[OPE-L:7429] [OPE-L:962] Re: Marx's Concept of Prices of Production

John R. Ernst (ernst@PIPELINE.COM)
Mon, 10 May 1999 06:18:47


No problem with the delay. Thanks for the response.
Let's see if we can clarify matters a bit.

I had asked Ajit if he found absolute rent in Sraffa.

He wrote:
"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.

Comment: This sounds like differential rent to me. For absolute
rent to exist Sraffa's assumption that "land is all of the same quality"
cannot be made. I would never claim that Sraffa's effort did not
include differential rent. However, let's assume that all producers
that use land to produce a given commodity use the same technique.
If there are processes that do not produce both profit and rent, then
it's difficult to see how you would eliminate land from the Standard
system. Yet, to determine the level of rent one would need to
know something of demand.

I had written:
> 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.

Ajit commented:

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.

Comment: Here I have a few.

1. You're right. I should have stated clearly which of the two processes
could produce rent. I had assumed that we were dealing with Marx's
notion of absolute rent and hence thought it was clear that (2) --
the process that had a higher rate of profit when all rent is seen as
profit -- was the one capable of producing rent.

Hopefully, it's now clear I meant the (2) as the process capable of
producing rent. At any rate, let land be used to produce corn and
appear in (2).

2. You consider the prices I suggest arbitrary and I hasten to point
out that they were meant to be arbitrary. Indeed, what I am saying
is that given the presence of absolute rent they can only be somewhat
arbitrary as opposed to completely determined by a system of production.

3. Neither mathematics nor TSS is involved in this. Put simply,
we have a system in which there are two processes of production
one of which earns absolute rent in addition to profit. Hence,
given the assumption that 1 corn exchanges for 1 iron, the
corn producers produce an overall surplus of 20 corn
which at the rate of profit of 4% translates into a
profit of 1.6 profit on an investment of 40 and 20-1.6 in rent.
Is this arbitrary? Of course, that's the point. You would get
different results with different exchange ratios between corn
and iron. I see no way around this.

With the assumptions that 1 Corn exchanges for 1 Iron, all
capitalists in the example are earning the same rate of
profit -- 4%. The remaining surplus is rent and is captured by
those who own the land on which the corn is grown.

4. This is no criticism of Sraffa. He made no claim that his view
was that of Marx. Here, his effort goes unchallenged as a critique of
the neoclassicals. Hopefully, it does help to show that Marx's project
was quite different than that of Sraffa's.

I had written:

> 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.

Ajit wrote:

But snap shots do exist, don't they? That's what I'm talking about.
Snap shots.

Comment: Snapshots do indeed exist. Each instantaneous picture
of a falling apple would indicate that it neither falls nor
rises. Thank god, Newton wasn't an economist.

I had written:
> 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?

Ajit wrote:

Ricardo's theory of wages is highly controversial. 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

Comment: I understand your point concerning Ricardo and wages. But
here we are talking about prices other than that of labor power.
I don't see how your accurate comment on Ricardo applies to
commodities that do not have a "natural" price.