[OPE-L] The phenomenology of prices

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sat Dec 29 2007 - 09:19:25 EST


I just think the neo-Ricardians tacitly accept many conventional accounting concepts in the attempt to explain the origin of the surplus, and I think that is problematic. 

In an accounting sense, for instance, the measured magnitude of the output shown in the ledger must be equal to the expenditure on the output, and consequently inputs must exactly equal outputs. And that is also exactly what is assumed in an input-output system. I think in real life that isn't the case, what we are dealing with is an artifact of accounting procedure. In part, the outcome of the economic controversy hinges on how the inputs and outputs themselves are defined.

More generally, I think it can be proved that the neo-Ricardian or Sraffian economics still assumes a value theory anyway - but it is, precisely, a theory which borrows from ordinary bookkeeping concepts. I haven't yet written that up in an article though. 

As I mentioned before, the "inverse transformation problem" consists of how you get from prices to values. The idea in this transformation is, that if you aggregate prices according to a certain grossing and netting procedure, relating costs (purchases) and revenues (sales), out pops the "value" of production from which we can derive the new value added. This "value" is equal to an aggregate price, and therefore, at least at an aggregate level, price=value. 

The point however is that the grossing and netting procedure applied itself again presupposes a value theory, and a theory about what production is  (a systematically related series of assumptions about economic value and production) without which the valuation couldn't even be made. If you probe the foundations of accounting theory, this is in fact acknowledged (i.e. that we must have valuation principles and demarcate business activity), but accountants are not very interested in that insight per se, since they are interested primarily in the utility of price information for the purpose of making economic decisions, and conventions are adopted for that purpose.

One of the underlying issues is, whether economic goods have a value quite independently of whether they are being traded or not, i.e. independently of circulation and exchange, and independently of whether they have a price or not. I think (along with Marx and the classical political economists) they do, and therefore, as far as I am concerned, a lot of economic theorising which assumes that the value of economic goods equals their price (whether an actual price or an ideal price) falls down.

As FASB puts it in the excerpt I quoted before, "The financial statements of a business enterprise can be thought of as a representation of the resources and obligations of an enterprise and the financial flows into, out of, and within the enterprise - as a model of the enterprise. Like all models, it must abstract from much that goes on in a real enterprise."

That is to say, the accounting data which the economist feeds into his own model itself already assumes a model, i.e. a set of abstractions is tested against another set of abstractions, one model is tested against another model. This is made even more explicit in social accounting, because indeed production ITSELF is DEFINED in terms of "activity in which inputs are transformed into outputs by resident institutional units'".

Unsurprisingly, FASB reaches the conclusion that "In summary, verifiability [in accounting] means no more than that several measurers are likely to obtain the same measure". It acknowledges however that whether the data obtained in fact measure what they purport to measure, and how we know that, remains controversial, analogous to an educationist who claims e.g. that "intelligence is what the tests measure".

The inventor of input-output economics, Wassily Leontief (who was partly inspired by Marx), remarked about economics that "in no other field of empirical inquiry has so massive and sophisticated statistical machinery been used with such indifferent results" ("Theoretical Assumptions and Non-observed Facts", American Economic Review, 61, pp. 1-7, 1971). One reason why this is so, is because no particular theory can be DEDUCED from price information, and because that price information itself is actually reliant on theory for its existence (in philosophy of science, this is referred to as the "theory-laden nature of observation"). Once that theory is probed further, we find that it involves the making of assumptions (if you like, conventions) about economic value - even although most economists swear that value theory is irrelevant, and that only price information will do. 

As I have argued before (consistent with Marx), it is impossible to prove any particular concept of value is true. All we can prove is its utility in explaining the facts of experience. But, I might add, what we can prove also, is that, as a matter of fact, the value assumptions which are popularly made, conform to a specific pattern, and therefore we can make a theory about why precisely those value assumptions are made, and not any others. This is what Marx tried to do, critically sifting through the theories of value existing at the time.

Marx wasn't very interested in price theory, he was more interested in the value relation or social relation which prices expressed or implied. But I think this is in a sense regrettable, since if he had probed more what is actually involved (cognitively and socially) in the use of prices, he would have given a much stronger case for why value theory is necessary. I refer in this sense to the "phenomenology of prices", i.e. the study of the "price-forms" themselves and the valuations which they imply. From the time that he wrote "A Contribution to the Critique of Political Economy" (1859), Marx was very explicit that "exchange-value" and "price" were NOT the same things, but he does not develop that argument much further. 


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