A New Formulation of the Ricardian System Author(s): Carlo Casarosa Source: Oxford Economic Papers, New Series, Vol.

30, No. 1 (Mar., 1978), pp. 38-63 Published by: Oxford University Press Stable URL: http://www.jstor.org/stable/2662848 . Accessed: 22/07/2011 13:32
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A NEW FORMULATION
SYSTEM'

OF THE

RICARDIAN

Introduction

By CARLO CASAROSA

IN the last twentyyears therehas been a renewedinterestin the Ricardian theory. As a result a general consensus has emergedon a 'version' of the Ricardian systemwhich accepts and gives full coherenceto a long interpretative traditionof Ricardo's thought. The most rigorousstatementof presentedby this 'version' is, in our view, the mathematical formulation we Pasinetti in the brilliant1960 article [4] and in the following shall dismainly to of cuss the 'accepted' interpretation Ricardo's theoryreferring Pasinetti's formulation. in Accordingto us, Pasinetti's model differs two importantrespectsfrom Ricardo's system. In this paper we point out the differences between Pasinetti's model and Ricardo's analysis and we present an alternative whichis closerto Ricardo's thoughtthan 'version' ofthe Ricardian theory, Pasinetti's formulation.

1. Distribution and economic growth

between Ricardo's thought and Pasinetti's model The firstdifference withthe level and, moreprecisely, has to do withthe theoryof distribution towards which the wage rate and the rate of profitconvergein a growing economy. Pasinetti remarks that in Ricardo's Principles there are two types of equilibrium: market equilibriumand natural equilibrium. Market equilisituation,since in the economy brium,however,is a completelytransitory there are mechanismswhich ensureits quick convergencetowards natural representsthe 'attraction point' of market equilibrium,which therefore equilibrium. As forthe distributivevariables, the mechanism of adjustment of market equilibriumto natural equilibriumis representedby the relationshipbetween the wage rate and the rate of growthof population. More precisely,if the marketwage rate is higher(lower) than the natural wage rate, population increases (decreases); consequently,with a given wages fund,the marketwage rate falls (increases) and convergestowards and total rentcon1the natural wage rate, and withit also the rate of profit verge to their natural levels. According to Pasinetti, Ricardo is so convinced of the operation of this mechanismthat he carriesout his analysis as if the convergenceof market equilibrium to natural equilibrium were
1 I should like to thank Professor L. L. Pasinetti for discussion and comments on an for earlier draftof this paper. Needless to say I hold full responsibility any mistake.

CARLO CASAROSA

39

almost immediate; therefore Ricardo disregardsmarket equilibrium and examinesthe behaviourofthe distributive variables in termsofthe dynamic equilibriumvalues. in As forthe dynamicsofthe wage rate and ofthe rate ofprofit the course Pasinetti remarks that the natural equilibrium is of economic growth, generallyunstable. In fact, when the rate of profitis positive, capital is accumulated and employment expands in everysector. With the increase in the numberof workersemployedin agriculturethe marginalproduct of labour falls,and, sincethe profit unit oflabour is givenby the difference per betweenthe marginalproductoflabour and the wage rate, and the natural equilibriumwage rate is constant,the reductionofthe marginalproductof labour bringsabout a fallin the natural equilibriumrate ofprofit.The rate ofprofit goes on fallingas long as the marginalproductof labour continues to fall and, when the latter is equal to the natural wage rate, the rate of profit becomes zero and the economicsystemfallsinto the stationarystate, whichis the only stable equilibriumposition. As faras we are concerned,while we share Pasinetti's view that Ricardo does not considerthe marketequilibriumto be very important,we do not in agree that the natural equilibriumrepresents, a growingeconomy,the 'attraction point' of the market equilibrium values of the distributive variables. First of all, Ricardo states explicitly that in a growingeconomy the marketwage rate remains constantlyabove the natural wage rate:
the Notwithstanding tendencyof wages to conformto their natural rate, their marketrate may, in an improvingsociety,for an indefinite period, be constantly above it; forno soonermay the impulse,which an increasedcapital gives to a new demandforlabour be obeyed,than anotherincreaseofcapital may producethe same and thus, if the increase of capital be gradual and constant,the demand for effect; labourmay give a continuedstimulusto an increase of people. [5, pp. 94>5]1

Secondly,Ricardo maintains that, because of diminishingreturns in the agriculture, process of economic growthbringsabout a continuousfall until the economic system of thereal wage rate and of the rate of profit, fallsintothe stationarystate and the wage rate settlesdown at the natural level:
In thenaturaladvance ofsociety,the wages oflabour will have a tendencyto fall, as faras theyare regulatedby supplyand demand; . . . If, forinstance,wages were regulated a yearlyincreaseofcapital,at the rateof2 percent.,theywould fallwhen by it accumulatedonly at the rate of I-: per cent. They would fall still lower when it increased onlyat the rate of 1, or i-per cent.,and would continueto do so until the when wages also would become stationary, and be only capitalbecame stationary, sufficient keep up the numbersof the actual population. I say that, under these to circumstances, wageswouldfall,iftheywereregulatedonlyby thesupplyand demand
of labourers; .. . [5, p. 101]
1 See also [6], n. 145.

40

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM

Now, since in the 'accepted version' ofthe Ricardian theorydiminishing returnsin agriculturecause a fall of the natural equilibriumrate of profit, but have no influence the natural equilibriumreal wage rate, it is evion dent that this 'version' is unable to account for Ricardo's results on the dynamics of the wage rate duringthe process of economic growth.' As a matteroffact,accordingto Blaug [1, pp. 25-6] thereis no contradictionbetweenthe proposition that duringthe processofgrowth real wage the rate tends to fall and the 'accepted version' of Ricardo's theory,since, in Blaug's view, Ricardo is speaking of a fall of the 'corn' wage rate and not of the wage rate expressed in terms of the whole basket of wage-goods. Therefore, duringtheprocessofgrowth relativepriceofcornincreases as the because ofdiminishing in returns agriculture, may well have at the same we time the fall of the cornwage rate and the constancy,at the natural level, of the wage rate expressed in terms of the whole basket of wage-goods. We agree with Blaug that the fall of the corn wage rate is quite compatible with the 'accepted version' of the Ricardian theory, but we strongly deny that Ricardo is speaking of a fall of the corn wage rate. On the contrary, frommany passages of thePrinciples2it is clear that Ricardo is speakingof a fall of the wage rate expressedin termsof the whole basket of wage-goods. Ricardo, in fact, writes:
As populationincreasesthesenecessarieswillbe constantly risingin price,because morelabour will be necessaryto produce them.... Instead, therefore, the money of to wages oflabour falling, theywould rise; but theywould not risesufficiently enable the labourerto purchase as many comforts and necessariesas he did beforethe rise in the price of those commodities.... he would therefore receive an addition in his himself with moneywages, thoughwiththat additionhe would be unable to furnish whichhe had beforeconsumedin the same quantityof cornand othercommodities, his family. [5, pp. 101-2]

And, a little further:

. . . The fateofthe labourerwillbe less happy; he willreceivemoremoneywages, it is true,but his cornwages will be reduced; and not onlyhis commandof corn,but his .. generalconditionwill be deteriorated . the conditionofthe labourerwill generally
decline ... [5, pp. 102-3]

with the If our reading of Ricardo is correct,we are then confronted followingdilemma: either Ricardo considerednatural equilibrium as the 'attractionpoint' of marketequilibrium,as Pasinetti maintains,but in this case Ricardo's statement that in the process of economic growththe real wage rate tends to fall does not make any sense; or this latter statement
1 Further inconsistencies between Ricardo's results and the 'accepted version' of his of theory concernthe effects taxation. In fact,while Ricardo repeatedly[5, pp. 116, 221-2, 225, 226, 233] states that everytax reduces the wage rate by slowingdown the rate of capital accumulation, within the 'accepted version' taxes have no effecton the (natural) equilibrium wage rate. 2 See also [5, pp. 104, 112, 125, 225] and [6; n. 61, p. 124 and n. 63, pp. 126-7].

CARLO CASAROSA

41

is correct,but then we cannot say that Ricardo examines the behaviour of the economic variables in termsof natural equilibrium. In our opinionthe latteris the case and in the next threeparagraphs we of shall presentour interpretation the Ricardian theoryand we shall show that, withinits framework, the Ricadian results,which are at odds with the 'accepted version' of Ricardo's theory,are easily explained.

2. Our 'version' of the Ricardian theory of distribution and economic growth

From some of the passages quoted above and frommany otherswe can findin the chapter on wages and elsewherein the Principles and in other it writings, appears that in Ricardo's theorythe level towards which the marketwage rate (and, hence,the marketequilibrium)is attracted during the processof economicgrowthis determined the interplaybetweenthe by accumulationof capital and the growthof population,that is by the interplay betweendemand and supply of labour. And in fact Ricardo's general idea is that:
... wages are subject to a rise or fallfromtwo causes: 1stThe supply and demand of labourers. 2dly The price of the commoditieson which the wages of labour are expended. [5, p. 97]

More precisely,according to our reading of Ricardo, at every level of of the 'facility production'in agriculture marketequilibriumdoes not tend to natural equilibrium, but to what we have elsewhere [2] called the 'dynamicequilibrium',that is a positionwherethe wage rate and the rate are of profit such that the rate of increase of population and the rate of capital accumulation are equal. The convergenceof market equilibrium to dynamicequilibriumis warrantedby the simultaneousworkingof the populationand of the accumulation mechanisms. If at any moment the marketwage rate is above (and the rate of profitbelow) the dynamic equilibrium value, the rate of growthof population is higherthan the rate the ofincreaseof capital accumulation. Therefore, marketwage rate falls and the rate of profitincreases,and this process goes on till the values of the two distributivevariables are such as to make the rate of growthof populationequal to the rate of growthof capital. A similar mechanism ofadjustmentis at workif the marketwage rate is below (and the market rate of profit above) the dynamic equilibriumvalue. In conclusion, our opinion Ricardo is convincedthat, at everylevel of in of 'facility production' in agriculture,the market equilibrium converges to the dynamic equilibrium position. Consequently he examines the behaviour of the distributivevariables on the basis of the changing

42

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM

characteristics the dynamicequilibriumpositionas the marginalproduct of of labour in agricultureor some other parameter of the system changes. To be sure,Ricardo does not describeexplicitlythe mechanismofadjustment of market equilibrium to dynamic equilibrium nor the position towards which market equilibrium tends to converge. he As forthe first says only that, when the rate of capital accumulation is higherthan the rate of increase of population, market wages increase, while when the rate of growth of population is higher than the rate of capital accumulation the market wage rate falls:
... at such periodsaccumulationis oftenso rapid, that labourerscannot be supplied with the same rapidityas capital.... In that case wages ... would have a tendency to rise,because the demand forlabour would increase still fasterthan the supply. [5, p. 98] ... the wages oflabour willhave a tendencyto fall ... forthe supplyoflabourerswill continueto increaseat the same rate, whilstthe demand forthem will increaseat a slowerrate. [5, p. 101]

On the 'attraction point' of market equilibrium Ricardo is even less explicit and we can only point at passages which can be understoodonly if read in termsof dynamic equilibrium.1 wholethe relationships which,accordHowever, ifwe put into a coherent ing to Ricardo, link the market equilibrium values of the distributive variables to the rate of growthof population and to the rate of capital accumulation, it is possible to show that the simultaneous working of the population and of the accumulation mechanisms drives the market equilibriumtowardsthe dynamicequilibriumpositionexactly throughthe
1 Particularlysignificant, this respect,is the first in part of chapter XVI of the Principles (taxes on wages), where Ricardo is shown to be in full agreementwith two passages from Smith and Malthus in which it is clearly maintained that, during the process of economic growth,the wage rate tends to be such as to guarantee a rate of increase of population equal to the rate of capital accumulation. The passages, reported fully in the Principles, are: 'The demand for labour, according as it happens to be either increasing,stationaryor declining,or to require an increasing,stationary or declining population, regulates the subsistence of the labourer, and determines in what degree it shall be either liberal, moderate or scanty' [5, p. 215],

and: 'The price of labour . . . expresses,clearly, the wants of society respectingpopulation; that is, whatever may be the number of childrento a marriage necessary to maintain to exactly the present population, the price of labour will be just sufficient support this number, or be above it, or below it, according to the state of the real funds, for the maintenance of labour, whetherstationary,progressiveor retrograde'[5, pp. 218-19]. Such is Ricardo's agreementwith the opinions expressed by Smith and Malthus on this particularissue, that he uses Malthus's words to refuteBuchanan's argumentson the effects produced on the wage rate by a tax on wages. Moreover,the conclusion of Ricardo's discusin sion is perfectly line with the opinions held by Smith and Malthus: 'Suppose the circumstancesof the countryto be such, that the lowest labourers are not only called upon to continuetheirrace, but to increase it; theirwages would be regulated accordingly.Can they multiply in the degree required,if a tax takes from them a part of their wages, and reduce them to bare necessaries?' [5, p. 220]. (The italics are ours.)

