Nobuo Okishio
Encyclopedia
was a Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

ese Marxian economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

 and emeritus professor of Kobe University
Kobe University
Shindai is one of the leading universities in Japan. It can be seen in the several rankings such as shown below.-General Rankings:The university is ranked 10th in 2010 in the ranking "Truly Strong Universities" by Toyo Keizai...

. In 1979, He was elected President of Japan Association of Economics and Econometrics, which is now Japanese Economic Association.

Okishio studied mathematical economics
Mathematical economics
Mathematical economics is the application of mathematical methods to represent economic theories and analyze problems posed in economics. It allows formulation and derivation of key relationships in a theory with clarity, generality, rigor, and simplicity...

 under Kazuo Mizutani
Kazuo Mizutani
' was chief of staff to Takeshi Mori, commander of the First Imperial Guards Division, at the end of World War II.Mizutani was in his office, listening to Col. Masataka Ida's explanation of a plot to prevent Japan's surrender, when Gen. Mori was killed by the lead conspirator, Maj. Kenji Hatanaka...

. In 1950 he graduated Kobe University
Kobe University
Shindai is one of the leading universities in Japan. It can be seen in the several rankings such as shown below.-General Rankings:The university is ranked 10th in 2010 in the ranking "Truly Strong Universities" by Toyo Keizai...

 and taught at Kobe University
Kobe University
Shindai is one of the leading universities in Japan. It can be seen in the several rankings such as shown below.-General Rankings:The university is ranked 10th in 2010 in the ranking "Truly Strong Universities" by Toyo Keizai...

. He soon began to doubt the premises and results of modern economics, and decided to search for alternatives by studying Marxian economics
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...

.

Okishio worked to clarify the logic of Marx’s economic system, offering formal and mathematical proofs for many Marxian Theorems. For example, in 1955, he gave the world's first proof of the “Marxian fundamental theorem
Transformation problem
In 20th century discussions of Karl Marx's economics the transformation problem is the problem of finding a general rule to transform the "values" of commodities into the "competitive prices" of the marketplace...

”, as it was later named by Michio Morishima
Michio Morishima
was a Japanese economist, mathematician and econometrician, who was a faculty member at the London School of Economics from 1970-88 as the Sir John Hicks Professor of Economics...

, which is the theory that the exploitation of surplus labor is the necessary condition for the existence of positive profit. Concerning Marx’s Falling Rate of Profit
Tendency of the rate of profit to fall
The tendency of the rate of profit to fall is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Das Kapital Vol. 3. It was generally accepted in the 19th century...

, Okishio considers famous Okishio's theorem
Okishio's theorem
Okishio's theorem is a mathematical theorem formulated by Japanese economist Nobuo Okishio. It has had a major impact on debates about Marx's theory of value...

 won’t deny it.

Okishio wrote many papers covering various important fields in modern and Marxian economics
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...

, for example value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...

 and price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...

, accumulation theory
Capital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...

, critical analysis of Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

, trade cycle theory and on the long run tendency of capitalistic economy. They were published in over twenty books and two hundred papers, unfortunately almost all in Japanese. About thirty of his published papers have been translated in English, and much of these materials are collected in the book (Nobuo Okishio, Michael Kruger and Peter Flaschel, 1993).

Formulation of Labor Embodied Value

Okishio showed how Marxian value is determined quantitatively. The value equation presented by Okishio determines the amount of labor directly and indirectly needed to produce one unit of commodity as follows.

ti = Σaij + τi (i = 1, .... ,n)

where aij is the amount of jth goods and τi is the direct labor input needed to produce one unit of ith goods. He first got this idea when he was writing “On Exchange Theory” in 1954 in Japanese and a little later in 1955 more clearly wrote in English paper “Monopoly and the Rates of Profits” Kobe University Economic Review.

Fundamental Marxian Theorem

Using this equation Okishio proved Marx’s fundamental proposition that the exploitation of surplus labor is the necessary condition for the existence of positive profit, later called as Fundamental Marxian Theorem
Transformation problem
In 20th century discussions of Karl Marx's economics the transformation problem is the problem of finding a general rule to transform the "values" of commodities into the "competitive prices" of the marketplace...

 by Michio Morishima
Michio Morishima
was a Japanese economist, mathematician and econometrician, who was a faculty member at the London School of Economics from 1970-88 as the Sir John Hicks Professor of Economics...

