In 1956, the 'maximum flow' problem- i.e. how to get stuff through a network faster at lower costs- achieved its first algorithmic advance- viz. Lester Ford and Delbert Fulkerson's “greedy” approach — one that, at every step, uses the objects that come most easily to hand. It was in any case obvious that 'critical paths' need to be robustly supplied. The 'greedy approach' can be massively improved on (as in Spelman/Teng) if there is some way by which the entire network can be reset internally. But this is exactly what open markets do. Indeed, if arbitrage is Muth rational it will be doing something like spotting 'energy reducing cycles' and providing an invisible backbone of 'low-stretch spanning trees'. This means the thing can work in almost linear time or, rather, that it almost works in less than linear time and so what actually obtains is either 'optimization' or 'discovery'. But all this assumes that stupid economists and virtue signaling politicians are kept far away from the businessmen whose business it is to do this sort of stuff.
In Economics, there is Knightian Uncertainty. We don't know all future states of the world. Thankfully, financial budgets have a time scale where predictability is greater. This means budgets matter more than plans. You have a budget for the coming year and a bunch of plans covering a longer period. If the budget goes into the red, you scale down your plans or switch strategy. This incorporates new information through market signals. If you expect a surplus, you can go for the more ambitious plan. What would be crazy is to subordinate the budget to the plan. Even a Stalin and a Mao had to abandon plans predicated on letting the masses starve. This was because dead people can no longer produce anything. Nehru wanted the appearance of the omnipotent Mao but couldn't kill people to make it happen. He had to beg for food from America instead. Once his Second Five Year Plan ran out of money, it became obvious that only budgets mattered.
1956 was also the year Joan Robinson wrote an article titled 'Choice of Technique' for the EPW. Sen, her perhaps rather unwilling student, gave the same title to his dissertation which was turned into a book a couple of years later and which went through a number of editions.
Joan Robinson may have started off as a sensible enough lass. Then, alas!, she fell among economists and one thing led to another and she started reading Marx and went totally bonkers. By 1968 she was praising Mao's crazy Cultural Revolution to the skies.
But that type of craziness was still 12 years in the future when Joan wrote-
The dilemma of the choice of techniques is a real one and it is no good pretending that there is one obviously right answer to it.
This is nonsense. You chose the technique that you know or can afford to learn and use more and more extensively. If you try to chose a production technique for some random guy, he tells you to fuck off- unless the Red Guard or the Black Shirts or some other such bunch of thugs can beat him for you. But, by getting people to use a technique which is shit or which they haven't mastered, what you cause is waste and ruin. Mao's 'Great Leap Forward' was based on everybody having to choose crazy techniques such that they could forge steel in back-yard furnaces and grow a thousand times more wheat by adopting Lysenko's 'close cropping' and 'deep plowing' and other such nonsense. The result was famine.
To weigh up the alternatives we need to know more, e g:
how much we'd get paid for weighing up the alternatives. If the answer is 'nothing' then don't do it.
How much greater, for a given investment, the output of consumer goods would be if small scale industry is fostered, or how much additional investibe funds can be extracted [for planned investment) // capitalist firms are allotted to re-equip?
That's the sort of question bankers can answer. What's more, they can factor in their own cost of lending. Sometimes, only small loans to lots of small guys will yield a return and sometimes- if there are increasing returns- only a loan to a big firm will be profitable. In both cases, the fund provider adds value by promoting marketing or bulk buying of raw materials or checking on robustness of supply chains- i.e. boring shite businessmen alone find rewarding.
Since the thing is ideographic and dependent on expert knowledge of local conditions, armchair economists can say nothing about any of this. Their equations are based on 'accounting identities' but leave out the crucial item which gets books to balance- viz. profit or loss. Assuming there will be no loss is crazy. Bankers know that all sorts of people go bankrupt. Thus, only budgets matter.
