Soon after arriving at Cambridge in 1928, Sraffa explained the basic idea of
PCMC to Keynes; to which Keynes is reported to have made this remark to his
wife Lydia: "On Saturday I had a long talk with Sraffa about his work. It is a
very interesting and ORIGINAL--but I wonder whether his class will understand
him when he lectures." Keynes was a very intelligent man and he could see Gil's
problem. Given the ORIGINALITY of Sraffa's ideas, it is easy to misunderstand
him, particularly when one is trained within orthodox tradition. It is
interesting to note that CAPITAL suffers from the same fate of consistent and
persistent misunderstandings.
In my earlier posting, I asked a fundamental question, which was "[how] the
assumption of uniform rate of profit and real wage NECESSARILY implies the
existence of the GE model?". Gil chose to pass this off in silence. And then he
went on to repetedly assert "And if one were to ask, on what possible grounds
could such strict conditions be justified, ** any logically defensible story
would involve statements about demand and supply, even if these statements are
not built explicitly into the model.**" Gil is so steeped into his GE-land
that he cannot recognize that there could exist other lands. He simply assumes
that there could be no other world than GE world. But this is precisely what he
needed to prove. If Gil could PROVE that a postulation of uniform rate of
profit and wages MUST generate demand and supply FUNCTIONS and a GE model, I
would think he would be a strong contender for Nobel prize. But he has not done
it yet.
In my opinion, Gil's basis of attack on Sraffa is based on a grave mistake. In
Classical economics as well as in Marx and Sraffa, it is quite clearly accepted
that when there is excess supply (demand) of a commodity "market prices" of
that commodity will fall (rise). But this by no means implies that they
postulated a demand curve and a supply curve whose interaction brings about the
market clearing equilibrium as a RESULT. That is why Classical, Marxian, and
Sraffian alike make a sharp conceptual distinction between "market prices" and
"prices of production" or "values" (Ricardo's and Smith's). This distinction is
NOT EQUIVALENT to non-equilibrium and equilibrium prices of the GE model.
Instead of equilibrium as a RESULT of a process brought about by the play of
"demand and supply" forces, Marxian and Sraffian economics postulates that
markets clear (this does not mean fullemployment--but i will not go into it
right now) and derives the prices that will bring it about, given the three
basic variables from outside of the price equations. Sraffa's st. line inverse
wage-profit frontier shows how a change in real wage will effect a change
in the universal rate of profit. The interesting aspect of this is that a
change in the wage rate bring about a change in relative prices and these
changes in prices may be of such nature that it contradicts the DEDUCED derived
demands of the GE model (the famous reswitching problem). This led Joan
Robinson to comment: "in a market economy, either there may be a tendency
towards uniformity of wages and the rate of profit in different lines of
production, or prices may be governed by supply and demand, BUT NOT BOTH."
The reader should note that when Sraffa, or for that matter Marx, postulates
equal rate of profit and wages, this does not necessarily mean a point of REST,
as in the GE model where demand and supply forces bring the system to
equilibrium and a state of rest. Therefore, in the Sraffian or marxian system
one can easily think of "prices of production" as prices around which the
system fluctuates for ever. About four-five years ago, in a breakfast
conversation, Anwar Shaikh told me that he is working on developing a
non-linear dynamic model of this nature. I don't know whether he has published
something on this line or not, but whenever it comes out it will be a welcome
contribution to the Classical/Marxian approach.
The reader should also note that Sraffa and Sraffians are not dening that
people have preferences and when their tastes etc. change or income
distribution changes, given different classes spend their income differently,
the structure of output will change. These are the aspects that determine the
LEVEL of the DEMAND CURVE in the GE system. The variables that determine the
LEVEL of the demand curve are taken to be given from outside in the GE system
as well. What sraffa is dening is that there MUST exist DEMAND CURVES. In the
case of the GE model, a change in the LEVEL OF DEMAND, lets say because of
change in taste, will change the price structure and SIMULTANEOUSLY affect the
income distribution through changes in derives demand and supply of "factors".
Since in Sraffa and Marx's system, the prices and income distribution are not
SIMULTANEOUSLY determined--income distribution is determined prior to price
structure--demand curves have no relevance.
Another serious weakness in Gil's arguments, as I see it, is his complete faith
in ATOMISTIC reasoning. Hence his insistence on "behavioral grounds". Gil does
not seem to pause and think that there could be theories of society built on
something different from axioms of individual behavior. Here i think a mild
dose of post-modernism may be good for everybody's health. This is how Foucault
begins the Preface of THE ORDER OF THINGS:
"This book first arose out of a passage in Borges, out of the laughter that
shattered, as I read the passage, all the familiar landmarks of my thought--OUR
thought, the thought that bears the stamp of our age and our geography--breaki
ng up all the ordered surfaces and all the planes with which we are accustomed
to tame the wild profusion of existing things, and continuing long afterwards
to disturb and threaten with collapse our age-old distinction between Same and
the Other. This passage quotes a 'certain Chinese encyclopaedia' in which it is
written that 'animals are divided into: (a) belonging to the emperor, (b)
embalmed, (c) tame, (d) sucking pigs, (e) sirens, (f) fabulous, (g) stray dogs,
(h) included in the present classification, (i) frenzied, (j) innumerable,
(k) drawn with a very fine camelhair brush, (l) ET CETERA, (m) having just
broken the water pitcher, (n) that from a long way off look like flies'. In the
wonderment of this taxonomy, the thing we apprehend in one great leap, the
thing that, by means of the fable, is demonstrated as the exotic charm of
another system of thought, is the limitation of our own, the stark
impossibility of thinking THAT."
Some minor points: Gil complains that I have added "marginal reasoning" to the
list of basic aspects of the GE model. Well, earlier I used a fancier term
"conterfactual", that's all. Gil says that "marginal reasoning" is not a part
of GE model. Now, I'm not on the frontiers of the wild west of GE-land, so I
would like to get some education here. Isn't it that the demand and supply
curves of both commodities and "factors" derived in the absence of both
historical and logical time? And the reasoning needed to derive the well
behaved curves needs the idea of SUBSTITUTION between commodities and "factors"
at the margin?
Gil says that I cannot say that CAPITAL contains the larger story of PCMC,
because in Marx labor-power is a commodity and in Sraffa's system it is not.
I guess Gil was out of country when the debate between me and Mike Lebowitz and
many other penners took place on this issue. My position is that labor-power
cannot be treated as commodity in CAPITAL. This I have already formulated in
a paper which hopefully will see the light ofthe day sometime this year (and
you have the paper Gil, so why not just read it), so I would rather bracket
this issue for now. I know you have the majority on your side on this issue.
But this would not be the first time when majority is wrong. In anycase, I
intend to give a paper at the URPE summer conference intitled "YOU TELL ME WHY
LABOR-POWER IS A COMMODITY". I invite you all to come to our summer conference
and tell me that.
More than nuff said. Cheers, Ajit Sinha