. This proof has some characteristics. First, it does not preclude the acceptance of value theory in advance. Starting from the existence of profit expressed in price terms, we can deduct the existence of surplus value
Surplus value
Surplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...

 as a logical consequence. This is the opposite way to Marx, who started from value and reached price and profit. Okishio’s proof has effects to persuade the validity of Marxian propositions to much more non-Marxian economists at present.

Measurement

According to this value equation we can make quantitative measurements using Input-output tables
Input-output model
In economics, an input-output model is a quantitative economic technique that represents the interdependencies between different branches of national economy or between branches of different, even competing economies. Wassily Leontief developed this type of analysis and took the Nobel Memorial...

 developed after World War Two. Okishio himself tried it at the first time in 1958 in Japanese economy and since then we have many measurement investigations in many countries. I myself did some measurements from 1955 to 1985 in Japanese economy and found that vales and prices move differently in the short run but in the long run these two magnitudes very much coincidently move. Thus at least in the long run values can be said as playing a gravitating role of prices.

Transformation Problem

Okishio’s work relates much to clarify the logic of Marx’s theory. First is the transformation problem. Marx argued in Das Kapital
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...

 Book Three about the transformation from values to prices. There he discussed that output prices also enter input prices in various sectors. And he warned that we could make a mistake if we ignore this fact because there exists some discrepancy between prices and values. Here, of course, prices mean output prices and values mean input prices at the first stage. So Marx suggested the need to proceed this iterative transformation process
Iterative method
In computational mathematics, an iterative method is a mathematical procedure that generates a sequence of improving approximate solutions for a class of problems. A specific implementation of an iterative method, including the termination criteria, is an algorithm of the iterative method...

 to the end. Marx completely showed the transformation formula although he left others to do it. Okishio executed the iteration process to the end using mathematical tools and proved that it converges to production price equilibrium with positive profits, i.e. equal to Bortkiewitz equation. One important finding relating this work is that the equilibrium rate of profit and the production prices are determined depending on real wage rate and technologies in basic sectors only. This result was accepted with surprise, because many economists considered that non-basic sectors also have some relations with the equilibrium rate of profit. As far as Japan concerned, some heated arguments are held between Okishio and some other Marxian economists.

Formal Proof of Marxian Theorem

Next is the Marx’s propositions of dynamic movement of capitalistic economy. In the paper “ A Formal Proof of Marx’s Two Theorems” he tried to prove Marx’s two theorems; first the tendencial falling rate of profit and second the tendencial increase in unemployment. By “formal” Okishio meant whether we can deduct two propositions from Marx’s presumptions of increasing organic composition of production
Organic composition of capital
The organic composition of capital is a concept created by Karl Marx in his critique of political economy and used in Marxian economics as a theoretical alternative to neo-classical concepts of factors of production, production functions, capital productivity and capital-output ratios. Marx first...

. He showed that if new technologies with increasing organic composition of production are continuously introduced, then the rate of profit must fall and the unemployment must increase. Here the crucial assumption is the introduction of increasing organic composition technologies. Then he proceeds to examine the validity of this assumption from the viewpoint of capitalistic behavior of technical choice.

Technical Change and the Rate of Profit

In the paper “Technical Change and the Rate of Profit” in 1961 he presented famous Okishio Theorem. There he showed that if we assume the viability condition, i.e. for the new technology to be introduced, it must be cost reducing, then new technologies never decrease the rate of profit; if it is introduced into basic sectors, the rate of profit will necessarily increase. His arguments depend on several assumptions:(1)the real wage rate is constant before and after the technical change,(2)the comparison is made about the equilibrium rate of profit,(3)the rate of profit is defined by the reproduction-cost principle. This theorem was later extended to the case of joint production in Morishima(1974), and later to the case of fixed capital by Nakatani(1978) and Roemer(1979). This work stimulated much discussion of its validity and implications for Marxist theory when it was first published, and has been a hotly debated subject to this day.

Okishio Theorem and the Falling Rate of Profit

Okishio does not believe his famous Okishio's theorem
Okishio's theorem
Okishio's theorem is a mathematical theorem formulated by Japanese economist Nobuo Okishio. It has had a major impact on debates about Marx's theory of value...

 rules out entirely the possibility of the Falling Rate of Profit
Tendency of the rate of profit to fall
The tendency of the rate of profit to fall is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Das Kapital Vol. 3. It was generally accepted in the 19th century...

 taking effect. A falling rate of profit might be realized in the long run due to competitive pressures among capitalists, bargaining power of labor, or other reasons. The crux of Okishio's Theorem is that the constant technological progess in the capitalist system of change and if the rate of profit falls in the long run, there must have happened the increase of real wage rate. The real wage rate will change in the process of technical change and it is very much doubtful whether this dynamic process converges to stationary production price situation. Nevertheless Okishio Theorem is relevant because it denied that the FRP is established automatically from technical changes itself.

