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Unformatted text preview: MAIN POINTS : Defining the rate of profit; the notion of a uniform rate of profit, centres of gravity and the associated normal (relative) prices Normal prices are determined by the technique of production and one of the distributive variables Conflicting income shares: the real wage and the rate of profit are inversely related Complexity in relative price movements with changes in distribution Some production conditions are integral to the price system: basics versus nonbasics The choice of technique  the role of distribution LONGPERIOD PRICES, DISTRIBUTION AND THE CHOICE OF TECHNIQUE The rate of profit We suppose that in a capitalist economy, capitalists are interested in maximising profit => comparison of profitability across sectors => comparison of profit rates across sectors Consider the twocommodity iron/corn model With constant returns to scale, profit rates for total output of a commodity are the same as the profit rate for each unit of the commodity => the profit rate for each sector can be written as ........(2.1) ( 29 ( 29 ( 29 ( 29 c cc i ic c cc i ic c m c c i ii c ci i ii c ci i m i i p a p a p a p a l w p r p a p a p a p a l w p r . . . . . . . . . . + + = + + = 6 In a subsistence economy: C C C C B B B B A A A A c b a c b a c b a = + + = + + = + + c c c b c a c b c b b b a b a c a b a a a Cp p C p B p A Bp p C p B p A Ap p C p B p A = + + = + + = + + => any one of the price equations can be inferred from the other two, e.g. from 2 nd and 3 rd equation => c b c c c b b c b b a c a b Cp Bp p C p C p B p B p A p A + = + + + + + From c a c c c c b b a b b c b b a a a a c a b p C Cp p C p C p B Bp p B p B p A Ap p A p A = + = + = + c b c a c b a b a a a Cp Bp p C Cp p B Bp p A Ap + = + + c a b a a a a p C p B p A Ap + + = => only 2 indep. equs. With two linearly independent equations, and physical quantities known, two of the prices in terms of one other could be determined endogenously => e.g. by setting p a = 1, and determining p ba and p ca However, as Sraffa (1960) notes, if the physical system generates a surplus the equations c c c c c c c b c b b b a b a c a b a a a Cp p C p B p A Bp p C p B p A Ap p C p B p A = + + = + + = + + become selfcontradictory (p.6). Physical quantities of inputs will no longer match outputs => no one equation above can be inferred from the other two => 3 linearly independent equs. to determine 2 relative prices With a surplus produced could we get back to the original case, by allotting the surplus before the prices are determined ( ibid .,) (e.g. by subsuming the surplus quantities of A , B and C in A a , B b , and C c input quantities), so as to maintain 2 linearly independent equations ?...
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This note was uploaded on 04/20/2010 for the course ECOS 2001 taught by Professor None during the One '09 term at University of Sydney.
 One '09
 NONE

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