A reply to Ajit's ope-l 5559, which responds to part of an example I have
posted. The purpose of the example is to expose the self-contradictory
character of the theory that nonbasics have no influence on the profit rate.
To be precise, "profit rate" here means the UNIFORM profit rate, or, to use
Ajit's (incorrect) terminology, the "LONG-TERM" profit rate: "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 (Ajit Sinha, ope-l 5532, caps
added). (I say "incorrect," because the actual long-term profit rate is not
necessarily uniform and, even if it is, it is not necessarily the simultaneist
[eigenvalue] profit rate since, as Garegnani acknowledges, "normal prices" are
not necessarily stationary.) I stress this point because it is absolutely
crucial to what follows.
To refresh everyone's memory, here's the example:
"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."
My first question to Ajit was: "(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?"
Ajit's answer begins: "In your chicken sector, it takes 24 chicken[s] to
produce 30 chicken[s]. Thus even if corn was free, the maximum rate of profit
this sector could provide is 25%."
So far, so good! Let's continue with this assumption, that corn is free.
Why? We really have no other choice, unless we allow input and output prices
to differ. Given the conditions of the problem -- the determination of the
magnitude of the "LONG-TERM" profit rate and whether or not it is affected by
technical change in nonbasics (chicken production), and given the simultaneous
determination of input and output prices, there are ONLY TWO possible prices
of corn, and Ajit's P(corn) = 0 is the ONLY economically meaningful one. The
other is that the relative price P(corn)/P(chick) = -4, which is clearly
unacceptable, since it implies that one of the two prices is negative.
So we have to stick with Ajit's P(corn) = 0, since there is NO other
economically meaningful simultaneist alternative.
Hence, as Ajit quite rightly points out, the simultaneist profit rate in the
chicken sector is 25%. In the corn sector, there is no profit, but neither is
there any investment of *value*. Therefore, since all profit and all
investment is confined to the chicken sector, its profit rate of 25 0s
likewise the economy-wide profit rate, i.e., the "LONG-TERM" rate of profit.
Now, note that, with corn priced at zero -- the ONLY economically meaningful
simultaneist possibility -- technical change in the basic sector (corn) will
NOT affect the profit rate, while technical change in the nonbasic sector
(chickens) WILL affect the profit rate, as long as the input/output ratio of
chickens in the chicken sector remains greater than the input/output ratio of
corn in the corn sector. Again, of course, I'm referring to the "LONG-TERM"
simultaneist profit rate.
For instance, if, using the same 1 unit of corn, it now takes not 24 but 25
chickens to produce 30 chickens, then the "LONG-TERM" simultaneist profit rate
falls to 20%. Or if only 22 chickens are needed as inputs, then the
"LONG-TERM" simultaneist profit rate rises to 36.4%. In contrast, as long as
fewer than 4.8 units of corn are needed to produce a 6 units of corn, then the
necessary input could be 1 or 2 or 3 or 4.79 or whatever, and the "LONG-TERM"
simultaneist profit rate remains 25%, governed solely by production conditions
in the NON-basic good.
Futhermore, since, as we have seen, the chicken sector obtains the average
rate of profit, chicken producers have no incentive to shift investment out of
the chicken sector. I point out this trivial deduction because, after
starting off so well, Ajit writes:
"Now, when there is 50% rate of profit in the corn sector, then obviously all
the new investment will flow in the corn sector and in the long term the
chicken sector will cease to exist. It is simply not productive enough in the
current economic [e]nvi[ro]nment. What is the big deal about it? Think about
it."
I have. Where does this 50% rate of profit in corn production come from? If
the profit rate in the chicken industry is 25%, as you're assuming, then the
simultaneist price of corn is zero, and there is neither profit nor investment
of value in the corn industry. Hence, its profit rate is undefined, not 50%.
