A Comment on ‘The Measurement of Prices of Production’ by Peter Flaschel, Reiner Franke & Roberto Veneziani

Abstract

After giving a summary of the Cambridge debate, the comment criticizes the proposal by Flaschel, Franke and Veneziani to base the classical approach on systems of production with unequal rates of profit both theoretically and on empirical grounds: The classical gravitation of market prices towards normal prices is hard to defend, if there are persistent differentials of profit rates, but the profit rate differentials in the paper are not even stable. The comment further defends the idea of representing states of knowledge about technology by means of input-ouput tables against objections regarding the transferability of methods between countries and discusses alternative approaches to the treatment of fixed capital. It is shown that the data used by the authors for capital stocks are not supported by the data of the German Statistical Office. I agree with the authors in the most essential point, however: Contrary to the position taken e.g. by Joan Robinson, we all believe that the problems of capital theory raised in the Cambridge debate must be analyzed not only in abstract theory but also at the applied level. We all were surprised to find that empirical wage curves tend to be close to straight lines so that double intersections of such wage curves, hence reswitching and reverse capital deepening, must be rare. This phenomenon needs to be explained; a possible explanation can be derived from the random nature of the input-output matrices, and, so far, no other explanation has been proposed.