Mr.

Sraffa's Standard Commodity and the Rate of Exploitation Author(s): John Eatwell Reviewed work(s): Source: The Quarterly Journal of Economics, Vol. 89, No. 4 (Nov., 1975), pp. 543-555 Published by: Oxford University Press Stable URL: http://www.jstor.org/stable/1884691 . Accessed: 18/04/2012 04:32
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MR. SRAFFA'S STANDARD COMMODITY AND THE RATE OF EXPLOITATION *

JOHN EATWELL

I. Introduction, 543.-III. The use of physical analogues in the classical theory of value, 544.- III. The rate of exploitation, 550.- IV. A complementary approach, 555.

Piero Sraffa's work on problems of the theory of value,' which has provided the analytical framework for the recent debate on distribution theory, encompasses two distinct, though interrelated themes. The first, a critique of the marginalist theory of distribution, culminated in his demonstration of the generality of the "reswitching" phenomenon. The second amounts to a restatement of the classical theory of distribution. This involves an analysis of the relationship between wages, profits, and the rate of profit by means of a "physical" analogue freed from the complications introduced by the interdependence of prices and the distribution of income. The purpose of this paper is to examine the role of the standard commodity in the second theme of Mr. Sraffa's analysis. Since the standard commodity is not indispensable in the analysis of "reswitching," on which most attention has been focused, the importance of this analytical device has been somewhat overlooked. This is unfortunate, for the standard commodity may be used to penetrate the complexities of wages, profits, and prices to reveal the relations of production and distribution on which they are based. Furthermore, a direct link may be established between this use of the standard commodity and the use of the labor theory of value by
*I have been greatly helped while writing this paper by advice from Antonietta Campus, Carlo Jaeger, Michio Morishima, Mario Nuti, Jerzy Osiatynski, Luigi Pasinetti, Joan Robinson, Bob Rowthorn, Bertram Schefold, and, in particular, Piero Garegnani. The basic approach to the classical theory of distribution derives from Part One of Piero Garegnani, I1 Capitale nelle Teorie della Distribuzione (Milan: Giuffre, 1960). 1. In particular, P. Sraffa, Production of Commodities by Means of Commodities (Cambridge, England: Cambridge University Press, 1960), but see also P. Sraffa, "Sulle Relazioni fra Costo e Quantita Prodotta," Annali di Economia, I (1925), 276-328); P. Sraffa. "The Laws of Returns Under Competitive Conditions," Economic Journal, XXXVI (1926), 535-50; and Parts IV and V of the introduction to D. Ricardo, Works and Correspondence, Sraffa edn., ten volumes and index (Cambridge University Press, 1951-73), Vol. I.

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Marx to expose the nature of exploitation in the creation of surplus.2 The role of the standard commodity in the clarification of the classical theory of distribution and price formation, and of the direct antagonism between capital and labor, is discussed in the second section of the paper. The third section contains a critique of conventional definitions of the rate of exploitation, and a juxtaposition of the distributional relations exposed by the standard commodity and the social relations implicit in the creation of surplus value in capitalistic production, as revealed by the labor theory of value. This argument leads to a reformulation of the concept of the rate of exploitation and its relationship to the rate of profit. II The interest that classical economists displayed in the problem of distribution arose from their fundamental conception of the economic roles of social classes. Workers worked, and all their earnings were devoted to the needs of consumption and survival; capitalists accumulated, and landlords' extravagant consumption was regarded as a deduction from the fund available for accumulation. The distribution of income between these classes was, therefore, seen as the causal antecedent to the dynamic behavior of the economy. Net social product was regarded as a given bundle of commodities, the division of which depended on the relative economic power with which social classes are endowed in a market economy, which is determined by their ownership of the means of production.3 Abstracting from problems of rent, the distribution of the commodities comprising net product between wages and profits in a simple model without joint production,4 may be characterized by the expression, s = [x-A'x] -ba'ox, (1) where s, b, and x are vectors of the commodities comprising total profits, the wage per man and gross output bundles, respectively,
2. The causal significance of the theory of exploitation will not be discussed in this paper, which is devoted to the derivation of a set of unambiguous categories in terms of which distributive relations may be analyzed. 3. Classical theories of value and distribution concentrate on the determination of the "natural" prices (rather than market prices) appropriate to a known real wage and the technology and output structure of the economy as it is. Changes in the scale of production or composition of output thus play no role in the analysis. See Ricardo, op. cit., Vol. I, Chs. IV, XXX. 4. In the most important case of joint production, that of fixed capital, all the propositions developed in this paper hold. Indeed, they hold whenever, for a particular system, a standard commodity exists. See B. Schefold, Theorie

der Kuppelproduktion (Basel: 1971).

