[OPE-L:5523] Re: Luxuries in the New Solution

Duncan K. Foley (dkf2@columbia.edu)
Wed, 24 Sep 1997 09:56:16 -0700 (PDT)

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In reply to Andrew's OPE-L:5437:

I'm not quite sure why we're in this discussion, since I think Andrew and I
share the view that unpaid labor contributes to surplus value whether it is
expended in a basic or non-basic industry. Perhaps part of the problem is
that everybody takes for granted that the NI must be a theory of price
determination and wage determination, despite explicit disclaimers from
Dumenil and myself on this point.

Andrew seems to be arguing that since the NI is consistent with theories of
price and wage determination that imply that only the basic sectors
influence the profit rate, the NI itself implies that as well. But as I've
tried to explain, the NI is not an ex ante theory of competition or wage
formation. The basic idea is that the concepts of Marx's version of the
labor theory of value are operational in terms of observations that can be
made at the level of aggregate economic statistics, without the need to
recalculate the national income accounts in a system of embodied labor
coefficients. (If you believe that embodied labor coefficients are highly
correlated with market prices, then you already pretty much take this
position, as far as I can tell.)

>A reply to Duncan's ope-l 5388:
Andrew argues:

>More directly relevant is whether x is a determinant of r(p). If it is,
>as Duncan says, r(p) "depends on the composition of output, including the
>production of luxury goods." But again, the mere appearance of x on the RHS
>isn't enough to permit this inference. To see this, assume that the profit
>rate is uniform and that workers have the budget constraint w = pb. (The
>sizes of the various elements of b need not be determined independent of
>workers' consumption choices.) Then r(p) is still the definition of the
>simultaneist profit rate but, as we all agree, the *magnitude* of r(p) is
>independent of the relative sizes of the elements of x, and therefore
>independent of production conditions in luxury industries. Although x
>in the *definition* of the profit rate, the profit rate does not *depend*
>on x
>or on production conditions in luxury industries.

Duncan replies:

Sure. But the two hypotheses (equalization of the rate of profit through
competition, and determination of the money wage by a given workers'
consumption bundle), while they are consistent with the NI, are not part of
the NI itself.


Andrew continues:

>Duncan: "An alternative would be to take the New Solution "value of
>labor-power", 1-e = w/u, and the monetary expression of labor time, u, as
>given, rather than the real wage b. Then if we assume profit rate
>equalization, the full
>system is:
>p = (1+r)(A + wlx)
>p(I-A)x = ulx
>w = (1-e)u
>In this system of equations, p, w, and r depend in general on u, e, and x.
>This same argument goes through if e = 1 so that w = 0."
>I think there are a couple of typos in the top equation. I think the correct
>formulation is:
>px = (1+r)(pAx + wlx), or equivalently, p = (1+r)(pA + wl).

Duncan replies:

You're right about the typos. The correct equations are:

p = (1+r)(pA + wl)
p(I-A)x = ulx
w = (1-e)u.

>If e = 1, so that w = 0, then p = (1+r)(pA) and, as is well known, the
>magnitude of r is not affected by production conditions in luxury industries.

I think you're right on this point. But what if e is a little bit less than 1?

It's still true in this case that the unpaid labor in the luxury goods
industries contributes to the aggregate surplus value. The ratio of the
aggregate surplus value to the aggregate value of capital tied up becomes
independent of the non-basics in this case. I guess I'm a little unclear
about why this is crucial. Is it your view that Marx explicitly worked out
a dependence of the profit rate on luxury sectors when the wage is zero?


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu