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The distinction between price and value is fundamental to economics, to the financial study of markets, and to political economy; at the same time, the grounds of the distinction itself, and the differentiating characteristics of the two terms, often remains obscure. It would not be too much to say that this obscurity has coloured the entire history of economics through all of its convulsions, and gives a particular complexion to analyses across its spectrum, from politics to mathematized finance. However, we should not be too quick to maintain that a simple misunderstanding is in force in all of these situations; the difficulty perhaps lies in the very nature of the role of price in the modulation of value in social life.

This paper assesses various critiques that have been levelled over the years against Thirlwall’s Law and the balance-of-payments constrained growth model. It starts by assessing the criticisms that the law is largely capturing an identity; that the law of one price renders the model incoherent; and that statistical testing using cross-country data rejects the hypothesis that the actual and the balance-of-payments equilibrium growth rates are the same. It goes on to consider the argument that calculations of the “constant-market-shares” income elasticities of demand for exports demonstrate that the UK (and by implication other advanced countries) could not have been balance-of-payments constrained in the early postwar period. Next Krugman’s interpretation of the law (or what he terms the “45-degree rule”), which is at variance with the usual demand-oriented explanation, is examined. The paper next assesses attempts to reconcile the demand and supply side of the model and examines whether or not the balance-of-payments constrained growth model is subject to the fallacy of composition. It concludes that none of these criticisms invalidate the model, which remains a powerful explanation of why growth rates differ. JEL Codes: E12, O41

Exchange-rate pass-through is the degree to which a change in the exchange rate is translated into a change in the price of internationally traded goods. The pass-through question took on great importance in the United State in the 1980s with the persistence of its trade deficit in the face of a large depreciation of the dollar. Some delay in adjustment was expected according to the J-curve phenomenon. When the J-curve appeared not to be turning upward, economists began to attribute the intransigence of the US trade deficit in part to the rigidity of prices despite the huge currency shift.1 Explanations of these deviations from the law of one price, however, vary widely. In this chapter we extend some well-known PKE pricing models in an attempt to explain the limited passthrough phenomenon.

Part 1 Historical and international context: introduction Socialist pricing East European experience East European experience Chinese experience to 1978. Part 2 From adjustment towards liberalization: goals of price reform positions on price reform debates on price reform package three stages of price reform price reform in 5 commodities summary. Part 3 Administrative price reform in theory and practice: price formation principles pre-1978 practice practice during 1979-86 institutional conflicts and problems summary. Part 4 Price regulation in intersectoral total output: effect of direct and indirect planning on output cotton coal summary. Part 5 Price regulation in intra-sectoral output composition: coexistence of shortages and surpluses production and consumption influence of prices non-price influences evaluation of new policy summary. Part 6 Evolution of dual pricing: objects and purposes development of dual pricing respective scopes of fixed and free price regulation short term effects problems of administrative management theoretical debates and new policy summary. Part 7 Price-responsiveness of state enterprises: theory pre-reform reality development of dual dependence firms after 1979 theoretical post-reform models the mixed market model - bicycles and chemical fertilizers the sellers' market model - steel and coal summary. Part 8 Summary and conclusion: characteristics of Chinese price reform achievements and problems future development and obstacles.

So far the whole of our analysis has proceeded on the simplifying assumption that the price level is given and invariant. This does not mean that the level of prices exerts no influence in our model. Indeed if we look back at Chapter 11 we see that the price level is a determinant, of the demand for active (M1 balances and thus of the rate of interest. Since the rate of interest, given the MEI schedule, determines (as explained in Chapter 10) the rate of real planned investment, which, in its turn, determines, via the multiplier, the equilibrium level of real income and, via the production function, the level of employment, it is clear that the level of prices exerts a considerable influence in our system. It is plain, therefore, that to complete our theory we need to consider how the price level itself gets determined. To explain this is the job of this chapter.