Re: [Pen-l] For Many, a Boom That Wasn't

[John Vertegaal <vertegaa@xxxxxxxxx>]

Jim Devine wrote:
> me:
> > > as one heterodox economist (old Karlos) wrote: >capital is not a
> > > thing, but a social relation between persons, established by the
> > > instrumentality of things.<
> > >
> > > since the instrumentality of things is crucial here, it makes sense
> > > for the heterodox to count "capital" (the stock of fixed capital
> > > goods).
>
> John Vertegaal writes:
> >  It would make sense only if one could actually do it; some prerequisites
> > being: 1. An economic structure wherein capital values are determinable at
> > every step of the way, on a linear (or chaotic) path from here to there; any
> > present always deemed to be complete. 2. A unit of account whose value is
> > inelastic over a significant amount of track. 3. The no-show of internal
> > contradictions (or paradoxes)from well established axioms, due to exogenous
> > impulses creating a null-set.
>
> This last one doesn't make any sense to me. But the other points
> simply say to me that the fixed capital can be measured only in terms
> of exchange value (using either current prices or historical prices)
> but cannot be measured as a use-value (as the Cambridge Critique
> says).

Let me first say that in trying to answer Jim's questions, I'm facing a 
huge obstacle of being a paradigm removed from his thinking. Added to 
that, in economics everything depends on everything else, so it's not 
just a matter of clearing up one question and moving on to the next one. 
Some of his questions I started to answer in terms of excessive 
background info and then realized this is getting out of hand. I'd 
written most of this already in a more extensive way elsewhere. And 
although the last question is explained in somewhat greater detail, it 
too doesn't scratch more than the surface. So if the below is less than 
satisfactory, the choice is yours to keep digging or give up on me. It 
goes without saying though that I'm most appreciative of the 
accommodation expressed so far.

As deduced from my model's axioms, non of the three points above applies 
to our economic structure; it being one that we are in the _process_ of 
making, (incomplete at any point in time), and not a ready-made one that 
we endogenously find ourselves in.
Internal contradictions are the result of either a wrong combination of 
axioms, or an exogenously originated impulse that can have both a 
positive and a negative effect internally; it all depends on how it is 
endogenously reacted upon. The cardinal point here is: are capital 
values determinate, so that they can be counted as a stock? My answer: 
only in the absence of exogenous impulses affecting them. An exogenously 
determined factor, say interest setting by the CB, does not accordingly 
determine capital value, i.e. provide a solid footing from which to 
proceed; those values might now collapse, or at least depend on what the 
beneficiaries of interest income do with it. Exogenous impulses create 
indeterminacy, endogenous ones are determinate. At least that's how I 
understand logic to work. Am I wrong?


> > ... But in terms of a truly "free" enterprise economy, wherein demand determines
> > the value of supply, IMHO Marxism has nothing to offer. And the question now
> > becomes, which is more efficient, command or demand? As there is no
> > difference in equitability.
>
> I don't know whether you're talking in normative or positive terms.

I'm talking in terms of the economy being a man-made system of accounts. 
Exogenous population, exogenous resources; put in place in order to add 
to naturally available utilities, and only valuable insofar it does so 
in perpetuity. Positive? Normative? I would define it as positive, but 
you tell me.


> In normative terms, Marxian economics provides nothing. It's true that,
> in general, Marxists prefer a democratically-controlled "command"
> economy rather than a private wealth-controlled "market" economy
> (capitalism). But Marx never sketched a model for how this would be
> organized. It's not part of his political economy. He studied
> capitalism, mostly in positive terms. (Of course, as a human being, he
> couldn't avoid normative judgments.)
>
> I don't know what your perspective on capitalism is, but I see the
> Marxian one (combined with some Keynesianism) as superior to the
> neoclassical and neo-Ricardian (Sraffian) ones.

I reject capitalism, because there is no inherent power in capital 
providing a determinate point of departure regarding its causality.


> > > As for the "usurping of productive
> > > output" from the productive sector, that's standard Marx: there is a
> > > "transfer of surplus-value" going on:
>
> >  I beg to differ. In my demand determinative model, whose ontology I believe
> > underlies our existing economic structure, there is no room for
> > surplus-value; at least not in the sense that Marxists understand the term.
>
> I don't know what you're talking about. what is your "demand
> determinative model"? It seems to me that both supply and demand play
> a role...

Sure, supply plays a role, but its value is indeterminate; without a 
return, capital is valueless. Demand ex post determines the value of 
supply. So if economists identify themselves by their skill to determine 
endogenous values, I'm afraid they won't be interested in my model; if 
on the other hand they could see themselves as macro-accountants, an 
awful lot of useful work still needs to be done in terms of it.


> > Any set profit rate is achievable, as it is the direct spending by profit
> > income earners (or the newly hired, as substitutes) that determines it; and
> > not some inherent, but mystic attribute of capital over labour cost.
>
> It's bad form to accuse others of believing in "mystic attributes"
> without first knowing what their perspective is.

Point taken.


