Re: [OPE-L] monetary macro interpretation

From: Ian Wright (wrighti@ACM.ORG)
Date: Wed May 31 2006 - 14:27:57 EDT

Hi Jurriaan and Fred,

In fear of opening a hornets' nest ...

> "These two aggregate equalities are not conditional
> equalities, that may or may not be true, depending on the compositions of
> capital of individual industries (as in the standard interpretation of
> Marx's theory), but are instead identities, that are always true, by
> assumption, or by the nature of Marx's logical method - the determination
> of the total surplus-value prior to its distribution."
> Fred's description has got to be correct basically, but I would say that the
> two aggregate equalities are true "by assumption", specifically a modelling
> assumption made to understand a complex reality. Lateron both Marx and
> Engels qualified that assumption:

The neo-Ricardian critique is that under conditions of simultaneous
determination those aggregrate identities do not hold. As I understand
it, Fred does not cast his theory under conditions of simultaneous

However, the neo-Ricardian critique is based on a real-cost accounting
error, specifically the omission of the labour-value of money-capital.
Once that accounting error is fixed all Marx's aggregrate identities
hold in the case of simultaneous determination.

The mistmatch between Marx's theory and simultaneous determination has
often been noted on this list. I would like to add another mismatch:
in the special case of simple reproduction in a state of
self-replacing equilibrium, prices of production are proportional to
labour values.

In general, both Marxist and neo-Ricardian political economy have
maintained price-value divergence due to profit-rate equalisation.
They have differed over the aggregrate conservation of value in price.
But in the (very) special case of simultaneous determination, in which
the modern debate on the transformation problem has focussed, the
shared premiss of both sides of the argument is wrong: there is no
price-value divergence and there is aggregrate conservation. The
transformation problem is the inverted appearance of an underlying
labour-cost accounting error. Sraffian labour-cost accounting is
non-conservative due to its omission of the labour-cost of
money-capital. This is why those value and price aggregrates don't
match up in the neo-Ricardian representation of Marx's theory.

Clearly this is all very counter-intuitive to those schooled in the
transformation problem, and I don't expect to be able to convince
others of these points immediately.

I think you are right to emphasise that perfect conservation of labour
cost in price can only hold at a particular level of abstraction. But
that does not mean that gaining a perfect understanding of this level
of abstraction is not important.

Although I have not studied this question in detail, I'm pretty
certain that Fred's macro-monetary interpretation will now hold under
conditions of simultaneous determination, once conservative
labour-cost accounting is adopted. However, I'm not sure whether Fred
and others will balk at the denial, in the special-case,
"Bortkiewiczian" conditions, of price-value divergence due to
profit-rate equalisation. There's quite a bit of thinking and talking
to do.

> Pedagogically, we can point up the problem here by asking the question, "how
> do national accountants get from observed PRICES to a macroeconomic
> aggregate of "gross VALUE added"? which is a kind of inverse transformation
> problem.

That's an interesting question. I have zero expertise in national
income accounting. Why not divide the total price of the net product
by the average wage rate?

Best wishes,

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