Keynesian Economics compared with Classical Economics

Okishio critically investigated non-Marxian economics with a lot of energy, especially Keynes and Harrod
Harrod
Harrod may refer to:People with the surname Harrod:* Benjamin Morgan Harrod, New Orleans civil engineer* Charles Digby Harrod, British retailer, son of Charles Henry Harrod* Charles Henry Harrod, British retailer* Henry Harrod, English antiquarian...

. Although Keynes is not sympathetic to Marx but Okishio thought he is an important criticizer of neo classical economics inside modern economics, because Keynes denied the harmonic adjusting mechanism of market economy. Keynes also emphasized the independent and volatile role of investment demand in capitalistic economy. In these respects Keynes shared the similar viewpoint with Marx. Recent New Keynesian or Neo Keynesian has been neglecting these fundamental characteristics of original Keynes theory.

Aggregate Supply Function

Okishio’s critique to Keynes is that he denied the possibility to change the capitalist’s decision making. As is well known, Keynes devoted almost all his investigation to demand side and as far as the supply side he only said that there remains almost no materials that is not known to us and Keynes left it as technically given. Okishio examined the capitalistic property of Keynes aggregate supply function Z(N) and showed alternative way of raising employment by changing Aggregate Supply Function. His critical examination of Keynes economics is the jointly published book “Keynesian Economics” in 1957.

Determination of Wage Rate

As is well known, one of Keynes critical points to Classical Economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....

 is the determined to clear the labor market. On the contrary in Keynes, the real wage rate is determined in commodity markets. Many Marxian economists consider real wage rate is affected by labor market. However labor market can effect the nominal wage rate for the present and the commodity market can effect nominal prices. So in order to determination of real wage rate
Real wage
The term real wages refers to wages that have been adjusted for inflation. This term is used in contrast to nominal wages or unadjusted wages. Real wages provide a clearer representation of an individual's wages....

. In classical economics the real wage rate is know how real wage rate move, we have to both markets, namely the economy as a whole. Okishio investigated the movement of real wage rate in accumulation process and considered investment demands as the most dominant determinant of real wage rate in the short run and the natural growth rate as determining the long run real wage rate.

Instability

Okishio agreed with Roy F. Harrod that the market economy was not only from not static perspective but also from a dynamic perspectives. Harrod arguments were are necessarily clear, however, about investment decision making. Okishio wrote many papers to clarify the Harrod instability logic and showed that instability is the inherent characteristics in the accumulation process of the capitalist economy. Problems examined are (A)to make clear capitalists’ investment decision of Harrod and (B) to investigate the instability postulate taking into consideration other possibilities like substitutive technical changes, changes in saving ratio and movements in relative prices. He obtained the conclusion that instability is the robust property of capitalist accumulation.

Crisis Theory

Capitalistic accumulation process displays instability. However, for one production system to survive for long years, some kinds of equilibrium or near equilibrium conditions must be satisfied. In the shot run the economy diverges from the equilibrium growth path due to Harrod Instability but in the long run it satisfy several conditions as shown in Reproduction Formula of Marx Book Two. Okishio proceeds to investigate the crisis theory to reconcile these two requirements by introducing crisis theory as regulating mechanism. His accumulation theory is published in his main publication CHIKUSEKIRON “Accumulation Theory
Capital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...

” in Japanese.

Profit and Competition

Okishio scrutinized the relation between profits and competition. Okishio's Theorem is the proposition obtained by comparing the equilibrium rate of profit before and after the introduction of new technology. Whether the economic disturbances due to technical change will smoothly converge to new stationary state is very problematic.

Relating Production Price

In other words, how can the Marxian Production-Price constellation be justified in real economy ? Marx considered, of course, that in the long run the average positive rate of profit is realized in capitalistic market economy. Then what is the logic to guarantee it considering the change of real wage rate ? Adam Smith considered that competition among capitals effects downward pressures on profits. But as is well known, Ricardo criticized Smith and claimed that competition can only equalize uneven rates of profits among capitals and never affect the level of the rate of profit itself, which is inherited by Marx. Walras and more clearly Schumpeter asserted that competition sweeps out profits completely.

