[PEN-L:9409] Re: Walras vs. Sraffa

[Ajit Sinha <ecas@xxxxxxxxxxxxxxxxxxx>]

At 11:42 AM 4/7/97 -0700, you wrote:
>Jim writes:
>
>>A long time ago, someone (Gil Skillman, I believe) argued on pen-l that the
>>Sraffa system was simply a special case of the Arrow-Debreu general
>>equilibrium model.
_____________________________

As a matter of fact, Gil had made this claim during a debate with me more
than two years ago. Then Gil had promissed a response to my criticisms. If
Gil's statement below is supposed to be the promissed response, then I must
say we have waited too long for too little. I'm not trying to reopen the old
debate here, given that my hands are more than full with value debates on
ope-l and that pen-l may not have much appetite for abstract theoretical
debates any more. Having said that, I cannot just let Gil's false assertions
hang there without any response. Anybody who thinks that Sraffa-based
capital theory critique, particularly reswitching and reverse capital
deepning, does not apply to General Equilibrium theory ought to take a look
at Garegnani's recent contribution, the 'quantity of capital' in Palgrave's
CAPITAL THEORY. It's a 75 pages of sheer brillians!

For general public: The difference between the GE theory and the Sraffa/Marx
theory is as great as night and day. The fundamental difference is this: In
GE theory both prices and distribution of income are determined
simultaneously by the same process of demand-supply equilibrium. Demand can
have any influence on the prices of goods only via its influence on
distribution of income, which depends upon a 'well behaved' demand and
supply functions of 'factors of production'. Sraffian economics does not
have demand and supply functions of anything to begin with. Most
importantly, The theory of distribution is separate and independent of the
theory of prices. Incomes are determined, in Sraffian system, by the
socio-historical factors (including class stuggle); i.e. it is determined
from outside of the market. Given these socio-historically determined
incomes and technologies etc. one can determine 'equilibrium' prices without
any recourse to consumer subjectivities such as utility functions. So the
conclusions of the two theoretical systems are as diverse as day and night.
For GE theory, everything economic is determined by the market-- commodity
fetishism par excellance! For the Sraffian theory all the important economic
variables are determined from outside the market, in a socio-historical
context. Market only sorts out the allocation of labor. If Gil was right,
then Sraffian theory should not be able to allow unemployment of labor, as
the GE theory does. But it would be an absurd assertion. Sraffians talk
about unemployment all the time. It is because of their socio-historical, or
shall I say, Marxist theory of income determination that sets them
completely apart and in opposition to the GE theory. Gil says that equal
rate of profit is not quaranteed by nature. But which Sraffian ever said
that it is guaranteed by nature? The jump from here that if it is not
guaranteed by nature then it must be explained or "guaranteed" by individual
subjective behavior is not only totally unmarxist but most importantly
logically flawed. The competitive nature of capitalism is not rooted in
individual subjectivity. It is a structural aspect of capitalist system--
every individual capitalist is just a cog in the system. And it is the
competitive nature of capitalism that gives rise to the tendency of the rate
of profits to equalize. This is the Marxist as well as the Sraffian
interpretation. And there is nothing wrong with it. Cheers, ajit sinha
________________
>
>I confess I made a claim similar to this, but the details of the argument
>are important.  Noting that the Sraffian system imposes remarkably stringent
>conditions on economic outcomes (i.e. the "law of one price" for all
>commodities, including labor power, and equalization of profit rates across
>sectors), I argued that such a configuration could only be coherently
>conceived as emerging from the sort of mutually consistent optimization
>conditions under complete markets and price-taking behavior that are assumed
>in the Arrow-Debreu framework.  Thus, although the Sraffian system does not
>incorporate such conditions explicitly, they, or something like them, must
>be part of any attempt to justify the potential relevance, even on purely
>theoretical grounds, of the Sraffian construct.  The equal-price-and
>profit-rate conditions aren't guaranteed by "nature", and they surely don't
>describe capitalist reality.  So what microeconomic process could
>*conceivably* generate them?  And if the answer is "none", why should we
>study the Sraffian model?
>
>Two corollaries:
>
>Any valid claim deduced from the Sraffian system could emerge from a
>corresponding Arrow-Debreu model configured to yield the particular price
>and profit rate conditions of the Sraffian model.
>
>Suppose somehow the Sraffian model were used to criticize an analytical
>result of the Arrow-Debreu model, say by deriving a contrary conclusion.
>Such a criticism would necessarily beg a central question, since there's no
>way of telling whether the contrary result is consistent with the (unstated)
>conditions required to ensure that the (highly specialized and empirically
>undescriptive) Sraffian assumptions are not mere chimera.
>
>To put it another way, it's not obvious what to make of a proof that horses
>can't fly
>(purple horses, if you insist) on the basis that unicorns can't fly.
>
>Anyway, from Jim's description Dumenil and Levy's (please excuse the lack of
>accent marks) book sounds quite interesting.  It's not in our library so
>I'll have to hunt up a copy.  One side comment on Jim's summary below.
>
> Anybody interested in this issue will want to look at
>>Dumenil & Levy THE ECONOMICS OF THE PROFIT RATE, ch. 4. It suggests that
>>this "special case" theory is wrong. However, not being an expert on (or an
>>advocate of) either system, I can't say that D & L are right or wrong.
>>
>>They also have a useful passage on formalism, abstract model-building:
>>
>>"It is true that a model is always based on simplifying assumptions, but
>>the construction of the model has the advantage that it requires, at least,
>>that assumptions be made explicit. The purpose of a model is not to 'prove'
>>a theory or to provide it 'scientific' foundations, but rather to test its
>>internal consistency, i.e., to detect obscurities or internal
>>contradictions. In addition, models often reveal properties which were not
>>obvious initially.
>>
>>"There is also no denying the fact that modeling is not neutral and,
>>actually, was not neutral in the development of economic theory. A model is
>>based on a specific set of mathmeatical tools, such as linear equations, or
>>dynamic systems. Here, it is obvious that there is a feedback effect from
>>mathematics on economic theory. For example, the development of the
>>so-called 'method of equilibrium' [that dominates mainstream economics],
>>paralleled the progress of mathematics, from linear equations to complex
>>fixed-point theorems. It is also clear that the lack of interest in
>>dynamics can be partially explained by the comparative difficulty and late
>>maturity of the mathematical field of dynamic systems. [I would also
>>mention the ideological attractiveness of equilibrium conceptions. -- JD]
>
>Attractiveness to which ideology?  Austrian economists also firmly reject
>the notion of equilibrium.  On the other hand, Marx's assessment of
>capitalism as an exploitative system would apply even if it were somehow in
>equilibrium, understood statically or dynamically.  His assessment of
>capitalism as a self-destructive system would obtain if the steady-state
>equilibrium involved (near) zero profits.
>
>>"Mathematics are also responsible for a kind of fetishism among economists,
>>who may believe that the progress of economic analysis is a function of the
>>sophistication of its models, [even though] the simultaneous consideration
>>of various simple [non-sophisticated] models ... is often more telling than
>>the construction of [such] complicated frameworks."
>
>>I recommend this book. It is very lucid and deals with a lot of interesting
>>economic issues.
>
>In solidarity, Gil Skillman
>
>
>