In ope-l 4556, Ajit wrote
"(2) If we assume that the system is in simple reproduction schema and
everything in the world, leaving prices out, remain constant from period zero
to period one, then wouldn't you agree that the prices would also remain the
same in period one as they were in period zero[?]"
I think I now understand a bit better what Ajit means by this. Here's how I
would explain matters:
(a) you can't "leav[e] prices out"
because
(b) it is imprecise to speak of "the prices [of] period one [and of] period
zero."
There are *three* sets of prices relevant to these two periods:
the input prices of period 0
the output prices of period 0, which ARE the input prices of period 1
the output prices of period 1.
This is because production takes time, and so these three sets of prices
correspond to three different moments in time. For instance, if period 0
spans from noon on March 27 to noon on April 3, and period 1 spans from noon
on April 3 to noon on April 10, then: the input prices of period 0 are the
prices that prevail at noon on March 27; the output prices of period 0, which
are the input prices of period 1, are the prices that prevail at noon on April
3; and the output prices of period 1 are the prices that prevail at noon on
April 10.
Now, the question is this: in which period are the output prices of period 0
determined? If one grants that the answer is "period 0," then the output
prices of period -1 are likewise determined in period -1. But just as the
output prices of period 0 ARE the input prices of period 1, so too, the output
prices of period -1 ARE the input prices of period 0.
Hence, the input prices of period 0 are given historically. They are
determined before and independently of the other things that influence period
0's output prices. They exist. Their existence cannot be abstracted from.
More importantly, their existence cannot be DEDUCED from the conditions
prevailing in period 0 without violating the premise from which we began, that
the output prices of period 0 are determined in period 0. The reason is that
this implies that the output prices of period -1 are determined in period -1,
while the attempt to deduce the input prices of period 0 from conditions
prevailing in period 0 commits you to the position that period 0 conditions
determine period -1 output prices since, again, the input prices of period 0
ARE the output prices of period -1. And once you throw in equal rates of
return and some physical coefficients, you've then got the output prices of
period -1 determining the input prices of period -1, etc., etc., all the way
back to the mythical start of time.
Now, perfectly legitimate theories permit the future to determine the present,
such as the theory of derived demand and neoclassical intertemporal
equilibrium theory. In a new, human society, moreover, the future will
determine the present. So I'm not saying that this type of determination is
impossible or absurd. I am merely saying that if one does not permit input
prices to be taken as given, one must subscribe to the notion that tomorrow's
conditions determine yesterday's prices.
Andrew Kliman