CARLO CASAROSA

43

mechanismof adjustment sketched at the beginningof the presentparagraph. To provethisin thenexttwoparagraphswe presentand examinethe of working a verysimplemodel ofthe economicsystem,whose characterisof based on Ricardo's ideas on the determination the market tics are strictly equilibriumof the distributivevariables and on the relationshipsbetween these variables, the accumulation of capital, and the growthof population.

3. Market equilibrium
Let us firstexamine Ricardo's views on the determinationof market equilibrium. As for the market wage rate Ricardo writes:
the The marketprice of labour is the pricewhichis reallypaid forit, from natural of operationof the proportion the supply to the demand; labour is dear when it is scarce,and cheap when it is plentiful. [5, p. 94]

Hence, if capital increases:

be the increase in the demand for labour; . . . [5, p. 95]

to . the marketrate of wages will rise,forin proportion the increaseof capital will

In other words, according to Ricardo, the market wage rate is determined,in the short period, by the ratio between the wages fund and the numberof workers. Moreover,Ricardo usually assumes that the wages fundis a constant proportionof total capital. Ricardo does not explain how the wage rate converges to the market genericallyto the competitionamong workers level and refers equilibrium and employers. However, his position can be easily rationalized, by that the workers accept any wage rate ratherthan be unemployed assuming whatever the wage rate and the employersspend the wages fundentirely, theyhave to pay. that capital consistsonly ofthe wages fund, If we assume, forsimplicity, the Ricardian theoryof the marketwage rate may be expressed through (I) the following equations: W = wN

K-W

(II)

w K where is the amount of capital, N the numberofworkers, the wage rate, and K and N are, in the short period, constant. W the total wage bill, Ricardo's centralidea is that the value As forthe marketrate of profit, of the marginal product of labour in agricultureis divided between the workersand the employers,that is, between wages and profits. If we that the economicsystemproduces one commodity assume,forsimplicity, only,let us say corn,the relationshipbetween the real wage rate and the rate of profit may be expressed by:
=

f'(N)-w w

(III)

44

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM

where r is the rate of profitand f'(N) the derivative of the production functionforcorn: X
=

f(N)

withf'(N) > 0 and f"(N) < 0

(IV)

where X is the quantity of corn produced. equation is Now, sincein the shortrunthe numberofworkers given,from IV we obtain the marginal product of labour which, togetherwith the by marketwage rate, determined the amount of capital and the numberof workers(equations I-II), determinesthe market rate of profit(equation conclude that, in the Ricardian theory,the market III). We can therefore equilibriumof the distributivevariables is determinedby the amount of capital, the number of workers,and the marginal productivityof labour in agriculture.

4. Market equilibrium and dynamic equilibrium

From the conclusionwe have just reached on the 'forces'whichdetermine market equilibrium,it is evident that the dynamics of the market equilibrium values of the distributivevariables duringthe process of economic growthdepends on the dynamics of capital, the number of workers,and the marginalproductivityof labour in agriculture. of As forthe marginalproductivity labour, Ricardo accepts the so-called principle of diminishingreturns according to which, as employmentin agricultureincreases, the marginal productivityof labour tends to fall. However, this principledoes not imply a 'continuous' fall of the marginal product of labour and in fact Ricardo implicitlyassumes large 'intervals' withconstantreturns. We assume that the 'intervals'withconstantreturns are large enough and considerthe dynamicsof marketequilibriumwithin these 'intervals'. In thenext paragraphwe shall see what happens whenthe system moves fromone 'interval' to another, that is when the marginal of productivity labour changes. the assumption of constant returns, the dynamics of market Given equilibrium within any 'interval' is determinedby the accumulation of considerthe 'laws' capital and the increaseof population. Let us therefore which,accordingto Ricardo, rule the process of capital accumulation and the growthof population. Ricardo's theoryof capital accumulation is very simple:
than thelabourer can and The farmer themanufacturer no morelive withoutprofit, withoutwages. Their motiveforaccumulationwill diminishwitheverydiminution
of profit, . . . [5, p. 122]

We can therefore say that, according to Ricardo, the rate of capital acof cumulationis an increasingfunction the rate of profit.This relationship

CARLO CASAROSA may be expressed by: 1 dt K dK yr with O< y <1

45

(V)

where (1/K) dK/dtis the rate of growthof capital and y is a parameter which depends on the 'propensityto save' of the capitalists. On the dynamicsofpopulation Ricardo shareswithmany of his contemporariesthe view that the movementsof population depend on the level of thewage rate. Moreprecisely, Ricardo is convincedthat the rate of growth ofpopulationis an increasing function the difference of betweenthe market wage rate and the natural wage rate. This idea may be expressed by the withO< (VI) equation: S1 IdNp=ww8) where(1/N)dN/dtis the rate of growthof population,w, is the natural (or subsistence)wage rate and : a parameterwhichrepresents the 'reactivity' of population to the divergencebetween the marketand the natural wage rate. We have now a systemof six equations and eight unknowns(K, N, W,

w,r,X, K dKt

dNt, which is clearly not determinate. However, it

allows us to examine the impact of capital accumulation and population growth the marketequilibriumvalues of the distributive on variables with the help of a simple diagram. In Fig. 1, the straightline LL represents equation VI, while the KK curve representsthe relationshipbetween the wage rate and the rate of capital accumulation, which we can obtain by fromequation III into equation V: substituting 1 dK

(f'(N)-w\

(V')

In the case of Fig. 1 clearlyf'(N) -OB and w, = OS. Let us now assume the 'initial' values of capital and population to be such as to determinea marketwage rate O0 and, consequently(equation III), a market rate of profit OB-OC At these market equilibrium

values of the distributivevariables the rate of capital accumulation and therate of increase of population are equal. Thereforethe market equiliis brium not 'disturbed' by the process of economic growth,as long as the of marginal productivity labour does not change. of We maycall thispositionthe dynamic equilibrium position the economic systemat thegivenlevelof themarginal productivity labour. O0 and of

46 OB0O0

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM

be may therefore called the dynamic equilibriumvalues of the

wage rate and of the rate of profitand OA the dynamic equilibriumrate of growthof the economy.

A 0

----------

CCB K
FIG. 1.

IV

Let us now see what happens to the marketvariables ifthe 'initial' values of capital and population determinea marketequilibriumwhich does not coincide with the dynamic equilibrium. Assume, for instance, that the 'initial' market equilibrium implies a market wage rate higherthan 00 (say 00') and, consequently, a rate of profitlower than the dynamic equilibriumrate ofprofit.In this situation,as emergesclearlyfromFig. 1, the rate of capital accumulationis lowerthan the rate ofgrowthof popula-. as tion. Therefore, timegoes by,the marketequilibrium wage rate decreases and the marketrate of profit increases. Consequently,the rate of growth of population decreases and the rate of capital accumulation increases. However, as long as the formeris higherthan the latter, the process of change ofmarketequilibriumgoes on in the same directionand it comes to a halt only when the rate of growthof capital and population are equal, that is only when the market equilibriumvariables are at their dynamic equilibriumlevels. A similarmechanismis set in motionif initiallythe marketwage rate is below (and the marketrate ofprofit above) its dynamicequilibriumvalue. And also in this case the process of adjustment goes on until the market

CARLO CASAROSA

47

equilibrium of the distributive variables coincides with their dynamic equilibrium. levelofthemarginalproductivity We can therefore conclude that, at every the simultaneous workingof the mechanisms of of labour in agriculture, population growth and of capital accumulation, described by Ricardo, bringsabout the convergenceof marketequilibriumtowards the dynamic equilibriumposition,wherethe marketvalues of the distributivevariables are such as to determinea rate of increase of capital equal to the rate of increase of population. Consequentlyit would be sensible to examine, as accordingto ourinterpretation Ricardo does, the behaviourofthe economic systemin termsof its dynamicequilibriumposition,since the latterrepresents the 'attractionpoint' of market equilibrium. Formally,the dynamicequilibriumposition of the systemis determined by equations I-VI and by the dynamic equilibrium condition:

- I dN 1( K d&t_ d-itN
I dK

(VII)

The system now contains seven equations having eight unknowns. Therefore can solve it as a functionof N. that is as a functionof the we numberof workersemployed in agriculture. An explicit solution forthe variables and the rate of growthis obtained in the Appendix, distributive wherewe also point out some interesting propertiesof the dynamic equilibriumof our system. of However,even withinthe framework the simple model we have been working with,it is possible to show that the dynamicequilibriumvalues of variables and ofthe rate ofgrowthdepend on the marginal thedistributive of productivity labour in agriculture. In fact,fromequation V' it is clear that the higherthe marginal productivityof labour, the higher,at every and therate ofcapital accumulation. levelofthewage rate,the rate ofprofit In terms our diagram this means that the higherthe marginal producof to tivityof labour, the further the rightis the KK curve (and vice versa). Hence we may conclude that the dynamic equilibriumvalues of the wage and the rate of growthare increasingfunctionsof rate,the rate of profit, the marginalproductivityof labour in agriculture.

5. Dynamic equilibrium and economic growth

In the last two paragraphs we have shown that our interpretationof Ricardo's theoryis strictlybased on Ricardo's ideas about the interplay and capital accumubetween distributive the variables,populationgrowth, lation. However, we have not yet 'proved' that Ricardo really worked in termsof dynamic equilibrium. To do this it is necessary to compare the

48

A NEW FORMULATION

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SYSTEM

resultsthatwe get ifwe examine the behaviourofthe distributive variables during the process of economic growthin terms of dynamic equilibrium, with the results obtained by Ricardo in his writings. Both in the 'accepted version' and in our 'version' of Ricardo's theory the economic systemis able to growonly ifthe marginalproduct of labour is 'initially' higherthan the natural wage rate. In termsof our diagram, a marginalproductivity labour higherthan the natural wage rate means of that the curveofthe accumulationof capital cuts the horizontalaxis on the rightofS. Let us assume that the 'initial' level ofthe marginalproductivity oflabour is OT (see Fig. 2) and that the corresponding capital accumulation

K'

EK

FIG. 2.

curve is KK. Thereforewe have a dynamic equilibrium position (E) characterized by a positive rate of growth (of capital and population), a wage rate higherthan the natural wage rate, and a positive rate of profit. As growthproceeds,sooner or later the marginalproductivity labour of in agriculture begins to fall. Consequentlythe capital accumulation curve shiftsto the leftand the dynamic equilibriumvalues of the wage rate, the rate ofprofit, and the rate ofgrowthdecrease. And, as long as the marginal productivityof labour goes on falling, the capital accumulation curve to continuesto shift the leftand all the dynamicequilibriumvalues continue to decrease. This process goes on up to the point when the marginalproductivityof labour is equal to the natural wage rate and the capital accumulation curve assumes a position such as KK1: at this point the dynamic equilibrium

CARLO CASAROSA

49

position of the systemis the stationarystate

dt \-K

(1dK

I dN ) N dt=?'

the dynamic equilibriumwage rate is the natural wage rate, and the rate of profitis zero. Therefore,at this level of the marginal productivityof labour, dynamic equilibriumand natural equilibriumcoincide. In conclusion,if we examine the behaviour of the distributivevariables duringthe process of economic growthin terms of dynamic equilibrium, results: we get the following is of 1. As long as the marginalproductivity labour in agriculture above the natural wage rate, the economic system grows at positive rates, the wage rate is higherthan the natural wage rate, and the rate of profitis positive. of 2. As the marginalproductivity labour falls,we have a slowingdown oftherate ofgrowthand a simultaneousdecrease ofboth the wage rate and the rate of profit. 3. When the marginal productivityof labour is equal to the natural wage rate the economic systemstops growingand falls into the stationary is state. The wage rate is now at its natural level and the rate ofprofit zero. It is easy to see that these are the very same resultsreached by Ricardo in his analysis. In particular,as far as the behaviour of the wage rate is concerned,our interpretationof Ricardo's theory in terms of dynamic which, explains quite naturallyboth theRicardian propositions equilibrium paragraph, cannot be explained by the as we have pointed out in the first 'accepted version':
period, society,foran indefinite 1. ... themarket[wage] rate may,in an improving above [the natural rate]. [5, pp. 94-5] be constantly 2. In the natural advance of society,the wages of labour will have a tendencyto
fall, ... [5, p. 101]

that our analysis of the 'path' followed by the Notice furthermore equilibriumof the systemduringthe process of economicgrowth dynamic seemsalmost a paraphrase of Ricardo's words:
In different stages of society,the accumulation of capital, or of the means of labour,is moreorless rapid,and mustin all cases dependon theproductive employing
powers of labour .
.

. [5, p. 98]

the In thenaturaladvance of society, wages of labour will have a tendencyto fall, as faras theyare regulatedby supplyand demand; for... the demand forthemwill at increase a slowerrate. If, forinstance,wages wereregulatedby a yearlyincrease ofcapital,at the rate of 2 per cent.,theywould fallwhen it accumulated only at the rateof 11 per cent. They would fall still lowerwhen it increasedonly at the rate of 1 or i per cent.... and would continueto do so untilthe capital became stationary,
O.E.P.301 E

50

A NEW FORMULATION

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to when wages also would become stationary,and be only sufficient keep up the numbersof the actual population. [5, p. 101]

of We can therefore conclude that, since the traditional interpretation the Ricardian theoryof distributionand economic growthis not capable of explainingall Ricardo's results,whileour 'version' is,the latter'version' of should be accepted as a better interpretation Ricardo's thought. Before we examine furtherthe characteristicsof the 'dynamic equilibrium' of our model, it is necessary to clarifythe nature of dynamic equilibriumitselfand of its relationshipwith the market equilibrium. In fact it is importantto realize that in our model the dynamic equilibrium is not a steady growthequilibrium,but a moving equilibrium,as definedby Frisch [3, pp. 103-4]. In particular,the dynamic equilibrium path is not a path on which the economic systemcan remain all the time, since even ifthe economic systemgets, at a certainmoment,on this path, and the rate of growthof population happens to be equal to the rate of growthof capital, decreasingreturnsin food productioncause a change in the dynamic equilibrium position and break the equality between the (market) rate of growthof population and the (market) rate of growthof capital. legitimateto position, and it is therefore towardsthedynamicequilibrium in termsof dynamicequilibrium,even if studythe behaviour ofthe system the systemitselfmightneverbe on the dynamic equilibriumpath.

'attracted' is market as equilibrium continuously However, wehaveshown,

6. Changes in the habits of the workers and in the propensityto accumulate of the capitalists
to It is interesting considerthe impact on the dynamicequilibriumvalues of and the rate ofgrowth, changes in the ofthe wage rate,the rate ofprofit, to and in the propensity accumulate ofthe capitalists. 'habits' oftheworkers kind implies,in our model, either a change in the A change of the first natural wage rate or a change in the 'reactivity'ofthe growthofpopulation to the divergencebetweenthe marketreal wage rate and the natural wage rate, expressed by P3. If the natural wage rate changes,the LL curve shifts:to the rightif the as natural wage rate increases,to the leftifit decreases. Therefore, we can see fromFig. 3, if the natural wage rises, at every level of the marginal productivityof labour in agriculturethe dynamic equilibriumwage rate rises, while the rate of profitand the rate of growthdecrease. If, on the the natural wage rate decreases, the dynamic equilibriumwage contrary, rate decreases, while the profitrate and the rate of growthrise. A change in the 'reactivity' of population growth to the divergence betweenthe marketwage rate and the natural wage rate causes a 'rotation'

CARLO

CASAROSA

51

of the LL curve: clockwise if the 'reactivity' decreases, anticlockwisein the opposite case. As we can see from Fig. 4, in the first case, at everylevel of the marginalproductivityof labour in agriculture, the dynamic equilibrium wage rate increases,while the rate of profitand the rate of growth decrease. In the second, the dynamic equilibrium wage rate decreases, while the rate of profitand the rate of growthincrease.

L"1 L

EI

, . /S"S //
L" L

L'

// 5'
FIG. 3.

IV I

More rigorous proofs of these results are given in section 5 of the Appendix. Let us now considerthe impact on the dynamic equilibriumvalues of a changein the propensityto accumulate of the capitalists. If the capitalists' propensityto accumulate increases, at every level of the rate of profitthe rate of capital accumulation is higher. Hence, at everylevel of the marginalproductivityof labour in agriculture, have we a shift the rightof the capital accumulation curve which bringsabout to (see Fig. 5) an increase of the dynamicequilibriumvalues of the wage rate and of the rate of growth. The rate of profit, the contrary,decreases on sinceat everylevel of the marginal product of labour the wage rate is now higher(see equation V'). If the capitalists' propensity to accumulate decreases, the capital accumulationcurve shiftsto the left and, therefore, every level of the at marginalproductivityof labour the dynamic equilibrium values of the wage rate and of the rate of growth decrease, while the rate of profit increases.

52

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM

\K

/L"w

LI

LK
FIG. 4.

K"

K'

0- SC

5.

L
FIG. 5.

K" -K

K'

CARLO CASAROSA

53

Again, a more rigorousproofof these resultsis given in section 6 of the Appendix. It is interesting noticethat theresultsreached above and, in particular, to those concerning impact on the wage rate, are in perfect the agreementwith Ricardo's views. In fact Ricardo states clearly that if the workerscheck therate ofgrowthofpopulation or the capitalistsincreasethe rate ofcapital accumulation,the wage rate increases:
It is a truththat admitsnot a doubt, that the comforts and well-being the poor of on cannotbe permanently securedwithoutsome regardon theirpart, or some effort the part of the legislature, regulatethe increaseof theirnumbers,and to render to less frequentamong them early and improvident marriages. [5, pp. 106-7] With a populationpressingagainstthe means ofsubsistence, onlyremediesare the a either reduction people,or a morerapid accumulationofcapital. In richcountries of ... the latterremedyis neitherverypracticablenorverydesirable,because its effect would be, ifpushed very far,to renderall classes equally poor. But in poor counland not tries,wherethereare abundant means of productionin store,fromfertile yet broughtinto cultivation,it is the only safe and efficacious means of removing the evil, particularlyas its effectwould be to elevate all classes of the people. [5, pp. 99-100]

Thereforewe have a furtherindirect proof of the correctnessof our interpretation the Ricardian theoryof distribution. of

7. Wage-goods, luxury-goods, and capital accumulation

The second difference between Pasinetti's model and Ricardo's thought has to do withthe role ofluxury-goods.Accordingto Pasinetti [4, pp. 90-1] the productionconditionsof wage-goodsinfluence determination all the of the variables of the system,the only exception being the real wage rate, while the production conditions of luxury-goodsinfluencethe variables concerning the luxury-goods,but not the other variables of the system, such as the rate of capital accumulation, the rate of profit, and so on. In our opinion wage-goods and luxury-goodshave really a different role in the Ricardian system,but it is not true that luxury-goodsdo not influence the rate of capital accumulation, since Ricardo states explicitlyon many occasionsthat saving and capital accumulationdepend on the incomeofthe capitalistsexpressed in termsof luxury-goods:
As ... the power of saving fromrevenue to add to capital, must depend on the efficiency the net revenue,to satisfy wants ofthe capitalist,it could not failto of the follow from reductionin the price of commodities. . . that withthe same wants the he wouldhave increasedmeans ofsaving,-increased facility transferring revenue of intocapital. [5, p. 390]

Ricardo's point ofview on this matteremergesclearlywhen he considers the possible effectsof the introductionof machines and of foreigntrade. In the first case he says that, if the introductionof machines reduces the value of wage-goods,the rate of profitincreases and saving and the rate

