[OPE-L:5221] RE: Luxury goods and profit rate

andrew kliman (Andrew_Kliman@msn.com)
Mon, 9 Jun 1997 00:28:36 -0700 (PDT)

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Some comments on Duncan's ope-l 5218.

Duncan: "I took the value of labor power, w*, as given, and defined it as wm
where m is the reciprocal of the MELT, in my definition, then we have, writing
X for the vector of gross output, so that (I-A)X is the vector of net product,
lX the total living labor, and P(I-A)X the value added:

w = w* (P(I-A)X)/lX

This equation determines w, and it is clear that changing w will change the
profit rate. Since the vector X includes both wage and luxury goods, in
general the surplus value exploited in the luxury sector will influence the
rate of profit, as Marx says."

I agree that *if* one takes w* as determined exogenously, production
conditions in luxuries will influence the profit rate even given simultaneous
determination, in the special case in which all workers are paid the value of
their labor-power.

As I noted in a previous post, however, "How one defines the value of
labor-power is totally irrelevant to the issue at hand. First, because it is
irrelevant whether workers are paid the full value of their labor-power or
more or less. To replicate Marx's result, one must do so in the general case,
not just in a special case." I don't have Duncan's 1982 RRPE article with me,
but I do have _Understanding Capital_ (UC). It notes on p. 36 that "There
might be circumstances in which actual wages differed from what we would view
as their normal level." On p. 43 it states that w* is the "*average* wage
multiplied by the value of money" (my emphasis). On p. 49, it states that w*
"depends on ... the *average* standard of living of workers" (my emphasis).
There are a couple of other passages which also note that wages don't always
conform to the value of labor-power. Thus, the question arises: when w does
not equal w*/m, do luxury-producing sectors influence the general profit rate,
according to this version of the New Interpretation? I may as well add a
related question: in the general case, in which profit rates are unequal, do
luxury-producing sectors influence the general profit rate, according to this
version of the New Interpretation?

Though this is a different matter, I do not happen to agree with the theory of
wage determination implicit in the above. Unless w* is given because it drops
down from the sky, what seems to ground this theory is a sort of
post-Keynesian story in which the wage share of NNP (which is what w* is)
determined by a macro bargain -- "class struggle." What is more relevant to
the issue at hand is whether this is consistent with Marx's theory and
therefore whether it can be invoked in order to claim that one is replicating
Marx's result. I don't think so, but any attempt to demonstrate that through
textual evidence will just end up with two different interpretations of the
text, so there's no use arguing the point.

I referred above to "this version of the New Interpretation" because it seems
to me that the above differs significantly from what Duncan set out in UC:

(a) On p. 36, the equation has w* on the LHS and mw on the RHS, implying that
causation runs from m and w to w*, which I think is correct. The verbal
explanation also proceeds from m and w to w*.

(b) On the same page, there is also a hint of a theory that the money wage is
determined by a wage bargain, not by a predetermined w*: "The wage bargain
provides a particular capitalist's workers with only the money wage agreed on

(c) On p. 43, it again seems that w* is determined by the money wage per unit
of labor, not the reverse: "even after the wage bargain has been struck,
there continues to be a conflict between worker and capitalist over the
intensity and conditions of labor." A reasonable interpretation of this is
that the wage bargain determines the money wage per unit of labor-power, the
degree of exploitation in production determines the amount of labor extracted
per unit of labor-power, these two factors together determine w, the money
wage per unit of labor, and the latter, together with m, determines w*.

(d) On pp. 55-56, there's an account of the impact of technical change on
several things (interestingly, it says that technical change does not
influence the amount of value a given amount of social labor produces!). It
suggests at first that causation runs from w* to w: "the value of labor-power
will determine the division of value added between wages and surplus value."
However, the example that immediately follows reverses the causation, going
from a falling cost of means of subsistence to a falling money wage to a fall
in w*. This conforms to Marx's account, I think.

(e) The only other references to value of labor-power in the index deal with
the value/production price transformation. It is true that w* is held
constant in that chapter, but so are w and m, and I do not find any discussion
of whether w determines w* or the reverse. In any case, none of this is
relevant to the issue at hand, which does not concern transformation --
whether the w* of the "value system" is the same as the w* of the actual
economy has no bearing on whether luxury sectors influence the profit rate of
the actual economy.

So I wonder if Duncan is really committed to the theory that w* is exogenously
determined and prior to w, which is what is required for luxury sectors to
influence the general profit rate given simultaneous determination of input
and output prices.

One more thing. I had written:

"Now, partition the economy into basic sectors 1, ... m, and luxury sectors
n1, n2, .... Workers consume none of the products of the latter sectors,
only some or all of the products of sectors 1 through m. The aggregate
budget constraint of the workers in sector j can thus be written as

[2] wj = P1*b1j + P2*b2j + ... + Pm*bmj

where bij is the total amount of good i consumed by workers of sector j, per
unit of output j."

Duncan commented: "But this amounts to assuming the workers' consumption
bundle as fixed, which is precisely what I argued against in putting forward
the definitions of the value of labor power and the value of money (or the
monetary expression of labor time) in _Understanding Capital_."

This does *not* assume the workers' consumption bundle is fixed, in the sense
of the bij being given exogneously. It is simply a budget constraint. The
bij are endogenously determined on the basis of the money wage, the prices of
nonluxuries, and, as I noted later, preferences. Substitution in consumption
is certainly compatible with [2].

Andrew Kliman