# [OPE-L:5600] RE: [OPE-L:5567] Re: Luxury Goods and Profit Rate

aramos@aramos.bo
Tue, 7 Oct 1997 00:33:06

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A reply to some parts of Andrew Klimans post identified as follows:

Date: Wed, 8 Oct 97 02:17:18 UT
From: "andrew kliman" <Andrew_Kliman@CLASSIC.MSN.COM>
To: OPE-L@galaxy.csuchico.edu
Subject: [OPE-L:5600] RE: [OPE-L:5567] Re: Luxury Goods and Profit Rate

I wrote:

> c) To avoid the P2 < 0, we need that P1 = 0 and P2 = 1.
> In that case, "corn" production obtains r1 = 0 but "chicken"
> profit rate is r2 = 25%.

Andrew replied:

> Actually, the corn profit rate is undefined. The corn equation becomes
> 0*(1+r) = 0, which means that 1+r = 0/0, so that r is undefined, not zero.

This is a math problem but if P1 = 0, corn is actually a "free
commodity", like "air" or "sunheat". So, I dont see the economic
meaning of an equation defining the "profit rate" of such use-value.
(What is the profit rate of "air production"?)

I wrote:

> "Therefore, the economy is reduced to chicken production because corn has no
> profit."

Andrew replied:

> Depends on what you mean by "reduced". *Physically*, there must be corn,
> because corn is needed to produce the chickens. Corn production doesnt yield
> a profit, but it doesnt *cost* anything either, and you need the corn to feed
> the chickens and the workers, so you dont stop the corn from growing. You
> let the workers and the chickens eat it.
>
> In profit rate computations, which are ratios of value/price terms, the profit
> rates do "reduce" to equations for the chicken sector, since the terms
> referring to corn production are all zero.

Yes, I meant in the economic sense. Its clear that chickens and
workers still need "corn" to eat as they need "air" to breathe.

I wrote:

> "Specifically, let us suppose:
>
> i) that "corn" is the numeraire and its input and output prices
> remain equal: P1(input) = P1(output) = 1;
> ii) that the input price of chicken is 1 [P2(input) = 1]; and
> iii) uniform r = 50%.
>
> This implies that P2(output) = 1.25."

Andrew replied:

> Yes, thats certainly one possibility. In the "long-term," i.e., if you
> iterate ad infinitum, the relative price of chickens to corn converges to a
> moving equilibrium in which it increases by 200er period, somewhat less than

Right, we need the iterations here.

I wrote:

> "d) You say that this is suggested by Sraffa on p. 91 of PCMC, I think
> in the following passage:
>
> It is perhaps as well to be reminded here that we are all the
> time concerned merely with the implication of the ASSUMPTION
> of a uniform price for all units of commodity and a uniform
> rate of profits on all the means of production...
> The "beans" [in your example the "chickens"] could however
> still be produced and marketed so as to show a normal profit
> if the producer sold them at a higher price than the one
> which, in his book-keeping, he atributes to them as means
> of production. [emphasis added by capitalization]"

Andrew:

> Right. Thats the passage.
>
> It is interesting that Bertram Schefold -- a "Sraffian" -- has a new book out,
> and, as the beginning-of-chapter quote (what is the name for this?)

"Epigraph", I think, or maybe "motto".

> in one of
> his chapters, he reiterates the advice of Pythagoras: "abstain from beans."
> Of course, Pythagoras was a doctor of medicine, while Schefold is a doctor of
> economics. One was urging abstinence for the patients benefit, the other for
> the doctors benefit.

What is the book?
In any case, Pythagoras was also vegetarian, so that he surely avoided
chickens too.

I wrote:

> "e) As you note, Sraffa stresses here that the equality of input and
> output prices is an "assumption", so it is not an inherent property
> of the Sraffian system. However, it is not clear to me whether or not
> this assumption can be avoided in that conception."

Andrew replied (snip):

> What I think is called into question by the passage on p. 91 is the very
> existence of a "Sraffian system." His equations are a "system" in the
> mathematical sense, a system of simultaneous equations, but they do not
> necessarily constitute a *theoretical system*, i.e., a positive economic
> theory or model. They would become a system in that sense only were Sraffa
> also to have endowed them with a positive content, by claiming that these
> equations in some sense model the determination of prices and the profit rate
> in real economies. PCMC does not make this claim. Rather, Sraffa
> tells us that he was doing a "prelude" to a *critique* of economic
> theory, i.e., that he is criticizing a system of economics
> instead of constructing a new one.

Maybe in "details" like the self-reproducing non-basics what you are
saying is reasonable. But Sraffa's way to criticise the economic
theory is also a theoretical *representation of capitalism* different
from that holds by the neoclassical orthodoxy.

His theoretical framework is aimed to stress the "distributive
struggle" (if you like the "class struggle") between capitalists and
workers regarding the net product. In this sense, PCMC does propose a
"theoretical system or model", in a very general sense, alternative to
the dominant apologetical neoclassical construction.

> He tells us that
> instead of constructing a system of *actual* economic relations, he has been
> investigating the "implication[s]" of certain *hypothetical* relations.
> Without an accompanying claim that these relations hold true (in some sense)
> in the real world, I dont think what Sraffa has is an "economic system" in
> the sense of an economic theory or model. And, indeed, he seems to suggest on
> p. 91 that the "uniform" price assumption (i.e., input prices = output prices)
> does not necessarily hold true, so that his mathematical system is not
> necessarily a representation of a real economic system. Nor do I think that
> Sraffa intended to represent a real economic system; he was, as he said, just
> investigating the implications of certain assumptions.

Well, maybe Sraffa intended "to represent a real economic system" only
on the basis of very abstract assumptions, such as that of
the "stationarity" of prices. Problems like "technical change" or
"self reproducing non basics" have been actually abstracted in order
to illuminate the supposedly central fact of "distributive struggle".

In any case the "investigation of the implications of certain
assumptions" (like output prices = input prices) only would show that
Sraffa's results, as presented in PCMC, are only the **initial**
core of a theoretical work.

For example, have we an explicit statement by Sraffa ruling out from
political economy the concept of value? [Please, Sraffa's experts
on the list: have we such statement?] It seems to me that this
"banning" was not Sraffa's but a "commodity" developed by some
self-appointed "followers", interested in an academic career in the
70s, when "destroying Marx" was a profitable business.

So that, maybe what we have in PCMC is a very abstract exercise
devoted to shift the focus "Economics" away from the neoclassical
Weltanschaung. This other scenario is a supposedly "classical" one,
in which capitalism is not the Paradise of Human Rights but a
conflictive society.

Under very abstract premises this could be shown by means of the
clever formalism Sraffa deviced. So, assuming stationarity, etc. etc.
and, of course, constructing the "standard commodity" as an adequate
numeraire, you can show that capitalists and workers struggle
for appropriating the net product; therefore, they wouldnt be happy
"associated" in a peaceful world but classes fighting furiously.

This doesnt mean, however, that such framework has an *universal
validity* and is able to explain all and every one phenomena in
capitalism, as many "followers" seem to think. And, insofar as
you "explore the implications of certain assumptions" you are forced
to abandon the stylized results of PCMC and consider, for example,
the relevance of the concept of value. The case of the self-
reproducing non-basic could be a good example of this.

Alejandro R.