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

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Sat Sep 22 2007 - 10:26:47 EDT

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

> 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.
> Thanks,
> Fred
Well, I tell you put 2 and 2 together and you tell me,
well you keep telling me to put 2 and 2 together but
don't tell me how much do they make. In the earlier
mail I explained to you that you don't understand that
*rate of profit* has time dimension. The word "rate"
should give one the clue that this must be in relation
to time. But it seems you have not grasped this idea
yet. In your above example, you have an industry which
has a rate of profit equal to 25% per year and another
sector has a rate of profit more than (and not equal
to) 50% per year. Now, you must know that Sraffa takes
rate of profits to be equal for all the sectors. So,
now you should see that your example has nothing to do
with differences in turn over periods but it is rather
giving different rates of profits to different
sectors. Now, classical economists including Marx
assumed that there was something called a gravitation
mechanism ("a law of value") in the market that
ensured that the rate of profits are equalized for all
the sectors. Sraffians think that Sraffa also relied
on the classical argument in assuming equal rate of
profits. I think that equalization of the rate of
profits is a logical result of any complex system of
basic goods as long as the system is not interfered
with from outside (such as some kind of price control
etc.). But in any case, how is it a criticism of the
Sraffian system that it does not solve the price
equations with arbitrary rate of profits for different
sectors? The confusion is in your head not in Sraffa's
theory. I'm sorry to be responding so late--I was
taking vacation in Créte (Greece) for a week, which
was great! Cheers, ajit sinha

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