Académique Documents
Professionnel Documents
Culture Documents
Édith Klimovsky
2020/1 n° 77 | pages 73 à 94
ISSN 0154-8344
ISBN 9791037003027
DOI 10.3917/cep1.077.0073
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Edith Klimovsky 1
Abstract
The aim of this article is to justify the relevance of economic theory for
achieving an accurate interpretation of past authors’ statements. In the light
of the contemporary classical theory, we analyze the Ricardian relationship
between the rate of profit and surplus labour in the Principles. In contrast
to what is usually assumed, we argue that such relationship is verified inde-
pendently of the labour theory of value. Ricardo discovers the limits of this
theory and never points out that labour values are necessary for relating the
rate of profit to surplus labour.
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Théorie économique et histoire de la pensée :
une proposition ricardienne générale et inattendue
Cet article vise à justifier l’importance de la théorie économique pour parvenir
à une interprétation appropriée de propositions d’auteurs anciens. À la lumière
de la théorie classique contemporaine, nous analysons la relation ricardienne
dans les Principes entre le taux de profit et l’excédent de travail. En opposition
avec ce qui est généralement admis, nous montrons que cette relation se
vérifie indépendamment de la théorie de la valeur travail. Ricardo découvre
les limites de cette théorie et ne signale jamais que les valeurs travail sont
nécessaires pour rapporter le taux de profit à l’excédent de travail.
Keywords
Rate of profit, surplus labour, Ricardo, Sraffa.
Mots-clés
Taux de profit, excédent de travail, Ricardo, Sraffa.
Introduction
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Sraffa’s choice of the rate of profit, instead of the wage, as the exoge-
nous distribution variable.
The first part of this article establishes that Ricardo’s assertion on
the relationship between the rate of profit and surplus labour is veri-
fied in a contemporary general model, that is, independently of the
labour theory of value. The second part examines Ricardo’s arguments
in the light of the contemporary classical theory. Our reading of the
Principles confirms the outcome of the first part: it cannot be argued
that the Ricardian relationship implies the labour values.
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employs k different qualities of labour. The quantities of them are a
technical datum, represented by a non-negative matrix, N ≥ 0, of order
n × k. If wages are expressed in terms of the wage of a particular
type of labour ‒for example, wa‒ the different qualities of labour are
reduced to quantities of this type of labour and the homogeneous
labour vector l (a) is:
l (a) = (1)
(2)
Note that, unlike matrix N, neither vector l (a) nor vector l are
purely technical data since both depend on the structure of wages.
Consequently, the classical homogeneous labour quite differs from
Marx’s abstract labour, which is not a technical datum either but is
defined independently of wage relationship.
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where A ≥ 0 is a matrix of technical coefficients per unit of product,
verifying the Hawkins and Simon conditions. Matrix A presupposes
constant returns to scale and only represents the technique, being inde-
pendent of the proportions between sectors. Vector l can be obtained
as indicated either in (1) or in (2), and in both cases it represents
quantities of homogeneous labour per unit of product. An important
characteristic of system (3) is that its equations are not modified by
changes in the proportions between sectors.
In the classical tradition, the wage is conceived as the value of the
basket of goods necessary for the subsistence of the workers. This
basket is determined by historical and social factors and it represents
the exogenous distribution variable. As a result, the following equation
is added to system (3):
w = b´p(4)
2. Sraffa abandons the classical tradition and assumes that the wage “is paid post
factum as a share of the annual product” [Sraffa, 1960, § 9]. Then the price system is
written (1+ r)Ap + wl = p.
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are determined”, whatever the standard and not only “a more or
less abstract standard” [1960, § 44]. This difficulty explains Sraffa’s
choice of the rate of profit as the exogenous distribution variable. But
this contradicts the classical conception of income distribution as an
outcome of the power relation between capitalists and workers.
In our opinion, the wage may be still chosen as exogenous if the
wage-goods included in vector b´ satisfy two conditions. First, following
Sraffa, they are dissociated from workers’ consumption. Second, they
are conceived as a basket, agreed by workers and capitalists, in terms of
which wages are expressed in the wage bargaining process [Klimovsky,
1998, p. 118-122]. Thus, the exogenous wage is the expression of a
social agreement on both the level of the wage and the composition
of the basket in terms of which the wage is expressed. Summing up,
vector b´ in equality (4) represents the workers’ purchasing power
that results from the negotiation between classes. Then the wage
3. Vector b’ depends on the standard in terms of which wages are expressed in order
to homogenize the different types of labour.
4. As a consequence of Sraffa’s choice of the national income as the standard, the
wage becomes a purchasing power equal to a given share of wages in the national income.
Hence, the structure of vector b’ is the same as that of the net product.
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To define the net surplus product, we must take into account the
goods that compose the wage bill of the economy. In order to simplify
the formalization, we will adopt Sraffa’s variant of the homogeniza-
tion of labour which expresses wages in terms of the wage bill of the
economy. 5 By subtracting the (row) vector b´ of the total wage-goods,
we obtain the following vector of net surplus product:
y´(I – A) – b´(6)
The net surplus product is not a purely technical datum as the
surplus product because it also depends on the physical composition of
the total wage bill. Both surpluses depend on the proportions between
sectors because any change in the relative levels of gross production
modifies the structure of vector y’. Besides, in general, such vectors
cannot be compared regardless of prices.
Let us consider now surplus labour, which is the least common
but the most closely related to Ricardo. It is defined as the difference
between the total annual labour of society and the total direct and
indirect labour employed in the production of the wage-goods. Unlike
5. If wages are expressed in terms of the wage of a particular type of labour -for example,
wa, to define net surplus product and surplus labour replace b´ by La ba ´, 1 by La, and l
by l (a) in equation (6) and in all formulas in the rest of the text.
surplus product and net surplus product, which are vectors, surplus
labour is a scalar representing a fraction of the total annual labour of
the society equal to:
1 – b´(I – A)-1l(7)
where vector (I – A)-1l represents the amount of direct and indirect
labour employed in production per unit of product, as a fraction of
the total annual labour of society.
Notice that, being based on the classical notion of homogenous
labour, this ‘classical surplus labour’ must not be confused with Marxian
notions of surplus labour and surplus value.
Surplus labour depends on the technique, defined by matrices A
and N, on the structure of wages, on the total annual labour of society
and on the physical composition of the total wage bill. An important
feature of surplus labour is that its size is determined without any
reference to prices and is not modified by changes in the proportions
between sectors if the total annual labour of society is unchanged.
This is so because, given the technique and the structure of wages,
the direct and indirect labour required to produce one unit of each
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commodity does not change when the proportions are modified. This
property distinguishes surplus labour from both surplus product and
net surplus product.
Net surplus product and surplus labour are mutually implied.
Indeed, if wages absorb the total surplus, we have y´ (I – A)=b´, and
net surplus product is nil. And since y´l=1, we have: b´ [I – A]-1l=
y´ [I – A] [I – A]-1l=1, which means that there is no surplus labour either.
On the other hand, if there is no surplus labour, we have y´l=b´ [I – A]-1l,
hence y´ [I – A]l=b´l, which implies that there is no net surplus product
either, i.e. y´ [I – A]=b´. Hence, both notions are logically equivalent
but, as we will see in the next section, their relationship with the rate
of profit is very dissimilar.
The net surplus product is the basis for calculating a physical ratio:
the net surplus rate of commodities. This ratio relates the quantity of
each commodity in the net surplus product and the quantity of each
of them used as a means of production in the whole system. Therefore,
such rates depend on the proportions between sectors. Besides, since
total profits are equal to the value of the net surplus product of the
economy, the rate of profit is neither higher than the highest, nor
lower than the lowest of the net surplus rates of commodities. This is
the only relationship which can be established between the net surplus
product and the rate of profit.