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A and ao represent the matrix of commodity input coefficients and the vector of labor input coefficients, A' = transpose A. If variations (of both size and composition) in the heterogeneous commodity bundles s and b are to reflect accurately the command over resources, including labor power, acquired by the capitalists, the components of these bundles must be weighted by the proportions at which, in reality, they exchange. Normal exchange ratios are determined by the level of wages and the rate of profit in the familiar relation, (2) Ap (1 +X) +aow=p, where p is the vector of prices, Pi= 1, w (a scalar) = p'b, and X is the rate of profit. The rate of profit w is the amount of profits s divided by the produced means of production used in the production process A'x, the two heterogeneous bundles being reduced to a homogeneous measure by valuation at natural prices, p'[I-A'] x-p'b a'ox (3) p'A'x The argument appears to be in danger of circularity since (3) is merely a rearrangement of (2). But if b is given, and the value of the produced means of production in terms of the numeraire is a known function of 7r, (3) is soluble for wr.5 Nonetheless, it is clear from examination of (2) and (3) that the dependence of the values of the commodity bundles, p'[I-A']x, p'b a'ox, and p'A'x on a, will obscure the simple "physical" trade-off between wages and profits implied in (1). Similarly, no simple proportional relationship can be found between wages and the rate of profit as would be the case if the ratio of net product less wages to produced means of production were expressed in "physical" terms. These problems apply a fortiori in the case of joint production. A measure of value independent of Xr would penetrate the complexity of the price relations, a complexity that derives from the functional dependence on r of all prices, including that of any arbitrary numeraire.6 Such a measure would reveal the origin of a value surplus, analogous to the commodity surplus of (1).
5. Thus, if the matrix A is known, the value of capital is known as a function of 7r. Piero Garegnani has shown that within the context of the classical theory of distribution the amount of capital may be expressed as a set of magnitudes (a dated labor stream), the value of which is a function of the rate of profit. P. Garegnani, "A Problem in the Theory of Distribution from Ricardo to Wicksell," Ph.D. thesis, University of Cambridge, 1959, Part I, Ch. IV; and Garegnani, I1 Capitale nelle Teorie delta Distribuzione, pp. 50-59. 6. Although the value of the numeraire is always defined equal to one,

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Problems of measurement of this type were not encountered in Physiocratic theory, since the capital, consumed inputs ("wages" of the peasants), and net output of the only sector to yield a surplus could be regarded as consisting of a single agricultural commodity.7 Similarly, Ricardo, in his Essay on Profits, defined corn as the only commodity entering the production of all other commodities, yet requiring no other commodities for its own reproduction. This procedure elevated the distributional relations of the corn sector to the position of a physical analogue of the distributional relations of the system as a whole. But physical surplus may originate in all branches of production, and all sectors require direct or indirect inputs of many commodities. Thus, any physical analogue used to describe the distributional relations of a complex system must include all the appropriate commodities used as means of production and appearing as outputs. A satisfactory measure of value, which takes account of the complexity of the economy and yet possesses the characteristics of a physical analogue, would be a commodity for which the ratio of the value of its output to the value of its means of production was invariant under distributional changes. Such a commodity would exhibit a simple one-to-one relationship in the division of the value added in its production between wages (expressed in terms of units of this commodity) and profits. As Mr. Sraffa has pointed out, this can be the case only when a "commodity" is the sole input to its own production, and thus when proportions of labor to means of production are "balanced" (are the same), at all "layers" of the production process. But
It is not likely that an individual commodity could be found which possessed even approximately the necessary requisites. A mixture of commodities, however, or a "composite commodity" would do equally well .... We should, however, not get very far with the attempt to concoct such a mixture before realising that the perfect composite commodity of this type, in which the requirements are fulfilled to the letter, is one which consists of the same variation in the price of a commodity may be due as much to the conditions of production of the numeraire as to the conditions of production of the commodity the price of which has varied. For a full discussion of this problem, see Sraffa, Production of Commodities by Means of Commodities, Ch. III. 7. Quesnay does not in fact assume a single agricultural product, but he clearly believed there to be a broad proportionate uniformity between inputs and outputs of the "productive" sector. See F. Quesnay, Tableau Economique, 3rd edition, M. Kuczynski and R. Meek, eds. (London: Macmillan, 1972), pp. i-iv. 8. On the part played by the Essay on Profits in the development of Ricardo's theory of value, see P. Sraffa's introduction to Ricardo, op. cit., Vol. I; and L. L. Pasinetti, "A Mathematical Formulation of the Ricardian System," Review of Economic Studies, XXVII (Feb. 1960), 78-98.