What proper choice of technique, under Bretton Woods type conditions with 'Exchange Control', requires is coordination between Government and Industry such that Government's get a return in the shape of higher tax yield and Industry gets higher profits and Workers get higher real wages. Choice of technique may not be optimal, but it is 'incentive compatible' and takes account of all relevant information.
What would be crazy is for the Government to spend without getting a return on its expenditure or for Industry to become dependent on Government for protection. In the end workers lose out most though some in the organized sector get featherbedded and extract a rent. But the thing is fiscally unsustainable. Without 'free money' from some source, it will crash quickly enough. What follows is naked corruption and a hypocritical flouting of all laws by crony capitalists while the population seeks desperately for some way to emigrate. On the other hand, you might accidentally get a Rao who permits Manmohan to do sensible reform. But this, as Sen warned in 1959, will lead to Fascism- which he defined as a situation where people with high morals increase efficiency and public order. That's right. Sen thought we should oppose Fascism- even though he describes it as having wonderful traits- even if the only way we can do so is by fucking over the economy!
Robinson, naively asks-
Whether different kinds of investible resources are required for the different techniques?
This is foolish. Money and open markets is all that is required. You can always bring in foreign experts or foreign capital by offering money or sex and drugs.
The technique with the larger wage bill may be scattered all over the country and may not require further overcrowding of city slums.
But it will be loss making. Thus it will be discontinued or carried on only in token form after the money runs out. There is no real choice here. There is just craziness. Stalin and Mao could prevent starving peasants flocking to the Cities by enforcing an internal passport system. But the consequence was massive excess mortality.
The Great Leap Forward was based on crazy techniques and ran out of steam because of accumulated losses. The Cultural Revolution was just mindless violence whereby first the kids beat Mao's enemies and then the workers beat the kids and chased them into the countryside. Mao remained Emperor but then he died. Killing innocents doesn't make you immortal.
On the other hand the more mechanized technique fosters modern engineering and the technologist's outlook on life.
But if it makes a loss then there is no 'modern engineering' and the technologist's view of life becomes very dark and bitter- unless the guy emigrates.
Any one who has a prejudice for either side can find plenty of plausible arguments to support it.
Or they could just lie their fucking heads off.
IT is no wonder that the argument about .small-scale industry and the choice of technique should be bewildering the readers of Economic Weekly, for the subject is one of very great complexity.
No it isn't. Indians knew khaddar was a money-pit. In the Thirties, there was some notion that subsidizing that shit show would help Congress- or at least help Mill owners make a deal with Manchester (Mody-Lees agreement)- which fucked over the Cotton farmers and angered the Japanese.
In the Fifties, it was obvious that backing big textile and other 'wage-good' factories were the way to go- more especially if you could get in girls from the countryside or low caste male migrants who could be beaten senseless if they tried to Unionize. The problem was that industrialists of this sort would want to finance Right Wing parties who would demand a strong army and a sensible foreign policy rather than incessantly offering your anus for Maoist buggery. So, it was better to strangle the 'wage good' industries at birth. Capital intensive investment, though loss making, increased Nehru's power and the Party's ability to get money for electioneering. Pretending this was 'Socialist' was a cute way of fucking over the Commies in advance. Why have a Revolution if the country is already shitty? Why have a man-made famine when, just by neglecting agriculture, you could be dependent on the US for food?
If you continually shit yourself, you become a less attractive object for rape. India defeated Communism by destroying Capitalism before the thing could have any sort of crisis- let alone a final one.
There is no ready-made answer to it in the existing corpus of economic doctrine.
Yes there is. Economic doctrine has a notion of feasibility. It is not feasible to implement a technique which is crazy or too complicated for your ability. That's it. That's the whole story.
The kind of theory, based on the rate of interest and marginal products, to which Mr M N Ghosh refers, has been worked out (and not very satisfactorily, one must admit) for situations in which there is already full employment.
Of a particular type of labor. But labor isn't homogenous.
The Soviet debate (which again is far from satisfactory) also assumes full employment in the economy
because 'parasites' were sent to the Gulag. But so were a lot of good people just for the fun of it.
as a whole and is concerned only with alternative schemes of investment for one particular bit of the whole national plan.