If, however, the profit rate in the corn industry *is* 50%, then the
simultaneist price of chickens must be negative, to conform to the conditions
of the problem. If the price of corn is 1, then the establishment of the
"LONG-TERM" simultaneist profit rate requires that the price of a chicken must
be -0.25. This is meaningless and therefore unacceptable.
On the other hand, if the price of chicken is nonnegative, then the profit
rate is not uniform, not "LONG-TERM." This is unacceptable because it
violates the conditions of the problem, the nature of which is PRECISELY to
investigate the determination of the "LONG-TERM" profit rate.
Therefore, instead of giving us the "LONG-TERM" profit rate under the stated
conditions of the problem, what Ajit has done is to ALTER THE PROBLEM BY
ELIMINATING THE NONBASIC GOODS, positing the nonexistence of the chicken
sector in the "LONG-TERM." To grasp the full implications of this, imagine
that the only basic good is corn, and that we now have an economy composed of,
say, 10,000 different commodities, the other 9,999 of which are nonbasics. As
in the above example, in which the "own-rate of reproduction" of chickens
(25%) is less than that of corn (50%), assume that the other 9,999 industries
are interconnected, and that their combined "own-rate of reproduction" is
again 25% while corn's is 50%. Then Ajit's solution to the problem is to
assume that the whole economy collapses as investment shifts out of each and
every one of the 9,999 nonbasics and into corn!
But let's stick with just corns and chickens. Workers eat corn, but the
capitalist's who run the whole show, after all, don't want to eat crappy corn.
They want their nice, juicy, succulent chicken. If capitalism were a system
of production for the sake of consumption instead of a system of production
for production's sake, then they would well accept a lower rate of return in
the chicken sector. But capitalism is a system of production for production's
sake, so they need to get at least as high a rate of return in chicken
production as in corn production, or, as Ajit rightly notes, they'll shift
their investments out of chicken production. But dammit, they want their
nice, juicy, succulent chicken on the dinner table! What a dilemma! What's a
poor capitalist to do?! Perhaps Ajit has discovered the fundamental,
unsolvable, contradiction of capitalism?!
Or, perhaps not. If the supply of chickens declines when the profit rate in
that sector is less than in the corn sector, then there's an excess demand for
chickens.
FADE IN. Si Mel Taneist is shifting nervously in his seat in the corner of
cyberspace. As he shifts, we hear a plaintive
VOICE OVER:
Hmm. Well, the evil neoclassicals tell us that the price of chickens is gonna
rise. But that can't be right, because we're materialists, and so we know
that physical quantities, objective properties, determine everything. Demand?
Too subjective. Besides, the neoclassicals are evil.
And yet ... the capitalists have these neoclassicals as their policy advisers.
What if the capitalists do as they're told and start paying more for
chickens? Hmm, let's think. Shit. As the price of chickens starts to rise,
capital shifts back into the chicken industry and a greater supply is
forthcoming.
But hold on! If the price of chickens rises, then o----- prices exceed i----
prices. But that can't be right. That's what those evil TSSers say.
They're no one's policy advisers, so we don't have to listen to *them*, for
christsakes! Besides, not only are they evil, they're dogmatists. So no,
o----- prices equal i---- prices. It's gotta be, and if it isn't, let's
redefine things until it is.
But, wait. Maybe, after a while, the price of chickens stops rising. Aha!,
we can start with the 25% rate in the chicken sector, then mumble something
about disequilibrium, and then whip out our long-term tableau with equal
profit rates and o----- prices equal i---- prices. We have learnt *something*
from them neoclassicals, after all. ... But let's just make sure that the
numbers work out. Don't want them TSSers to pounce on us.
(Si starts to scribble on the back of an envelope.)
VOICE OVER: Ah, well, uhh ... if the chicken producers get 500rofit, then
physical conditions aren't determining their profit rate. But hey, no biggie.
We can fudge that one with some determination in the last instance -- after
all, we're talking about the *long-term* profit rate. Yeah, that's it.