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commodities (combined in the same proportions) as does the aggregate of its own means of production...

An "average" commodity of this type was sought by Ricardo to act as "an invariable standard of value." 10 A composite commodity with the requisite characteristics may always be found for any particular technology denoted by A (where A is nonnegative and indecomposable - in Mr. Sraffa's terms all nonbasics have been eliminated from the system)."l From (2) (4) [Iv-q-A] p = aow?7, where -q=1/(1+T). If w= 0, the existence of a nontrivial solution to (4) implies the existence of a single nonnegative eigen value of A, v with which a nonnegative eigen vector x* may be associated.12 Then R= (1 -*) /* is the maximum rate of profit of the system attained at w=O. Furthermore, the components of A'x* bear the same proportionate relationship to each other as the components of [I-A']x*, i.e., in the production system the proportions of inputs are the same as the proportions of outputs.13 The proportionate composition of x* is that of Mr. Sraffa's Standard Commodity. The scale of standard net product [I- A'] x* is defined such that 1 = aox* =a'Ox=L, where x is the vector of actual gross outputs and L the total number of man hours worked in the actual system. If the actual system is such that outputs and inputs are in the same proportions as the components of x*, i.e., the actual system is the Standard System, the physical ratio of net product to means of production [I-A']x*: A'x*=Q=R, even though Q is a physical ratio and R a ratio of values. Q may be defined without reduction of the physical bundle of commodities to a common standard (value), only because numerator and denominator consist of the same proportions of heterogeneous commodities. Q remains the same whatever prices may be. Fractions of Q may be similarly
9. Sraffa, Production of Commodities by Means of Commodities, pp. 18-19. 10. See the letter of Ricardo to MeCulloch, June 13, 1820, Ricardo, op. cit., Vol. VIII, pp. 191-97; and Sraffa, Production of Commodtiies by Means of Commodities, pp. 13-19. 11. As is now well-known, nonbasics may be eliminated from the system because they have no effect on profit-wage configuration (Sraffa, Production of 12. By Frobenius' theorem, see M. Morishima, Equilibrium, Stability and Growth (Oxford: Oxford University Press, 1964), p. 195.

Commodities by Means of Commodities, p. 25).

13. Let the rate of physical surplus of each commodity be Qu. If the proportions of inputs equal the proportions of outputs Qs=Q, all i. If the excess of output over input is cL, then Q =ec/(xs-ec). Since A'x+c=x, A'x(l+Q)=x, and [A'-Ix]x=0, where X=1/(l+Q). But the minimum eigen value associated with a nonnegative eigen vector, *= ]*. The associated vector is x*.

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expressed as physical ratios. Thus if Q =20 percent and three quarters of the net product A'x*Q goes to wages, one quarter goes to profits, and the rate of profit is 1/4 Q, i.e., 5 percent. "The rate of profits in the Standard system thus appears as a ratio between quantities of commodities irrespective of their prices." 14 Thus,

(5)

X-=Q(l-w*)

=R(1-w*),

where w* represents wages expressed as a proportion of standard net product. In a more general system, with Pi used as numeraire (pi= 1), and w the wage in terms of Pi, the linear relation (5) between r and w does not hold. But if a unit of standard net product is used as numeraire, p'[I-A'] x* = 1, then w/p'[I-A'] x* = w*, the wage measured in units of standard net product. In consequence, the relation (5) holds whatever the proportions of outputs to inputs may be, and whatever the combination of commodities on which wages are actually spent.15 This is a central result of Mr. Sraffa's book. The implications of this result are quite striking. For any technology A there exists a standard commodity x*, which, when standard net product is used as numeraire, yields a relationship between wages and profits identical to that found independently of prices. This is consistent with the classical view that the determination of the distribution of income between wages and profits is logically prior to, and independent of, prices.16 Furthermore, it reveals the origin of surplus, in a manner freed from the ambiguities engendered by price calculations.
14. Sraffa, Production of Commodities by Means of Commodities, p. 22. 15. This quite general proposition is proved in ibid., pp. 22-23. In terms of our notation it can be shown as follows: (a) Ap(1+?r)+aow*=p (b) A'x*(1+R) =x*
(c)

(d) PVI-A'] *= 1. (e) From (a), (c) and (d) x*'Apir=l-w* (f) From (b) and (d) p'A'x*R=l. Multiplying the left-hand side of (e) by 1, and the right-hand side by p'A'x*R, we have immediately
7r=R (1-w*).

a'ox*=a'ox 1

Slightly different proofs are provided by P. Newman, "Production of Commodities by Means of Commodities." Schweizerische Zeitschrift fiur Volkswirtschaft und Statistik, 1962; and Schefold, op. cit., pp. xxvi-xxvii. 16. This is quite contrary to the neoclassical view, which holds that distribution is a function of price formation. "To understand what determines labor and property's share in national product, and to understand forces acting on the degree of equality of income, distribution theory studies the problem of how the different factors of production-land, labor, capital, entrepreneurship, and risk taking -are priced in the market place, or how supply and demand interact to determine all kinds of wages, rents, interest yields, profits and so forth." P. A. Samuelson, Economics (New York: McGraw-Hill, 1964), pp. 525526.

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This result does not depend on any assumption concerning the fixity of the components of A. Even if the components of A are different as between time periods, due to variable returns to scale or technical progress, at every moment of time there will exist a unique x*, which, when used to express the relevant magnitudes, will define the relationships between w, r, and total profits in the form of a physical analogue.17 The standard commodity possesses two fundamental characteristics, which are the criteria that a standard of value must meet if the distributional relationships proposed by the classical economists are to be revealed: (a) the "values" of the commodities as measured in terms of the standard should bear to each other the proportions at which they exchange; (b) the standard should be such that the relationship between variations in the value of the aggregates comprising output, wages, and produced means of production should be defined prior to the knowledge of variations in 7r.18 In general, no arbitrary numeraire commodity will be adequate since it will fail to meet criterion (b). Labor values, based on the labor embodied in a commodity will fulfill criterion (b) but in general not (a).19 Labor commanded will fulfill (a) but not (b).
17. The conceptual framework of the analysis is thus equivalent to that of the classical natural price. Cf. note 3 above. 18. The conditions were first developed by Piero Garegnani; see "A Problem in the Theory of Distribution from Ricardo to Wicksell," pp. 26-28; and II Capitale nelle Teorie delta Distribuzione, pp. 11-13. Note that although they constitute a problem of "measurementof capital" they are quite distinct from the neoclassical measurement problem, which involves not a relative measure of aggregates, but a measure of the "quantity of capital" available in an economy, so that its "scarcity"relative to other "factors" may be included in the data of the exercise of price determination. The analogous criteria for the neoclassical theory of distribution are as follows: (a) The total quantity of a factor available should be known independently of its price. (b) The manner in which quantities of each factor are expressed must be such as to permit the definition of a production function relating variations in quantities of factors (quantities so expressed) to outputs, such that the minimum cost of production is, in turn, related to the minimum quantity of each factor required for production. In the case of capital for which (b) implies a value measure, these conditions are mutually inconsistent; see Garegnani, "A Problem in the Theory of Distribution from Ricardo to Wicksell," pp. 100-09; and I1 Capitale nelle Teorie della Distribuzione, pp. 82-88. 19. As is well-known, in some particular circumstanceslabor embodied is a suitable measure. These are when 7r=0 and when the organic composition of capital is the same in all sectors of the economy. See A. Bhaduri, "On the Significance of Recent Controversies on Capital Theory," Economic Journal, LXXIX (Sept. 1969), 532-39; and P. Garegnani, "Heterogeneous Capital, the Production Function and the Theory of Capital," Review of Economic Studies, XXXVII (July 1970), 407-36.

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III So far the argument has taken place solely in terms of what Marx called prices of production. We may now relate Sraffa's results to Marx's theory of exploitation, the theory that Marx- used to explain the origin of profits. Marx defined the rate of exploitation, or rate of surplus value, as the ratio of surplus labor time to necessary labor time. In the first stage of his argument, he assumed that all commodities exchange at their labor values, including labor power and the commodity money. Necessary labor time was then defined in two ways: (I) as the value of "the sum of money v expended upon the labour power," 20 in effect as the share of wages in the value of output, and (II) as "the value of [the] means of subsistence," 21 that is, as the value of the commodities comprising the real wage. But since "the values of the variable capital [v] and of the labour power purchased by that capital are equal," 22 no ambiguity is involved in the dual definition. These two definitions correspond, in turn, to two approaches to the problem of the relationship between labor values and prices of production. The second definition is the basis of what may be called the "simultaneous equation" solution developed by Bortkiewicz, on the foundations laid by Dmitriev.23 The first definition is implicit in the aggregative approach pursued by Marx in the form of the "average industry." 24 This latter approach is more akin to the problem as stated by Ricardo, and, indeed, the difficulties underlying Ricardo's search for a suitable standard of value were inherited by Marx as the problem of the link between labor values and prices of production.25
20. K. Marx, Capital, Vol. I, 1889 edition (London: Allen and Unwin, 1957), p. 194. 21. Ibid., p. 198. 22. Ibid., p. 200. 23. See V. K. Dmitriev, Economic Essays on Value, Competition and Utility (Cambridge: Cambridge, University Press, 1974), Ch. 1; and L. von Bortkeiwicz, "Wertrechnung und Preisrechnung im Marxschen System." Archiv fur Sozialwissenschaft und Sozialpolitik, 1907, part of which is published in English in International Economic Papers, 1952. 24. The distinction between "simultaneous" and "aggregative" approaches to the transformation problem was introduced by Piero Garegnani in a paper presented to a symposium on the transformation problem held at the University of Siena in April, 1972; at which an early version of this paper (which did not then incorporate the distinction) was also read. Garegnani also demonstrated that an aggregative approach may be developed with the wage given as a bundle of commodities, on the basis of the wage-goods sector; and emphasized the clarity of the "image" of exploitation in an aggregative approach vis-a-vis a simultaneous-equation approach. 25. Garegnani, "A Problem in the Theory of Distribution from Ricardo to Wicksell," p. 2.

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Post-Marxian discussions have customarily focused on Marx's second definition, (II), of necessary labor time. This requires the characterization of the wage as a given bundle of commodities, of "necessaries," the size and composition of the bundle being determined by social and historical forces. If b is the vector of "the actual necessaries [the laborer] consumes," (the components of which are bi), hi the amount of labor time directly and indirectly embodied in commodity i, and T is the length of the working day, (in effect the production period), then the rate of exploitation is 26

(6)

T-h' b h'b

Furthermore, it has generally been assumed that the wage bundle is advanced at the beginning of the production period, in the manner of the wage-fund of the classical economists and thus constitutes part of the "capital" of the system. In this case the matrix of input coefficients may be modified in the form,

=A+, jaijj+zij4I
where zij= bi aoj,27 and the price relations become (7) A+p(1+7r) =p, p1=1. The rate of profit 7rr=R+, where R += (1-y)/y, y being the appropriate eigen value of A+. In the market place exchange ratios of all commodities, including labor power, are expressed not at labor values, but at prices, which depend on the relationship between wages and the rate of
26. Morishima develops three alternative definitions of the rate of exploitation, all of which are based on the labor value of a known consumption bundle and are exactly equivalent to (6). He does not consider the other side of the coin, the proportion of total value produced paid to workers, presented in definition (I). See M. Morishima, Marx's Economics (Cambridge: Cambridge University Press, 1973), pp. 47-51. 27. (Ap+aow)(1+r) = p, and b'p = w, thus
pi= (Xajp,+Xbaoap,). (1+7r),

and

A+-=J ai,+z1j
where
zoj = baos. The wage may contain some components that do not appear in A, in which case the methods of production of these new components must be added to A in the construction of A+. A+ is, therefore, composed of all those commodities "entering directly or indirectly the wage" (Garegnani, "Heterogeneous Capital, the Production Function and the Theory of Capital," p. 418). The "basics" of this system therefore include all Mr. Sraffa's basics, plus any extra components that appear in b but not in A. For a full discussion of the characteristics of this wage-good system, see the Garegnani article already cited in this note, pp. 417-21.