The classical price system (3) can be written:
p = w(1+r)[I – (1+r)A]-1l(8)
Replacing the inverse [I – (1+r)A]-1 by the sum of the series of
powers I +(1+r)A+(1+r)2 A2 +(1+r)3 A3 +…, system (8) is rewritten:
p=w[(1+r)l+(1+r)2 Al+(1+r)3 A2l+(1+r)4 A3l+…] (9)
where vectors Al,A2l,A3l,… represent the quantities of labour corre
sponding to the successive stages of the productive process. It follows
from (9) that, whatever the standard, the wage and the rate of profit
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are inversely related. On the other hand, the relative prices of commod
ities depend both on the direct and indirect labour quantities and on
the rate of profit. The labour theory of value only holds if vectors l,
Al,A2l,A3l,… are proportional. 6 That is, changes in the rate of profit
do not affect the relative prices, which are then proportional to the
quantities of labour employed directly and indirectly in the processes
of production, only if the value composition of capital is identical for
all commodities.
Introducing (8) into (4), we obtain the following fundamental
equation in which the rate of profit is the only unknown:
1=(1+r)b´[I – (1+r)A]-1l(10)
Equation (10) determines the rate of profit, which depends both
on the physical composition of vector b´ and on the quantity of direct
6. Mathematically, the proportionality of vectors l, Al, A2l, A3l,… implies that vector
l is the eigenvector associated with the maximum eigenvalue of matrix A. Thus, not all
techniques, defined by matrices A and N, are compatible with the labour theory of value
because there may be no positive wage structure which, given matrix N, allows to obtain
the vector l associated with the maximum eigenvalue of matrix A [Klimovsky, 1998, p. 31].
and indirect labour required to produce the goods that compose such
vector. 7 It also follows from (10) that r > 0 only if:
1 > b´ [I – A]-1l(11)
Thus, a positive surplus labour is the condition for a positive rate
of profit. This does not imply any hypothesis on the composition of
capital.
In conclusion, given the technique and the wage, the rate of profit is,
like prices and surplus labour, independent of the proportions between
sectors. Conversely, both profits and surplus product depend on
proportions. It follows that two economies having the same methods of
production, the same wage, the same structure of wages, and employing
the same quantity of labour, but differing in the proportions between
sectors, have the same rate of profit, the same prices, the same surplus
labour, but different net surplus products and therefore different
amounts of profits. The same rate of profit is associated to the same
surplus labour but to different net surplus products. Therefore, contrary
to net surplus product, surplus labour is univocally related to the level
of the rate of profit and thus is the suitable notion of surplus.
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Equation (10) shows that the rate of profit depends on surplus
labour. Nevertheless, by definition, the rate of profit is a ratio between
net surplus product and total capital, both being expressed in terms of
prices. Therefore, it is necessary to go deeper into the analysis of the
relation between the rate of profit and the evaluation of net surplus
product and total capital in terms of quantities of labour.
7. The origin of this idea is found in Dmitriev [1898, p. 46-50], the Russian mathe-
matician who proposed the first mathematical formalization of the Ricardian theory of
the rate of profit in the Principles.
to the actual system. In the first one, the rate of profit is physically
determined and thus independent of the evaluation of the net surplus
product and capital. We also show that homothetic and actual systems
have not only the same rate of profit but the same surplus labour as
well, if they employ the same quantity of total labour.
A system of production is homothetic when the structure of its total
product is the same as the structure of its total means of production,
and therefore also the same as the structure of its net surplus product.
In such systems, the net surplus rates of commodities are uniform:
siH = sH, ∀i. Hence, the rate of profit is determined in physical terms,
being equal to the uniform net surplus rate of commodities: rH = sH. In
Sraffa’s words: “the rate of profits… appears as a ratio between quan-
tities of commodities irrespective of their prices” [Sraffa, 1960, § 29].
