Re: [OPE-L] equilibrium and simultaneous vs. sequential determination

From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Sat Sep 15 2007 - 10:36:06 EDT

Quoting ajit sinha <sinha_a99@YAHOO.COM>:

> --- Fred Moseley <fmoseley@MTHOLYOKE.EDU> wrote:

>> Ajit, this is not my problem.  This is a problem in
>> Sraffian theory.
>> The problem, as I have explained in an earlier post,
>> is that Sraffian
>> theory (in which all capital is treated as
>> circulating capital, because
>> fixed capital is treated as a “joint product”), all
>> industries must be
>> assumed to have the same turnover period, if the
>> rate of profit that is
>> determined by the system of equations is to be
>> equalized over the same
>> period of time.  If, on the other hand, turnover
>> periods were not equal
>> across industries, then the rate of profit
>> determined by the equations
>> would be equalized for different turnover periods,
>> which would mean
>> that the annual rate of profit for different
>> industries would not be
>> equal, contrary to the prevailing tendency.
>> For example, if a given capital in one turnover
>> period has a rate of
>> profit of 5%, and it turns over twice a year, then
>> it will have an
>> annual rate of profit of 10%.  If another capital in
>> another industry
>> also has a rate of profit of 5%, but turns over 10
>> times in a year,
>> then its annual rate of profit would be 50%.
>> I hope this clarifies the problem.  Any suggested
>> solutions?
>> Fred
> _________________________
> That definitely clarifies the problem, which is that,
> as I had expected, the problem is with your
> understanding of the problem rather than with Ricardo
> or Sraffa. Rate of profits is given in terms of period
> of time. Now a days banks compound your rate of
> interest on almost daily basis, if your bank tells you
> that the rate of interest on your deposit is 5%, then
> would you expect that your daily rate of interest
> should be (5x365)%? Why not just read Ricardo? He will
> solve all your problem. Cheers, ajit sinha

Hi Ajit,

What you continue to say about Ricardo and compound interest does not
answer my question about Sraffa’s theory.

Assume that $200 is invested in industry A and industry B.  The $200 in
industry A is recovered in 12 months, plus a profit of $50, so that the
rate of profit for its turnover period is 25%, which is also the annual
rate of profit.

Assume that the $200 invested in industry B is recovered in 6 months,
also with a profit of $50.  So the rate of profit for its turnover
period is also 25%, but its annual rate of profit is 50% because it
turns over twice.

Please explain how compound interest solves this problem, i.e. how it
equalizes the annual rate of profit in these two industries with
unequal turnover periods.


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