If you didn't do your bit you got a bullet in the back of the head.
Neither deals with the Indian case of which the essential feature is the existence of a large (and probably growing) mass of surplus labour which
could not be shot in the back of the head or sent off to a Gulag.
requires to be equipped to make it productive.
Very true. If an Indian peasant was equipped with a particle accelerator he would become a very productive Nuclear Physicist.
Moreover, when the analysis is properly set out it does not provide a simple knock-down answer, but leaves us in face of a political problem.
India would soon find there was a knockdown answer- 'you don't have the money to do capital-intensive growth. You are as poor as shit. Your Second Five Year Plan will run out of money by 1957. Say hello to inflation, shitheads!'
To sieze the question we must go back to the beginning. The Indian economy is very lop-sided,
because almost all of it was as poor as shit. The parts which weren't as poor as shit had successfully exploited labor. The only way they could help the poorest parts was by exploiting the fuck out of their labor. Indeed, the Sen-Dobb thesis was about keeping real wages constant and putting 'surplus value' into shiny new factories. The problem here was that productivity was linked to real wages. Incentives matter. Anyway, workers in the 'organized sector' could unionize and extract a rent. You have to shoot a lot of workers if you want obedient wage-slaves.
and lacks the capacity to produce capital goods in sufficient quantity to provide the rate of accumulation that is considered desirable.
Stalin showed that you could starve the peasants while selling wheat so as to buy capital goods from America in the short to medium term. Long term, agricultural production collapses. This will create industrial unrest unless you are beforehand in shooting people. But you soon reach a point where you are shooting good soldiers. Then the Nazis invade.
To get the economy into balance is going to be a long job and will require heavy investment in the investment good sector.
Which will collapse because you run out of money. Your economy becomes less lopsided because now everybody is going hungry. The solution is to let corruption work its magic so Socialism can triumph by becoming Capitalism in disguise.
Foreign-exchange earnings may be regarded as contributing to the capital-good sector, since they can be used to import machinery and technical know-how, but export markets are limited and are vulnerable to the vagaries of world trade and to political pressure, India has therefore deckled to build up a capita1-good sector of her own.
Why not build up a magical-good sector instead? Better yet, why not just burn your foreign exchange? Why bother setting up loss making plants? Save yourself the heart-ache. Also, by simply chopping off the arms and legs of workers, you could reduce unemployment because fewer people would be capable of work.
For inescapable technical reasons the capital-good sector requires investment in schemes with a long gestation period and a high capital, output ratio.
Which is why only those risking their own money should make those investments. They have an incentive to choose the right capital goods to import and to ensure they are profitably used. True you could have a Japanese style MITI- i.e. a Ministry of Trade and Industry which rations foreign exchange so as to 'back winners'. This involves concentrating on 'export led growth' in areas where increasing returns and external economies obtain. But 'choice of technique' is always the one which is 'state of the art'. Mimetics should be Tardean. Mimic the best, not the second rate. Thus, there is money in imitating Beyonce's twerking. There is none in imitating my booty shake.
Moreover, to carry out the grand programme, it is necessary to plough back into the investment sector a large part of its own product as it emerges. (The first output of the new steel mills, should go into building steel mills.) Thus for a. very long time to come a large number of workers (including those engaged in earning foreign exchange) must be supported by the rest of the economy, without contributing anything to their own sustenance.
So, if your country is as poor as shit don't bother going down this road. You'll run out of money within a year or two and be left with half built mills. Of course, if you have a lot of high grade iron ore and coking coal then a particular project might be viable. But what is more likely is that your exports of ore will subsidize your negative value adding steel industry. Why not just sell your kids to feed an imaginary white elephant? How else will you ensure that your distant descendants will be well provided for? By 1964, the Indian Prime Minister was calling on all Indians to skip a meal. Suddenly, Parliamentarians realized that their subsidized canteen might no longer supply lunch. That concentrated their mind. Invest in agriculture not white elephants otherwise we too might look as thin and malnourished as Shastri.
But an immediate increase in total consumption is urgently needed. It is therefore necessary to allocate a part of the investible resources at present available to increasing the output of consumer goods by schemes with a quick yield.
Allocate all of it to that purpose. People will still forego consumption- e.g. by exporting consumption goods- so as to accumulate savings which can be used for longer term investment. Put another way, don't fucking allocate anything. Just tax consumption so public goods are provided.
How the allocation is made is a larger question than that at present under discussion and for the moment must be taken as given. The argument about the choice of technique is concerned with the best way of disposing of the ration of investible resources allocated to the consumption good sector. Dr Rudra
Ashok Rudra, even in the Nineties, argued that the fact that the public sector was shit and the fact that planning was fucked in the head did not entail abandoning either. Workers' control of enterprises would yield utopia. In other words, where the bureaucrats had failed, horny handed laborers were bound to succeed coz of their superior grasp of dynamic programming and the Pontryagin principle.
is, of course, quite right in pointing out that nothing can be settled by an example drawn from a particular industry,
If that industry has turned to shit because the Government fucked it up then everything can be settled by taking it as an example. Rudra thought that if everybody who drinks the Kool Aid dies immediately, then nothing can be learnt from this. Maybe if there is workers' control of Kool Aid distribution, it will prove to be the elixir of life.
but Dr Raj's type of analysis can be applied if we take it to refer to the consumption-good sector as a whole,
which is unknowable because of self-provided goods and non-monetized or informal exchange- not to mention the ubiquitous smuggler who was the villain of more and more Bollywood movies.
assuming that a well balanced mixture of schemes in arranged so that the.' flow of consumer goods emerging will be reasonably fitted to the demands of consumers.
V.S Naipaul, arriving in India in 1962, discovered that cheese was unprocurable. In 1984, I attended a job interview in Delhi. The M.D suddenly woke up and started shouting at me. 'Where did you get that suit?' I replied proudly that I'd got it in London. He calmed down. He explained that it was made in India but was 'export only'. He had thought- looking at my ugly face- that I was some hayseed who had bought the suit on the black market. The odd thing was the suit cost more in India then it did in London! The label didn't say it was made in India and I, being Indian, was something of a snob in these matters.
A great deal of confusion has been imported into the discussion by calling techniques which require a higher ratio of capital to output "more advanced'' instead of "more mechanised'' or "more capital using".
This is crazy shit. The capital output ratio is based on capacity utilization. India had had sick industrial units forever. Indeed, the typical Marwari success story features a young man taking over a Mill which is at half or one third capacity and his figuring out how to sell its shitty product till it reaches 80 percent capacity at which point it becomes profitable. Since armchair economists didn't know about capacity utilization- indeed they knew nothing about actually running a business- they talked mischievous bollocks.
(The confusion is partly only verbal. Dr Raj talks about technological change, which implies new inventions, when he means an increase in the stock of equipment of types already known. Dr Rudra defines his terms quite clearly but the overtones of "advanced" are misleading in the sense that he uses the word.)
Robinson is saying these little brown babus is not knowing Inglis gud. They use words like 'advanced' which they can't understand coz they be totes retarded.
Le t us distinguish "superior'' from "more mechanised" techniques.
We can't. In carpet making, hand spun, hand dyed, hand knotted carpets are superior provided the wool is superior. Factory made carpets can be profitably marketed- for example by doing a deal with real estate developers such that new builds have a 'fitted carpets' option and salesmen are incentivized to get customers to tick that box. Surveyors and Bankers too have to be incentivized to say 'fitted carpets are value adding'- i.e. yield a superior valuation- even if that is obviously not the case. The result is that contractors can skimp on the quality of flooring while the profits from the fitted carpet fad is shared in an opaque and corrupt manner.
Technique A is superior to technique B if
you are very good at technique A. The thing is subjective but becomes objective if you get a profit by using A while somebody similar to yourself takes a loss from technique B.
