Hi Duncan. It seems to me that you are saying, for instance in
[OPE-L:5357] and [OPE-L:5376] and elsewhere, that a rise in prices in
the Marxian theory can have the following causes:
(1) speculation, i.e., prices rise because everybody expects prices to
rise. This is a self-fulfilling hypothesis, and it is indeterminate
how fast prices rise, and there could also be falling prices for the
same reason.
(2) a Phillips curve: workers can bargain for higher wages
due to lower unemployment, and this is passed on to prices.
(3) disequilibrium effects which have to do with prices deviating from
prices of production, but these are contingencies which cannot explain
persistent inflation.
If I am oversimplifying or misunderstanding you here, please correct
me. In any case, whether or not this is an accurate rendering of
Duncan's thinking, it seems to me there is another mechanism which is
not in the above lineup. Before characterizing this mechanism with
words I will make a rough sketch of a mathematical model in which this
mechanism is active. (To be more precise: I think a mathematical
model which has the properties described below could be built,
although I have not done it.)
Start with Duncan's stock-and-flow model as formalized in "Realization
and Accumulation in a Marxian Model of the Circuit of Capital",
Journal of Economic Theory 28, 1982, 300-319, or Chapter 5 of
*Understanding Capital*. Assume there is steady-state growth with no
unemployment. (I am not making this assumption because I think that
capitalism can grow this way, but I am making this assumption in order
to isolate some economic mechanism. Think of it as a laboratory
situation.)
One of Duncan's important findings in this model is that the economy
cannot grow without increasing its indebtedness at the same time. Why
not? It has nothing to do with the fact that wages are lower than the
value produced by the workers. It is rather the simple technical fact
that all those who are spending money, workers and capitalists, do not
spend it immediately when they get it, but they wait a little before
they spend it. During this waiting time, the economy continues to
grow, and this additional growth would show up as excess supply would
there not be a banking system allowing the consumers to spend on the
aggregate more than what they make.
Ok, it can be computed in this model how much additional credit there
must be in order to fill this waiting-time gap. Part of this is
credit to capitalists so that they can finance the steady-state
expansion of production, and part of this is loans to consumers.
Now assume there is too much credit. For simplicity assume the credit
to the capitalists has the right amount, but there is too much
consumer credit. This can happen without a change in the interest
rate: credit is always rationed at the prevailing interest rate,
because a market clearing interest rate would be so high that only
swindlers would be able to pay it. Now the allocated amount under
this rationing is increased. This may be some kind of monetary
policy. What happens then?
Let's look first what happens to the credit given to the capitalists.
Since we are in a market economy, there are always certain industries
which have a higher than average rate of profit and other industries
which have a lower rate of profit. Clearly, much of the credit given
to the capitalists is invested in those industries which at the
present time happen to have a higher than average rate of profit.
The investors must expect that over time this rate of profit will move
towards the average, but it is not possible for the capitalists to
know how fast this will be the case. Each capitalist who makes his
decision to invest does not know how many other capitalists are at the
same time investing in the same industry.
Now if the consumer credit would be at the "right" amount, then the
consumers could not continue to pay the high prices for the
mometnarily scarce goods after the scarcity has been removed.
Profit rates in the momentarily favored industries would fall after
the right amount of capital has flown into them, and additional
capital seeking investment would go into the other branches of
procdution so that overall there is balanced growth at the right rate.
If there is too much consumer credit, then the prices in the
momentarily favored industries would not fall as quickly as they
should, since the consumers have more buying power than they should,
i.e., than can be supplied by the overall economy. Consequently too
much capital would be allocated to these industries. Therefore not
enough new investment would be available for the other industries,
these other industries would therefore experience deficient supply and
also raise their prices. I.e., a general rise in the price level,
along with some imbalances in the economy.
I don't think I am telling you something new here. But it is
important to note that this rise in the price level is not
speculative. It is also not a quantity-theory of money mechanism.
The real money balances of the consumers do not play a role here.
Basically this rise in the price level comes from the impossibility
for both suppliers and demanders to distinguish a situation in which
prices are high because of an imbalance of supply and demand from a
situation in which prices are high because of general inflation.
Hans Ehrbar.
ehrbar@econ.utah.edu