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profit. But "profit is the form in which surplus-value presents itself to the view, and must initially be stripped by analysis to disclose the latter." 28 Such an analysis is quite unambiguous when relative labor values are equivalent to prices and b is given. Labor values then fulfill conditions (a) and (b), outlined above, for a satisfactory measure of value; and the rate of profit, like the rate of exploitation, may be expressed as a ratio of labor values, immune from the complications of price variation. But a number of problems are presented by the fact that, in general, the organic composition of capital is not the same in all sectors of the economy, and consequently exchange ratios are not equivalent to relative labor values, (except when =0). Direct determination of the rate of profit as a ratio of quantities of labor time is no longer possible, and an investigation of the relation between the profit rate and different wage rates (or different rates of exploitation) now requires knowledge of differences in the magnitudes of the components of the wage bundle at every level of the wage. Even if different levels of the wage are represented by scalar multiples of b, (changing the components of A+), the consequent relationship between the rate of exploitation and the rate of profit may be found in this approach only by solution of a set of simultaneous equations encompassing the production of all commodities required directly and indirectly in the production of wage goods. Furthermore, in general, different wage levels cannot be characterized simply as scalar multiples of the wage bundle b bought in one particular situation. Suppose that the composition of b is different at a higher (labor) value of the wage, hi,A bi > 0. By (6) e falls. If Abo-Q, all i, then since the eigen value y is a strictly positive and continuous function of all elements of A+, y must rise, and R+ - (1-y)/y fall.29 But if Abi<O some i, y may increase or diminish, and R+ may fall or rise. Thus r may rise when e falls and vice versa. Although the simultaneous-equation approach identifies a relationship between exploitation and profits, the clarity of the concept of surplus is somewhat lost in the simultaneity of the solution. Moreover, the possibility of variation in the commodity composition of the wage presents major difficulties for a definition of the rate of exploitation in terms of (6). While undoubtedly at different wage levels part of the wage consists of "necessaries," it is not possible to define unambiguously which part, since an increase in the con28. K. Marx, Capital, Vol. III (New York, International Publishers, 1967), p. 48. 29. See Morishima, Equilibrium, Stability and Growth, pp. 195-215.

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sumption of one commodity may substitute for diminution of another. Mr. Sraffa considered splitting the wage into necessaries and "surplus" wage.30 His decision to treat the wage solely as a share of net product (and of standard net product), although apparently based only on conceptual convenience, may also be supported on grounds of logical coherence. This problem may be avoided by adopting Marx's definition (I) of necessary labor time and the "aggregative" approach. But when prices are not equivalent to labor values, the two definitions of necessary labor time no longer coincide. The rate of exploitation calculated on the basis of the definition of necessary labor time as a share of net product paid out as wage (I), is no longer equivalent to the rate of exploitation derived from the definition of necessary labor time as the labor value acquired by the worker in the necessaries purchased. The image of "exploitation" is just as vivid using (I) or (II), but (I) is far more flexible, encompassing as it does the possibility that between one situation and another (and one worker and another) the composition of the bundle of commodities purchased may vary, and yet the rate of exploitation remain the same. Furthermore, using (I), it is no longer necessary to know ex ante the commodity composition of the wage at all wage levels. Before proceeding to a discussion of exactly how the rate of exploitation should be specified using definition (I) of necessary labor time, it should be noted that use of this definition must eliminate the possibility of augmenting the input matrix in the manner of A+. The wage could still be considered as an advance (measured in terms of an arbitrary numeraire), but this would create an awkward hybrid denominator for the ratio defining the rate of profit (3), it then consisting of the value of the commodities used in the production process plus an amount of value defined solely in terms of the numeraire. Since it has little bearing on the problem at hand, wages are assumed to be paid at the end of the production period. The simplest way by which to generalize a definition of the rate of exploitation in the spirit of (I) is to by-pass the measurement of necessary labor time as distinct from total labor time and take the ratio of total profits to wages. This ratio is not influenced by choice of numeraire. Net product over a given time period may be regarded as a number of hours worked, or as a sum of value (in terms of any numeraire). Proportionate division of the former is exactly equivalent to proportionate division of the latter.
30. Sraffa, Production of Commodities by Means of Commodities, pp.