Why did these nutters not know this? Labor isn't homogeneous. It should have been obvious to guys like Rudra, who had just returned from Engyland with an Inglis wifey that English workers are different from Indian workers. Inglis wife is making toast for hubby. Indian wife is making paratha. Technique of toast making is different from paratha making. Why not compare apples with oranges instead?
it yields a higher return, in the form of a future How of product, net of depreciation, both per unit of labour and per unit of investment.
God knows what this means. EPW had shitty proof readers. If you can't even do type-setting correctly what fucking advise can you give on choice of technique?
We have a certain sum of money to invest (taking wages and prices as given). If project A promises a higher rate of net output than project B, and at the 'same time will require less labour to operate when it has been installed, then so much the better for A.
But it will either require more skilled labor or more tightly supervised labor. This includes beating workers who want to break the legs of the managers and burn down the factory because they are denied the right to smoke cannabis on the job.
To prefer B on the ground that it will offer more employment would be extremely hard to justify.
It would be very easy to justify. Countries where stuff was made with lowest per unit labor costs were attracting migrants like crazy. India was already exporting Punjabi farm lads to England's mill towns. Why? Multiplier effects and external 'Industrial District' type effects arise. Marshall had described this fifty years previously.
Some people, however, do prefer B. The extra workers left free if A were installed (as compared to the case where B is installed) would require either to be equipped for production, or to be supported by some kind of dole,
There was no kind of dole in India. Nobody told Robinson. She'd have had kittens.
or they would remain as a reproach. For the politicians therefore B may seem to provide an easier line than A.
Only if someone was stuffing his back-pocket with cash.
Some people also prefer technically inferior methods of production for aesthetic or religious reasons.
No. They prefer handmade items for such reasons. But the market may decide there is higher value addition in such cases. I don't mind if paper is produced in big factories. I do mind if novels are authored the same way.
It is against this sort of view that the economic pundits are (somewhat confusedly) protesting when they argue against labour using tehniques.
This is stoooopid. The cottage industry sector had been saying for a long time 'allow us to import the best quality yarn or other input'. Some guy like Ziegler will tell us what to produce by hand for the export market. We will make good money and pay taxes.' Japan had industrialized initially by expanding its cottage industry which is why everybody in the West suddenly started swanning around in silky kimonos. The abodes of the middle class soon filled up with Japanese pottery and Benarasi brassware and Zeigler carpets.
And so long as they stick to favouring techniques which are properly speaking superior, they have a very strong case. Bu t it is precisely the pundits, with their conception of "the production function" and "factor endowment" who should be most ready to accept the idea tht "more mechanised" is not the same thing as "superior" and that different degrees of mechanisation are appropriate in different circumstances
Nonsense! Even if the carpet is made by hand, logistics and distribution may be highly capital intensive. These stupid pundits had never worked in an actual factory. They thought there was no other department except the production department.
(In his reply to Y's chaff about the pundits, Dr Raj was putting on a cap tha did not fit, for he does not fall into this confusion.)
Indians are too stupid even to put on the right cap. Also they don't understand when they are not confused and stupid. Thus even if they have said something sensible, still they won't know it is sensible. So they will shit themselves if some naughty wag 'chaffs' them.
The true problem, explored by Dr Ra j and Dr Rudra, is to choose between a more mechanised technique, which requires a. larger investment per unit of output with less labour to operate it, and a less mechanised technique which requires a smaller investment and more labour.
But this is a choice everybody in the West was already making! Should you buy a vacuum cleaner or use a broom? Is it worth it to buy a washing machine? The answer was 'if your opportunity cost of labor is high, buy the labor saving device'. As affluence increased, economies of scope and scale arose such that it became cheaper for everybody to have a washing machine or use the laundromat. Quality competition and inter-industry trade (stuff that mathematical econ couldn't handle) ensured this outcome.
In Dr Raj's example technique I (handlooms) is inferior to II (semi-automatic looms), and I drops out of the argument.
