[OPE-L:5484] Re: Luxury Goods and the Rate of Profit

andrew kliman (Andrew_Kliman@classic.msn.com)
Thu, 18 Sep 1997 07:57:10 -0700 (PDT)

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In ope-l 5479, Ajit opines that the "Sraffian" profit rate is THE "long term"
rate of profit (whatever that means). Instead of providing us with a
theoretical or empirical justification of this claim, he cites authorities.
Evidently his purpose is to indicate that the "Sraffian" profit rate is
intended to be *a* "long term" rate of profit. I don't think that answers
Paolo Giussani's question, which pertains rather to the possibility that the
eigenvalue rate is not the economy's actual profit rate in the "long-term."

In any case, one of the authorities cited by Ajit is Garegnani's "Quantity of
Capital" in the _New Palgrave_. However, whereas Ajit has held that input and
output prices are equal -- because "input prices" does not refer to prices at
the time of input, but to the valuation of means of production at time of
output -- Garegnani himself clearly disagrees. He is clear that the
stationary price postulate is a mere methodological device. In para. 44, he

the persistence of the forces determining the traditional normal position made
it natural to determine that position AS IF normal prices were to remain
constant during the time elapsed between the buying of the inputs and the
selling of the outputs by the firm. That persistence ensured in fact that the
changes in the normal prices over such a period would be small enough to be
safely ignored. ... changes in normal prices over time were ignored in
traditional theory because they were considered sufficiently SMALL, and not
because of any assumption of stationary or steady growth of the economy. ...
the normal positions were meant to be centres of gravitation of the actual
[Ajit Sinha, ope-l 4912: " In economics the word 'real' is used only as a
rhetorical devise, and has implied impact only on feeble minded.] economy, and
this could not have been the case for a stationary or steady-state position of
the economy [G's emphases].

There you have it. Normal prices are NOT stationary prices. When one
excludes the change in prices between time of input and time of output (or
buying and selling), one is simply IGNORING a determinant of the "normal
position." Note also that Garegnani's last sentence explicitly rejects the
claim that the "normal position" is to be deduced from "reproducibility,"
simple reproduction, etc.

Changes in prices between time of input and time of output may or may not be
"small." Even if they are small, however, the possibility of ignoring them
depends on the problem at hand. For some purposes, even small changes are not
something that is legitimately ignored.

For instance, assume an eigenvalue profit rate of 19%, and assume that prices
are initially stationary, that the profit rate is in fact equalized, etc., so
that 19 0s the (excuse the expression) actual profit rate as well. Now
assume Okishio-viable technical changes that raise the eigenvalue rate to 20%,
and assume a constant real wage and profit-rate equalization. If output
prices (say for all goods, for simplicity) fall below input prices by a mere
0.8334 percent -- surely a "small" change -- then the new profit rate is lower
than the original, and the Okishio theorem is refuted.

Ajit gives a corn/massage model to support his contention that the profit rate
in basics alone is determining of the "long term" profit rate. "a rate of
profit will be established in the corn sector independent of all other
sectors. It is simply the ratio of net output of corn divided by seed corn
plus wage corn. This rate of profit cannot change unless technology or the
wage rate changes, no matter what's happening in the other sectors. If there
is competition then the other sectors prices have to adjust so that their rate
of profit comes in line with the corn sector's."

I'd like to read his response to the following simple modification of his

Initially, 5 units of corn are used (as seed and wages) to produce 6 units of
corn. One unit of corn and 24 chickens are used to produce 30 chickens. The
simultaneist profit rate is 20%.

Now, imagine that the 6 units of corn can be produced using only 4 units of
(seed & wage) corn.

(a) Is the magnitude of the profit rate 50% -- "simply the ratio of net
output of corn divided by seed corn plus wage corn"?

If not, what justifies your claim that the profit rate is determined by
"physical quantities" alone? If that is not possible in this case, then isn't
it true that you lack a general theory? And if that is not possible in this
case, then why should I accept the claim that "physical quantities" suffice to
determine the profit rate in other cases? Why shouldn't I conclude instead
that there's something seriously wrong with your theory, because you've
*ignored* other determinants of profitability?

(b) If the profit rate is not 50%, what *is* its magnitude?
(i) assume that corn is the numeraire
(ii) assume that chickens are the numeraire

Note: I'm interested in the economy-wide (general) profit rate, not (only)
the sectoral rates.

(c) BONUS TEXTUAL QUESTION!!: According to Sraffa, how is it possible for
both the corn producers and the chicken producers to obtain a 50% rate of

(d) EXTRA CREDIT!!: Was Sraffa a "Sraffian"?

Andrew Kliman