[OPE-L:5443] Re: Luxury Goods and the Rate of Profit

Ajit Sinha (ecas@cc.newcastle.edu.au)
Sun, 7 Sep 1997 18:26:04 -0700 (PDT)

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At 10:57 4/09/97 -0700, Paolo Giussani wrote:
>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.

I disagree with this reasoning. The long term rate of profit is of course
determined in the basic sector, and is independent of the production
conditions in the non-basic sector. This, however, does not mean that the
non-basic sector could have a different rate of profit than the rate of
profit determined in the basic sector. If the rate of profit happens to be
higher in the non-basic sector compared to the basic sector, then, of
course, resources would flow from basic sector to non-basic sector and
increase the supply of the non-basic goods, reduce its price and bring the
rate of profit in the line. You will have to make an argument as to why
such resource allocation adjustment could have any impact on the long term
rate of profit.
>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.

A novel product would of course be non-basic. However, to say that all the
products or a large part of products that come out of every production
cycle are novel products would not be a very meaningful proposition. In
such situation it would be hard to work on any REPRODUCTION schema. Cheers,
ajit sinha
>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