Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to Oxford Economic Papers.http://www.jstor.orgValue and Distribution in the Classical Economists and Marx Author(s): P. Garegnani Source:Oxford Economic Papers, New Series, Vol. 36, No. 2 (Jun., 1984), pp. 291-325Published by:Oxford University PressStable URL:http://www.jstor.org/stable/2662883Accessed: 08-08-2015 17:16 UTCYour use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jspJSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.This content downloaded from 143.107.170.200 on Sat, 08 Aug 2015 17:16:40 UTCAll use subject to JSTOR Terms and ConditionsOxfordEconomicPapers 36 (1984), 291-325 VALUEANDDISTRIBUTIONINTHE CLASSICALECONOMISTSANDMARX' By P. GAREGNANI I. Introduction 1.THEtheoryof value and distributionis at presentin a situationof unease and uncertainty:we no longer findthe same general agreementabout its basic elementswhichobtained untila few decades ago. Two main theoreti- cal developmentshave underminedthe dominanttheorywhich explained distributionand relative prices by means of the "equilibrium" of the two "opposing sets of forces",demand and supplyfor factorsof production. The firstdevelopmentin orderof timehas been Keynes's refutationof the doctrineaccordingto which a competitiveeconomic systemtends towards the full employmentof labour, i.e. towardsthat equilibriumbetween "de- mand and supply" of labour, which was to determinethe wage. Keynes' concentrationon the shortperiod, and the persistencein the General Theory of many traditionalpremisesfavouredthe successive attemptsto reconcile his results with orthodox long-periodanalysis: but the weakening of the dominanttheorywhichnonethelessresultedfromhis workcan be seen both in the uneasiness which,in ever-changingforms,characterizesthe renewed orthodoxy,and in the tendencyof Keynes' directfollowerstowardsa more radical departurefromtraditionaltheory. The second developmentconsistsin the critiqueof the notionof capital as a"factor of production" measurable independentlyof distribution.2This critiquehas shownthe invalidityof some propositionsof the theory,like the inverserelationbetween the rate of interest(rate of profit)and the "quan- tityof capital" per worker,which are basic for the explanationof distribu- tion in termsof demand and supplyfor "factorsof production". Theuncertaintywhich has resulted from these developmentsfinds its expressionin authorswho thinkthat new theoreticalapproaches should be explored. It is also revealed by the natureof some of the work carriedout by those who adhere to the traditionalapproach.3 1 This paper whichdevelops under the impactof Sraffa's productionof commoditiesby means of commoditiessome propositionscontainedin a Ph.D dissertationof 1955-1958, is based on notes delivered at a conferenceon "Marx's Transformationof Values into Prices of Produc- tion" held in Siena in 1972, and used thenforlecturesgivenin Cambridgeand elsewheresince 1973-4: in the meantime,referencesto the ideas contained in them have appeared in other works.I would like to acknowledgethe benefitI derivedfromdiscussionswithPiero Sraffa and fromcommentsfrommanypeople and in particularby K. Bharadwaj, A. Campus, B. Cutilli, H.Kurz, and M. Pivetti.Financial assistance by the 'Consiglio Nazionale delle Ricerche' is gratefullyacknowledged. 2Thisline of criticism,hints of which may be found in Sraffa's 1951 p. XXII,was first broughtto lightin printby Robinson 1953. (See also Robinson, 1973, p. 195.) 3 Thus, the attemptto avoid the difficultiesbesettingthe theoryappears to have led to an abandonment of the method basedon"long-period positions" of the economic system, characterizedby auniformrate of profit.This notion had been central to the theory of competitivedistributionand value since the very inceptionof systematiceconomic analysis. (See Garegnani, 1976, pp. 26-29.) This content downloaded from 143.107.170.200 on Sat, 08 Aug 2015 17:16:40 UTCAll use subject to JSTOR Terms and Conditions292VALUEANDDISTRIBUTION It is perhapsnaturalthatwhen thiskindof uncertaintyarisesin a scientific field,there should also arise a tendencyto go back into the historyof the subject, and see when and how theorizingtook the turn leading to the presentdifficulties.When we do so and look back over the two centuriesof systematiceconomic analysis,we findthat, at the cost of severe simplifica- tion, we can distinguishtwo successive approaches to the theoryof value and distribution.The moderndemand-and-supplyapproachhad in factbeen preceded by a differentapproach whichhad its centrein a notionof "social surplus". This earlier approach found its firstsystematicexpression in Quesnay's Tableau Economique of 1758, became dominantwiththe English Classical economistsfromSmithto Ricardo, and was then taken over and developed by Marx at a time when the main streamof economic analysis was already movingin a differentdirection. 