54

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM

of accumulation of capital increase with it; while, if the introductionof machines reduces the value of luxury-goods,the rate of profitdoes not change, but saving and the rate of capital accumulation increase, because ofthe higher purchasingpowerofthe capitalists. SimilarlyRicardo declares that, if one or more wage-goods are imported at a price lower than the internal price, the rate of profitand the rate of capital accumulation increase; while,if one or more luxury-goodsare importedat a price lower than the internalprice,the rate of profitdoes not change, but saving and the rate of capital accumulation increase, since the purchasing power of the capitalists has increased:
Thereare two ways in whichcapital may be accumulated: it may be saved eitherin consequenceofincreasedrevenue,or ofdiminished consumption. If, by the intro... duction of machinery,the generalityof the commoditieson which revenue was expended fell20 per cent. in value, I should be enabled to save as effectually ifmy as revenue has been raised 20 per cent.; but in one case the rate of profits stationary, is in the other it is raised 20 per cent.-If, by introduction cheap foreign of goods, I can save 20 per cent. frommy expenditure, the effect will be preciselythe same as if machinery had loweredthe expense of theirproduction,but profits would not be raised.... If... by the extensionofforeign trade,or by improvements machinery, in the food and necessariesof the labourercan be broughtto the marketat a reduced price,profits will rise ... but ifthe commoditiesobtained at a cheaper rate, by the or extensionof foreign of be commerce, by improvement machinery, exclusivelythe commodities consumedby the rich,no alterationwill take place in the rate ofprofits. [5, pp. 131-2]

8. Wage-goods, luxury-goods, and dynamic equilibrium

Let us now study the effects changes in the productionconditionsof of wage-goods and luxury-goodson the dynamic equilibriumposition of the economic system. As forthe wage-goods it is quite easy to show the effects produced by changes in theirproductionconditionson the dynamic equilibriumvalues and the rate of growth. In fact, if at of the wage-rate,the rate of profit, every level of employmentin agriculture the marginal productivity of labour increases, the capital accumulation curve shiftsto the right. As in we a consequence, at everylevel of employment agriculture have higher and equilibriumvalues ofthewage rate,therate ofprofit, therate ofgrowth. of Of course,in the case of a reductionin the marginalproductivity labour values of all the we would have a reduction in the dynamic equilibrium above variables. The problemis more complex if the change in the productionconditions concernsluxury-goods. In fact, in orderto analyse in a rigorousway the effects this kind of change on the dynamicequilibriumvalues, we should of introduce another commodity (a luxury-good) into our model and we should also 'incorporate' in the model the Ricardian view that, at every the propensityto accumulate of the capitalists level of the rate of profit,

CARLO CASAROSA

55

is a decreasingfunction the prices of luxury-goods. All this is formally of done in the Appendix wherewe presenta completetwo-commodity model of the Ricardian system. However, it is possible to have a good idea of the effects changes in of the productionconditionsof luxury-goodseven withinthe framework of the simplemodel we have been workingwith so far. If thereis an increase in the productivity labour in the productionof one or moreluxury-goods of the prices of these goods fall, since the quantity of labour necessary to produce one unit of these goods has decreased. Thereforethe capitalists' propensityto accumulate increases, so that at everylevel of themarginal productivity labour in agriculture have a shift to the right of the of we capital accumulation curve. As a consequence,we have an increase in the dynamic equilibrium values of the wage rate and of the rate of growth. The rate ofprofit, the contrary, on falls,since at everylevel ofthe marginal productivityof labour the wage rate is now higher (see equation V'). Naturally, if the productivityof labour in the luxury-goodsproducing sectordecreases (or a tax is put upon this kind of commodity)the dynamic equilibriumvalues of the wage rate and of the rate of growth decrease, whilethe rate of profitincreases. conclude that both wage-goods and luxury-goodsinWe can therefore fluence dynamicequilibriumvalues of the distributive the variables and of therateofgrowth.Neverthelessthe two typesof commodity have different roles in the economic system, as emerges fromthe fact that changes in theirproduction conditions bring about not only variations of the same of sign,but quantitativelydifferent, the real wage rate and of the rate of growth (see section 4 of the Appendix), but also variationsof opposite sign of the rate of profit. The basic reason forthese differences that, while is the conditions of production of wage-goods influence the relationship betweenthe wage rate and the rate of profit(equation V'), the conditions of the relationshipbetween the rate of production luxury-goodsinfluence and the rate of capital accumulation, but not the relationship of profit betweenthe wage rate and the rate of profit. In fact, in the case of an increaseofthe marginalproductivityof labour in the productionof wagegoods,at everylevel of the real wage rate there correspondsa higherrate ofprofit and, hence, a higherrate of growth. Consequently,an increase in of the marginal productivity labour in the wage-goods sectorbringsabout an increaseboth in the wage rate and in the rate of profit. On the other hand,if we have an increase in the productivityof labour in the luxurygoods sector,the rate of capital accumulation which correspondsto each levelof the rate of profit increases,but the relationshipbetween the wage rate and the rate of profitremains unchanged. Thereforethe real wage rateincreasesand the rate of profit falls.

56

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM

In Ricardo's writingswe may find some evidence that Ricardo was aware of the fact that both the wage-goodsand the luxury-goods influence the dynamic equilibriumvalues of the distributivevariables. In fact, in the chapters on taxation Ricardo maintains consistently that every kind oftax tends to reduce the rate of capital accumulation and hence to reduce the wage rate. In particularRicardo deniesthat the taxes on 'raw produce' are particularlyunfavourableto the workingclass:
... no otherinconvenience would be suffered thisclass,than thatwhichtheywould by suffer fromany othermode oftaxation,namely,the riskthat the tax mightinfringe on the fundsdestinedforthe maintenanceof labour, and mighttherefore check or abate the demand forit.... Now thesumrequiredby thetax mustbe raised,and the questionsimply whether is, the same amount shall be taken from the individualsby diminishing theirprofits, or by raising the prices of the commoditieson which their profits will be expended. [5, pp. 166-7]

Ricardo makes his position perfectlyclear in a letter to McCulloch, in which he explains that, fromthe point of view of the workers,there is no difference between taxes on wage-goods and on luxury-goods:
... I contendthat the poor suffer from dissipationofcapital,not on account ofthe the which peculiartaxes whichare imposedupon them,but on account ofthe disturbance it gives to the usual demand forlabour. It mattersnot, I say, whetherthe taxes be laid on wine, silks and velvets,the luxuriesof the rich,or on the corn and clothing consumedby the laboringclass, the specific evil is in both cases, not the tax, but the millionswithin annihilationof capital to whichthe tax gives rise ... raise the thirty the year by taxes on luxuries,or on the necessariesof the poor, and the effect will be the same-the poor will sufferbecause 30 millions of capital is withdrawnfrom active employment.'