Long-term profit rate. ... But let's do one more quick check; them TSSers are
even more evil than they are dogmatic.
(Si returns to his scribbling on the back of the envelope.)
VOICE OVER: Uh, well, ahem ... maybe this determination in the last instance
bit might not go over. There just doesn't seem to BE any long term. Wouldn't
ya know it, the chickens have to *keep* rising in price. Forever. Otherwise,
corn has to be more profitable, and investment shifts out of chickens until
there's no more chickens left.
Well, it ain't the best solution, but I'll be damned if I'm going to get
trapped in this drivel about demand and o----- prices and i---- prices. It
looks like we're just gonna have to tough this one out. Yeah, that's the
ticket. We say: Chickens? What chickens? Ain't nobody here but us corn
producers. What is the big deal about it?
(Whishing sound effect. A caped, masked superhero, with the letters PS
emblazoned on his chest, descends into the room.)
PS: Fear not! On page ninety-one of my book, _The Production of Superhuman
Powers by Means of Superhuman Powers_, I remind my Adoring Fans that I'm just
investigating the implications of the *assumption* that o----- prices equal
i---- prices, and that the chicken producers can *of course* get a 50% rate of
profit by charging more for the chickens than they pay for them. After all,
just like the capitalists, we Intellectual Superheroes gotta keep up our
strength. Can't just go around eating corn like the chickens and workers do.
I tell you, you Adoring Fans are sure enough Adoring, all right, but sometimes
you're too much. It was just a frigging *assumption*, like the can opener
joke. And you all go and start taking it seriously. For crying out loud! It
was a weapon against the enemy, that's all, my Secret Weapon which I hurled
against the Evil Neoclassicals. And it worked. I stopped them dead in their
tracks, I brought down Samu-El's son ... until they wised up and stopped
assuming that o----- prices equal i---- prices.
But that's another story. I live to fight again! Long Live Materialism!
(With a forceful leap, he flies off. Si Mel looks adoringly but bemusedly up
in the sky. FADE OUT.)
Andrew Kliman
In any case, after his very good start, Ajit has unfortunately failed to tell
us what the "LONG-TERM" rate of profit will be the question.
(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
return?
(d) EXTRA CREDIT!!: Was Sraffa a "Sraffian"?
>"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.
>[...]
>
>"No matter what you take as your measure of price, ... 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."
>
>Given that Ajit continues to make such statements without rising to my
>challenge which puts them to the test, I reiterate my request that he do the
>"simple class exercise" in Sraffian theory that I posted in ope-l 5484, and
>which I now append. In particular, note not only that part (a) addresses
>Ajit's claim that the profit rate is independent of nonbasic sectors, but
that
>part (b) addresses Ajit's claim that the measure of price will not affect
the
>profit rate in the corn sector.
>----------
>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?
___________________
Andrew,
The reason I have not responded to your yet another "challange" is simply
because I'm trying to ignore you. Arguing with you is no pleasure. From my
last experience, I can say that instead of arguing, you indulge in
badgering. You always insult me by putting up "class exercises", "extra
credit points", and things of that nature, as if I was your student or
something; I do pity your real students. Of course, insulting ajit sinha is
quite exceptable for ope-l. It's only when ajit sinha matches insults with
insults that all hell breaks loose. It is a tough neighborhood for people
like me, and I have devised various ways of serviving. One of it is to
ignore cat calls and other kinds of comments by certain people. However, I
think my silence might just give a wrong impression to you in this case,
that your mighty "challenge" has silenced ajit sinha. So I have decided to
decend to your "challenge" to yet again expose the sillyness of it all.
In your chicken sector, it takes 24 chicken to produce 30 chicken. Thus
even if corn was free, the maximum rate of profit this sector could provide
is 25%. Now, when there is 50% rate of profit in the corn sector, then
obviously all the new investment will flow in the corn sector and in the
long term the chicken sector will cease to exist. It is simply not
productive enough in the current economic inviorenment. What is the big
deal about it? Think about it. ajit sinha
____
>
>(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
>return?
