Re: [OPE] Reply to critics

From: Paul Cockshott <>
Date: Wed Sep 29 2010 - 10:35:55 EDT

(1) How is the exchange value of products influenced by the income earnt
from owning money?

What I meant is that the value of money is influenced by the income which
owning the money can generate. If I own $100 and the rate of interest is 5%
I end up with $105 and if the interest rate is 8% I end up with $108. With
the $105 or $108 I can buy more than I could with $100. If I can invest
worldwide, I can place my money at the best exchange rate conditions and at
the highest interest. In that case I will have the maximum increase in my
funds. I could add that if my accumulation activity creates additional
demand, this is likely to affect the market and the production process that
supplies the market. With small amounts the differential is slight, but with
very large funds the exchange ratio between money and commodities is
affected greatly by yields and rates.
This is very unspecific, does a rise in the rate of interest increase the value of money relative to commodities or does it reduce the value of money relative to commodities: do you think a rise in the rate of interest causes inflation or deflation.

(2) Surely this is an ambiguity on your part about what you mean by
Either you follow what you say is Marx's view, that it is a net addition to
the value of capital, in which case debts do not count since they are not
addition to value. Or you specify some other procedure whereby the
of capital between agents counts as accumulation. What appears arbitrary to
me is
that you appear to be adding the positive side of debts but not deducting
the negative
side. If a person takes out a $50,000 mortgage on a $100,000 house that they
own, then there is no
change in the net worth either of the bank nor of the borrower, so that the
creation of this loan can not count as capital accumulation.

Paul, with you I always have to debate the most simple things from
accounting 101. It is patently obvious that people can accumulate wealth at
the expense of others so that the total stock of wealth does not increase. I
find it absolutely shocking that a computer scientist cannot grasp this
elementary point.
Perhaps it is because computing teaches you to be scrupulous about your use of maths. The question is whether accumulation of capital by one person at the expense of another counts as net accumulation. I would say no, it is a zero sum process.

If you want to debate it, give a worked example to show the contrary.

 Most times, accumulation involves both net addition and
redistribution, that is exactly what makes it complicated, and why grossing
and netting in social accounting involves value theory. If I take out a
mortgage and house prices increase, I can make a capital gain on my house
and thus I am accumulating capital despite the fact that the house stays
exactly the same as it was before.
Here you bring in two separate processes:
 The formation of mortgage loans on houses
 Stock appreciation on those houses

The original question that I raised was whether it was appropriate to include internal financial
Assets in the total capital stock of an economy. I said that it was not appropriate because
the process of taking out loans was just a redistribution of monetary and housing assets
the total net worth after the loan was the same as before. You have not dealt with this

You raise the quite different issue of stock appreciation. Ever since I first started to
do economic time series on the rate of profit I have taken the policy that it was best to
give profit figures net of stock appreciation, since stock appreciation just represents
a change in your unit of measurement. It leads to the illusion during inflation that profits are higher
than they really are in terms of money of constant value.

  You may argue that the capital gain is fictitious
capital, but when I sell the house at the end of the year there's real extra
money in my account. What does that extra money represent? You could say it
is a redistribution of funds which does not add value to the total capital
stock, but if the value of housing increases durably across the board, then
I could also argue that the value of the total capital stock has increased
due to the demand for housing. In Marxian value terms this may not be true,
but if the cost structure of building a new house increases durably, so that
the labour producing new houses is valued more highly, then it would seem
that the relative value of housing does increase, and that the gain in value
is not simply fictitious.
Yes I would argue that the capital gain on houses is fictitious when taken across the economy as a whole. The teacher who sold her house in California was no better off since she needed an equally big sum to buy an equivalent one. The only gain is that the proportionate share of her mortgage in the price falls. But the devaluation of debt in inflation is not the same as an accumulation of capital, it is just a shift in the relative value of wealth held by debtors and creditors.

Another thing should be taken into account. The rise in urban house prices during boom periods is not due to a long term increase in the amount of labour required to make houses. There is no reason to believe that the house building industry is unique in having a tendancy to continually decline in labour productivity. The price of a house comprises two parts, the land price and the replacement value that it would cost to build an equivalent house on that plot. The appreciation in house prices is due to a rise in the price of land not a rise in cost of building. Treating house prices as part of the capital stock is thus always problematic since you are in part counting land not capital.

(4) No Value is not purely social, it is social, but social within the
context of the interaction of humans with nature via labour. And the value
of a produced commodity is not an 'attribution' it is a necessity imposed on
people by the need to work to survive. The price to a share certificate, or
an acre of land on the other hand is just a social attribution.

This is just playing with words, and in addition you confuse value and
price. If I am buying a share certificate or an acre of land I am also
interacting with nature via labour, since I have to do work to clinch the
Yes Jurriaan, but we are back to my original point, to produce twice as much
of a commodity requires twice the expended labour. The magnitude of a financial deal is independent of the amount of labour expended, and making a loan of 2,000,000 requires no more labour than making a loan of 1,000,000. The amount of revenue that a bank earns from a trader depends primarily on the sum of funds that they are allowed to trade with not on the number of hours they spend working.
(5) This is a misrepresentation of Sraffa, for Sraffa too, it is synchronic
property of the current conditions of production.

This is just false. Sraffa explicitly assumes that the value of inputs
comprises direct and indirect labour and he invents some equations for
"dated labour", the dated labour being the "dead" labour contained in the
physical inputs used to make it. This entails, that the value of the
commodity comprises the sum of current and past labour used to make that
commodity. It is an embodied labour theory of value and it is this theory
also which Maurice Dobb proposed. Sraffa talks specifically of a "physical
Sraffa's dated labour is not involved with real time since there is assumed to be no change in the conditions of production over time periods. Thus his 'dated labour' is just a procedure for calculating labour values by iteration rather than Guassian elimination. It is the synchronic character of Sraffa that Kliman so objects to in his polemics against 'simultaneous value'.

(6) What is the non-material production that is so essential to material
production Jurriann? The activity of banking perhaps?

If you have any idea of modern production, you would know that material
production requires all kinds of services, including information services,
in order to operate at all. In fact the majority of labour engaged in
so-called material production involves information processing.
But information is physical not immaterial : see Landauer's article in Physics today May 1991

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Received on Wed Sep 29 10:37:47 2010

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