The Constant Measure of Value and a Nave Reasoning of Technology
Following Adam Smith, David Ricardo developed the labor theory of value, creating two different theories: the theory of embodied labor and the theory of commanded labor. The former was used by Karl Marx, whose well-known theory of exploitation has now largely been discredited.
Ricardo’s theory only holds if there is a limited system where each productive process produces a single product. In other cases, a price system with any positive rate of profit may diverge from a labor value, which means the exact quantity of labor embodied directly and indirectly to produce the goods. In the market, the price of a good may be influenced by distributive factors such as rate of profit or wages. The indirect embodied labor depends on the interactive processes of embodied labor, which can give rise to a nonlinear fluctuation because of its network of production. Ricardo intuitively recognized such an effect, but only followed a nave idea of the division of labor.Instead of analyzing a network effect, he was looking for a constant measure of value, which would ideally reflect a real quantity of embodied labor. This idea was revived by Piero Sraffa (1898-1983), an Italian economist working at Trinity College, Cambridge, who in 1960 proved the constant measure of value to be uniquely the maximal eigenvector of a feasible productive network with a given rate of profit and wages. Sraffa called such an eigenvector the standard commodity. He also proved his standard commodity could exist in multiple forms in a more general case of a jointly productive system, which is largely the von Neumann balanced growth model. Unlike Ricardo, as Klaus Mainzer, a philosopher of science at TUM,
i. e., Technische Universitat Munchen, pointed out, the German historical school had already understood the idea of a productive network and its nonlinear effect.[10] The price system of a standard commodity cannot be solved without matrix theory, which enables the observation of an interactive production process.
The idea of networks thus continued to be suppressed in the neoclassical tradition.
This was reinforced not only by David Ricardo but also by Alfred Marshall (1842-1924), who navely accepted the idea of division of labor (Marshall 1890). It is this tradition that has generated the world of homogeneity. Marshall (1890, p. 271), quoted by Brian Arthur (2009, p. 160), said:[I]f one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. And presently subsidiary trades grow up in the neighborhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its material.
Arthur (2009, p. 161) added:
Things have not changed since Marshall’s day. If anything, the mysteries of the trade are now deeper. This is because they are more likely to be grounded in quantum mechanics, or computation, or molecular biology. Formal versions of the craft do find their way eventually into technical papers and textbooks. But the real expertise resides largely where it was created, taken for granted, shared, and unspoken. It follows that once a region, or a country for that matter, gets ahead in an advanced area of technology, it tends to continue to progress further ahead. Success brings success, so that there are positive feedbacks or increasing returns to regional concentrations of technology. Once a small cluster of firms builds up around a new body of technology, it attracts further firms.
A path-dependent process may occur after any creative accident, so government can positively exert its initiative for innovation. Marshall’s view, however, still survives to bring some powerful prejudices to bear on actual innovations.
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