# [OPE-L:5478] RE: Luxury goods and profit rate

Ajit Sinha (ecas@cc.newcastle.edu.au)
Tue, 16 Sep 1997 21:56:37 -0700 (PDT)

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At 07:34 15/09/97 -0700, Duncan wrote:

>
>After discussing some other issues, Ajit replies to a suggestion of mine by
>saying:
>
>>
>>Yes, I'm driving at the defense of w = pb, where b is given and p and w
>>adjust to ensure b. This would be a good place to pick up the issue of
>>'given' money wages in NS. You say NS would have no problem with w = pb
>>where b is taken as given. Now, let us suppose we start off with a given b,
>>which gives us a certain amount of w in terms of gold, which happens to be
>>the money commodity. Now, assume that we change the money commodity from
>>gold to silver, and adjust w in terms of silver such that workers can buy
>>exactly b again. For the real economy nothing has changed. However, in the
>>new solution approach this would in all likelihood lead to a change in the
>>rate of exploitation, which would be an absurd idea.
>
>I don't think this is true, since all prices and wages would change in the
>proportion of the price of silver in terms of gold, so the ratio of the
>wage bill to the value of the net product would not change, and the NI
>would measure the same rate of surplus value.
_______________

I'm not convienced. Let us take a simple case of two commodity model:

[a(11)p(1) + a(12)p(2)] (1 + r) ....(1)
[a(21)p(1) + a(22)p(2)] (1 + r) ....(2)

Where a(ij) refers to the amount of j needed to produce one unit of i; p(i)
refers to price of i, and r is the uniform rate of profit.

[a(12) + a(22)] is the total consumption of the working class, and treated

The net output = [1 - {a(11) + a(21)}] of good(1) + [1 - {a(12) + a(22)}]
of good(2)

The two price equations give us:

{a(11)p(1) + a(12)p(2)}/{a(21)p(1) + a(22)p(2)} = p(1)/p(2) ....(3)

First case. Take p(1) = 1

--> p(2) = [a(22) - a(11) +- square root of {a(11)square + a(22)square -
2a(11)a(22) +
4a(12)a(21)}]/-2a(12) ... (4)

Let's call the positive value of equation 4 = A; i.e. p(2) = A

Now, the total money value of net output, when p(1) = 1, would be:

1 - a(11) - a(21) + A - Aa(12) - Aa(22) ....(5)

Suppose direct labor-time spent in production is equal to L

Then, the value of money = L/expression (5) ... (6)

Therefore, value of variable capital = {a(12) + a(22)}A multiplied by
expression (6)....(7); and the surplus value would be L - expression (7)
..(8)

The Second Case. Put p(2) = 1 in equation (3)

--> p(1) = [a(11) - a(22) +- square root of {a(22)square + a(11)square
-2a(11)a(22) + 4a(21)a(12)}]/-2a(21) ...... (9)

Clearly (9) is different from (4). Let's call it B, i.e. p(1) = B

Now in the regime when commodity (2) is the money commodity,

The money value of Net output would be = {1 - a(11) - a(21)}B + 1 - a(12) -
a(22) ....(10)

The value of money would be = L/expression in (10)... (11)

The value of variable capital would be = {a(12) + a(22)} multiplied by
expression in (11) ....(12)

Since (10), (11), and (12) have all B element instead of A, and so all the
value expressions in the two regimes are different.

I think I have followed the New Interpretation method faithfully, and have
only kept the real wages constant. Tell me where did I go wrong.
________
Duncan:
>This emphasizes the point that the monetary expression of labor time is
>_not_ the labor embodied in the money commodity. I have a feeling that
>there is some confusion on this point in the general debate about the NI.
>(If prices were proportional to embodied labor coefficients, then the
>monetary expression of labor time would be the inverse of the labor
>embodied in the money commodity, but otherwise the two coefficients can
>differ, because the implicit price of the money commodity in terms of other
>commodities may be above or below the corresponding ratios of labor
>embodied.
______________
Ajit:

I have never made this mistake in interpreting the 'new solution', as you
can see from my above example as well.
_______
Ajit:
>>That's why I think the
>>NS requires that one identifies a money commodity from the beginning and
>>must fix the wages in terms of that money commodity. Otherwise, it cannot
>>avoid the obverse side of the Ricardian problem. When Ricardo took any
>>commodity as money commodity, he found that a change in real wages would
>>change all the prices in such manners that it cannot be held that the size
>>of the net output remains constant, which was absurd. And thus his search
>>for the 'invariable measure of value'. So I think the problem of the
>>'invariable measure of value' is very much a problem of the NS approach,
>>which shows up in various different ways, and that Eatwell's contribution
>>should be taken seriously by the NS people.
_________
Duncan:
>
>I'm afraid this has more to do with your projections onto the NS than
>anything anybody actually wrote. The NS does not propose a theory of the
>real or money wage, nor a theory of competitive pricing. As Dumenil and
>Levy have tried to make clear, it is an interpretation of Marx's labor
>theory of value that tries to make the theory operational in terms of the
>actual statistics of real capitalist economies. The argument is that Marx
>routinely translates labor time into money units, using a scalar
>coefficient with the dimensions of units of money per unit of labor time,
>which the NI calls the "monetary expression of labor time" . The NI argues
>that, whatever other implications this may have, the monetary expression of
>labor should minimally express the ratio of the money value of the net
>product (value added) to the living labor expended to produce it. (I tried
>to revive Marx's phrase "value of money", which he frequently uses in
>exactly the sense of the ratio of labor time to money, but have run into a
>lot of misunderstanding and criticism over the phrase, so I'm willing to go
>with the more explicit MELT.) If you think, as I do, that the core of
>Marx's labor theory of value is the idea that profit arises as the unpaid
>labor of workers, and you want to maintain a strict quantitative connection
>between profit and unpaid labor, then you are forced mathematically to
>regard the wage divided by the MELT as the paid labor. The advantage is
>that one can then answer questions like "what is the rate of surplus value
>in the U.S. economy in 1997" directly, and without converting everything
>into a parallel embodied labor coefficient accounting system which actually
>depends on a whole lot of theoretical assumptions and the adequacy of
>input-output tables.
_____________
Ajit:

If my above example is not flawed, then given real wages proposition cannot
be maintained by the new interpretation. And this would be a serious issue.
Moreover, I think the critique I have presented in the latest issue of
RRPE, which I think must be in everybody's mail box by now, is also
important. The rate of exploitation as a concept seem to lose consistency
in the new interpretation. Some rethinking is required on this point, I think.
____________
Duncan:
>
>Since this is only an interpretation of the theoretical categories (surplus
>value, and so forth) it is compatible with any theory of the determination
>of money or real wages, and any theory of pricing and profit rates
>(including the Classical theory Marx focused on in Volume III of Capital,
>which assumes that competition tends to equalize profit rates across
>sectors.)
________
Ajit:

That is what I'm not yet convienced of.
__________
Duncan:
>
>The motivation of the NS (which has many precursors, some of which I've
>tracked down, and some of which I'm probably still unaware of) was to make
>it possible to use Marx's categories in the analysis of real economic data.
>I was particularly interested in the dynamics of the circuit of capital
>theory as an alternative to production functions, for example. I don't see
>how it gets one involved with an "invariable measure of value": in fact,
>the MELT varies all the time in real economies.
__________

I think the question of 'invariable measure of value' becomes relevant when
we try to conceptualize rate of exploitation in a consistent way; i.e.
given the same physical system with alternative money commodity or with
alternative allocation with same distribution, etc. Cheers, ajit sinha