Notes on "Activity Analysis in the Theory of Growth and Planning" Edited by E. Malinvaud and M.O.L. Bacharachi

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4. A computer simulation model to play with (just to see what are the problems involved) might proceed as follows. Don't try to provide for unforeseeable technological developments (or perhaps provide for random generation of new production functions invented). Instead use Cobb Douglas production functions (with constant returns to labor input and perhaps other modifications) or some other means of making new input output coefficients with less labor in total available as accumulation proceeds.

Have several firms, each with a stock of money and inputs and keeping account of its own production function.

Biggest problem is money (!) Try one product being gold and use small amount of gold coins circulating rapidly.

Markets for products organized like stock exchange. Price quoted, buyers and sellers matched. If no sales, price slightly adjusted in right direction until they are, of if impossible, trading closed.

At start of production period, firms buy inputs, including labor power on market. Simultaneously they are also selling their outputs. Thus single coin passing from one to other could realise entire product. A buys from B who can then buy from C which enables A to buy again, etc. Small quantities changing hands and prices continuously adjusted as it goes.

To start with, each firm sells all its output at whatever price it can get. Buys inputs in accordance with last quoted prices and marginal rates of substitution according to production function. If prices vary during trading period, this will cause both the estimated total amount available for buying and the ratios in which it is spent on different inputs to vary, hopefully in a convergent way and without great transfers of wealth through accidents of price movements occurring. Would have to start off with some arbitrary price list and hope it converges, or else pre-compute one appropriate for simple reproduction say.

Then all firms translate inputs into outputs and start again.

Production has to develop proportionately for the right inputs to be available. Price mechanism should fluctuate around this (more or less wildly, and including crises) . But proportions change as accumulation proceeds, so do relative prices.

Wages and labour are hard. Don't know how to incorporate unemployment – would need different model.

Use log type utility functions, with utility for leisure time, so labour power is offered for sale only when its price and the prices of consumer goods that can be bought with wages are sufficient to offset decreased utility of leisure. (This is not good). Bought and sold in market like any other input and workers buy consumer goods on market in same way as firms.

Each firm is simply reinvesting the whole of its surplus to expand output as much as possible. If demand increases, prices and outputs (can have joint products – and also land rents) will go up, total value of products will be up and proportionately more inputs can be purchased, so expansion of supply would be internally financed. Correspondingly if contraction, or if firms production function is obsolete, can't get enough from sales to maintain production at old level (since other firms are forcing price down) – eventually all capital used up.

Should have more efficient means to reallocate capital according to average rate of profit – shares, dividends and share market of some sort. Just internal finance is wasteful. Obsolete technique only abandoned by throwing away all the capital invested in its firm. With shares and dividends could also have individual capitalist and their consumption and “savings” (workers savings too with all the bullshit).

Program should output comprehensive statistics of everything under the sun, including values, production prices, rates of surplus value, profit and organic composition calculated.

Try to introduce banking and debt capital. Start up another economy separately and have them trade. More complicated production and transport etc. parameters (fixed capital etc.) Leasing of equipment, factoring of stocks, trade debt and credit etc.

Allow external players on teletype to act as capitalists investing on stock exchange etc. or actually managing a firm. Attempt to develop more efficient management policies. Introduce Government to set tax rates etc. and run Government sector. Try to get some econometricians to play and see if they can program it to avoid crises! Use to try out dynamic forecasting techniques.

Could be fun to play and anyway instructive to attempt!

Ideally should start up from individual production and gradually expropriate the producers.

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