[OPE-L:5208] Luxury goods and profit rate

Duncan K. Foley (dkf2@columbia.edu)
Sat, 7 Jun 1997 06:49:46 -0700 (PDT)

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Part 4 of a response to Andrew's OPE-L:5179.

>(Andrew) also wrote:
>"(2) The replacement cost interpretation implies that the rate of profit (in
>production) obtained in production of luxury goods has no influence on the
>general rate of profit, as Bortkiewicz demonstrated. Yet Marx held that the
>opposite. How do you reconcile his conclusion with the replacement cost
>Duncan replied: "Actually, this is one point where the New Interpretation
>differs from Bortkiewicz. Since we define the monetary expression of labor
>time in terms of the value added in the whole mass of commodities, that
>includes luxury goods."
>I don't think this matters. If we consider a 3-dept. scheme, without fixed
>capital, but with inputs being costed at their replacement cost, so that the
>relevant input and output prices must be equal, the equal-profit-rate
>equations are:
>(1) (p1*a1 + p2*b1)(1+r) = p1
>(2) (p1*a2 + p2*b2)(1+r) = p2
>(3) (p1*a3 + p2*b3)(1+r) = p3
>where the ai are the means of production per unit of output i and the bi are
>the wage goods per unit of output i. Good 3 is the luxury good.

But here you've departed from the New Interpretation definitions, because
you've incorporated the wage goods into the input-output matrix, thus
implicitly accepting the definition of the value of labor-power as the
labor embodied in the commodities the workers consume. But the New
Interpretation defines the value of labor power as the wage divided by the
value added (including luxury goods) at market prices. The independence of
the profit rate from the luxury sector is a consequence of holding the
workers' consumption constant, not of the replacement cost interpretation.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu