Dynamic Adjustment and Long-Run Inflation in a Marxian Model

Abstract

In the division of labor between Post Keynesian and Sraffian theory, inflation has been the province of the former and long-period price theory that of the latter. Pierangelo Garegnani (1983) has contended that natural prices are the center of gravity towards which the economy tends. Yet H. Nikaido (1983) has shown that when the machine-goods sector is more capital-intensive than the economy as a whole, the system will tend to move away from, not towards, its long-run position (see also Roemer, 1980). Interestingly, Nikaido assumes away inflation under simple reproduction, by setting the aggregate change in moneycapital in the system equal to zero. This paper explores the consistency between Marx's hypothesized mechanism whereby the profit rate is equalized, and Sraffian long-run positions. To anticipate, it is found that the Marxian adjustment process implies that chronic, pure inflation is likely to characterize the long period. First a standard of price for the long-run model that allows for the recognition of purely nominal changes in prices will be defined. Then the likelihood of long-period inflation will be derived. It is shown that for Marx's dynamic adjustment mechanism to be rendered consistent with postulated constant prices, it would be necessary to posit irrational