Values, prices of production and market prices: some more evidence from the Greek economy

This paper extends the empirical investigation of the relationbetween labour values and different price forms in the caseof the Greek economy. Subjecting the labour theory of valueto empirical tests with data from various countries helps inthe derivation of general conclusions regarding its empiricalvalidity and practical usefulness. Our results on the closenessof values and prices as measured by their absolute deviationand correlation, the shape of the wage–profit curves,the predictive power of labour values over market prices comparedwith other ‘value bases’, and the comparison offundamental Marxian categories when estimated in value and priceterms provide further support for the empirical strength ofthe labour theory of value.     

Monetary Expressions of Labour Time and Market Prices: Theory and Evidence from China,Japan and Korea

This article presents estimates of labour values and prices of production following two approaches: the first is based on the classical and Marxian theory of value and distribution; the second on the so-called ‘new solution’ to the ‘transformation problem’ and its variant, the Temporary Single-System Interpretation (TSSI). The major advantage of the latter approach is its simplicity, along with the relatively low data requirements. Our empirical findings from the economies of China, Japan and South Korea suggest that both approaches give estimates of labour values and prices of production which are extremely close to each other as well as to actual market prices. On further examination, however, we conclude that our empirical findings are absolutely consistent with the theoretical requirements of the classical approach and contradict those of the TSSI.     

The law of value and laws of statistics: sectoral values and prices in the US economy, 1977-97

This study replicates findings that sectoral prices and valuesare highly correlated cross-sectionally, and that deviationsbetween them are small. Yet after controlling for variationsin industry size that produce ‘spurious correlation’,I find no reliable evidence that relative values have any influenceupon relative prices. The smallness of price–value deviationsthus does not result from such an influence; it is shown insteadto result from a lack of dispersion in the data. Values turnout to be no better predictors of prices than any other randomvariable with the same probability distribution.     

Indeterminacy in price–value correlation measures

During the last 20 years, an important body of literature on the so-called ‘Ricardo’s 93% theory of value’ – the classical hypothesis which asserts that direct prices are very good predictors of both production prices and market prices – has shown that the hypothesized strong correlation in fact holds in the context of cross-sectional data. However, these empirical results are extremely dubious due to severe problems that cause indeterminacy and arbitrariness in the measures of correlation usually employed.      

Dr. Anderson and the Austrians: Price formation as a cumulative process

The formation of money prices is a pervasive feature of market economies. The theoretical explanation of money prices requires economists to recognize that prices are the result of a cumulative process in which past prices and practices create present prices, which are the basis of the plans and actions that will create future prices and practices. Lavoie’s interpretive economics embraces the historical element in economic theory and furnishes an approach congenial to studying the market as a cumulative process.     

Sraffa's path to Production of Commodities by Means of Commodities. An interpretation

The present article provides a reconstruction of the path followedby Sraffa in the long journey (begun in the late 1920s) whichbrought him to his 1960 book. The starting point of Sraffa'sresearch was the formulation of his cost-price equations, whichsurprisingly enough appear to have been derived neither fromRicardo's theory of value, nor from Marx's ‘transformationof values into prices of production’, but rather fromMarx's reproduction schemes, published in volume II of Capital,to which Sraffa was almost certainly brought by his study ofMarx's interpretation of Physiocratic theory in volume I ofTheories of Surplus Value. The main device that Sraffa usedin his attempts to bring to light the existence of solutionsto his system and their properties, which basically meant buildinga consistent wage–profit–price relationship, wasthat of somehow cutting out the prices from this relationship.The paper shows that different routes were attempted by Sraffato achieve this end, and that the main influences on these attemptswere Ricardo and Marx, in particular Ricardo's corn-ratio theoryof profits, and the related conception of a maximum rate ofprofits. In the course of his research, Sraffa was helped bysome distinguished mathematicians, in particular Frank P. Ramseyand Abram S. Besicovitch. Of Ramsey's contribution there areimportant traces, but no more than traces, while ample recordsremain of the relationship between Sraffa and Besicovitch, andthey will play an important part in the story told in this paper.     

