On 09/08/2013 2:19 PM, Julio Huato wrote:
On Fri, Aug 9, 2013 at 9:47 AM, John Vertegaal<[email protected]> wrote:
What makes you assert that money, as a unit of account, has indeed a
material content? Does a numeraire hold the physical content of what it
numerates? How so?
The *social form* we call money has several layers. The connection
between each of them and the material process of reproduction varies,
but this connection exists. The function of money that is closest to
the material process is, of course, money as a measure of value. The
comparability of every form of wealth or power to money under
capitalism follows almost directly from (it is the inverted image of)
the fluidity of the productive forces of (social) labor, especially as
the historical development of capitalist has highlighted this fluidity
(cf. the Intro in the Grundrisse). The connection (and inversion!)
seems the closest there.
The paragraph starts off well enough, although I'm a little concerned
where you get your particular layers from. Theory building, especially
one rigorous enough to stand up to and compete with the NC or Mainstream
theory for superiority, requires that these layers roll out as it were
from previously stated assumptions and not just spontaneously
desublimate from empirical observation. I'm afraid however that you lose
me at the end, as I strongly disagree with the supposed efficacy of
Marx's opening line in the Grundrisse, and consequently with what
follows from that. My reasoning is that before we can speak of "socially
determined individual production ... [as a] point of departure" in any
economy, there is the hope and expectation of (through as yet
indeterminately valued personal input) being able to lay a claim on the
output of others. That's the motivation that gets just about everyone,
economically active, out of bed in the morning in order to participate
in the reproduction process. And it is this social claim, accumulating
from the moment we start work and which we receive confirmation of at
the end of some pay period, that forms the logical point of departure in
the economic process; without having been burdened by the yoke of
Marxian determinism, for, in terms of reproduction, nothing has been
determined as of yet at this point. Although our claim has been duly
booked as a debit entry, it still is no more than implicit hope and
expectation that others will value our output (as we value theirs
socially!) and demand it; so that some claims will resolve, the
_reproduction_ process stays on track and thereby keep us employed.
Guess, by taking it well beyond the Marxian meaning of simple
reproduction, you didn't quite realize the far-reaching consequence of
framing your own reasoning in terms of reproduction? The above
identified process is inherently dynamic and therefore cannot possibly
be analyzed statically, as the latter defines away the essence of how
final demand determines the value of all supply factors; thus only after
all these to be fulfilled claims have been passed on down and assumed
through the various layers of a vertically integrated economy. And all
this deferred determination is of course in addition to the waiting
period of work carried out before being remunerated.
Non of this fundamental reasoning denigrates the supremacy of human
labor. But not only will deferred determination have a devastating
effect on the popular meaning and efficacy of capital, as I hope to show
later on, a formal representation of the process in terms of
differential equations (shifty curves, production functions,
econometrics, etc.) becomes ruled out as well. For now, getting back to
money, the claims mentioned above constitute your "social form". It is
this form that holds material content. But an economy of any complexity
at all requires a system of accounts in order to keep track of the
accumulation of claims, as well as a unit of account or numeraire to do
so. Because a numeraire however cannot conserve the material content of
what it numerates , as soon as we start to rely on accounting figures
not only for settling accumulated claims but for any other price purpose
as well, that material content (or its physicality) for all intents and
purposes disappears, at least systemically. Systematically, i.e. means
and ends combined, this physicality can be said to have entered a state
of suspended animation, as already mentioned before. But, following my
reasoning, there is no way to make sense of use-values, nor of material
content, within any sizable economic structure. And even when following
your own Marxian reasoning, a matrix cannot contain some coefficients
represented in price numericals and others in physicalities, when its
inversion is necessary to produce a determinant matrix so that their
multiplication can become a determinate unity. But...
I've been saying for decades now that you guys are macro-accountants.
And I just recently noticed that Randy W. has started to use that same
term, but apparently without realizing what this entails; given his
effort to write a new macroeconomic textbook together with econometrist
Bill M. If I'm correct, which of course is still a huge IF; being in
effect macro-accountants would mean having to give up some of your
hard-earned knowledge, no doubt difficult, but at least most of you are
well over half-way there. Pity the poor micro guys; can't see many of
them able to remain relevant, so they'd be having to find some other
line of work.