Tentative Results

Okishio’s tentative conclusion on this problem is that competition can drive the economy to zero-profit equilibrium unless there exist no continuous technical innovations or an increase in labor supply or independent capitalist consumption. This investigation is still under way.

Two Requirements

On this point Okishio’s argument is composed of the following two propositions. First, in order for the capitalist economy to work effectively, the production power of humankind in that society should exceed some minimum level and also should not exceed some maximum level. Second, the production power in the capitalist economy necessarily advances due to the mechanisms of competition and commercial expansion inherent to the capitalistic mode of production.

Work to Do

This viewpoint is exactly the same with Marx’s historical dialectic. If this is correct, the necessity for capitalistic society to be switched to another economic system can be proved by demonstrating the following two. First, we have to prove how production power advances in capitalistic society. Next, we have to show what is the upper bound of production power for capitalistic economy to be able to work effectively.

Necessity of New Society

As for the first, the introduction of new technologies are most important as shown by many economists as Schumpeter and others. As for the latter upper bound, he stresses the controlability of the whole economy. We are living in the world where even a local economic activity can have effects of global and long lasting consequences in all over the world. In this sense the production activities are already socialized in their effects. The decision making, however, is still grasped exclusively by small part of members in the society and it is executed based on profit maximizing principle. So he considers that in order to guarantee the existence of human being we have to change the capitalistic economy to alternative much socialized economic system, which is called socialistic economy.

Books

  • Nobuo Okishio ed(1992), Business cycles : theories and numerical simulation(Dynamische Wirtschaftstheorie ; Bd. 12), Peter Lang Publishing.
  • Nobuo Okishio, Michael Kruger and Peter Flaschel(1993), Nobuo Okishio-Essays on Political Economy: Collected Papers, Peter Lang Publishing (ISBN 3631435584).

Articles

  • “Monopoly and the Rates of Profit”, 1955, Kobe University economic review 1,71-88.
  • “Durable Equipment and Equilibrium Growth”, 1958,Kobe University economic review 4,29-40.
  • “Technical Changes and the Rate of Profit”, 1961, Kobe University economic review 7,85-99.
  • "A Mathematical Note on Marxian Theory", 1963, Weltwirtschaftliches Archiv 91-2.
  • “Instability of Harrod=Domar's Steady Growth”, 1964, Kobe University economic review 10,19-27.
  • “On Mr. N. Kaldor's Growth Model”, 1967, Kobe University economic review 13, 43-58.
  • “An Extension of a Discrete Version of Pontryagin's Maximum Principle and its Simple Application”, 1970, Kobe University economic review 16,37-48.
  • “A Formal Proof of Marx's Two Theorems”, 1972 Kobe University economic review 18,1-6.
  • “Value and Production-Price”, 1974, Kobe University economic review 20,1-19.
  • “Fixed Capital and Extended Reproduction”, 1975, Kobe University economic review 21,11-27.
  • “Marxian Fundamental Theorem : Joint-Production Case”, 1976, Kobe University economic review 22,1-11.
  • “Inflation as an Expression of Class Antagonisms”, 1977, Kobe University economic review 23,17-29.
  • “Theorems of Investment Truncation”, The annals of the School of Business Administration, Kobe University 21,73-90,1977.
  • "Notes on Technical Progress and Capitalist Society", 1977, Cambridge Journal of Eonomics 1(1), 93-100.

“Three Topics on Marxian Fundamental Theorems”, 1978, Kobe University economic review 24,1-18.
  • “Dimensional Analysis in Economics”, 1982, Kobe University economic review 28,31-44.
  • “The Decision of New Investment, Technique and Rate of Utilization”, 1984, Kobe University economic review 30,15-32.
  • “A Measurement of the Rate of Surplus Value in Japan : The 1980 Case”, 1985, Kobe University economic review 31,1-13.
  • “Stagflation : Causes and Policies”, 1986, Kobe economic & business review 32,33-54.
  • “Theoretical Foundations of International Macro-Economic Model”, 1987, Kobe University economic review 33,1-16.
  • “On Marx's Reproduction Scheme”, 1988, Kobe University economic review 34,1-24.
  • “Problems and Method of Economics”, 1989, Kobe economic & business review 34,101-108.
  • “On the Theories of Determination of the Real Wage Rate”, 1989, Kobe University economic review 35,1-13.
  • “The Permissible Range of Relative Prices in the Light of Lavor Values”, 1995, Kobe University economic review 41,1-14.
  • “Competition and Production Price”, 2000,Cambridge Journal of Eonomics 25(4), 493-501.
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