But the market for hand-loom is, or ought to be, different from that of Mill cloth. Even Gandhi- nutter that he was- knew this. He was opposed to weavers serving the high end market because
1) they made good money and thus kept telling Gandhians to fuck off
2) they did not wear the cloth they themselves made! Instead they bought Mill Cloth! This is an atrocity! It is obvious that a guy who makes dresses for ladies, should himself dress like a lady! Furthermore, a Pundit working for the Planning Commission should himself be the subject of Planning. Suppose he wants to scratch his arse. A high level committee should decide whether he should use a back scratcher or resort to a more labor intensive technique. Till that happens, nobody should scratch themselves.
Technique II I (fully automatic looms) offers a smaller output for a given investment than H,
This stupid lady has never heard of 'working capital'. The handloom sector requires a lot of working capital though it may utilize less fixed capital. The 'wage-good' model of Bhramanand & Vakil was developed as a riposte to Mahalanobis's crazy shite.
and requires very much less labour. How should we. choose between them? On pure capitalist principles of profit maximisation, the choice of technique depends upon the relation of wages to prices,
Fuck off! It depends on value addition. You can reduce wages and raise prices and go bankrupt because nobody buys your shite.
Robinson didn't understand how industry works. But, to be fair, the Indians she was talking to didn't understand how anything worked. They only had jobs because they were blinkered donkeys. Meanwhile politicians made money and the big business houses monopolized the market by not producing thus gaining the best of monopoly profits- a quiet life. Marwaris, it is true, who were bending the rules so as to break up and ruin Managing Agencies yet somehow ended up with foreign exchange in Swiss Bank Accounts. Interestingly, the Church and the Missionaries helped in this. That's why Mother Theresa was promoted in Calcutta. But, ultimately it was 'free money' from Uncle Sam which enabled Indian economists to delude themselves that India was building Socialism not a shit-show.
Robinson ends her article on a note of pure farce. Her student, Amartya Sen, would build upon her stupidity to create a genre of absurdist comedy. But, being a prudent Bengaliwog he wouldn't mention the role of politicians. That's why he remains safe whether it is Left Front or Mamta's goons who are prowling around. BTW, he got on well enough with the Vajpayee government.
This is the closing para from Robinson's article-
Important but Imponderable considerations also have to be remembered.
How can you remember something 'imponderable'? All we can say is that where imponderables exist, we don't have a calculus. Ask somebody with domain expertise. We simply have nothing useful to contribute.
The technique with the larger wages bill is fattening up more people and getting them into the swim of economic development,
Which technique in Nehru's India was doing that? Bureaucratization. Voters wanted more Government jobs and more Government jobs meant more Red Tape which meant higher compliance costs for Industry which had to employ more and more clerks in offices and more and more 'fixers' in New Delhi. But India was not fattening up. It was getting thinner. Shastri said we'd all have to skip a meal. Then the Pakistanis started a war and Indians woke up to the fact that it was one thing to be emaciated coz u be all Gandhian and shite and it was another thing for the Muslims to re-establish their rule- in which case some Hindus would become fat and commercially successful even after paying the 'jizya' tax. At that point 'hartals' and 'satyagraha' would be ineffective. The new rulers would give kaffirs the choice of conversion or death. Bengaliwog buddhijivis would suddenly become very quiet and nice and resume their studies of Persian and Arabic. Prophet Muhammad approved 'Tijarat' (Commerce) as the foundation of 'Imarat' (a strong state). It was the destiny of Hindus to be slaves. As Mahatma Gandhi said in 1939, Congress was a High Caste Hindu party- i.e. it was composed of cowards- so, once the Brits left, the Muslims along with the Punjabis (irrespective of creed) would beat up the Hindus and take over the country. Gandhi wondered whether the Gurkhas too would join in.
Being beaten by China was one thing- after all, the Chinks are fairer skinned than us- but being beaten by a less numerous, but equally brown, people was insupportable. India began its long hegira away from Nehru-Gandhi stupidity. This meant 'Backward Caste' leadership. It turns out, less is more when it comes to 'Education'.
it may be scattered over the country and does not require further overcrowding of city slums.