As shown in § 1.2, the solution of the classical price system (3)
is independent of the proportions between sectors. Since the actual
system of production and the homothetic system related to it only
differ in their proportions, both have the same solution: the same
rate of profit r ‒determined in physical terms in the homothetic
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system, r = rH‒ and the same prices. Thus, an essential feature of the
homothetic system, 8 which Sraffa mentions without highlighting it,
is that it allows us to determine the rate of profit of the actual system
independently of prices.
The homothetic system is built by applying Sraffa’s procedure for
obtaining the standard system: the proportions of the actual system
are modified in order to get a uniform rate of net surplus for all
commodities. Incorporating equation (4) into system (3), we have:
(1+r)(A+lb´)p=p (12)
which is a homogeneous linear system, just like its dual:
(1
(1+r)q’ (A+lb´)=q’ (13)
is the maximum eigenvalue of matrix (A+lb´). Vector q’ is defined
up to a scalar and, whatever its scale, it represents the homothetic
proportions. The net surplus rate of commodities is uniform and
equal to the rate of profit in
^
the homothetic system, which is written:
(1+r) [Q(A + lb´)]p = Qp (14)
^
where Q is the diagonal matrix of the homothetic proportions, defined
by vector q’. Systems (12) and (14) only differ in proportions and both
have the same rate of profit. Such a rate is determined irrespective of
prices in the homothetic system as a ratio between quantities of the
composite homothetic commodity which makes up the net surplus
product and the capital. 9 On the other hand, from (14) it follows that
the maximum eigenvalue of matrix (A+lb´) represents the technical
and social difficulty of producing the composite homothetic commo-
dity. 10 We have:
(15)
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us notice the similarity with Sraffa’s interpretation of Ricardo’s Essay
on Profits [1815], in which the rate of profit is physically determined
in the agricultural sector because, according to Sraffa, corn “forms
both the capital… and the product” [Sraffa, 1951, p. xxxi]. Prices
are then determined so as to get a uniform rate of profit. Hence, the
corn difficulty of production is generalized to all other commodities.
As a matter of fact, the determination of the rate of profit irrespe-
ctive of prices leads to question Sraffa’s statement according to which
the rate of profit “must be determined through the same mechanism
and at the same time as are the prices of commodities” [see Sraffa,
1960, § 4]. Surprisingly enough, Sraffa does not revise his idea of a
simultaneous determination of prices and the rate of profit once he
has constructed the composite homothetic commodity.
9. The origin of this idea is found in Cartelier [1976, Chapter VI, § 91].
10. To extend the previous demonstration to Sraffa’s system, where the wage is paid
post factum, it is enough to replace the sum of matrices A+lb’ by the product of matrices
(I – lb’ )-1A, whose maximum eigenvalue represents the technical difficulty of production
per unit of product minus the wage bill of the economy:
[see Klimovsky 2006, p. 47-48].
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systems employ the same quantity of labour, they have the same rate
of profit, the same prices and the same surplus labour, but different
net surplus products. Hence, the rate of profit is univocally related to
surplus labour in both the actual and the homothetic systems. This
is a general relation insofar as it does not depend on the technical
or value composition of capital. It is verified independently of the
labour theory of value. Summing up, the contemporary classical
theory shows that Ricardo is right when he asserts that the rate of
profit depends on the quantity of labour required to produce the
necessaries for workers.
In his “Introduction”, Sraffa argues that Ricardo’s theory of profit,
in the Principles, is related to a general theory of value:
“In the Principles, however, with the adoption of a general theory of value, it
became possible for Ricardo to demonstrate the determination of the rate of
profit in society as a whole instead of through the microcosm of one special
branch of production. At the same time he was enabled to abandon the
simplification that wages consist only of corn,… It was now labour, instead
of corn, that appeared on both sides of the account–in modern terms, both
as input and output: as a result, the rate of profits was no longer determined
by the ratio of the corn produced to the corn used up in production, but,
instead, by the ratio of the total labour of the country to the labour required
to produce the necessaries for that labour” [Sraffa, 1951, p. xxxii].