We can therefore concludethat the resultswe have reached in the present paragraph are fullyconsistentwith Ricardo's own views. Conclusions The main resultswe have reached in our analysis ofthe Ricardian theory of distributionand economic growthmay be summarized: 1. In the course of economic growththe marketreal wage rate and the rate of profitdo not convergetowards the natural equilibriumvalues, but rathertowardsthe dynamicequilibriumvalues; that is, towardsthe values that guarantee the equality between the rate of capital accumulation and the rate of increase of population. 2. Profitis not a residual, since the rate of profitis determinedsimultaneously with the wage rate.
1 Letter n. 361 in P. Sraffa(ed.), Work8and Corre8pondence David Ricardo, vol. viii, of p. 177.

CARLO CASAROSA

57

3. In a growing economythe dynamicequilibriumwage rate is constantly above the natural wage rate and coincides with it only in the stationary state. 4. In the course of economic growththe equilibriumvalues of the real and tend to falltogether with wage rate,the rate ofprofit, the rate ofgrowth the marginal product of labour. 5. The conditions of production of wage-goods and of luxury-goods influencethe equilibriumvalues of the real wage rate, the rate of profit, and the rate of growth. However, the effectsof similar changes in the conditionsof production of the two types of goods are different and, in particular,of opposite sign as far as the rate of profitis concerned. 6. An increase (a reduction)of the natural wage rate or a reduction (an between the increase) of the 'reactivity' of population to the difference marketand the natural wage rate, cause an increase (a reduction) of the dynamic equilibriumwage rate and a reduction (an increase) of the rate and of the rate of growth. of profit 7. An increase (a reduction) of the 'propensityto accumulate' of the capitalists causes an increase (a reduction) of the dynamic equilibrium values of the wage rate and of the rate of growth and a reduction (an increase) of the rate of profit. FacoltM Economita, di Pisa

APPENDIX
model which IN thisAppendix we firstformulatea mathematicaltwo-commodity our of of and 'incorporates' interpretation the Ricardian theory distribution economic and growth the notionthat the rate of capital accumulationis a decreasingfunction of someproperties the dynamic oftheprices theluxury-goods.Then we investigate of variables and the rate of growthand the solution forthe distributive equilibrium of convergence market equilibrium towards the dynamic equilibrium position. we Finally, derivein a rigorous way the resultsverballystated in sections5, 6, and 8. Al. 'Dynamic equilibrium'in a two-commodity system introduceour mathematicalmodel of the Ricardian system. Let us first
THE MODEL
X=

f(N1)

where: X1 = physical quantity of corn produced in one year; N1 = numberof workersemployed in the corn production; (1)

58
f(O) > 0

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM
(la)

properties: with the following f'(0) > Ws

f (N1) < 0

where:

w- =

natural wage rate in termsof corn; (lb)

(ic)

f'(o0) < W8 N2 with a > 0 X2=

X2

NM+N2= N W wN K W R = f(N1)-N1f (N1) P1 = X1-R-N1w p1 X1-P1R

P2X2
P2 2 =

= N1
2-N2pl w

N2
P2X

P
8

p1P1+P2 P2

p1w
PIK

(Id) physicalquantityofgoldproducedin one year; N2 numberofworkersemployed in the productionof gold; physical quantity of gold produced ( (2) by one workerin one year; N total numberof workers; (3) =W total wage-bill,in termsof corn; V w real wage rate, in termsof corn; (4) K physicalstock of capital (corn); (5) 1R yearlyrent,in real terms(corn); (6) P1 yearly profits, termsof corn,obin sector; tained in the corn-producing (7) price of corn; (8) Pi price of gold; (9) P2 = in P2 = profits, termsof gold, obtained in the gold sector; (10) in P = total profits, termsofthe standard of value; (11) (12) s monetarywage rate; r C(p I
=

pK

rate of profit;

(13)

P =CP+PiI

of constumption luxury-goodby the capitalists,expressedin money; in investments, termsof corn; (14) (15)

I- dK
P2X2

Cp~pPlR yr
O(P2,

(16)
y

K d

with 0 < y < 1

which is invested; share of profits (17) a parameter, which expresses the propensity to accumulate of the (18)
=

a) with Y > a2Y < 0 and LY 0 Oacapitalists; OP2 1 dN )1w-8 wt 1 with t = s 0</3?1 1 dN 1dK Kd_~t_ Ndt

a constant;

(19) (20)

CARLO CASAROSA

59

In thebuildingofthemodelwe took Pasinetti's model as a basis, sinceit represents in many respectsa rigorous'translation' of Ricardo's thought. Pasinetti's model, we recall, is based on foursimplifying assumptions: I. The systemproduces one wage-good only: corn. It. The productionprocess of corn takes one year. III. Capital consistsentirely the wage-bill. of gold,whoseproduction showsconstantreturns. IV. Thereis onlyone luxury-good, The productionprocess ofgold takes one year. Prices are expressedin terms unit is the quantityofgold producedby one worker ofgold and the monetary in one year. Otherassumptionsrelevantto our model are the following: V. Workersspend theirincome on corn. VI. Land-ownersspend theirincome on gold. VIL. Capitalists spend part of their income on the luxury-goodand employ the rest in the accumulationof capital. The first thirteen equations of our model are substantiallyequations (1)-( 11) and concernsproperty(1c) of the (13)-(14) of Pasinetti's model. The only difference productionfunction corn. In fact we thinkthat the assumptionof continuously of Ricardo's point of view, since decreasingreturnsis too rigidand does not represent we Ricardo allows large intervalsof constantreturns. Therefore softened Pasinetti's assumptionby assumingf"(Nj) < 0. The last seven equations incorporatethe ideas we put forthin paragraphs 1-4 and 7 of our paper. More precisely: Equation (14) is the capitalists' budget constraint. Equation (15) is definitional. Equation (16) is the equilibriumconditionin the marketforthe luxury-good. Equations (17) and (18) show that the rate of capital accumulationis an increasing function the profitrate and of the propensityto accumulate, and a decreasing of function the price of the luxury-good. of Equation (19) shows the relationshipbetween the real wage rate and the rate of increaseof population. Equation (20) is the dynamicequilibriumconditionof the system. unknowns:X1, X2, N1,N2, N, The systemhas twentyequations and twenty-one dK a I dN . Therefore can solve it we W, w, KC R, P1, P2, P. P1, P2, s, r, Gp,I, K as a function N1. In particularwe can findthe dynamicequilibriumvalues of the of wage rate,the rate of profit, and the rate of expansion. By substituting (13) from(3)-(12) we get: in
r f'(N1)-w w (21)

and, substituting from(17), (19), and (21) in (20):

w f (Nj) -= wew (22)

Hence:
and from (21):

- (y-P)wS+V{(y_-P)2w?