>
>(d) EXTRA CREDIT!!: Was Sraffa a "Sraffian"?
>----------
>
>(2) Ajit tries to reiterate his view that the commodities in the Sraffa
>equations are aggregates of heterogeneous use-values: "You think the idea
of
>differentiated product would kill his life long work and he wouldn't even
know
>that?"
>
>This poses an interesting question, but it does not provide an answer to the
>aggregation issue. However, I have already provided the answer in ope-l
5493
>-- Sraffa's commodities are not aggregates. Since Ajit has neither
responded
>to it nor taken it into consideration in this latest repetition of the claim
>that Sraffa's commodities are aggregates, I now append my answer:
>----------
>"Paolo Giussani has noted that "[s]ince the slightest change in usevalue is
>enough to make a product a novel product, looking at what happens every
day I
>feel comfortable to state that a very large part of products that come out
of
>each different 'production cycle' (Sinha uses this quite mysterious
>expression) are novel products, and thus nonbasic products."
>
>
>"In response [OPE-L:5483] , Ajit Sinha opined that "[s]ince 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."
>
>"In other words, according to Ajit, Sraffa's system aggregates physically
>distinct things.
>
>
>"This, however, was definitely NOT how Sraffa understood his own equations.
>In
>a letter of 4th June, 1962, to Peter Newman, Sraffa wrote:
>
>"'You find a further ground for attacking the distinction between basics and
>non-basics in the supposition of its being 'partly a matter of the degree of
>aggregation in the system' (p. 67 [of Newman's article]). Now aggregation
is
>the act of the observer, whilst the distinction is based on a difference in
>OBJECTIVE PROPERTIES. I have argued, for instance, that a tax on the
price of
>
>basics will lower the general rate of profits for a given wage, whereas a
>similar tax on non-basics will leave the rate of profits unchanged. Surely,
>to answer this, one must prove the alleged consequence does not follow,
>instead of DROWNING THE DISTINCTION THROUGH AN APPROPRIATE DEGREE OF
>AGGREGATION [caps added].'
>
>
>"Therefore the "commodities" of Sraffa's system are, according to the author
>himself,
>
>(1) NOT differentiated;
>
>(2) classified according to their physical differences -- the "objective
>properties" that distinguish one from another.
>
>
>"Now, even "the slightest change in usevalue is enough to make a product"
>*objectively* different from another. Indeed, when the change in usevalue
is
>"slight" or not "is the act of the observer," a *subjective* one.
Therefore,
>any change in use-value whatsoever means that we have a different
"commodity"
>in Sraffa's sense, a "novel product." And therefore Paolo is 100 orrect:
>"a very large part of products that come out of each different 'production
>cycle' ... are novel products, and thus nonbasic products."
>
>
>"In ope-l 5479, Ajit wrote: "I cared to know a bit of Sraffian literature,
>and
>had you shown the same care
>before coming out with your gun blazing against Sraffa and the Sraffians you
>would have known it too." Unfortunately, a bit of knowledge is a dangerous
>thing. Sadly, Ajit seems not to have cared to know a bit more."
>----------
>
>(3) Finally, Ajit writes:
>
>"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?"
>
>The answer to this should be obvious to one who purports to be an expert on
>Sraffa. Since commodities are distinguished by Sraffa according to their
>"OBJECTIVE PROPERTIES," (a) the new steel in each "cycle" is a non-basic;
(b)
>the steel input in each "cycle" is not reproduced, i.e., does not appear on
>the output side of the equations; therefore (c) there is an extra unknown
with
>no extra equations; and therefore (d) the system cannot be solved. The
theory
>breaks down.
>
>In you can run but you sure can't hide solidarity,
>
>Andrew Kliman
>
>