The use of specific monetary units (e.g. $) as units of account
("standard of price") is a subsidiary function to the primary function
of money as a measure of value; the former ("standard of price") is
that of counting the quantities of the piece of wealth that performs
the role of measure of value -- gold, silver, or whatever.
In the case of modern credit-money or "fiat" money (a la U.S.), the
physical wealth that performs that role is not gold (or not gold
alone) but the physical assets of the U.S. state or -- in political
terms -- its economic + extra-economic power (or, simply said, its
taxing power). Although the purchasing power of one dollar is not
arbitrary (it results largely from monetary policy decisions,
political and legal forms of our physical reproduction as a society),
the specific denominations used are historically fanciful. So if
you're asking me for the exact material content of the decision that
named these monetary units "dollars" rather "johns" or "julios," I
will have to bounce the ball right off to you and ask if you believe
that fanciful ideas appear in people's heads without any connection to
the physical world.
I realize of course that you're trying to explicate your "layers" of
money. As such most of it is fair enough, but, as far as I can see,
unconnected to any underlying assumptions. And thus, as empirical
observations, not very useful to derive a rigorous theory from. So, as
you say below, on to the more substantive...
But before I get to it, don't you think it's odd (to put it as
charitably as I can), that two groups of highly intelligent human beings
can argue about something, but with neither having a coherent theory of
what that something actually is? Shouldn't that be a first requirement
before starting to haggle who is wrong and who is right? I mean we are
talking here about a human-made system, aren't we? How can we produce
something that not only we don't understand, but hubristically consider
to be axiomatic? Why thus should anything in the CCC be relevant to our
understanding of how the economy works? In this context I have to ask,
do you consider yourself to have a coherent theory of capital? Or are
you aware that your understanding of it may still be missing a few
aspects here and there, that could indeed be significant enough to upset
the entire applecart? Joan Robinson may well have been confused, but if
you don't have a coherent theory of capital yourself, you could be
throwing stones in a glass house. For my part, her book on the
accumulation of capital, (especially after having read Rosa Luxemburg's,
that got my hopes up sky high) no doubt has been the most dissatisfying
piece of work on economics, I ever read cover to cover. But if memory
serves, in the end (not in the book!), she admitted that she didn't
really know what capital is either. And that acknowledgement together
with the rest of her tributary oeuvre as well as being a sounding board
and revisionist of Keynes's ideas puts her stature above the latter in
my humble opinion. I'm no great admirer of Keynes by the way; though far
from being a Keynes scholar, my impression of him is that when he was
right, he usually wasn't original, and when he was original, he usually
wasn't right. No, my hero and progenitor in thought happens to be
Sismondi, the implicit originator of thinking about the economy as an
indeterminately valued means, before the well-being of humanity becomes
its end result.
So what _is_ capital in the social formation identified above as an
accumulation of claims due to performed work and a resolution of those
claims in terms of an enhanced standard of living? First thing that
comes to mind is that a saving of claims is counterproductive, as less
resolution means a lower aggregate standard of living, unless
countervailed by direct spending in excess of claims; i.e. borrowing
from the savers directly and the savers will directly spend their
interest income and the return of principal coming from the ongoing
claims of working borrowers during the time that the loan is
outstanding. The adding of financial institutions to this situation,
other than say non-issuing (100% reserves) S&Ls, etc,. would be
disequilibrating in that it will add more claims than there is
living-standard enhancement available, so that some will end up with
valueless claims. But you'll have to take my word for it, as a an
explanation in full is more than I can chew off in a single post. With
S&Ls involved, saving by some means that the available aggregate
standard of living now becomes shareable by S&L employees. As a
principle this is good to keep in mind because it applies to all
"unproductive" workers, but I won't take it any further for now.
