[OPE-L:5434] Luxury Goods and the Rate of Profit

Paolo Giussani (106642.534@compuserve.com)
Thu, 4 Sep 1997 10:57:42 -0700 (PDT)

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A short remark on basics and nonbasics:

It is common sense that the Sraffa system of production prices and
distribution can determine the uniform profit rate for the entire economy.
Rigorously speaking this is not true, The profit rate in the Sraffa system
of equations is only the profit rate of the basic subsector (the eigenvalue
profit rate), ie the subsector made up of the equations describing the
industries producing basic goods. It is by 'analogy', so to speak, that
this rate of profit is then extended to the remaining , nonbasic,
industries. Any change in the profit rates of the nonbasic industries is
not going to alter the prices of basic goods but only the prices of the
nonbasic ones.
This circumstance produces a number of consequences in so far as the
simultaneist methodology (or framework) is concerned. Suppose that for any
reason whatsoever in a three sector system, where A and B make the basic
subsector and C is a nonbasic industries, the rate of profit in C is raised
above the level existing in the basic subsector. What is then going to
happen in order to restore a uniform profit rate? If a new uniform rate of
profit will be produced which is lower that the sectoral profit rate in C
but higher than the previous eigenvalue profit rate in the basic subsector
(A-B) it is strictly impossible to maintain that conditions in the nonbasic
industries do not affect profitability.
This has in turn even wider effects. Within the Sraffian formalism
technical innovations (changes in the use values of inputs and/or outputs)
can only thought of as the production of (new) nonbasic commodities since
these new use values first make their appareance only in the right hand
side of the equation(s) and not on the left hand side. As new types of
produced inputs they will obviously be seen in the lefthand side only in
the following period when the will begin their honourable productive
service. Now, if we imagine a continuos process of technical change in all
sectors (the slighest change in the use values is sufficient) all
industries must become nonbasic and hence no profit rate can be determined
any longer since no eigenvalue any longer exists. In other words, the
system will simply disintegrate.
Remember yet that the Sraffa system of equations was devised on the basis
of the works fo Charasoff, Dmitriev, VonNeumann and others anly as a tool
to provide a formal (internal) critique of the orthodox theory where this
type of changes is just inconceivable.

A very short remark on the 'New Solution' :

I find very difficult to understand the big noise that has been made about
the 'New Solution'. Gerard Dumenil and Dominique Levy in their most recent
book ("La dynamique du Capital", PUF 1996, Paris) downgrade it from the
status of 'solution' to that of an 'interpretation'. It is better to leave
this semantic decision to posterity. What is sure is that the New Solution
is nothing but the Sraffa system with nominal wage and a given numeraire.
Nothing more nothing less. As such it is not able pass the critique
developed many years ago by Sungur Savran: since the system must be able to
reproduce itself, since you have a nominal wage how do you know that with
this wage the workers will be able to get the commodities (the real wage)
they need ie that the system will meet the existing standard of labour
power reproduction?

Paolo Giussani, Milano