In reply to OPE-L 4019 and 4027. I had written: "[How the level of the profit rate is determined] is the key question of all quantitative value theory of whatever stripe (neoclassical, post-Keynesian, Sraffian, etc.), IMHO. The answer depends on the theory in question. P[t] is given BEFORE production, and let's assume A and B are given. Then either the P[t+1] are determined exogenously (e.g., by "demand," as in PK theory) which then determines r; or r is determined exogenously, which then determines the P[t+1]. Both Alejandro Ramos and Rakesh have asked whether I meant "endogneously" instead of "exogenously." No, I meant exogenously. In the equation system P[t+1]*B = (1+r)*P[t]*A r is determined exogenously in a mathematical sense. That is, it is not determined within the system of equations. In other words, the equations do not constrain r to take on any particular value or values. Thus, in PK theory, r is determined by the "level" of the P[t+1], but the determination of r is exogenous to this equation system because the determination of the P[t+1] is exogenous to this equation system. In Marx's theory, in contrast, the causation leads from r to the P[t+1]. However, r is again not determined within the system equation. There's also an economic sense to exogeneity here. The equation system is a kind of representation of the sphere of circulation. The magnitude of profit (and thus the magnitude of r) in Marx's theory is not determined within that sphere, but outside it, in the sphere of production, where there's no admittance except on business. (Credit for this insight goes to Ted McGlone.) I had also written: "Marx argues in the latter way. Total surplus-value or profit is determined by (and is the monetary expression of) the amount of surplus-labor extracted in capitalist production -- BEFORE the outputs B are sold. Rakesh replied: "Isn't just the maximum total surplus value and and r being determined before the outputs B are sold? After all, in the real world, D will not equal S, surplus value will be siphoned over in various ways which will depress the real r below the maximum r." Yeah, you're right. I should have been more careful, at least with respect to r. On the other hand, if stuff can't be all sold at value, Marx argues that what occurs is a drop in price below value (and thus profit drops below surplus-value), and not that the value and surplus-value drop. Rakesh also wrote: "But how then how do you propose to determine the input unit prices on the basis of the data in Marx's tableaux or Allin's interdependent production model?" I don't. They are givens. Neither did Marx propose to determine them: in Ch. 9 of Vol. III, his capital advances, cost prices, etc. ARE the data of his tableaux. Of course, the input prices of one moment are in fact determined by means of the process that determines the output prices (of that moment, i.e. of a *prior* circuit of capital). But I'm assuming you're asking about the initial conditions. Rakesh: "And if you can't determine them, then how will you get the right cost prices (k) and the correct prod prices for the outputs (kr)? And if you can't determine prices rigorously, what kind of theory is this?!" You're either playing devil's advocate, or you've forgotten everything you've written about Marx's aim not having been to determine prices. In any case, Mino Carchedi and Alan Freeman (independently, I believe) answered this question definitively long, long ago. If the task is to understand the determination of the output prices, it is perfectly warranted to take the input prices as given. (I believe this is a close paraphrase of a statement by Carchedi.) Dynamics simply requires initial conditions. Put differently, the aim of dynamic analysis is to determine, not the magnitude or position of a thing, but the laws of its motion -- to describe how it moves FROM one place TO another, or how its size changes FROM one level TO another. An analogous case Alan Freeman brings up is astronomy. Astronomers do not attempt to determine the position of the planets. Rather, GIVEN that a planet is in a certain place at one moment, they attempt to describe where it will be at all subsequent moments. By the same token, if the task is to understand the determination of the levels of physical outputs, it is perfectly warranted to take the levels of inputs as given. How come none of the people who get totally bent out of shape by initial conditions for unit prices or values ever bother to question their own methods, in which THE AMOUNTS OF PHYSICAL INPUTS ARE INITIAL CONDITIONS? One might argue in the following way: "If you can't determine the amounts of inputs (AX), then how will you get the right outputs (X) and the correct aggregate cost prices (p(A+bl)X) and prod prices for the outputs (pX)? And if you can't determine physical quantities rigorously, what kind of 'theory of production' (Pasinetti) is this?!" So how do they propose to determine the initial amounts of inputs?! Undoubtedly these initial amounts depend on the levels of outputs and accumulation decisions of the past. But those outputs depend on prior levels of inputs, which depend on even previous levels of outputs, etc. And thus the physicalists' fall into the same "infinite regress" that they accuse us of! Or do they? No, they don't. And neither do we. The "infinite regress" argument is just bogus. Andrew Kliman
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