Very true. Every Village should have its own Secretariat. Even the goats should be given jobs in the Archives.
On the other hand the more mechanised technique strengthens the highly developed part of the economy and fosters modern engineering and the technologist's outlook on life. Anyone who has a prejudice for either side can find plenty of plausible arguments to support it... It is obvious enough where political considerations come in. and there does not seem to be much hope that pure economic argument will be able to make head against the passions that it arouses.
Robinson & Sen were incapable of making any type of argument- let alone a 'pure economic' one. Still there was a demand for shitty mathematical econ so long as 'free money' from Uncle Sam kept coming in while PL480 food fed the country. As for 'passion', Hindus decided there was no point having any such thing if it meant the restoration of Islamic rule by some Pakistani General.
What of the central question- how was India to get richer to afford a better army and maintain itself without American food and Soviet technical assistance? The answer to it was obvious. Buy cheap, sell dear. Make a profit and only tax as much of that of profit for the provision of public good as would yield greater profit going forward. The Government could advance money and provide assistance to get more tax revenue for itself- if it wasn't completely shit. Otherwise, it could just levy a sustainable tax on private industry and pay for public goods in that way.
Sen, in an EPW article responding to Robinson's, which itself responded to Rudra and Raj, wrote
A problem which has however been rather neglected in the discussion so far is that of the valuation of capital from the point of view of growth .
This is silly. The market valuation of capital is based wholly on future income streams. But growth occurs when future income streams are higher than those current. Thus all valuation of capital is from the point of view of growth- i.e. the future.
Money costs have so far been used to calculate the rate of surplus.
Because only if this exceeds the interest rate- i.e. cost of funds- should investment proceed.
Now, the maximum rate of investible surplus valued that way would give the maximum rate of growth only if
capacity utilization was 100 percent.
the amount of investment that can be undertaken is fixed in terms of direct money outlay.
Nonsense! It is always the case that maximum investment depends on maximum money outlay (including credit or gifts).
That this need not necessarily be so can be realized with ease if we make the simple assumption of different propensities to consume of the factors contributing to the capital investment.
This is irrelevant. It is obvious that a billionaire who invests 10 million in a plant is going to have zero propensity to consume. The extra revenue he gets is just 1 million or so. It isn't enough for him to bother with trading up in terms of super-yachts. As for the m.p.c of the workers, it doesn't matter at all unless you are living in a closed economy affluent society. Even so, it only impacts on capacity utilization- nothing else. Marginal propensity to consume may fall during a recession in the Global North. But capacity utilization for fresh investment in Hi Tech may increase because people substitute the new product for stuff they used to buy for 'positional' reasons. Thus, after the crash, people still bought top spec laptops and iPhones but stopped buying McMansions.
Let. there be two techniques involving investments worth Rs .100 and Rs 110 respectively.
Which one has higher expected capacity utilization? That's the only question. The more expensive technique may do so even in a recession because of 'flight to quality'. During hard times, people buy superior quality shoes because they last longer. During good times, they buy lots of cheap but fashionable tat.
If the income receivers in the first case consume three-fourths of their incomes and those in the second, half of their incomes, the additional supplies of consumer goods necessary to meet the demand of the income receivers must be Rs 75 in the first case and Rs 55 in the second.
That is simply an accounting identity. It is preserved after the fact. Still, it can capture something about capacity utilization involving a 'flight to quality' during hard times. Capital intensivity may rise because expected capacity utilization in the 'quality' sector rises. People will only buy the best when they can buy at all. They prefer to save up for shoes or watches or whatever that will last a life time though, when it comes to new technology, they may want to stay abreast of it because of productivity gains. Don't forget, in a recession, higher innate productivity is what differentiates those employed in the organized sector from the underemployed unfortunates. Wage differentials increasingly serve as 'efficiency wages'- i.e. employee loyalty and obedience increases because transfer earnings have fallen.
