From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Sun Aug 25 2002 - 13:22:15 EDT
This is a response to Gary's (7534) and (7535). Gary, I would like to refocus the discussion back to the original question of the method of determination of the rate of profit (which I think you were trying to do too). I would like to return later to the very important empirical question of the relative explanatory power of Marx's theory and Sraffa's theory, which has come up in recent posts. 1. The question is: is the rate of profit uniquely determined by the technical conditions of production and the wage rate (and a numeraire)? Gary and Gil have argued that the answer to this question is yes. The technical conditions and the wage rate determine a system of n equations (one for each of the n industries) in (n+1) unknowns - n absolute prices and the rate of profit. If, in addition, the price of one commodity (the numeraire) is set =1, then the rate of profit is uniquely determined, along with (n-1) relative prices. It follows from this argument that Marx's logical method - of first determining the rate of profit independently prices of production, and then assuming this predetermined rate of profit in the determination of prices of production - is wrong. The rate of profit cannot be anything other than the rate of profit uniquely determined in Sraffian theory by the technical conditions and the wage rate. 2. I argue that the crucial flaw in Gary and Gil's argument is that it assumes that the exchange-value of the numeraire, or the money commodity (e.g. gold), is determined in the same way as the prices of all other commodities, i.e. that the gold industry participates in the equalization of profit rates like all other industries. This means that there is an equation for the gold industry that is essentially the same as all the other equations, i.e. that the price of gold is equal to production costs plus the average profit. However, this crucial assumption is NOT TRUE. The exchange-value of gold is DETERMINED DIFFERENTLY from the prices of manufactured commodities, because gold is a scarce, privately-owned mineral, and thus the price of gold MUST CONTAIN A COMPONENT OF RENT, which is paid to the owners of the gold mines, including an "absolute" rent paid on the least fertile mines (not just differential rent paid on all other mines). 3. Marx explained the existence of absolute rent in the following way: The prices of agricultural (and mineral) commodities are not equal to the PRICES OF PRODUCTION of these commodities, but are instead equal to the VALUES of these commodities, i.e. are proportional to the labor-time requirements to produce these commodities; and more specifically, are proportional to the labor-times required on the least fertile land. Because the composition of capital on the least fertile land is lower than the social average composition of capital, the values of agricultural commodities are greater than their prices of production, and thus the surplus-value contained in these commodities is greater than the average profit. Landlords are able to secure for themselves this surplus profit, and block the transformation of values into prices of production, because of their ownership of the land. In other words, mining and agricultural industries DO NOT PARTICIPATE IN THE EQUALIZATION OF PROFIT RATES with manufacturing industries. Marx argued that Ricardo denied the existence of absolute rent because he failed to recognize clearly the distinction between the values and the prices of production of commodities. Gary, I hope you will agree that Marx's explanation of absolute rent follows directly from his labor theory of value. 4. The main point for the purposes of our current discussion is that, since gold is a scarce, privately-owned mineral, Marx's theory of absolute rent also applies to gold. This means that the exchange-value of gold is determined by the value of gold, and not by the price of production of gold. In other words, the exchange-value of gold is determined independently of the price of production equations for the manufacturing industries, and independently of the equalization of the profit rate among manufacturing industries. Therefore, the system of n Sraffian equations that we have been discussing does not correctly represent Marx's theory. The system of equations expressing the determination of prices of production and the equalization of the profit rate should not include an equation for gold, because the exchange-value of gold is not equal to its price of production and is instead determined independently of the equalization of the profit rate. Let's say there are (n-1) non-mining and non-agricultural industries. In this case, there would be (n-1) equations in (n+1) unknowns - the (n-1) absolute prices, the wage rate and the rate of profit. As I have discussed before, taking the wage rate as given in this system does not uniquely determine the rate of profit. These (n-1) equations and the wage rate are consistent with an infinite number of rates of profit, which could be determined outside this system of equations, as in Marx's theory. And, if the rate of profit is also taken as given, along with the wage rate, then this system is not overdetermined (as Gil has argued), but rather determinant of the (n-1) absolute prices. 5. How then does Sraffa's theory deal with the determination of absolute rent in general, and with the absolute rent included in the price of the money commodity in particular? I asked Gary for references, and one of his references was an 1978 article by Heinz Kurz (a leading Sraffa scholar), which is very interesting. Kurz's article includes both an industrial sector (which produces n commodities) and an agricultural sector (which consist of k types of land and which produces one type of commodity - corn of course). The price of corn includes rent, and the price of manufactured commodities do not. And, fortunately for us, corn as chosen as the numeraire, and so the price of the numeraire commodity includes a component of rent. The resulting system of equations consists of (n + k) equations in (n + k + 3) unknowns - n prices, k rents, the price of corn, the wage rate, and the profit rate. Setting the price of corn = 1 and taking the wage rate as given (the usual Sraffian method of closing the system of equations), reduces the number of unknowns to (n + k + 1), but this is still one too many unknowns for the rate of profit to be uniquely determined. Kurz, following Sraffa, then closes the system of equations by assuming that the rent on the least fertile land = 0 !! i.e. by assuming that absolute rent DOES NOT EXIST! Since the price of corn is determined on the least fertile land, the equation for the price of corn then becomes identical to the price equations for industrial commodities, i.e. equal to production costs plus the average profit, without a component for rent. But this argument amounts to ASSUMING AWAY the problem of absolute rent, not explaining absolute rent, along with the rate of profit, etc. Yes, if one assumes away the actual existence of rent on the least fertile land (or in the case of gold, on the least fertile mine), then a HPYOTHETICAL rate of profit can be uniquely determined by the resulting system of equations. But this rate of profit cannot be the ACTUAL rate of profit in the real capitalist economy, because absolute rent on the least fertile land (or the least fertile mine) does in fact exist. Even within this Sraffian logic, would it not be possible to close the system of equations by taking the rate of profit as given (as determined outside this system, perhaps for example, by the rate of growth, as in Pasinetti's theory), and then to determine the n relative prices of industrial commodities and the absolute rent on the least fertile land, instead of setting absolute rent = 0? I wonder why the Sraffians make this particular choice. Is it just to be faithful to Ricardo's denial of absolute rent? Or is this choice somehow dictated by other considerations, that I am not aware of? 6. Therefore, I conclude that the rate of profit is NOT uniquely determined by the technical conditions and the wage rate, and that Marx's different method of the determination of the rate of profit prior to prices of production is both possible and logically coherent. I look forward to further discussion. Comradely, Fred
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