[OPE-L:5532] Re: Luxury Goods and Profit Rate

Ajit Sinha (ecas@cc.newcastle.edu.au)
Fri, 26 Sep 1997 00:48:13 -0700 (PDT)

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At 10:49 22/09/97 -0700, you Paolo Giussani wrote:
>In these rather cold times it is really very nice knowing that in same
>parts of the planet there is someone taking really
>care of your culture.
I didn't know Sraffian economics was part of your culture. But if it is so,
then from your postings it is quite clear that you are pretty uncultured
for your own culture. You don't know Sraffian economics Mr. Giussani. So
please don't wave your nationalist flag. Looks pretty ugly.

Ajit Sinha kindly supplied me with a childish reading
>list, but I think I can do a little bit better by assigning
>him a class exercise in Sraffian theory, which is as follows

Since i don't frequent 'adult book stores', all I could do was to provide
you with a childish reading materials, which obviously you have not read or
not understood. However, if we apply the same standard to your postings,
then I don't think we have any words to describe it. The closest word I
could think of is 'infantile'.
>Suppose we have a 3sector (a,b,c) system: a and b are basic industries, c
>is non basic. The initial state is
>(0.4 pa + 0.2 pb ) (1+r) = pa = 1,
>(0.2 pa + 0.3 pb) (1+r) = pb,
>(0.1 pa + 0.3 pb +0.5 pc) (1+r) = pc,
>Calculation gives pc=5.95194, pb=0.780776, r=0.798059
>We can see see that the nonbasic good, c, is a non basic input (ie an input
>used only in nonbasic industries). Hence technical change
>in the c producing industry can also come from variations in the
>input/output coefficient c/c. Suppose accordingly that by technical change
>this coefficient is lowered from 0.5 to 0.4. At given selling prices
>industry c will now get a sectoral profit rate rc*= 1.192236 > r.
>(This nothing but the well-known Okishio's sectoral transitional profit
>rate). Since. following the Bortkiewicz-Sraffa tradition, Ajit Sinha
>maintains that the long term profit rate is determined by the basic
>subsystem alone, and since after the technical change in industry c, the
>Sinha's rate of profit (the eigenvalue rate of profit) is of course
>unaltered, he (I mean Ajit Sinha) should be so kind to work out the
>effective mechanism will restore this profit rate in industry c, ie that
>will simply annihilate the differential rate of profit rc*-r whiule keeping
>intact r in industries a and b. He should also avoid using formal
>sequential methods which, according to Sinha himself, are not pertinent to
>Sraffa theory.

How did you get your pc Mr. Giussani in the first place? You must have
solved your first two equations for pb and r. Then you put the values of
pa, pb, and r, derived from your basic sector, in the third equation to get
your pc. Then you change third equation and want to maintain your old value
of pc to derive a new value for r*. Now, what kind of Micky Mouse
mathematics is that? This is how you do it. Since the first two equations
have remained the same, the solution to pa, pb, and r remains the same. You
put these values in your new third equation. This time you will solve for
pc, which will be different from the first one. So the change in the
technology in the non-basic sector only have its effect on its own price
and not the long-term rate of profit.
>It is obvious that I was not referring to 'the' long term rate of profit,
>but to the long term profit rate 'in the Sraffian framework'.

What is the difference between the 'rate of profit' and the 'profit rate',
the child wants to know?
Nobody is
>able to understand what this concept since Sraffa's theory is inherently
>static and can't allow for any kind of time change.

You mean you have not understood? That, of course, is obvious to anybody
who has understood it.
Curiously enough,
>Pasinetti, a leading sraffian that everybody knows, in his collection of
>papers on effective demand complains rather vividly that the neoclassical
>synthesis has converted an intrinsically dynamic, sequential theory
>(Keynes') into a simultaneous system in order to emasculate it.
>We anyway happily wait for Sinha's working out of the unform eigenvalue
>profitability restoration.

By the way, Pasinetti is not a "Sraffian", if you let the child to inform
you about your culture. However, Pasinetti's theory is not incompatible
with basic Sraffian theory. That goes to show that Sraffian theory is
flexible enough to be adapted to a dynamic theory. What this all has to do
with Pasinetti's critique of IS-LM model of Keynesian economics. Do you
really know what you talking about Mr. Giussani? I don't think so.
>Ajit Sinha also said:
>" Why should the rate of profit rise in the basic sector? What's your
>argument, apart from your assertion. Let's suppose there are only two goods
>in the economy: corn and body massage. Corn is used both as corn seed and
>wages paid to the workers. And in the massage sector corn is used as wages
>advanced to the workers who do the massaging. In this case given the
>technology in the corn sector and workers wages in terms of corn, 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. Now in your
>case, let's suppose the current rate of profit is higher in the massage
>sector compared to the corn sector. So there will be more investment in the
>massage sector such that its price in terms of corn falls to the extent
>that its rate of profit comes down to the corn sector's rate of profit.
>There is no reason for corn sector's profit to rise here. Do i need to go
>on any further? I don't think so. Cheers, ajit sinha "
>Not at all, sorry. An increased flow of capital into the message sector
>will imply a decreased flow of resources into the corn sector and hence a
>higher sectoral profitability for this industry. Using your own words
>"there will be less investment in the corn sector such that its price in
>terms of message rises to the extent that its rate of profit comes up to
>the message sector's rate of profit". If this new uniform rate of profit
>will be midway between the higher profitability of the massage sector and
>the eigenvalue (corn/corn) profitability this will not evidently be
>eigenvalue profit rate.

I didn't ask you to be sorry. But now you would be for writing such
gibberish. No matter what you take as your measure of price, massage,
airplane, tanks, tomato, potato, or whatever you wanna take, it will not
change the rate of profit in the corn sector as long as the ratio of net
output (taking wages as advanced capital)and wages plus seed corn remains
the same, because it is a pure number and independent of any measure of
prices. It can change only when technology or the wage rate changes. The
problem with you is that you think in neoclassical terms, where full
employment of resources are assumed and any reallocation lead to
substitution and changes cost conditions. Such assumptions are not made by
Sraffians. It is called 'surplus approach economics' where all the supplies
are equal to their effectual demand at the gravitational point. As I said.
Do some reading and don't assume that you must know all about Sraffian
economics because you happen to be an Italian.
>Honestly, I think that you should inform all the nonbasic sectors (they
>probably don't know this) that in all circumstance they will have to adjust
>to the rate of profit of the basic susbsystem so that they could trigger
>what appears as their own very special competitive mechanism, so special to
>bring down their rate of profit to the level prescribed by your theory. You
>should really inform these unlucky sectors since it is commonly known that
>people very often behave badly only because they have not been sufficiently
>educated and not because they are bad (and it is possibible that sectors
>are not very different from people...what do you think?)

If this is your level of theoretical thinking, then I think it would be
waste of time on my part to take you seriously from now on.
>In a subsequent post Sinha added:
>" Since Sraffa's equations are equations for industries or sectors rather
>than firms, they obviously contain differentiated goods. No slight change
>will make every product 'non-basics', that's simply silly. By the way, you
>all anti "simultanist" people out there Should know that the Sraffian
>reasoning is more sequentialist than simultanist. Your choice of
>terminology or name calling only betrays your lack of knowledge of the
>theory you are criticizing. Cheers, ajit sinha "
>In formal terms Sinha is just saying that the Sraffa system is always a
>joint production system with collective prices, ie that each single
>industry produces different goods that are joined together under one price.
>And, tell me, when these 'sectors' have to sell their own 'differentiated
>goods' one by one what price do they put on labels? Sraffa's equations
>cannot be 'sectors' or 'industries' in the rough empirical Industrial
>Census meaning but sectors and industries that are formed because they
>produce strictly homogeneous products (usevalues), this means that a single
>firme can simultaneously belong to different sectors according to the range
>of its production in terms of usevalues.

My point had nothing to do with joint production case, formally or
informally speaking. Let's suppose after every production cycle steel comes
out little whiter than the previous one from the steel mill. Now, as long
as the steel mill needs to use the same amount of this whiter steel per
unit of output of still whiter steel, as well as all other sectors that use
steel in their production process need to use the same amount of steel, how
is this slight variation in the quality of steel going to make any
difference to Sraffian equations? To inform you of your own culture, you
should know that Sraffa's 1925, 1926 papers gave rise to the whole movement
on theories of imperferct copetition. He is considered to be the father of
theories of imperfect competition. You think the idea of differentiated
product would kill his life long work and he wouldn't even know that? Think
about it.
>Once again you voluntarily misundertand: I don't care at all of Sraffa's
>'reasoning' but only of Sraffa's and sraffians' formalization. Your choice
>of terminology (and insults) only betrays your neurotic desire of putting
>up ridicolous brawls.
>Keep cool. Paolo Giussani.

You take it easy. And think before you write. Anybody who has followed this
exchange would know who is interested in a brawl. Anyway, from now on I'll
ignore you. There is nothing for me to gain in a discussion with you.
Cheers, ajit sinha