The Price We Pay For Not Understanding The ‘Price’ 0 643

In the book titled ‘Marx’s ‘Theory of price and its Modern Rivals’, Sri Lankan born and educated Prof. Howard Nicholas exposes the flaws in the many theoretical debates in money, price and inflation. This he does by revealing the inconsistencies and contradictions in economic theories submitted to explain price. This is nothing new in Sri Lanka and many developed countries attributable to the fact the certain economists, due to a false understanding, are misled on what price is all about. Therefore, let us examine this false interpretation and try to understand the real parts that from PRICE which we play in commerce.

According to Prof. Nicholas, Orthodox economists starting with David Ricardo have not quite understood the concept of ‘price’ and how it is computed. He argues that the explanation of price by Marx, who had a deep understanding of the capitalist system, is more logical and clear. To understand Price we have to first understand how commodities bearing a price tag are produced and marketed. Prof. Nicholas who refers to this process as the- Production Cycle’ explains that present day economists go astray since at the outset they focus only on the process of exchange, assuming individuals are naturally endowed with commodities. This mistake causes them to ignore cost of production and focus on individuals and their choices when explaining prices.

A second important point made by Prof. Nicholas in his book is that when explaining price, from the outset we need to bring money into the picture. This is, to explain prices as money- prices. When products calculate the values of their commodities, they do so in terms of money thereby setting money prices. Buyers of goods in markets make payment in accordance with these money- prices. According to economic orthodoxy, the prices that matters are relative prices. That is, the price of one product in terms of another and not in terms of money. In fact, although this may not be so apparent when reading standard economics text books, money has no role to play in the basic explanation of prices. It only makes its appearance when macro-economic phenomena, in particular the aggregate level of prices are considered.

The third major argument prof. Nicholas advances is that the basis for explanation of cost of production of the commodity as its money cost of production, needs to be seen as the labour time spent in production. This is what Marx referred to as the value of commodity. Labour time spent in production amounts to money costs, when money represents labour time by itself. This happens when money is used by producers, to depict the value of the product. The importance of explaining prices is perhaps best been by producers, to depict the value of the product. The importance of explaining prices is perhaps best seen by the present downward pressure on global prices, resulting from the massive technological change across the globe. Despite unprecedented levels of printing of currency by Central Bank of major countries, world inflation rate has continued to fall down. This underlines the importance of labour productivity in explaining price, and the incorrect explanation of money and price by economists. It may also be the clearest practical support for Marx’s price theory as seen by Prf. Nicholas

By : Dr Kenneth De Zilwa

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Gold Trend in the Coming Month 0 644

By : Kenneth De Zilwa

Gold has lost its value from its high of USD 1858 per ounce as at August 2011  to its current levels of USD 1225 January 2019

The markets do seem to read more into dollar positive news than anything else and  thus the sell off in Gold (XAU) now seems to be now nearing its end with further global weakness trickling into the global markets. Any sign of a global meltdown could spur a rally in Gold as that is the safe haven when times are uncertain.

The geopolitical tensions between China and US too caused further shocks in global markets. More so in stock markets. As we saw global Stock markets fall by 16pct in 2018, and metals prices slumped to their lowest in a year, however with signs of a trade deal on the table between US and China we could see metals gain in the short term. Econsult expects Gold to test USD 1350 before we see the next move.

Gold Trend In the Coming Month

Recommendation by Econsult – We feel that the bottom for is safe and that a short burst in Gold is very much on the cards. So we would recommend to buy Gold for a rally to USD 1400

Active Trade policy for economic development 0 495

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Professor W. D. Lakshman

Biznomics-active-trade-policy2Do countries with lower barriers to international trade experience faster growth? This has been one of the most vigorously debated questions in economics and political economy. Mainstream economics since Adam Smith strongly favours free or freer trade. In contrast, different strands of political economy have been critical of these views. Liberal trade has become a policy position pursued by international trade organizations like the GATT (and after 1995, the WTO), and by international financial institutions like the IMF and the World Bank. For many in this line of thinking free trade has become an ideology. Renato Ruggiero, the first Director-General of the WTO, writing in the last decade of the twentieth century, argued that liberalization had “the potential for eradicating global poverty in the early part of the next [twenty-first] century—a utopian notion even a few decades ago, but a real possibility today”. The free trade ideology has attracted traditional elites and economic bureaucracies in many developing countries as well.

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The free trade policy prescription is based on the theory of comparative advantages developed by a long series of well-known economists starting from David Ricardo of the nineteenth century. (Ha-Joon Chang in our issue of May-June 2019 presents a lucid explanation of the fundamentals of comparative advantages theory). In reality however, international trading has never been free.  During the period of European colonialism, foreign trade was controlled by the imperial powers and a few large and powerful trading companies. Colonial territories were opened up for foreign trade using imperial power. Countries that could not be brought under direct colonial rule (e.g. Japan and Thailand in Asia) were compelled to open up for foreign trade through unequal treaties which they were forced into signing. Foreign trade in colonies and countries brought under unequal treaties was seriously disadvantageous to the territories concerned.

 

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After World War II and in the era of decolonization, there was the US domination of world trade matters. The currently prevailing pattern of international division of labour and the rules of the game governing international trade are being governed and managed by the set of international institutions referred to earlier, working according to dictates of the US-led bloc of Western powers. Various global forces operate in support of these institutions – the ideological commitment to free trade, bribery and corruption unleashed by MNC-led international capital, and numerous political pressures, occasionally backed up by military power of dominant nations.

Foreign trade has been described as an engine of growth (implying causality) or at least as a handmaiden of growth (implying concurrent movement). Countries which have experienced export-led or outward-oriented growth processes are cited in support of growth-engine or growth-handmaiden hypotheses.  Mainstream theory however ignores inward-oriented import substitution activities which often pioneered the economic growth processes of the countries concerned. The export-led characteristic developed later once production capacities were developed through import substitution. Historically, in the initiation, sustenance and guidance of both these growth processes – import substitution and export orientation – active trade policy has played a crucial and critical role. The effective policy stance here has never been free trade, passively leaving trade flows to global market forces. In effective trade policy stances there were always complex and dynamic combinations of openness and restrictiveness.

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A point of great significance in trade policy discussion is that every process of development, taking place over time and space, is unavoidably uneven from one region to another at the country level and across different countries at the global level. As development processes take place at different rates in different countries, some regions and countries have achieved development earlier than the others. In this process, the “developing countries” always have got themselves stuck in a “late development” syndrome, subjecting them to more disadvantage than advantage. The “one suit fits all” type of development policies advocated in different versions of neoliberal packages, are hardly likely to meet the development challenges of all developing countries. This point comes out strongly in the extensive trade policy debates in development theory and practice.

Cont..

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