[OPE-L:5602] RE: [OPE-L:5567] Re: Luxury Goods and Profit Rate

Wed, 8 Oct 1997 22:21:42

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Brief response to Andrew Kliman's post identified as follows (PIAF):

Date: Wed, 8 Oct 97 16:33:51 UT
From: "andrew kliman" <Andrew_Kliman@CLASSIC.MSN.COM>
To: ope-l@galaxy.csuchico.edu
Subject: [OPE-L:5602] RE: [OPE-L:5567] Re: Luxury Goods and Profit Rate


> I agree that the profit rate is meaningless when both value invested and value
> received equal zero. This is important, because it reminds us that in an
> equation such as
> 4*Pc*(1+r) = 6*Pc
> r = .5 is not necessarily the solution.


But if we assume that input prices MUST equal output prices, the
solution necessarily is 0.5. Could you please expand?


> BTW, air is not only produced, it is also a BASIC commodity. What can be
> produced *without* air as an input?

But air is not necessary to produce air as corn is needed to produce
corn. Maybe we need here joint-production:

plants ---> plants + air
air + anything else ---> anything else


> Well, a lot of "Sraffians" have told us a lot of stories about the
> distributive struggle determining everything, but it simply is not there in
> PCMC. If I remember, theres one passing remark about the central bank
> perhaps being able to set the rate of profit exogenously.


Where is this passage?


> Now, as I noted, these equations are essentially neoclassical equations, so
> the underdetermination in Sraffas equational system is also present in the
> neoclassical system. Sraffa goes no further; he does not attempt to theorize
> the economic relations, missing from his equations, which, in reality, give us
> profit rates of this level and not that level. He instead examines the
> properties of the wage rate/profit rate tradeoff. Any neoclassicist could do
> the same... But some of them have gone further and solved the
> system by means
> of particular assumptions concerning economic relations, assumptions that have
> nothing to do with "class struggle" -- though the wage rate/profit rate
> tradeoff that Sraffa finds is of course still present. IN OTHER WORDS, THEY
> As Joan Robinson herself noted, Sraffa gives us half of an equilibrium system.
> It is underdetermined; it lacks closure. My point is that it can be closed
> in MANY DIFFERENT POSSIBLE ways: "class struggle," or specification of
> initial endowments and time-preferences, or exogenous determination of the
> profit rate by an all-powerful central bank, or Ajit telling everyone what
> their distributive shares will be, etc., etc.
> *However* one decides to close it, one is merely specifying the point on the
> wage rate/profit rate curve that the economy is actually "on." The closure of
> the system does not abolish the wage rate/profit rate tradeoff. So that
> tradeoff is always present, even in neoclassical theory. To see this in
> another way, assume a constant-returns-to-scale technology, or zero-profits in
> the neoclassical sense. Then, neoclassical theory itself tells us that the
> sum of distributive shares equals one. So if we have "capital" and "labor",
> (interest share) + (wage share) = 1
> so that
> (interest share) = 1 - (wage share)
> Hows that for "class struggle"?! And its linear, just like the standard
> relation :-). Of course, this isnt exactly the same tradeoff that Sraffa
> looks at, but its close. But this tradeoff tells us no more than what is
> obvious, something that everyone has always known and accepted, namely that at
> a *moment in time*, youve got a fixed pie and, therefore, if someone gets a
> larger slice, everyone else gets less. This is some kind of "alternative
> vision"?


I agree with you re the fact that the (maybe) Sraffa's formalism can
be reduced to the Walrasian one. (I wrote "maybe" because I have read
a small fraction of the stuff you are quoting) But the point is not
the formalism but the "philosophy" which lies on the basis of it.

I ask: Where is the concept of "net product" in neoclassical
economics? (Lets forget now the reduction of the "net product" to an
unilateral-metaphysical-"physical"-"corn-like" concept in Sraffa.)

In neoclassical economics capitalism is represented as a system
in which every "factor" receives a reward in accordance with that it
(!) has put into the pie. The distribution is not only "natural" but
also "fair", a result of "justice". There is nothing that can be
called "surplus" (in ideal conditions) because everything
appropriated is a result of something contributed. Capital doesnt
appropriates a "surplus" but receives a fair compensation for its
"contribution" to the pie, as does "labor". Certainly, "ex-post" you
see that the pie is divided into fractions and those fractions add
100%, but the problem is by which "mechanism" that distribution has
been accomplished.

If you propose a concept of "surplus" or "net product" and you
suggest that there is a struggle for its fractions, then distribution
is not a matter of "natural justice" but a result of the violence
between classes. The society is not grounded in a "natural harmonious
order" (formalized by some Theorem of Euler, if I remember) but on

Lets take Ricardo's Preface: "The produce of the earth [that is
matrix A which seems "to produce" autonomously]... is divided among
three classes of the community... to determine the laws which
regulate this distribution, is the principal problem of Political

And Ricardo purports to demonstrate that, accoding to these "laws"
if capitalist gets more, workers get less and that can be happen if
one class defeats the other.

So, PCMC would be mainly a "philosophical" book with a "clever
formalism". A book devoted to unearth that Weltanschaung of
capitalist society buried under hundreds of kilograms of harmonious
doctrines disguessed by Calculus.

Of course, the academic world was more interested in the "clever
formalism" than in "visions". Professors (even Economics Professors)
are much more interested in mathematical riddles than in economic
realities. (After all, they receive, at the end of the month, [note
this] an adequately *indexed* check [note also this one].) So that,
the "formalism" was easily taken as a full, complete and *definitive*
account of the reality. This is why many of them, despite it is
obvious that, for example, capitalism is a non-stationary system stick
mildly with that seductive formalism and can talk amicably with their
neoclassical colleagues on sunny days... even about Marx. How
marvelous is the algebra...

Alejandro R.