But he does not clarify what is the general theory of value which
authorizes the determination of the rate of profit as a ratio of quantities
of labour. Moreover, according to Sraffa, the “necessary” starting point
of a study of the chapter “On Value” in the successive editions of the
Principles is “a survey of the formation of the new theory of value out
of fragmentary elements of such theory which are to be found in the
Essay…” [Sraffa, 1951, p. xxx]. These fragments are the labour values
mentioned in the Essay: “Elsewhere in the Essay,…, there are passages
which foreshadow his full theory of value and already link it with the
theory of profits” [ibid., p. xxxiii]. And he quotes Ricardo immediately
after [Sraffa, 1951, p. xxxiii-xxxiii-xxxiv]:
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corn, from more labour being necessary, whilst no more labour is required
to produce gold, silver, cloth, linen, &c. the exchangeable value of corn will
necessarily rise, as compared with those things” [see Ricardo, 1815, p. 19].
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analysis of the effect of a variation of wages on relative prices. Finally,
in § 2.3, we examine the two hypotheses allowing Ricardo to simplify
his analysis of the cause of the permanent variations of the rate of profit.
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2.2. Effect of a change in wages
on the rate of profit and relative prices
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“The greatest effects which could be produced on the relative prices of these
goods from a rise of wages, could not exceed 6 or 7 per cent.; for profits
could not, probably, under any circumstances, admit of a greater general and
permanent depression than to that amount” [ibid., p. 36].
“In estimating, then, the causes of the variations in the value of commodities,
although it would be wrong wholly to omit the consideration of the effect
produced by a rise or fall of labour, it would be equally incorrect to attach
much importance to it” [ibid., p. 36].
Ricardo concludes:
“and consequently, in the subsequent part of this work, though I shall occa-
sionally refer to this cause of variation, I shall consider all the great variations
which take place in the relative value of commodities to be produced by the
greater or less quantity of labour which may be required from time to time
to produce them” [ibid., p. 36-37].
The very search for an invariable measure of value does not make
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sense if prices are not affected by changes in the income distribution.
But, a few lines below, once more Ricardo minimizes the effects of
such changes by saying: “but I have already remarked, that the effect
on the relative prices of things, from a variation in profits, is comparat
ively slight” [ibid. p. 45]. However, almost at the end of Section VI,
Ricardo comes back to the central theme of the chapter “On Value”,
‒the critique of Smith’s adding up theory of value‒ and highlights
the effects of differences in the composition of capital for the analysis
of the influence of a change in income distribution on relative prices
[see ibid., p. 46].
The relationship between the rate of profit and surplus labour is
found at the end of the chapter “On Value”, in Section VII, where
Ricardo writes:
devoted to the support of the labourers; in the other case, a larger portion is
so devoted” (ibid., p. 48-49).
Ricardo never explicitly points out that the labour theory of value
is necessary to relate the rate of profit to surplus labour. Besides, the
foregoing examination of the first chapter in the Principles, does not
enable us to conclude that this relation presupposes the labour theory
of value, which implies the identical value composition of capital in
all sectors. As we have seen, in his search for an invariable measure of
value and in his critique of Smith’s adding up theory of value, Ricardo
considers that prices change when wages increase. On the other hand,
as we showed in section 1.2, the relation between the rate of profit and
surplus labour is fully explained by equation (10), which is entirely
independent of the composition of capital.
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The object of Chapter VI is “to consider what is the cause of the
permanent variations in the rate of profit, and the consequent perma-
nent alterations in the rate of interest” [ibid., p. 110].