Testing Böhm-Bawerk’s theory of capital: Some evidence from the Finnish economy

This paper considers the pure labour theory of value and Böhm-Bawerk’s theory of capital as approximations of Sraffa’s model of single production, and tests them with data from the Symmetric Input-output Tables of the Finnish economy. The results show that (i) in comparison with the labour values, the actual Böhm-Bawerkian production prices are ‘equally’ good or even better approximations of the actual Sraffian production prices and market prices; and (ii) the Sraffian production price-profit rate relationship is, by and large, governed by the differences in the Böhm-Bawerkian average periods of production.     

Price–value deviations: further evidence from input–output data of Japan

This paper subjects to empirical testing the labour theory of value using input–output data from the economy of Japan for the years 1970, 1975, 1980, 1985 and 1990. The results of the analysis show that labour values and prices of production are extremely good approximations to market prices. In fact, the proximity of prices of production to market prices is closer than that of labour values, a result which suggests that prices of production constitute more concrete centres of gravitation for market prices. Furthermore, we find that prices of production change as a result of variations in income distribution more often than not in a monotonic way and that in fewer cases they display curvatures, which may even reverse the order between prices of production and values.     

Global financial crisis as a phenomenon of stock market overshooting

Inspired by Dornbusch’s model of exchange rate overshooting we develop a theory of stock market behaviour and its impact on the real economy. The idea is that stock market prices overshoot and undershoot their long-run equilibrium values which are determined by the development in the real economy. The overshooting is triggered primarily by a loose monetary policy. With our model we explain the genesis of the global financial crisis (GFC) 2008/2009 primarily as the result of a loose monetary policy in the USA. Following the overshooting and crash in the stock market the real economy dropped into a recession. After modelling the interaction of three markets with different speed of adjustment—money, stocks and goods—for a closed economy we expand it to an open economy and lastly study the spillovers of a financial market crisis between countries (from a large to a small country) by introducing the transmission channels of external trade or cross-border financial transactions. A long-lasting monetary easing as exhibiting by the Fed and the ECB since 2007 and 2008, respectively could—according to our model—generate another boom-bust cycle.     

Marx on Ricardo: an explanation of some important misunderstandings

Ricardo's theory of value and distribution is reconstructed by proceeding along the lines of Marx's critique of Ricardo. It is thus an anti-critique of Marx's reading of Ricardo. The chapter ‘On Value’ in Ricardo's Principles is shown to be a consistent and rigorous treatment of the determinants of prices of production. According to Ricardo labor-values merely serve to approximate more elaborate standards of value. Marx's criticism is shown to rest crucially on his own misinterpretation of Ricardo's definitions and presupposes his own – faulty – theory of surplus value. Therefore Ricardo's theory can – contrary to Marx's theory of surplus value – still be regarded as a fruitful complement to Sraffa's model.     

The Emergence of the Law of Value in a Dynamic Simple Commodity Economy

Abstract

A dynamic computational model of a simple commodity economy is examined and a theory of the relationship between commodity values, market prices and the efficient division of social labour is developed. The main conclusions are: (i) the labour value of a commodity is an attractor for its market price; (ii) market prices are error signals that function to allocate the available social labour between sectors of production; and (iii) the tendency of prices to approach labour values is the monetary expression of the tendency of a simple commodity economy to allocate social labour efficiently. The model demonstrates that, in the special case of simple commodity production, Marx's law of value can naturally emerge from multiple local exchanges and operate ‘behind the backs’ of actors solely via money flows that place budget constraints on their local evaluations of commodity prices, which are otherwise subjective and unconstrained.     

Robust correlations between prices and labour values: a comment

The paper addresses Kliman's criticisms of the observed correlationsbetween prices and labour values. It argues that the notionof spurious correlation is not relevant in this case. It examinesKliman's own simulations and shows that his statistical correctiontechniques involve dividing through by the signal to leave thenoise.     

Hicks on monetary theory and history: money as endogenous money

Hicks was never tired of saying that monetary theory is in history.What he meant was that monetary theory is intrinsically relatedto real events, and more importantly that monetary issues needto be analysed in a dynamic sequential context in which timeplays an essential part. He went on developing a particularsequential analysis: the study of what happens within a singleperiod (‘single-period theory’) and the study ofthe linkages between a succession of those periods (‘continuationtheory’). It is suggested that this distinction providesa useful lesson for modern endogenous money theorists.     

