Dear Ian, Thanks for your post (OPE-L 4954). You write: "As a bystander, I don't think I understand your request of Fred. You state that prices and the rate of prfit cannot vary unless physical quantities vary, but this is so only if the wage rate is specified as a physical quantity." Well, I of course think prices and the rate of profit *can* vary independently of variations in physical quantities. It is only when input prices are constrained to equal output prices, a constraint I reject, but which Fred embraces, that prices and the rate of profit are functionally determined solely by physical quantities. You say "this is so only if the wage rate is specified as a physical quantity." What you seem to mean is that, if the money wage rate varies, but technology doesn't, the simultaneist profit rate will vary nonetheless. This is true. However, a change in the money wage rate entails a change in another set of physical quantities, namely the components of workers' consumption. Formally, if we denote the money wage rate as w, the vector of prices as p, and the bundle of workers' consumption components as the vector b, workers' budget constraints are w = pb, so a change in w entails a change in b. It thus remains the case that simultaneist prices and the rate of profit cannot vary unless physical quantities vary. Your second point is one I found particularly interesting. I had written: "I still think it is accurate to characterize your [Fred's] response to Alan Freeman's demonstration as a non-response. He showed that, when technology is changing, all variants of the *physicalist* prices of production and profit rate FAIL to constitute the center around which prices and the average profit rate fluctuate, despite the common claims to the contrary. You responded: "Why should Fred be worried by Freeman's demonstration? I have always supposed that prices of production and profit rate in the Sraffa or similar models only give values around which market prices and the average rate of profit TEND to fluctuate. This tendency would be realised only if technology is constant for long enough .... Empiracal observation does not produce uniform prices and profit rates of any description as centres around which market prices and profit rates fluctuate. ..." If I understand what you are saying, I agree fully. What I take you to mean is this. Prices and the average profit rate WOULD fluctuate around the static equilibrium prices and the static equilibrium profit rate IF technology were not changing (rapidly enough). IN FACT, however, prices and the average profit rate DO NOT fluctuate around the static equilibrium prices and the static equilibrium profit rate, because technology DOES change (rapidly enough). In other words, the static equilibrium profit rate is not the average profit rate that prevails at any moment, nor even the time-average of the average profit rate. I'm glad you understand this. I've found that very few people do. They just do not understand the difference between the average value of a variable and its static equilibrium value. But once one DOES understand this -- and this is a question for you -- of what use and what significance are the static equilibrium results? They don't describe or predict what actually occurs, nor do they even describe or predict what actually occurs once we abstract from accidental factors and fluctuations that compensate for one another over time. So what good are they? Take the following simple one-sector case, for example. Define the relative rate of variation in the unit price as H[t] = (P[t+1] - P[t])/P[t], where P[t] and P[t+1] are the unit input and output prices of period t. Assume the time-path of H is H[t+1] = -2H[t] - 50(H[t])^2 . Assume further that 10 units of corn input are required to produce every 11 units of corn output. Then the rate of profit is (11P[t+1] - 10P[t])/10P[t] = 1.1(1+H[t]) - 1. Now the static equilibrium value of H is 0 (there is also another fixed point, H = -0.06), so the static equilibrium profit rate equals 1.1(1+ 0) - 1 = 0.1 = 10%. However, for H not too far from 0, H behaves chaotically and averages -0.02. The rate of profit thus also behaves chaotically and its *average* over time is 7.8%. This is 22% below its static equilibrium value. Simulations indicate, moreover, that two-thirds of the observations are below the static equilibrium value of 10% and only one-third are above, instead of half and half. So who cares what the level of the static equilibrium profit rate is? What use does it have? What does it tell us about the actual economy? I still haven't answered your question about why Fred should be worried about Alan Freeman's demonstration. The answer is this. Although, as we agree, Fred's (physicalist) profit rate is not the actual "center of gravitation," when MARX referred to the general or average rate of profit, he WAS referring to the actual "center of gravitation." Hence Fred's average rate of profit and his associated prices of production are NOT the same as Marx's. This is contrary to what Fred has claimed, so he should be worried. Moreover, Alan's paper also shows (by means of Monte Carlo simulations) that temporally determined prices of production and average profit rate are indeed the "centers of gravitation" of actual prices and profit rates, even when technology is changing. This is also contrary to what Fred has claimed, so, again, he should be worried. Ciao, Andrew ("Drewk") Kliman Dept. of Social Sciences Pace University Pleasantville, NY 10570 USA phone: (914) 773-3968 fax: (914) 773-3951 Home: 60 W. 76th St. #4E New York, NY 10023 USA "The practice of philosophy is itself theoretical. It is the critique that measures the individual existence by the essence, the particular reality by the Idea."
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