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Two objections may be made to this procedure. First, the same rate of profit and the same technology could be associated with different ratios of profits to wages, simply because activity levels of each sector were different. In general, the technology will change with the composition of output, but while it is reasonable to say that the rate of exploitation has changed because the technology has changed, it is not reasonable to claim that the rate of exploitation has changed simply because, with technology unchanged, the composition of output has varied. Second, defining the rate of exploitation as the ratio of profits to wages involves defining the nature of the labor process in terms of its outcome. These problems may be overcome by returning to Marx's definition (I), making units of standard net product our "money" and measuring necessary labor time in terms of this "money." The total amount of labor performed in one production period and the amount of labor embodied in one unit of standard net product are equal. Suppose that the economy is operating in standard proportions, i.e., (8) A'x* (1+Q) = x*. Net output may be regarded as a collection of bundles of commodities, each bundle produced by one man, and each containing all the components of x* in the proportions of x*. The wage is set as three quarters of one man's net product, the remaining one quarter of the bundle accruing to the capitalists. Put another way, three quarters of the total labor force in employment produces bundles paid to wage earners, and one quarter of the labor force produces bundles that the capitalists appropriate. In this case it is easy to see that whether the wage is defined as a proportion of standard net product (I) or 1 as a bundle of commodities (II), the rate of exploitation is over 1 3

4
w=1,

or 3. Measured in physical units of standard net product

e= (1-w*)/w*, and w=Q(1-w*) =Q

But as we have seen in Section II, the relationship between wages and the rate of profit is the same in the actual system as in standard system, as long as wages are expressed in terms of standard net product. Furthermore, the scale of the standard system is such that the same amount of labor is expended as in the actual system. If, then, the wage in terms of an arbitrary numeraire, (say pi = 1), is w, and w/p' [I-A']x*-3= 4 w*, the rate of profit in the actual

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system is equal to R (1- w*). The relation of wages to the rate of profit is the same as if in the standard system three quarters of the labor force was producing the share of net product going to the workers. In other words, if the rate of exploitation is defined as 1 minus the proportion of total labor embodied in the "money" wage, this is equivalent to the rate of exploitation in the production of an "average" commodity, the standard commodity, and may thereby be directly related to the rate of profit in the system as a whole.31 1 - for technology A, So the rate of exploitation e- (1-w*)/w* is unambiguously related to the rate of profit r=R (e The ratio of total profits to wages in the actual economy will in general deviate from the profit-wage ratio in the standard system to the extent that the commodity composition -of net output differs from the "average," or standard, proportions.

IV
The combination of Marx's definition (I) of necessary labor time with Mr. Sraffa's device of the standard commodity (playing the role that Marx intended for the product of his "average industry") provides the advantages both of a physical analogue and of the aggregative approach. The relationship between exploitation and profits is clearly revealed, and a direct link established between exploitation so defined and the distribution of income in the actual system. The analysis does not depend on prior knowledge of the commodity composition of the wage and hence refutes the arguments of those who claim that the foundations of Marx's analysis are undermined if a "real-wage bundle" may not be identified. The result is, therefore, complementary to analyses of the transformation problem, which are based on the traditional definition of the rate of exploitation. But the same simplicity and generality are not attainable by means of the traditional definition.
TRINITY COLLEGE,CAMBRIDGE

31. Marx analyzed the relationship between the rate of exploitation and the profit rate in terms of a commodity produced by means of capital with "a mean, or average composition, that is, it has the same, or almost the same composition as average social capital" (Capital, Vol. III, p. 173). But Marx made the mistake of deriving his "average"in such a way that it was a function of the actual composition of net output (given the technology) and included nonbasics.