In line with Section IV of Chapter I [see ibid., p. 36-37], Ricardo
addresses the issue in the framework of the labour theory of value,
stating that the price of agricultural products “is regulated by the
quantity of labour necessary to produce it, with that portion of capital
which pays no rent” [ibid., p. 110]. And, to further simplify his calcu-
lations as we will see below, he assumes that the value of commodities
“is divided into two portions only: one constitutes the profits of stock,
the other the wages of labour” [ibid., p. 110]. This hypothesis implies
that prices only depend on the quantities of direct labour. Since labour
is the only input used in the production of all goods, we have A = 0.
System (8) and equation (10) are respectively written:
(1 + r)wl = p(17)
1=(1 + r)b´l(18)
System (17) shows that vectors p and l are proportional and there-
fore the labour theory of value holds. Equation (18) means that the
rate of profit depends on the quantity of labour required to produce
wage-goods or, in other words, on surplus labour:
(19)
Referring to the numerical examples he has provided to illustrate
the determination of the rate of profit, Ricardo clearly explains the
reason for assuming the labour values in his numerical illustrations: “In
all these calculations I have been desirous only to elucidate the prin-
ciple… My object has been to simplify the subject” [ibid., p. 121-122]
by assuming that the value is divided into wages and profits. A few
lines further, he admits the use of raw materials in the production of
goods [ibid., p. 122]. In this case, it follows from (19) that, due to
an increased capital, the rate of profit must be lower. This is precisely
what Ricardo says:
“I must again observe, that the rate of profits would fall much more rapidly
than I have estimated in my calculation: for the value of the produce being
what I have stated it under the circumstances supposed, the value of the
farmer’s stock would be greatly increased from its necessarily consisting of
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many of the commodities which had risen in value” [ibid., p. 122].
Ricardo starts the last and long paragraph of the chapter “On
Profits” by summing up what he already asserted in the chapter “On
Value”: “Thus we again arrive at the same conclusion which we have
before attempted to establish: —that in all countries, and all times,
profits depend on the quantity of labour requisite to provide neces-
saries for the labourers” [ibid., p. 126], with the only difference that
now he specifies: “on that land or with that capital which yields no
rent” [ibid., p. 126]. This last paragraph of Chapter VI is ended with
the leitmotiv of Chapter I, focused on the critique of Smith’s adding
up theory of value:
“Thus then I have endeavoured to shew, first, that a rise of wages would
not raise the price of commodities, but would invariably lower profits; and
secondly, that if the prices of all commodities could be raised, still the effect
on profits would be the same; and that in fact the value of the medium only
in which prices and profits are estimated would be lowered” [ibid., p. 127].
Ricardo does not assert that prices are not affected by changes in
income distribution, as stated by the labour theory of value. Once
again, he concludes that an increase in wages certainly causes a lower
rate of profit, the effect on prices depending on the standard: all prices
can increase when they are expressed in terms of the commodity whose
price falls more than any other.
Conclusion
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profit.
Above all, we have shown that, as asserted in the Principles, the
endogenous rate of profit is determined by the physical composition
of wages and the quantities of direct and indirect labour employed
in the production of wage-goods. This result is independent of the
labour theory of value and means that the rate of profit depends on
surplus labour.
In the contemporary classical theory, the rate of profit is determined
in physical terms as a ratio of the net surplus product to the capital
in the homothetic system built on the basis of the actual system.
By definition, the net surplus product depends on the proportions
between sectors. We have shown that, as the rate of profit and prices,
surplus labour is independent of such proportions. Moreover, surplus
labour is the same in the actual system and in the homothetic system
associated to it if both systems employ the same quantity of labour.
Thus, the rate of profit is univocally related to the same surplus labour
of both the homothetic and the actual systems. Such a relation cannot
be established between the rate of profit and the net surplus product.
Besides, being determined in physical terms, the rate of profit is
compatible with an evaluation of net surplus product and capital in
terms of quantities of labour, whatever the composition of capital is.
***
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