This probably depicts the most simple dynamic equilibrium possible,
other than everyone directly spending their periodical personal income
in full, but it can yet include some perhaps surprising aspects and
components as well. At least one motive of government action is to
arrange a claim, or a share of the final output produced by the economy
at large, for its public income receivers. In fact motive here doesn't
even matter, as it is the ultimate result of taxation and bond issuing
in any case. Looking at the situation this way gets rid of the "G"
component in GDP make up altogether, rather than the usually made
abstraction from G in simplified economic analysis. Also, the
replacement due to wear and tear of existing means of production at ever
greater levels of sophistication (both quantitatively and in qualitative
terms) would be possible if the charged depreciation allowances by firms
were to be deposited upon return at 100% reserve institutions and the
proceeds borrowed by those firms in need of them. Claims of a
substantial portion of workers employed above the retail level could be
further explained in that manner. But analyzing how existing capital
gets replaced, hardly provides a convincing explanation of how it comes
into being originally, and so what in effect it is.
One way of finding out is by extending our assumption to include the
availability of an able bodied population eager to be productive members
of society, but for one or another reason isn't fully employed at
present. We can also assume that we live in a society where basic
assistance is available from government, so that at least one remains
alive and eager to work when unemployed. Furthermore that ideas about
novel and thought to be desirable products, spontaneously sprout from
some minds amongst these people, either already employed or not. Say
that a group of them with the ability to produce these new widgets in
physical terms from existing resources (defined as available labor power
and materials freely provided by nature) get together, and step to a
bank while having some "equity" - defined as the non-mortgaged portion
of their homes, or, better said, that part of earned claims in the past
having transcended the economic boundary in the form of acquired living
accommodation, which no longer transfers right back to the original
lender and thereby remaining a value-in-exchange. If you follow me here
you'll understand that equity exists exogenous to the current economy
and has a use-value only. Banks have the prerogative to let equity
return to the economy. But if and when this happens equity loses its
positivity and becomes a to be resolved debt. It's very important to
realize that all so called _net_ wealth, no longer used to draw claims
from others, is situated outside the economy in use-value territory;
momentarily not possessing any value-in-exchange and will lose its
connotation with wealth when it becomes useless.
Debt is the mirror image of a claim, both in terms of owning and owing.
There can be no _net_ ownership of either one or the other. And with the
resolution of the two in terms of living-standard enhancement, forming
the entire social structure known as the economy, net capital _wealth_
as an accumulated and depletable positivity consisting of
values-in-exchange cannot exist! There neither is room for it within any
static matrix, nor within the dynamic fluidity of booked values. What we
call capital comes into existence as a to be resolved _debt_ and, as
long as being booked as system-wide debit entries, requiring a return
through the resolution of claims, it will stay a to be resolved debt.
The reason why this appears so preposterous to us is because it's
exceeding difficult to wrap our head around the notion that the world of
values-in-exchange, i.e. the economy, is an inverted world value-wise
from the one we live in. It certainly doesn't look so from empirical
observation! And thus can only become accepted when the values making up
the whole of the means are strictly analyzed from the starting position
that end has to be determinate and true. Then, after a dogged pursuance
of the consequences, it all falls into place as just having to be so;
bolstered by the fact that any other explanation of the economy either
renders one contradiction after another, or is totally irrelevant to the
reality that we experience on a daily basis.
The underlying physicality of capital, a quality or form that has to
become suspended endogenously as a result of this novel analysis, is
just as positive as the use-value of the productive power of labor; with
which the former, say in the form of tools or implements, would interact
with the latter in a primitive economy, where there's neither a need for
a division of labor nor for a unit of account. In fact it still holds
when we gather or garden in leisure. It's just that in our
industrialized make-up world, wherein we produce for others strictly so
as to draw benefits for ourselves, that everything inverts. With the
totality of claims on behalf of both capital and labor being assigned by
the system of accounts, its inversed resolution (from values-in-exchange
to use-values) can _only_ come about when "capital" claims its dedicated
living-standard enhancement. So called "surplus value" becomes realized
through consumption by capitalists, regardless of their overall share in
the pricing of final output. Realization isn't some afterthought in
theory achieved by most capitalists as a matter of course, it is
integral to the dynamic reproduction process...