2. The purpose of this paper will beto consider this earlier "surplus approach" to value and distribution.Section IIwill examine the premises which distinguishit fromthe later demand-and-supplyapproach. Sections IIIand IVthen set forththe problem of "measuring-value"which arose withinit and led to Ricardo's and Marx's explanationof value in termsof the labour necessaryto produce the commodities.At the end of Section IV, Marx's errorwithregardto prices of productionwill be seen as arisingfrom treatingas integralpartsof a singlemethodfordeterminingthe rate of profit and relative prices, what can be developed as two equivalent but distinct methods for this determination:what we shall call the "Price-equations method" and the "Surplus-equationmethod". The solution based on the firstmethod will be considered in Section V, where it will be shown to consist of the price equations in Sraffa'sProductionof Commoditiesby Means of Commodities,1960. The two solutionsobtainable on the basis of the "Surplus-equation method" will then beexamined, respectively,in Section VI, dealing withthe "Integratedwage-goods sector", and in Section VIIdealing with Sraffa's"Standard system". II.The "core" of the surplustheories 3. The notion of social surpluscharacteristicof the classical theoriescan perhaps be seen in its simplestform in Quesnay's Tableau Economique, where we findits firstsystematicexpression.Quesnay saw that if the social product-whichheconsideredtoconsistentirely ofagricultural commodities-4was to repeat itself year after year withoutincrease or diminution,a part of it had to be put back into production.Besides the necessaryreplacementof the means of production,this part included the subsistence of the agriculturallabourers. What remained of the annual productafterdeductingthis part constituteda "surplus", or "produitnet", 4As is well known,Quesnay excluded manufacturedcommoditiesfromthe social producton the groundthat theywere a mere transformationof agriculturalproducts. This content downloaded from 143.107.170.200 on Sat, 08 Aug 2015 17:16:40 UTCAll use subject to JSTOR Terms and ConditionsP.GAREGNANI293 of which society could dispose without impairingthe conditions of its survival. The fact that the subsistenceof workerswas considered necessaryfor reproductionestablisheda directlink between the analysisof reproduction and that of the distributionof the product among the classes into which societyis divided.Thus Quesnay linkedthe surplusto the landowners'share of the social product. Andwhen Smith extended Quesnay's notion of surplusby showingthat surplusoriginatedfromproductionin general and not fromagriculturalproductionalone, profitsemergedas a second compo- nent of the surplusalongside the rent of land, thus providingthe basis for the English classical economists'theoryof distributionup to Ricardo. The determinationof the size of the social surplus was accordinglythe centre around which these theories revolved. Inprinciple this way of determiningthe non-wageshares is simple.Two magnitudesare assumed to be known prior to the determinationof the surplus.They are: (i) the real wage, i.e. the quantitiesof the several commoditiesconstitutingthe wage rate,5(ii) the social product,i.e. the aggregateof the commoditiesproduced in the year. Since (iii) the technicalconditionsof productionof the various commoditiesare also known prior to the determinationof the surplus,a knownsocial productimpliesa knownnumberof labourersemployed.6By multiplyingthe numberof labourersby the knownphysicalwages, we obtain the part of the product that goes to the labourers, which we may call "Necessary consumption",usinga phrase by Ricardo (1951-58, VI, p. 108). The surplus,i.e. the share of the product going to the classes of society otherthanthe labourers,can thenbe determinedby subtractingthe "Neces- sary consumption"from the Social product, taken net of the means of production;7that is: Social product-Necessary consumption = Shares otherthanwages (surplus)(1) 'Weare followingthe authorshere discussed in assuminga single "average" or "natural" wage and thus homogeneous labour. As is well known,the possibilityof reducinglabour to homogeneityrestson the suppositionof a constancyin the ratiosbetweenthe wages forlabour of differentqualities: see Ricardo, 1951-1958 I, pp. 20-23 on the constancy of relativewages (see also Smith, 1910, bk. i ch X vol. I, p. 130). These ratios were in fact leftto be studied outsidewhatwill be indicatedbelow as "core" of these theories.(The difficultyraised by taking these ratios as knownin the face of differentphysicalcompositions of the wages for different kindsof labour, seems to have been implicitlydealt withby takingthe known real wage to be that of common unskilledlabour and then supposingthat the wages of other kinds of labour will tend to remain a constantproportionof it in termsof value.) 6 We are at presentassumingthateach commoditycan be producedby means of one method only. The considerationof alternativemethods of production of the same commodity, which providesone of the two bases forthe notionof a substitutabilitybetween factorsof production characteristicof moderntheory(cf. par. 7 below), can on the other hand only affectwhat has been said here by makingthe employmentof labour associated with a given physicalsocial product depend on the wage rate as well: under the hypothesisadopted in this paper the tendencyto adopt cheaper methodswill bringthe economyto a definitetechniquethat giving the highestwage for the given rate of profit.(See Garegnani, 1972, p. 266-7 and 281). 7Theassumption that the means of production are physicallyreproduced has the sole purpose of postponingthe complicationsarisingout of errorsin Smithand Ricardo's notionof capital (par. 12 below). This content downloaded from 143.107.170.200 on Sat, 08 Aug 2015 17:16:40 UTCAll use subject to JSTOR Terms and Conditions294VALUEANDDISTRIBUTION an equation where "shares otherthan wages" is the only unknown(see also the diagramFig. 1 below). \Techniques -Labor Einpl. Surplus =shares/ t\~~~~~~~~~~~~otherthanS \\A