# [OPE-L:5507] Re: Luxury Goods and Profit Rate

Paolo Giussani (106642.534@compuserve.com)
Mon, 22 Sep 1997 10:49:28 -0700 (PDT)

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Milano, 22 Sept 1997

On 17.9.97 at 8.54 Ajit Sinha wrote:

" The rate of profit of the Sraffian system has not "now" become the long
term rate of profit, but it has always been so. How do i know? Because I
cared to know a bit of Sraffian literature, and had you shown the same care
before coming out with your gun blazing against Sraffa and the Sraffians
you would have known it too. On page 9 of PCMC Sraffa writes: "A less
one-sided description than cost of production seems therefore required.
Such classical terms as 'necessary price', 'natural price' or 'price of
production' would meet the case, but value and price have been preferred as
being shorter and in the present context (which contains no reference to
market prices) no more ambiguous." You could also take a look at
Garegnani's paper entitled 'On a change in the notion of equilibrium in
recent work on value and distribution', in ESSAYS IN MODERN CAPITAL THEORY
(eds.) Brown, Sato, and Zarembka. You could also take a look at Garegnani's
recent paper entitled 'Quantity of Capital', published in the paper back
version of the New Palgrave's CAPITAL THEORY. These papers will tell you
"what exactly is the long term rate of profit" ".

In these rather cold times it is really very nice knowing that in same
parts of the planet there is someone taking really
care of your culture. Ajit Sinha kindly supplied me with a childish reading
list, but I think I can do a little bit better by assigning
him a class exercise in Sraffian theory, which is as follows

Suppose we have a 3sector (a,b,c) system: a and b are basic industries, c
is non basic. The initial state is

(0.4 pa + 0.2 pb ) (1+r) = pa = 1,
(0.2 pa + 0.3 pb) (1+r) = pb,
(0.1 pa + 0.3 pb +0.5 pc) (1+r) = pc,

Calculation gives pc=5.95194, pb=0.780776, r=0.798059

We can see see that the nonbasic good, c, is a non basic input (ie an input
used only in nonbasic industries). Hence technical change
in the c producing industry can also come from variations in the
input/output coefficient c/c. Suppose accordingly that by technical change
this coefficient is lowered from 0.5 to 0.4. At given selling prices
industry c will now get a sectoral profit rate rc*= 1.192236 > r.
(This nothing but the well-known Okishio's sectoral transitional profit
rate). Since. following the Bortkiewicz-Sraffa tradition, Ajit Sinha
maintains that the long term profit rate is determined by the basic
subsystem alone, and since after the technical change in industry c, the
Sinha's rate of profit (the eigenvalue rate of profit) is of course
unaltered, he (I mean Ajit Sinha) should be so kind to work out the
effective mechanism will restore this profit rate in industry c, ie that
will simply annihilate the differential rate of profit rc*-r whiule keeping
intact r in industries a and b. He should also avoid using formal
sequential methods which, according to Sinha himself, are not pertinent to
Sraffa theory.

It is obvious that I was not referring to 'the' long term rate of profit,
but to the long term profit rate 'in the Sraffian framework'. Nobody is
able to understand what this concept since Sraffa's theory is inherently
static and can't allow for any kind of time change. Curiously enough,
Pasinetti, a leading sraffian that everybody knows, in his collection of
papers on effective demand complains rather vividly that the neoclassical
synthesis has converted an intrinsically dynamic, sequential theory
(Keynes') into a simultaneous system in order to emasculate it.
We anyway happily wait for Sinha's working out of the unform eigenvalue
profitability restoration.

Ajit Sinha also said:
" Why should the rate of profit rise in the basic sector? What's your
argument, apart from your assertion. Let's suppose there are only two goods
in the economy: corn and body massage. Corn is used both as corn seed and
wages paid to the workers. And in the massage sector corn is used as wages
advanced to the workers who do the massaging. In this case given the
technology in the corn sector and workers wages in terms of corn, a rate of
profit will be established in the corn sector independent of all other
sectors. It is simply the ratio of net output of corn divided by seed corn
plus wage corn. This rate of profit cannot change unless technology or the
wage rate changes, no matter what's happening in the other sectors. If
there is competition then the other sectors prices have to adjust so that
their rate of profit comes in line with the corn sector's. Now in your
case, let's suppose the current rate of profit is higher in the massage
sector compared to the corn sector. So there will be more investment in the
massage sector such that its price in terms of corn falls to the extent
that its rate of profit comes down to the corn sector's rate of profit.
There is no reason for corn sector's profit to rise here. Do i need to go
on any further? I don't think so. Cheers, ajit sinha "

Not at all, sorry. An increased flow of capital into the message sector
will imply a decreased flow of resources into the corn sector and hence a
higher sectoral profitability for this industry. Using your own words
"there will be less investment in the corn sector such that its price in
terms of message rises to the extent that its rate of profit comes up to
the message sector's rate of profit". If this new uniform rate of profit
will be midway between the higher profitability of the massage sector and
the eigenvalue (corn/corn) profitability this will not evidently be
eigenvalue profit rate.
Honestly, I think that you should inform all the nonbasic sectors (they
probably don't know this) that in all circumstance they will have to adjust
to the rate of profit of the basic susbsystem so that they could trigger
what appears as their own very special competitive mechanism, so special to
bring down their rate of profit to the level prescribed by your theory. You
should really inform these unlucky sectors since it is commonly known that
people very often behave badly only because they have not been sufficiently
educated and not because they are bad (and it is possibible that sectors
are not very different from people...what do you think?)

In a subsequent post Sinha added:

" Since Sraffa's equations are equations for industries or sectors rather
than firms, they obviously contain differentiated goods. No slight change
will make every product 'non-basics', that's simply silly. By the way, you
all anti "simultanist" people out there Should know that the Sraffian
reasoning is more sequentialist than simultanist. Your choice of
terminology or name calling only betrays your lack of knowledge of the
theory you are criticizing. Cheers, ajit sinha "

In formal terms Sinha is just saying that the Sraffa system is always a
joint production system with collective prices, ie that each single
industry produces different goods that are joined together under one price.
And, tell me, when these 'sectors' have to sell their own 'differentiated
goods' one by one what price do they put on labels? Sraffa's equations
cannot be 'sectors' or 'industries' in the rough empirical Industrial
Census meaning but sectors and industries that are formed because they
produce strictly homogeneous products (usevalues), this means that a single
firme can simultaneously belong to different sectors according to the range