"However, it is not right for you to caricature the positions of others."
I agree that it would not be right to caricature the positions of others. Yet I did not do so.
I unfortunately do not have time right now to respond to all of Rakesh's complaints. I'll do so in due course. For now, I will take up only the most important complaint -- the one dealing with the historically most important theorist, Grossmann -- and demonstrate that what I wrote is exactly right, not a caricature.
I had written: "I assume this refers to his [Grossmann's ] reworking of Bauer's example. It SHOWS nothing. Grossmann merely ASSUMES that capital accumulation proceeds at a constant rate despite the FRP. And when the crisis comes in year 36 or whatever, the FRP has NOTHING to do with it, again by assumption. Rather, Grossmann's assumptions eventually force the capitalists to demand more investment goods than have been produced. End of story."
Rakesh complained: "It is ridiculous to argue that the scheme breaks down because not enough investment goods have been produced. Not enough surplus value is available to purchase the additional means of production; moreover, it would not prove profitable to further capitalize surplus value. It has nothing to do with a physical shortage of physical means of production. This is an astonishing mistake."
Rakesh notes that Grossmann's argument is that "Not enough surplus value is available to purchase the additional means of production [and subsistence]." Let C(t) be the constant capital of year t, and C(t+1) be the constant capital of year t+1. Then the additional demand, in terms of value, for means of production is C(t+1) - C(t). Similarly, V(t+1) - V(t) is the additional variable capital, i.e., the additional demand, in terms of value, for means of subsistence. Let S(t) be the surplus-value of year t.
Then Rakesh's statement implies that breakdown (according to Grossmann's definition) occurs when
(1) [C(t+1) - C(t)] + [V(t+1) - V(t)] > S(t).
This can be rewritten as
(2) C(t+1) + V(t+1) > C(t) + V(t) + S(t).
The value of the annual product is W(t) = C(t) + V(t) + S(t), so that this can also be expressed as
(3) C(t+1) + V(t+1) > W(t).
This makes matters clear. Breakdown in Grossmann's sense occurs if investment demand in value terms, C(t+1) + V(t+1), exceeds the value produced in the preceding year.
Now, Rakesh denies that this implies that not enough investment GOODS have been produced relative to the demand for investment GOODS. He is mistaken.
To illustrate this, and its implications, in the simplest form possible, imagine that we have a one-good economy. P is the unit price of the good, K is the quantity of the good demanded for use as means of production and subsistence (the material form of C & V), and X is the total output. Hence,
C(t+1) + V(t+1) = P*K(t+1)
W(t) = P*X(t).
(Note that the price of the investment goods of year t+1 is the same as the price of output of year t, because the output of year t becomes investment goods, etc., in year t+1, and the price at which a good is bought must be the same as the price at which it is sold.)
Substituting these expressions into (3), we get
(4) P*K(t+1) > P*X(t)
(5) K(t+1) > X(t).
Inequality (5) means precisely that breakdown occurs because more investment goods are demanded than have been produced.
The same is easily shown in a multi-good economy. Let P, K, and X now be vectors. Inequality (3) can again be rewritten as
(4) P*K(t+1) > P*X(t)
from which we get
(6) P[K(t+1) - X(t)] > 0.
If prices are positive, inequality (6) requires that [K(t+1) - X(t)] contain some negative elements, i.e., that more of some goods is demanded for investment than has been produced in the year before.
To sum up, when Rakesh holds that "It is ridiculous to argue that the scheme breaks down because not enough investment goods have been produced," he is wrong. When he holds that Grossmann's breakdown "has nothing to do with a physical shortage of physical means of production," he is wrong. When he accuses me of having made an "astonishing mistake," he is wrong.
Before moving on to other matters in Rakesh's post, I would like to ask him either to (a) refute my demonstration above or (b) retract his charges against me.
Andrew ("Drewk") Kliman Home: Dept. of Social Sciences 60 W. 76th St., #4E Pace University New York, NY 10023 Pleasantville, NY 10570 (914) 773-3951 Andrew_Kliman at msn.com
"... the *practice* of philosophy is itself *theoretical.* It is the *critique* that measures the individual existence by the essence, the particular reality by the Idea." -- K.M.