[OPE-L:7427] [OPE-L:960] Re: Re: Marx's concept of prices of production

Ajit Sinha (sinha@cdedse.ernet.in)
10 May 99 11:59:33 IST (+0530)

I'm sorry for a delayed response. I have to finish a working paper
by 15th of this month for the people at D. School. So it is crunch
time, that's why i'm keeping away from the e-mail.

John wrote:
> RE: Ajit's OPE-L 951
> In responding to my comments concerning Sraffa and the inability
> of his system to deal with absolute rent, Ajit wrote:
> "John, this is simply wrong! Have you read Sraffa's chapter on
> Land
> in *PCMC*? The position of land is equivalent to the position of
> non-basics in Sraffa's system. So it has no impact on the rate of
> profit. The question of absolute rent has also been taken care by
> Sraffa. On this issue, again, there is very little difference
> between Sraffa and Marx if one looks at the two thinkers closely.
> But you must read his chapter on Land."
> Comment: You find "absolute rent" in that chapter?
"87 If land is all of the same quality and is in short supply,
this by itself makes it possible for two different processes of
methods of cultivation to be used consistently side by side on
similar lands determining uniform rent per acre. While any two
methods would in these circumstances be formally consistent, they
must satisfy the economic condition of not giving rise to a
negative rent: which implies that the method that produces more
corn per acre should show a higher cost per unit of product, the
cost being calculated at the ruling levels of the rate of profits,
wages and prices.
The production of corn would thus be represented in the
general system by two equations with the two corresponding
variables of the rent of land and the price of corn
Both equations would enter the Standard system, although with
coefficients of opposite signs and of such values as would in the
aggregate eliminate the land from the means of production of that
system." (Sraffa in *PCMC*, p. 75)

So are we reading the same book John? There are much more on
absolute rent further in the chapter.
John writes:
> Consider the following system with 2 commodities and
> two processes.
> (1) 100 iron + 25 Corn ----> 130 Iron
> (2) 20 iron + 20 Corn ----> 60 Corn
> Granted we could find the relative prices ala Sraffa if we assume
> that both (1) and (2) have the same rate of return on their
> investments.
> But if (2) earns some absolute rent, what are we to do? If
> 1 corn = 1 iron, we would have
> (1) 100 iron + 25 iron ----> 130 iron
> (2) 20 corn + 20 corn ----> 60 corn
> (1) has a rate of return of (130-125)/125 or 4 %. (2)
> has a rate of return of (60-40)/40 or 50%. To be sure,
> our assumption that 1 corn exchanges for 1 iron is
> arbitrary. Yet given absolute rent entirely
> possible. Corn may fetch a bit less iron and we could
> still have the corn sector earning absolute rent albeit
> a bit less than that in our example.
> If you find a way around this problem using Sraffian tools,
> I'd be interested.
No body can find a way around a mumbo jumbo, John! In your
production relations above, land does not appear anywhere in the
means of production but still you are determining rent on land out
of your imagination! Even though the problem of the system we are
discussing is to determine prices, you simply assume arbitrary
prices from your imagination! I simply do not understand what kind
of mathematics TSS people do. It simply is not mathematics. it
should be given some other name. You got to do better than this
John, if you want to develop a critique of Sraffa. Sraffa usually
thought through the issues way ahead of most of the people, and
that's why he has withstood real high powered attacks. He was not a
mathematical economist himself, he was basically a conceptual
economist. This shows in his mathematics. As Kurz and Salvadori in
their book *Theory of Production* have shown, Sraffa working from
his conceptual understanding of the problem of Standard commodity
independently worked out the famous Parron-Forbineous theorem. Let
me tell you an interesting story. When Samuelson's student Lavhari
came up with his refutation of Sraffa's reswitching theorem in
*QJE*, it was Geoff Harcourt at Cambridge who was first to read
that paper. He went running to Sraffa to tell him that there is a
chap from MIT who says that your reswitching theorem is wrong in
the case of the aggregate economy. Sraffa responded, "he is wrong
and you show him that." To which Harcourt responded, "Me? I can't
do linear algebra." To which Sraffa responded, "neither can I."
Therefore, Pasinetti was recruted to show Lavhari that he was
wrong, which Pasinetti did without much problem.
> John wrote
> Comment:
> But points in time do not exist. Indeed, if they did the apple
> would never fall since at every point in time it is stationary.
But snap shots do exist, don't they? That's what I'm talking about.
Snap shots.
> <snip>
> Comment: OK. Price of production is not a statistical concept
> for
> you. But what are to make of the computed "gravitational point"
> or your price of production? Do market prices gravitate to the
> price of production?
Ricardo's theory of wages is highly controvercial. But on the face
of it, Ricardo defines "natural price of labour" to be the
subsistence wage that would prevail at the stationary state. Since
he thought that the current economy was far from stationary state,
he visualized a falling real wages over long period of time towards
the gravitational point, which is the "natural" price of labour as
defined by him. Thus the gravitational point couldn't be thought
off as the *average* price of labor here. It is wrong to think that
gravitational point is somekind of average, in statistical sense,
in classical economics, including Marx. Cheers, ajit sinha
> John