> Your view _seems_ to be akin to the Cambridge Keynesian equation, in
> which (in its simplest form) the rate of profit is determined by
> investment and the rate of accumulation out of property income. I
> think that's quite an incomplete story. It only deals with the demand
> (realization) side and not the supply (production) side. Both play a
> role.

First, there is no "rate" of profit associated with any particular 
capital. I believe that already sets me apart from the Cambridge 
Keynesians. Profit is only realizable thanks to other capitals and not 
one's own. Gates made his billions thanks to other capitalists providing 
income so that their employees could buy his OS, and those other 
capitalists in turn depended on yet others and so on.... If supply is in 
any way able to generate profits, I'd like seeing its inherent 
analytical rate if only a single capitalist owned all existing means of 
production.


> >  An
> > aggregate realized rate over the natural rate of growth however, is simply
> > inflationary.
>
> I don't understand what you're talking about.

See below

> > The only existent surplus-value, comes into being as a result
> > of having learned by doing; which requires the setting of a margin over
> > cost, because such expanded output could not be distributed otherwise.
>
> this makes no sense to me. Please explain.

In a system wherein all entries are accounted for in terms of a to be 
resolved debt, natural growth happens as a result of having learned by 
doing; so that periodically, more output per unit of accounted for input 
becomes available, which needs to be distributed in order to allow 
reproduction to take place. If the goal of our economic structure is 
unencumbered reproduction, then its unit of account has to accommodate 
this natural growth; in other words, be elastic without becoming 
overstretched and inflationary. Note that this has nothing to do with 
any so-called quantity of money. A unit of account doesn't have such a 
physical attribute in a system of credit and debit accounts. Nor, as we 
will see below, does it require any accommodation or intervention by a 
CB authority.  Most paradigms identify inflation with rising prices of 
commodities. Such a definition is highly incomplete, but it will do for 
the purpose of answering this question.

So, at any period under consideration we have a set of retail books 
having assumed that portion of economy-wide costs and profits, which 
their stock on hand is supposed to resolve through the spending of 
economy-wide gathered personal income; be it cost or profit sourced, 
retailers have no way of knowing its composition nor do they care, all 
they are interested in is a return on their outlay.
Prices on the retail level too are set at cost covering, plus a margin. 
The latter being based on previous returns, that of one's competition, 
or even a wild guess; it doesn't really matter. The market fills and 
partially clears as all those whose incomes derived from periodical 
costs cancel each other out. On average, the books will now show not 
only the funds necessary to reproduce at cost, but also the quantity of 
output that couldn't be sold due to as yet insufficiently disbursed 
income, namely the average set profit margin. How to clear that output 
as well?

Most paradigms rely on money, turning over several times its own value, 
but then get stuck in its definition. "Money is what money does" is the 
usual answer; which of course is no answer at all, but an article of 
faith. Others conclude that only the income disbursed from newly 
attempted ventures could take care of it. But such unrelenting growth 
would turn a beneficial economic structure into a pernicious tumor; so 
they decide that a profitless economy is the answer. This paradigm takes 
a different tack. Although the average outcome, after all cost-sourced 
income has canceled out on the retail level, hasn't realized any net 
retail level profit yet; abstracting from lagged payment schedules, but 
closer to reality, will be the fact that for a substantial amount of 
retailers, the market will already have been cleared. On their books, 
profit income has been noted; furthermore, profits regarding the latest 
batch of retail output, had already been noted on the books of retail 
level suppliers, as soon as the retail level was stocked. If these 
profits are distributed in such a way that its final recipients will 
spend them directly, a whole new slough of retailers will start to see 
profits appearing combined with a stock reduction; and this clearing 
process, with regards to our original periodical batch of retail output, 
will continue by being mixed in with subsequent periodical batches of 
retail output, for quite some time to come until it slowly peters out.

The above more or less idealized depiction (depending on the degree of 
directly spent profit income) on how a profit setting market economy 
gets cleared, shows how this "after the fact" remuneration can pull the 
economy along a dynamic equilibrium path, regardless whether the to be 
resolved debt takes place over a stationary, or increasing stock of 
retail output. Unlike the vertical cost-sourced income exchange, coming 
to a stop immediately; the horizontal profit-sourced income exchange 
provides all the flexibility we have come to enjoy in a capitalist 
economy, without necessarily its dog-eat-dog attitudes due to retained 
profits. A non-profit economy on the other hand could be expected to be 
as inefficient in its exchanges as a barter economy, as far as quantity 
and quality of its demanded goods are concerned. And by the time that 
most funds have been returned to allow reproduction; any natural growth 
in output, in addition to what is unwanted, will only be clearable by 
giving it away.

As previously indicated, there is no hint of a "rate" of profit; as it 
conceivably could be different for each enterprise's growth. All the 
above summarily tried to show is the necessary existence of profits to 
clear a market where output expands with respect to already disbursed 
income; under the mandate of debits and credits in real terms. Does the 
average rate need to exactly match the natural rate of expansion, in 
order to avoid any inflation? The above hints that profits set slightly 
higher will aid in overcoming a stickiness in exchanges due to an exact 
match. In other words, a little bit of inflation is likely to be 
helpful; it's probably more of an empirical than an analytically 
solvable question.
John V


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