# [OPE-L:5604] RE: [OPE-L:5567] Re: Luxury Goods and Profit Rate

andrew kliman (Andrew_Kliman@CLASSIC.MSN.COM)
Thu, 9 Oct 97 18:53:14 UT

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Response to Alejandro Ramos's PIAF:

From: owner-ope-l@galaxy.csuchico.edu on behalf of aramos@aramos.bo
Sent: Wednesday, October 08, 1997 10:34 PM
To: ope-l@galaxy.csuchico.edu
Cc: Multiple recipients of list
Subject: [OPE-L:5604] RE: [OPE-L:5567] Re: Luxury Goods and Profit Rate

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

AK: No, in

4*Pc*(1+r) = 6*Pc

when Pc(input) = Pc(output) = 0, then we have

4*0*(1+r) = 6*0

and since 4*0 = 6*0 = 0, we have

0*(1+r) = 0,

so that (1+r) can basically be ANY number whatsoever and the equation is still
satisfied (as am I). Whether it is -.3 or 47.1 or whatever, you still end up
with 0 = 0. This is what is meant by saying that (1+r) is "undefined."

Dmitriev committed ony a slightly more complex version of the same error when
he tried to prove that you could have positive profit without human labor. He
assumed what he needed to prove, namely that the price of the self-reproducing
machine wouldn't be zero.

In essence, he assumed that he could divide both sides of the top equation by
Pc to get

4*(1+r) = 6.

It is true that *this* equation implies that r = .5. But *if* Pc does equal
0, then you can't move from the top equation to this last one. You can't
divide through the top one by Pc because that means you're dividing by 0,
which you can't do.

AR: "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"

True. Or something like that. The reproduction of the physical world by
means of the physical world. BTW, everyone, I wasn't the one who started the
discussion of air production.

"AK:
> 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.

AR:

Where is this passage?"

PCMC, p. 33. "The rate of profits ... can well be 'given' before the prices
are fixed. It is accordingly susceptible of being determined from outside the
system of production, in particular by the level of the money rate of
interest.

"In the following sections the rate of profits will therefore be treated as
the independent variable."

AR: "I agree with you re the fact that the (maybe) Sraffa's formalism can be
reduced to the Walrasian one. ... But the point is not the formalism but the
"philosophy" which lies on the basis of it."

Sraffa wrote very little about his "philosophy," in the stuff that's public at
least. In any case, I think the equations are what matters in the end, not
how the person who manipulates them uses them. The equations are the dog and
the theorist is the tail. The equations inexorably lead to certain results,
irrespective of the intentions of those who employ them, and as long as they
stick with the equations, they have to accept the consequences. This has
become clear to me through the value theory debate. For instance, you faced a
choice between accepting that the law of the FRP is logically incoherent or
repudiating the simultaneous equations you had heretofore employed. You chose
the latter. Others faced with the same choice have chosen the former. But no
one can have it both ways. We are not a dog wagging our equations. Rather,
the equations are the dog that is wagging us.

AR: "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.)"

It is all over the place, especially in modern high theory. I quote Mirowski,
_More Heat Than Light_, pp. 320-21: "The most up-to-date versions of the
symmetry thesis, such as those found in Varian ..., Fuss and McFadden ..., and
Arrow and Hahn ... regularly express the production side of their models as a
vector [in which ...] only the net result appears in the vector formalism;
hence, the jargon of 'netput vectors.' The convex cones so instrumental in
modeling general equilibrium are constructed from netput vectors. A netput
vector implicitly states that A PRODUCER DOES NOT HAVE TO WAIT FOR HIS OWN
OUTPUT and, in the presence of adequate 'non-produced' inputs, production is
temporally symmetrical [his emphasis].

AR: "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".

I think this is a drastic vulgarization of neoclassical theory. For one
thing, as I noted, high theory has moved away from "factors," and especially
away from statements that interest is a return to the "factor" "capital." The
closest you get is that there will be an own-rate of return to screwdrivers of
x%, an own rate of return to fax machines of y%, etc. Moreover, the careful
theorists are quite clear that marginal productivity relations do not
"determine" returns. In general equilibrium, everything determines
everything, so it makes as much sense (none) to say that wages determine the
marginal product of labor as to say the reverse.

Every neoclassicist would agree that there's a net product, at least in value
terms, and that workers get only some of it. The simplest form of this is
that the wage rate will be less than the average revenue product of labor. In
essence, this is no different from what the "Sraffians" say, despite the fact
that the neoclassicists don't speak about "surplus."

AR: "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."

Right, but my point was that *Sraffa* doesn't get that far. He only gets as
far as saying that if the workers get a bigger (smaller) fraction of the pie,
the capitalists get a smaller (bigger) fraction. The neoclassicists do go on
to try to explain the relative sizes of the slices. That's the difference,
not that they have two different explanations (unless the hint about the
central bank setting the profit rate can be considered an explanation).

AR: "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 violence."

If I remember, Euler's theorem is used to say that, in equilibrium, the sum of
distributive shares must equal 1.

I'm sorry, but the concept of net product implies nothing about the society
being grounded on violence. Of course courts and cops and such are needed to
protect property, but you can portray that as a social contract, the common
good, etc.: social order is needed to allow free competition to operate. I
don't think any neoclassicist would say that there's a "natural order" that
prevents someone from stealing your television and thereby altering the
distribution of income. That the existing distribution is not the only
possible one (r-w tradeoff) does not mean that the existing one is unjust.

Keep in mind, moreover, that the surplus concept is of Physiocratic/Classical
origin, and these guys were the *biggest* defenders of the natural workings of
free competition.

AR: "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
Economy..."

Yes, but the key word is "laws." Laws, not violence. There are natural laws;
among these are the laws of production and the laws of distribution.
According to most classicists, both were of natural origin. Human
institutions *can* violate these laws, but free competition is the system that
best conforms to those laws and is therefore good, because it is in harmony
with the natural order of things.

Of *course* there's a "struggle" over income -- and every neoclassicist also
recognizes it, calling it "competition," even though they don't theorize
classes.

AR: "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."

Where is this?

AR: "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 disgu[i]sed by
Calculus."

Whatever Sraffa's *intentions* were, PCMC itself is certainly NOT mainly a
"philosophical" book. But my main point, again, is that to do the expose'
you're talking about, you need a lot more than the existence of output > input
and an inverse r-w relation. Everyone already knew these things and
everybody already accepted them. What you need to do is show that there is no
socially optimal point on the tradeoff curve. You need to have some theory of
what actually does determine distribution. You need to have some dynamic
account of the consequences of different distributions. Sraffa has only the
bare tradeoff itself, which has never been in dispute.

That's ok, since the book does other things that are good, and I strongly
doubt that he thought the mere existence of the tradeoff was a proof of
anything. The inability of the system to be closed by means of marginal
products is a more important thing, but the neoclassicists are -- I repeat --
perfectly happy with the tradeoff and they are quite capable of closing the
system without any class struggle stuff.

The really strong critique of harmonistic stuff comes from Marx, but they
don't have to debate him because he's been proven to be internally incoherent.
And now, because his economic system has collapsed.

Andrew Kliman