reason it breaks down I would argue, is that demand is not modelled
> at all. Instead of the bulk of capitalists' personal consumption being
> treated as autonomous - Kalecki shows this empirically - it is treated as
> a passive residual which shrinks to nothing."
>
> It is true that capitalists' personal consumption is treated as a
> residual. But that isn't the same thing as demand. You are forgetting
> about the productive demand -- demand for means of production and wage
> goods. All surplus-value is assumed to be "realized," so *total supply*
> equals *total* demand. Demand for means of production and wage goods is
> given exogenously -- the former grows at 100.a., the latter at 5%.
> Since total demand is determined by total supply, and all but one
> component of demand is given exogeneously, this last component,
> capitalists' consumption, is a passive residual. It is the difference
> between total supply and productive demand.
>
> Now note that capitalists' consumption becomes *negative* as time
> proceeds. The moment at which it becomes negative is the moment of
> "breakdown." In other words, the difference between total supply and
> productive demand becomes negative. Or, in still other words, productive
> demand eventually exceeds total supply. Hence, "the Grossmann/Bauer
> model breaks down because of excess demand."
>
> And it really is a matter of excess demand in *physical* terms. I could
> develop this point in terms of two departments, but it is easier to work
> with one. So assume a single product (corn). The model is then:
>
> W[t] = C[t] + V[t] + S[t].
>
> K[t] = W[t] - C[t+1] - V[t+1]
>
> W is total value, while C, V, and S are constant and variable capital and
> surplus-value. K is capitalist consumption.
>
> Breakdown occurs when capitalist consumption becomes negative:
>
> K[t] < 0
>
> which implies that
>
> W[t] < C[t+1] + V[t+1].
>
>
> Now note that the unit value (or price), P, of the commodity at the end
> of period t must be the same as its value at the start of t+1, since this
> is the same time. Hence:
>
> W[t] = P[t]*X[t]
>
> where X is the physical output (supply) of period t;
>
> C[t+1] = P[t]*A[t+1]
>
> where A is the means of production employed (demanded) in t+1; and
>
> V[t+1] = P[t]*B[t+1]
>
> where B is the total real wage bill, means of subsistence demanded, in
> t+1.
>
>
> Plugging these relations into our inequality:
>
> W[t] < C[t+1] + V[t+1]
>
> P[t]*X[t] < P[t]*A[t+1] + P[t]*B[t+1]
>
> X[t] < A[t+1] + B[t+1].
>
> So "breakdown" occurs when physical supply, X, falls short of physical
> demand for means of production + subsistence, A + B.
>
> The reason this occurs, fundamentally, is that demand for means of
> production grows at a faster rate than supply of total output. Recall
> that
>
> C[t+1] = Co(1.1)^(t+1),
>
> so that
>
> A[t+1] = {Co/P[t]}(1.1)^(t+1).
>
> And recall that
>
> W[t] = Co(1.1)^(t) + (Vo + So)(1.05)^t, so that
>
> X[t] = {Co/P[t]}(1.1)^(t) + {(Vo + So)/P[t]}(1.05)^t.
>
>
> There must therefore come a time when demand for new means of production
> outstrips total supply:
>
> A[t+1] - X[t] > 0, i.e.,
>
> {Co/P[t]}(1.1)^(t+1) - {Co/P[t]}(1.1)^(t) - {(Vo + So)/P[t]}(1.05)^t > 0
>
> 0.1*Co(1.1)^t - (Vo + So)(1.05)^t > 0
>
> (1.1/1.05)^t > 10(Vo + So)/Co.
>
>
> So, as I said, it is all a matter of excess demand in physical terms.
>
>
> Andrew Kliman

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