Tuesday, June 15, 2010

Lear Without The King



I have presented several models of a more or less capitalist economy smoothly reproducing.

Some have objected (for example, Jan Kregel (1985)) about the lack of money in these sort of models. Paul Cockshott and his colleagues provide a more recent example:
"For example, prices in neo-Ricardian models are also exchange ratios determined by solutions to static, simultaneous constraints. Similarly, historical time is absent, so there is no causal explanation of how or why a particular configuration of the economy arose. Money only plays a nominal not a causal role... neo-Ricardian theories tend to ignore ... actor-to-actor relations mediated by money, which unfold in historical time, and result in dynamic, not static, equilibria." -- Cockshott et al (2009)


I don't see why money cannot be included, in some sense, in a description of the transactions that must occur for the economy to reproduce. I think, for example, of Marx's account, in Chapter VI of Part I of Theories of Surplus Value, of Quesnay's Tableau.

Including money in the story, however, is not enough. Money and finance has to make a difference for the theory. Hahn points out an analogous problem with neoclassical general equilibrium. The way I view these models of reproduction, introducing money and finance should identify additional areas in which a capitalist economy can fail to reproduce smoothly.

I think some progress has been made to meet this criteria. Sraffa, in an aside, recognized the importance of monetary institutions:
...And when the wage is to be regarded as 'given' in a more or less abstract standard, and does not acquire a definite meaning until the prices of commodities are dtermined, the position is reversed. The rate of profits, as a ratio, has a significance which is independent of prices, and can well be 'given' before the prices are fixed. It is accordingly susceptible of being determined from outside the system of production, in particular by the level of money rates of interest. -- Piero Sraffa (1960), paragraph 44
I think a conflict theory of inflation can be developed to explain the United States in the 1970s. Suppose both the general level of wages and the rate of profits are given in Sraffa's system. Then the system is overdetermined. Inflation is a means by which certain incompatibilities can be resolved. Since the level of output is consistent with unemployment ruling, here is a possible theory of stagflation.

Given the importance in the current crisis of finance going wrong, I don't think I've identified an adequate theory of money for Sraffa's system. Apparently, the most full development of Sraffa's remark is Pivetti's, which I haven't read. If I recall correctly, Rogers (1989) is more a destructive critique of the Wicksellian foundations of mainstream macroeconomics. Moore (1988), like Hyman Minsky's work, is more Post Keynesian than Sraffian economics. I could also stand to learn more about the circuitists, as well as recent being done at the University of Missouri at Kansas City.

References
  • Basil J. Moore (1988) Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Pres
  • W. Paul Cockshott, Allin F. Cottrell Gregory J. Michaelson, Ian P. Wright, and Victor M. Yakovenko (2009) Classical Econophysics, Routledge
  • Frank Hahn (1965) "On Some Problems of Proving the Existence of an Equilibrium in a Monetary Economy" in Theory of Interest Rates (ed. by Hahn and Brechling)
  • J. A. Kregel (1985) "Hamlet without the Prince: Cambridge Macroeconomics without Money", American Economic Review, V. 75, N. 2 (May): pp. 133-139
  • Marguerite Kuczynski and Ronald Meek (1972) Quesnay's Tableau Economique
  • Karl Marx Theories of Surplus Value
  • M. Pivetti (1985) "On the Monetary Explanation of Distribution", Political Economy: Studies in the Surplus Approach, 1(2): pp. 73-103 [I haven't read this]
  • M. Pivetti (1991) An Essay on Money and Distribution, Macmillan [I haven't read this]
  • Colin Rogers (1989) Money, Interest and Capital: A Study in the Foundations of Monetary Theory, Cambridge University Press
  • Piero Sraffa (1960) Production of Commodities by Means of Commodities, Cambridge University Press

5 comments:

Cavalo de Tróia said...

I read some texts of Alain Parguez, a french circuitist. I really didn´t understand why he criticizes the sraffians: in his theory the interest rate is exogenous and have real effects through the the distribution chanel over the multiplier - almost the same thing as Pivetti points out, but without reference to prices of production.

Rodrigo said...

"I think a conflict theory of inflation can be developed to explain the United States in the 1970s. Suppose both the general level of wages and the rate of profits are given in Sraffa's system. Then the system is overdetermined. Inflation is a means by which certain incompatibilities can be resolved. Since the level of output is consistent with unemployment ruling, here is a possible theory of stagflation."

There is a famous work done by Marglin & Badhuri (CJE, 1990) in which there is a formalization of the overdetermination principle you stated above, but based on the desired acummulation fuction as prompted by Joan Robinson and on the subsistence wage as in Marx. The main problem, seem from a sraffian perspective, is the lack of a more rigorous theory of production. Being more Kaleckians, Marglin & Badhuri rely on single commodity world.

Rodrigo

Anonymous said...

The problem is that sraffian prices are no short run prices, so it's hard to see a role for money here. I refer to the Victoria Chick quote posted here: http://robertvienneau.blogspot.com/2010/01/mainstream-economists-unable-to-discuss.html

Robert Vienneau said...

I cannot comment on Alain Parguez on Pivetti. Insofar as I recall it, I like Bhaduri and Marglin's "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies". I had in mind work going back to at least the 1970s on tax-based incentive schemes for incomes policy. I don't recall what the acronym TIP stands for.

Sraffians do have short-run theories of "gravitation" processes. But, from the little I know about them, I don't think they have an adequate role for money and finance.

James said...

What about Hodgson's work on this topic?
http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8454.1981.tb00278.x/abstract