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Cambridge Theory and Secular Price Movements
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Cambridge Theory and Secular Price Movements

31 Seiten · 5,43 EUR
(März 2009)

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The theory of value has played a pivotal role in Bertram Schefold’s monumental scientific work. In this case, theory of value means the classical analysis of ‘long-period positions’ in the tradition of Smith, Ricardo, and Sraffa as opposed to the neoclassical approach of demand and supply introduced by Walras and eventually refined by Arrow and Debreu. ‘Long-period positions’ or, in more modern language, long-period equilibria are understood as the “centres” towards which a competitive economy would gravitate in the long-term, according to a definition by Garegnani (1976). More specifically, a long-period equilibrium means an equilibrium in all commodity markets, being characterized by a uniform rate of profit. In this context, longperiod prices, as opposed to market prices, provide a measure of normal costs against which the profitability of competing technologies and/or investments can be assessed.

Bertram Schefold’s preoccupation with classical price theory can be traced back until the early 1970s, when he addressed the problem of joint production within Sraffa’s system of production prices. Other scientific contributions were related to technical progress, the choice of technique, and, generally, to questions concerning the relationship between growth and distribution, which were heavily discussed in the so-called “Cambridge debate”. Again, this debate had been initiated by Sraffa (1960), whose analysis provides the fundamental basis for a critique of the prevalent neoclassical approach of treating problems of income distribution in terms of categories of demand and supply. To sum up the results of the Cambridge-debate in one sentence: Theoretically rigorous aggregation of heterogeneous capital goods (“machines”) into a single, well-behaved index of capital is possible only under extraordinarily restrictive assumptions, since in a world with at least two capital goods relative prices and the value of aggregate capital are complicated, i.e. non-monotonous functions of the rate of profit.

Milestones contributed by Bertram Schefold to the Cambridge debate comprised his articles in Kyklos (1976), the Economic Journal (1976a, 1980), and the American Economic Review, Papers & Proceedings (1985). Recently, he re-addressed the phenomena of reswitching and capital reversing, which had played a central role in the Cambridge debate, in his articles in Metroeconomica (2005), and the Cambridge Journal of Economics (2006).

Another pillar of Schefold’s academic work, which has always been open to neighbouring scientific disciplines, is the history of economic thought. As editor of “Klassiker der Nationalökonomie” since 1991, he has dealt with a wide range of philosophers and economists of ancient and other epochs including Aristotle, Xenophon, Cicero, Marcus Tullius, Huan Kuan, Miura Baien, Ibn Khaldun, Malthus, Locke, and Pareto, to mention but a few.

This chapter doesn’t want to revitalize old debates which, depending on one’s ideological position, have been resolved long time ago or not. Instead, I will try to draw a connection between quantitative economic history, in particular the development of prices, wages, and interest rates, and the theory of value. Recently, in a rather provocative book, Clark (2007) complained about how modern economic theory, with its increasing technical sophistication and endless refinements, has lost touch with any reality. Instead, it will be argued in the following that the degree of analytical complexity can be kept at a minimum when it comes to analyzing historical prices, since the concept of long-period prices, whether in its classical version or its linear neoclassical steady state formulation provides a suitable analytical framework for understanding secular changes of relative prices. In the next section, the classical Cambridge price model is shortly introduced. How a formally identical, although conceptually different, neoclassical model is designed, is shown in section 3. Section 4 deals with extensions of the basic model to cope with technical change and capital accumulation, which are complementary phenomena. In section 5, examples of secular price changes of selected commodities are presented. Major results of recent research in social history are presented in section 6, which reflect the spirit of the Cambridge model.

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the author
Dr. Klaus Pertz

Wirtschafts- und Finanzberater in Frankfurt am Main