Re: (OPE-L) Ajit's paper

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Sun Jun 06 2004 - 08:00:49 EDT

--- Ian Wright <iwright@GMAIL.COM> wrote:
> Hi Ajit
> Thanks for your reply on what constitutes a theory
> of price.
> > One must be clear about two entirely
> > separate questions: (1) How to explain a
> phenomenon,
> > and (2) How to explain CHANGES in that phenomenon.
> You do not have a complete explanation of a
> phenomenon unless you can
> explain how it changes, which is why Sraffa's
> theory, for example, is
> an incomplete theory of prices, assuming that was
> its intended
> purpose. In that theory there is no necessary
> relation between prices
> at time t-1 and prices at time t, something you make
> a virtue of.
> There are systems in which the separation of (1) and
> (2) is not
> possible, for example evolution, or economies in
> which prices at time
> t-1 have causal relations to prices at time t. In
> this case, it is not
> possible to explain the phenomenon without reference
> to previous
> phenomena of the same type.
> If you deny the existence of causal relations and
> retreat to Humean
> scepticism at this point then we can acknowledge
> different and
> incommensurable research programmes.
> But I hope you agree that whether or not prices at
> time t+1 affect
> prices at time t is an empirical question, not one
> that can be be
> decided by methodological stipulation.
> For if it is the case that prices can affect prices
> then a complete
> theory of price must refer to previous prices.
> I see no good reason to relegate the determination
> of price values to
> a separate domain of forecasting. A complete theory
> of prices must
> explain the quantitative determination of prices,
> not simply outline
> sets of logical possibilities that have no
> connection to each other in
> time. The fact the forecasting prices requires prior
> prices should
> tell you that price affects price.
> Your price theory assumes that prices can be
> determined at an instant
> of time without reference to prices. My simple point
> is that if prices
> are in fact determined by previous prices then this
> is an incomplete
> theory of prices -- the static theory misses a
> determining factor.
> This is what I mean by price epiphenominalism -- the
> assumption that
> prices are only economic outputs, simply measures or
> indices, rather
> than also inputs that function as control signals.
> This is the temporal critique of simultaneity.
> Of course, it is an interesting question how such a
> feedback system
> originated, and a fully satisfying explanation must
> address the origin
> of prices. I think a theory of prices should be both
> (1) and (2). You
> seem to think that (1) suffices and (2) is
> "mumbo-jumbo". My logic is
> (1) AND (2), yours is (1) NOT (2).
> The explanation of origins usually takes the form of
> a "boot-strap"
> argument, in which the first determination of the
> phenomenon in
> question does indeed meet the methodological
> criteria you outline,
> e.g. that prices are not explained in terms of
> prices, or life is not
> explained in terms of life. For what it's worth I
> think a boot-strap
> argument can be provided for the MELT.
> Absent a boot-strap it is entirely legitimate to
> assume prices at a
> previous period as a parameter to a model. In fact,
> if it is the case
> that prices cause prices then it is necessary to do
> so.
Ian, I think on the philosophical question of the
phenomenon and changes in the phenomenon your position
is not convincing. But I think we will not come to any
agreement quickly on this issue. So I have decided to
move from generality to particularity--the particular
case you want to defend.

what is price? I guess both of us would agree that it
is not a thing or an animal like a dog. By price
economists mean a set of ratios that exchange of
commodities follow in a given circumstances. Once
those circumstances are specified, one knows what
those ratios are--they have no other place to go. Your
contention is that the ratios that prevailed in the
previous period must be the part of the specification
of the circumstances that determine prices in the
present period. But the contention begs the simple
question: but on what grounds? Your answer, I presume
would be: the cost or measure of capital goods on
which a rate of profits is earned was bought in the
previous period, and so those prices are relevant in
determining today's prices (I guess, this is what the
TSS argument is). So let's follow this to see where it
takes us. Let us suppose that I used 2x and 3y to
produce 1 unit of z. The price of x and y in the
previous period happened to be $25 each, and the price
of z in the current period happens to be $60, so
according to your calculations I have made 20% rate of
profit (alternatively I add 20% rate of profit on my
$50 investment and sell the commodity at $60). But let
us suppose that the prices of x and y have risen from
previous period to the current period by 100%, that is
now they are $40 each. Now, if this is the case, then
I have to be an idiot to think that I have made 20%
rate of profit. Any business person would not be such
an idiot. No matter at what price s/he bought her
inputs, she must realize that she does not now have
enough to stay in the business--given she cannot even
produce one unit now. That is why to claim that
profits must be calculated on money capital actually
spent rather than cost of the replacement of capital
goods amounts to irrational calculations. Economies
cannot run on such irrational calculations. As you can
see, my business is gone under but you would like to
convince me that it is doing pretty good.
> But I do
> not think your position is "mumbo-jumbo", just
> incomplete. Maybe you
> could be equally magnanimous about TSS theories.
> ATB,
> -Ian.
Since you made such an appeal, I went back to recheck
an old paper by Kliman and Mcglone (it is mostly cited
as the TSS' answer to Transformation problem). If this
paper is not mumbo-jumbo, then I don't know what
mumbo-jumbo means. They have a table on page 73 with a
lot of numbers but nowhere it is specified what are
the units of those numbers. I guess that would be
expecting too much, since they don't think units
matters in mathematics. Any way, they apparently, have
an s, which supposed to stand for "(price expression
of) surplus value". If you look at those numbers, it
appears that they must have gotten those numbers by
multiplying certain hours of labor (as surplus labor)
with money wages per hour of labor. So the question
now is how did they get a measure of the surplus hours
of labor? If you ask them how did they get that? they
will tell you that we assume $1 = 1 hour of labor. So
if the workers got $3 as wages and they have worked
for 6 hours then 3 hours is surplus labor. But this is
to say that my theory of x is that I assume that x =
y, and that's my theory! When I had pointed this out
to Kliman and Freeman many years ago on OPE-L, Kliman
threw a lot of tantrum and Freeman came around to
saying, you will have to give me this much Ajit, that
in the initial period, value is equal to price. To
which I answered that "no! Alan, I cannot give you
that". But Freeman has been troubled by this, and for
sometimes he has been saying that instead of
arbitrarily taking $1 = 1 hr. of labor, he would take
Foley's MELT to translate prices into labor terms. But
this contradicts everything else they are saying. As I
mentioned in response to Riccardo, Dumenil and Foley
derive their MELT on exactly the same basis a
Sraffians derives labor values. They simply take
unskilled labor with average intensity and add them
all up as if they were abstract labor. Money plays no
role in making this abstraction. All they do is to
redefine value of labor power such that total profits
equal to total surplus value turns out to be a
definitional identity. This has no explanatory
significance and also lands Marx's concept of
exploitation in trouble as I have explained in my RRPE
paper of 98(?). But that aside, Foley's position is
identical to Sraffians when it comes to value and
price determination. The only difference is that he
simply redefines a couple of aggregate categories. I
think this much would do for now. Cheers, ajit sinha

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