Thus the amount of investment that can be made in any given situation ma y not be fixed in terms of direct money outlay.
It always is at time t. Sen thinks stuff which happens in time t+1 is actually happening in time t. Thus, if India buys a turnkey steel plant in 1956, the binding constraint is how much cash plus credit it has in that year. It doesn't matter how Indians working on the project spend their wages in 1957. Either the project is successful or it isn't.
Hence the maximum rate of surplus on the money investment outlay need not give us the maximum rate of growth for the economy.
Only capacity utilization can give us that. I suppose Sen was assuming 100 percent capacity utilization- which is always impossible. If he had eyes in his head, he should have been able to see 'sick' mills in Calcutta and Delhi and other Cities even in the Thirties.
Secondly, money costs are normally calculated at the existing prices.
They are based on tenders or prices on open markets.
But the supply conditions may change with a changing amount of production,
So what? Everybody hedges any type of risk they are uncomfortable with.
Hence calculation of the rates of surplus on the money costs calculated at the present level of prices may be very deceptive.
That's nobody's problem save that of the arbitrageur who took on that risk. But he'd have a diversified portfolio.
The point is of more than academic interest.
It is the bread and butter of the business community. Academics should stick to telling kids not to masturbate during lectures. Wait till you get a seat on the Planning Commission.
Most of the treatments of this question tend to give one the impression that either one technique or the other is preferable for any amount of production, as the factual tables are constructed at constant factor prices.
That's okay if you can hedge against price volatility.
In reality however in most of the development plans different techniques are utilised to produce the same goods, and the Indian Plan is no exception.
But this is also true where there is no fucking planning. It is obvious that some clothes are stitched by the tailor and others are bought ready-made.
This is because, among other reasons, the amounts of different inputs available are limited
every fucking input is limited if the input is 'economic'- i.e. scarce- and commands a price.
and with increased production some get scarce earlier than others.
So what? When you enter a contract, the supplier takes the risk which he can hedge. Indeed, a Govt. Export Import Bank can help in this. Otherwise, the Financial Sector will supply 'factoring' services such that arbitrageurs shoulder the volatility risk.
To tackle this sort of problem what one needs is not an estimation of money costs at fixed prices, but application to this problem of some thing like the Soviet Commodities Balances approach,
which was just a posh term for stocks or inventory control and management. GOSPLAN's 'material balances' approach consisted of some Commissar saying 'Tovarich! We have too many ball-bearings and too little pork! Tell the Collective Farms to increase the pig population by feeding them the surplus ball-bearings!' Needless to say, everybody overfulfilled their production quota. Moreover pigs fed on ball-bearings were able fly to the far reaches of the cosmos- which is how come we have to import Canadian bacon.
or its Western counterpart in the shape of alternative combinations of "fixed-capital-stock" and "current input-flow" technology matrices along wit h estimates of the amounts of various goods and services available at the initial moment.
This turned out to be a bureaucratic nightmare, so Western countries relied more and more on the market shrinking the role of the bureaucrats and econometricians.
(This is of course not to deny the value of the illustrative purpose of Dr Raj's table
it illustrated that he was a fucking cretin
specially in clarifying the important distinction between maximising the rate of output and maximising the rate of surplus.!
There is no such distinction. Maximize capacity utilization and you maximize surplus. It is not the case that factor prices rise when you run a double shift if your people are price-takers- which was the case in India because the country was as poor as shit. Furthermore, even if there was a primary commodity in which India was a price maker, it could impose an export quota and absorb the surplus domestically. The thing about being poor as shit is you could always eat more or relish the opportunity to have a change of underwear.
Finally, the importance of varying import contents of various techniques have so far been rather neglected, as it has been customary to deal with models of closed economies.
So what was really important was to tell economists to fuck off. They were talking bollocks. Still, Sen's politeness payed off. He wrote a shite book titled 'Choice of Technique' and nobody bothered to rubbish it. That's how you get ahead. You look at the export market and thriftily recycle their own tedious shite so as appear novel and innovative to foreigners.
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