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Comparative Economic Theory Occidental dpf

Comparative Economic Theory Occidental and Islamic Perspectives

  • Book Title:
 Comparative Economic Theory Occidental And Islamic Perspectives
  • Book Author:
Masudul Alam Choudhury
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Money in Marx’s Dialectical Transformation Process

To exemplify the problem of insolvability in Marx’s transformation problem of converting individual values to social values, we take the relationship between money and production. Marx held the view that individual values are transformed into social values through the medium of production prices ‘tendentially’ converging to market prices, and thereby, to money prices. By this transformation process we can infer that money enters the process of exchange as a social contravention only after real production and market exchange are in place.

Now there is no problem with such a transformation process between money and real exchange as such. But next link up this process with the input-output entry points in Marx’s circular flows as shown earlier. We then note that if money prices, and hence the introduction of money in the economy, were to follow the input-output methodology, then the demand for money must equal the supply of money. This could be true only if the market prices were ‘tendentially’ approaching market equilibrium.

Hence, we are led to think in the next round of the input-output entry process, that money as an input goes ahead of production and market exchange. But the first round of the price-value relationship treats money as the consequence of real production, whereas the second round treats real production as a consequence of money. The result is a break-down in understanding the precise nature of the relationship between money and exchange in the real economy. Without this fundamental explanation of the role of money we also fail to have a precise understanding of the relationship between money, prices and production.

Money in lslamic Political Economy in lslamic political economy, money is thoroughly an endogenous social contravention. it never precedes production and exchange. Rather, it is the consequence ofthese. Now in the IIE-methodology of lslamic political economy (iPE), the ‘quantity-of-money’ relation looks like the following: M(0) = M(p(0), X(0) ,W(0), 0), where p(0) denotes a vector ofknowledge-induced prices of exchange arising from the interactive domain of iPE; likewise, X(0) denotes a vector of socio-economic variables; W(0) denotes the knowledge-induced social well-being function in (p(0), X(0), M(0), 0) recursively

determined in the sense of simulation over 8-values. it is to be noted that in the continuum of Shuratic Processes although M(8) will appear as one of the socio­economic variables and cause subsequent levels of socio-economic variables to be recursively determined, yet ali evolutions occur first by transforming such cognitive forms into knowledge tlows. Such knowledge tlows in tum affect the recursive socio­economic variables in a simulation system (Choudhury 1997). From the above quantity-equation fresh quantities of money are derived as production ensues through the medium ofknowledge formation in iPE according to the methodology of Shuratic Process. Thus money by itself can neither induce future money creation nor go ahead of the production and exchange menus except through the medium of knowledge formation. Money thus acts simply as a mode of valuation of real exchange and production and is thereby endogenously related to real economic exchange and production.

Now, how does the lslamic money appear at the re-origination points ofthe IIE-methodology (Shuratic Process)? This question is answered by noting first, that as (X(8),8)-values change with 8 in iPE, the effect is transmitted to the demand for quantity ofmoney. But spontaneously, X(8) and 8 are co-determined by an existing amount of money. This two-way relation between (X(8),8) and M(8) is of the endogenous nature mentioned above. But since the quantity ofmoney responds to (8, X(8)), therefore, money demand and supply always balance out, in as far as an expected market equilibrium exists. Now the interrelationship, {(8, X(8))- quantity ofmoney}, signifies the causation between money and real economic activity in iPE through the medium ofrecursive knowledge tlows.

The same is not the case with the treatment of money and monetized prices in Marx’s transformation problem involving input-output entry points. in this case, M ıpuı = supply = Minpuı = demand, occurs in a recursive way. Thus supply can go ahead of demand for money and thus become an exogenous aggregate. This treatment is no different from the usual capitalist treatment of money as promissory notes. The problem of circularity without a well-determined causality between money and prices in Marx’s transformation problem can be seen from figure 20.5.

Comparative Economic Theory Occidental and Islamic, Comparative Economic Theory Occidental and Islamic, Comparative Economic Theory Occidental and Islamic

in figure 20.5 we show the problem of Marx’s circularity problem respecting value and prices. We fail to understand from Marx’s circularity in his transformation problem whether value is to be understood in terms of money prices or real prices even though labour theory of value may be invoked for ali categories of prices in view of the kind of labour used in production and exchange. There exists no precise way of determining this labour process from the point İo to t1 and beyond. For instance, money prices as a valuation of collectivized labour remain distinct from the market values, where mental and material labour of microagents matter. An aggregation problem respecting microeconomic and macroeconomic prices that has marked ali of economic theory, re-appears here (Thurow 1983).

it is also not possible to read any of Marx’s claim on social interactions from his aggregate picture on the equality between total prices and labour value with a constant rate of profit (surplus value) between these (Blaug 1968). See Appendix. Thus it is impossible to interrelate a forward and backward value-price causality in systems, a fact with which political economy must essentially be concemed. On the other hand, the discovery, delineation and explanation of such forward and reverse

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