Got to break it off here without having incorporated the different
condition between full-employment and not, as this post is getting way
too long. It isn't as essential to the explication as I first thought
anyway. Note that I've in the main also abstracted from a natural growth
due to having "learned by doing". Understanding how this plays out is
essential to getting the full picture, but left perhaps for some other
time too. Or consult the archives, I'm pretty sure it has come up in one
or more of my missives before.
All that said, let me go back to the substantive issue. There are two
things going on here and we should distinguish them: (1) the actual
historical process of price determination in capitalist markets and
(2) the different theories that may rationalize such process, theories
that may be more or less logically consistent, more or less capable of
answering the specific questions they are designed to address.
No objection to any of this.
The CCC beef (cf. Joan Robinson's quotation in a previous email) is
with the "neoclassical" production function as an adequate piece in
the theory that pins down output prices in a particular class of
"neoclassical" models.
What are the units of "physical capital" in that function? -- asks
Robinson. Note that this is not much to do with a numéraire.
Allegedly, it cannot be "physical" units, since the "neoclassical"
quantity of aggregate "capital," being an aggregate, must smuggle
value categories in its determination. So, it's idem per idem,
explaining prices by prices: a formal contradiction.
A corollary is that, small changes in the profitability of specific
pieces of "capital" in the face of a non-monotonic relation between K
(or K/L) and aggregate return rates may lead to discontinuities or
"re-switching" of techniques. And under these conditions, how can the
"neoclassicals" assume with a straight face that an increase in K/L
leads to a monotonically decreasing profit rate?
So, this is primarily an argument against the notion of total or
aggregate "physical capital" or, in Marxist terms, aggregate means of
production, as a premise in the determination of output prices.
Note that the general equilibrium model of price determination
completely circumvents the CCC objection, since the GE model does not
need to assume one single homogenous input called "physical capital."
You can have an arbitrarily large number of "capital" inputs. And the
logic from premises to conclusions does not require the aggregation of
inputs or outputs, other than the "aggregation" the market itself
accomplishes by adding individual demands and supplies.
I write all this so we see clearly what it is we are talking about.
Sorry Julio but perhaps it's you who doesn't see things clearly. As
already indicated above, an aggregate supply matrix cannot contain both
physical-content coefficients and numerical ones; and still be a valid
matrix, subject to determination. If you can reason yourself out of that
objection, as well as provide a coherent theory of capital, it may be
worth tackling the points you're making above in more detail. For now I
rest my case, because my argument is in fact even more fundamental. If
accountancy and not math principles rule the reality of capital within a
dynamic economy, no static matrix is realistic.
It does not surprise me in the least to know that a theory of prices
based on a production function with a single input labor and a single
input "physical capital" will only yield a very rough sense of how
things operate in a complex real world.
And it doesn't surprise me that you, as a Marxian, basing your reasoning
on the premise that value is created at the point of production,
describe a single-commodity production function as to: "only yield a
very rough sense of how things operate". In my book, such sharing of a
single commodity among owners and workers at the end of some production
period, according to nothing more than a mythical "production function"
which abstracts totally from demand, defines away any and all sense of
reality, period.
It seems to me, with due
respect, that those who believe that the CCC dealt a deadly blow to
bourgeois economics are like those people who after the first car
chase ends in Terminator I, they are convinced that Sarah Connor has
gotten rid of the killing cyborg once and for all. It's even worse
than that, because the CCC blow was mainly self inflicted.
With the difference between "mainly" and totally being, whatever is left
of the influence of aggregate demand in your theory? In regard to your
movie analogy it seems to me, with due respect, that the only rolls that
Marxians perform in the fight to slay bourgeois economics are those of
speaking extras. At least the UK Cambridge side had the good sense to
recognize the vital force of demand in the economic process. They didn't
go as far as they should have, by realizing that demand determines
supply, because that would make the entire structure inherently
indeterminate and economists no more than macro-accountants; obviously a
bridge too far for the times. But is it really?..
I may as well leave it as is. This post is already more than long enough
to be making a point.
John V
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