Are ‘true’ preferences revealed in repeated markets? An experimental demonstration of context-dependent valuations

This paper reports a new and significant experimental demonstration that market participants adjust their bids towards the price observed in previous market periods when—by design—individuals’ values should not be affiliated with the market price. This demonstration implies that market prices may not adjust as standard comparative statics predicts and emphasizes the significance of social aspects even in market contexts. Hence, the present study shows that market behaviour is not anomaly-free. Indeed, market behaviour does not reveal the underlying true preferences but rather context-dependent preferences.     

Estimating a socially optimal water price for irrigation versus an environmentally optimal water price through the use of Geographical Information Systems and Social Accounting Matrices

This article develops a method for establishing water prices and their effects in order to provide policy makers an environmentally and socially optimal range of regional prices for irrigation water. Two prices are determined. The “environmentally optimal price” of water is defined as the one that internalizes the environmental costs generated by agricultural consumption. The “social optimally price” of water is defined as the one that maximizes levies on water for agriculture without affecting the regional economy. The environmentally optimal price is calculated with an economic model built over a Geographical Information System (GIS) that allows the economic quantification and valuation of the environmental cost of water in different basins. The optimal price is calculated with a demand curve for irrigation water introduced into a Social Accounting Matrix (SAM) to observe if the regional economy can accept higher prices without affecting the regional GDP. Potential water prices are established, ranging from prices that minimize the negative impact in the regional economy to those that totally internalize the environmental cost of water.     

Labor theory of value and the uncertainty in capitalist economy

This article aims to offer a reply to Steedman’s critique of Marx’s labor theory of value. Although this critique having been there for about three decades, the anti-critiques from Marxists are up to date flawed with fatal limitation, losing sight of an important dimension of labor theory of value, i.e., without taking it as a theoretical tool of understanding the uncertainty rooted in capitalist mode of production. The first part of this article reviews the controversy initiated by Steedman. Part 2 discusses Marx’s dual theory of market value and Rubin’s interpretation. Our view is that, if Rubin’s interpretation is accepted, a refutation of Steedman’s critique towards Marx will be impossible. Part 3 of this article explores the possible reconstruction of market value in the perspective of the dynamics in the pivoting of market value. We concludes that, the relationship between the standard condition of production and value is not, as argued by Steedman, of deterministic and one-directional character. For Marx, labor theory of value is applied to analyze the uncertain relation between the means and the end, the condition and the result of capitalist production. Meanwhile, another reply is attempted towards the negative comment on labor theory of value made by contemporary evolutionary economist such as Hodgson. In our view, Marx’s labor theory of value is not irrelevant as claimed by Hodgson to the main topics of evolutionary economics such as variety and “natural selection.” It is through labor theory of value that Marx explains the co-evolution of technology and economy.     

Are economists amoral? Contemporary economic thought and the distinction between values and prices

Underlying the “clash of cultures” between economists and the rest of the citizenry is a way of thinking about rationality, consumer choice and policy that periodically reveals a confusion between values and prices on the side of economists. Lawrence Summers' famous memo on the underpollution of the Third World was a case in point. Sadly, this was not an isolated incident. On the contrary, mainstream economists are conditioned, by the categories they employ, to regularly conflate value with price. This is particularly the case when it comes to theorizing about consumer choice and the meaning(s) to be ascribed to the set of market prices that emerge from the aggregate of these choices. This paper explores the dimensions of the problem and suggests other frameworks of choice that can enrich our understanding of consumer behavior and the significance of the set of prices that emerge in the market. Thanks go to Falguni A. Sheth, Kevin McCarron and the audience at the Association for Social Economics Annual Meetings, Washington, D.C., 2003 where an earlier version of this paper was presented.     

An experimental examination of the house money effect in a multi-period setting

There is evidence that risk-taking behavior is influenced by prior monetary gains and losses. When endowed with house money, people become more risk taking. This paper is the first to report a house money effect in a dynamic, financial setting. Using an experimental method, we compare market outcomes across sessions that differ in the level of cash endowment (low and high). Our experimental results provide support for a house money effect. Traders’ bids, price predictions, and market prices are influenced by the amount of money that is provided prior to trading. However, dynamic behavior is difficult to interpret due to conflicting influences. JEL Classification C91 · C92 · D80 The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.