+ 4/3yf (N1)ws}
w*

(23)

r*

f '(N1)

(24)

values ofthe real wage rate and of the w* where and r* are the dynamicequilibrium rateofprofit.The equilibriumrate of growthof population and capital is, then: g* =yr*
(W-WS)

(25)

the where represents equilibriumrate of expansion. g*

60

A NEW FORMULATION

OF THE RICARDIAN

SYSTEM (26) (27)

As forthe monetary wage rate,from(6) and (8) we get: a 1 Pi f'(N1) W* s* in and, substituting (12):

in Notice, incidentally, that by solving(27) forw* and substituting (24) we get:

r*

---1

(28)

betweenthe monetarywage rate and the whichrepresents (inverse)relationship the used by Ricardo in the analysis of the problemof incomedistribution. rate of profit The 'dynamic equilibrium'solutionforthe real wage rate, the rate of profit, and the rate of expansion allows us to point out some interesting of properties the Ricardian system. and consistsin the fact that the real wage rate and The first one concernsprofits are fromthe same group of equations, the rate of profit determined simultaneously do as so that profits not have the characterof a residuum in the 'accepted version' of the Ricardian theoryand in Pasinetti's model. The second concernsthe equilibriumvalue of the real wage rate. From (23)-(25) values ofthe real wage rate,ofthe rate ofprofit, it is clear that the equilibrium and of of the rate of growthdepend on the marginalproductivity labour in agriculture. In threecases: particular,we can distinguish i:. w* >ws, r* >0, g* >0. iff'(N1) >ws
II. iff'(N1) = ws w* = ws, r* = 0, g* = 0.

w* < ws, r* < 0, g* < 0. III. iff'(N1) < ws case we have a growing, the second a stationary, in In the first and in the third a regressiveeconomy. Consequentlywe can say that, in a growingeconomy,the 'dynamic equilibrium' real wage rate is constantlyabove the natural wage and coincideswith it onlywhen the systemis in the stationarystate. that the economic system described by equations (1)-(20) Notice, furthermore, is able to grow,sincef'(0) > ws,but sooneror later it will stop growing, since
fP(co) < wvs.

and dynamicequilibrium A2. Marketequilibrium The marketequilibriumof the distributive variables is determined equations by (21) and: w = K/N (29) obtained fromequations (4) and (5), whereK, N, and N1 are given. To examine whether marketequilibriumconvergesto dynamicequilibriumin the 'intervals' where the productionfunctionshows constant returnswe differentiate (29) and (21) with respectto time: dw (1 dK I dN\ (30) dt =WK dat N dt }(0 dr _ -'(Nl) 1 dK I dN (31) dt w dt N dt( From (30) and (31) we can see that, ifthe distributive variables (w and r) assume theirdynamicequilibriumvalues, we have: 1 dK_ 1 dN 0

tdt 0dt

= = and, consequently:dw/dt 0 and dr/dt 0.

CARLO CASAROSA

61

the higher) than If, on the contrary, marketwage rateis lower(and therate ofprofit the dynamicequilibriumlevel, we have: I dN I d1fd

N dT

K dt

dw/dt 0 and dr/dt< 0. The marketwage rate goes on increasing and, therefore; > and the rate of profit goes on fallinguntil we have: I dK I dN * 9 N dt k dt assume theirdynamic thatis,untilthe marketwage rate and the marketrate ofprofit equilibriumvalues. A similaradjustment mechanismis at work if initiallythe market wage rate is above and the rate of profit below the dynamicequilibriumlevel. is This is not a formalproof of the convergenceof market equilibriumtowards dynamic equilibrium,but is enough to state that, at every level of the marginal the productivity labour in agriculture, of dynamicequilibrium represents 'attraction point' ofmarketequilibrium.Therefore, makes senseto study,as Ricardo does,the it in evolution the distributive of variablesduring processofeconomicgrowth terms the of the dynamicequilibriumvalues. A3. Dynamic equilibrium and economic growth Since economicgrowthrequiresan increase in the amount of corn produced and of therefore the amountoflabour employedin theproduction corn,we can examine in the tendenciesof the dynamicequilibriumvalues on the basis of the derivativesof thesevariableswith respectto the amount of labour employedin the productionof corn. The resultsare the following: caw* = __________ ______ ____ < 0 asf "(Nl) < 0 caN1 2J{(y 3)2wl + 4yf '(Ni)ws} b caN= f f(NN)(aw*D1)w}2W(1) > 0 asf"(Nl) < 0
(32)

(33) (34) (35)

c~N1 ~g*

as*

w*f"(Ni)-f'(N)(c@w*/1Ni) (w*)2

asf"N

asf"(N1) S 0 asf "(Nl) < ?

<034

43N1 Y aN1

ar*

fcw~
W8 3

Therefore can see that whenwe have constantreturns dynamicequilibrium we the valuesofthewage rate,therate ofprofit, the rate ofgrowthdo not change,while and whenthe marginalproduct of labour decreases the equilibriumvalues of the real and the rate of growth wagerate,the rate of profit, fall and the equilibriumvalue of themonetary function wage rate increases. Now, sincein the long runtheproduction of cornshows decreasingreturns,we can conclude that in the course of economic and the rate growth equilibriumvalues of the real wage rate,the rate of profit, the ofgrowth tend to fall,while the equilibriumvalue of the monetarywage rate tends to rise. A4. Wage-goods, luxury-goods, dynamicequilibrium and The effects changes in the productionconditionsof wage-goods and luxuryof variables and ofthe rate values ofthe distributive goodson the dynamicequilibrium ofgrowth differentials: emergefromthe following
3ws caW yWC~f'/(N)= V{(yr-P)2W2+4/3rf'(N~w
*

>

(36a)

3a

62

A NEW FORMULATION A~s*

af'(N1)
_

OF THE RICARDIAN
1)}2

SYSTEM (37a) (38a) (39a)

> f'(Ni){c@w*/c@f'(Ni)}-w* 0 > ?

ar*
_____

_ w*-f'(Ni){aw*/1f'(N1)}

and:1
cw*

(N1) c3f

c~r* = y ' f(N1)

__f

~aw 0 ~~~> wS af '(N1)

Aos 2\
ai*
__

1f

(y-_l)W2+2Pf'(Nl)ws
WmV{(-)2W2+4Pyf'(N)}

v) > 0

(36b)
(37b)

Pa f'(Nl) 43a > ?

-f(N)(aw*1/cac) < 0

(38b)

Y 43a+r*a(39b) t > ?. These resultsshow that changes in the conditionsof productionof both the wageinfluence the dynamicequilibriumvalues of the system. good and the luxury-good However, the two types of changes cause variationsof the same sign,but quantitaof and variationsof opposite tively different, the real wage and the rate of growth, sign of the monetarywage rate and of the rate of profit.
8a

A5. Changesin the'habits' of theworkers A change in the 'habits' of the workersimplies,in our model, eithera change of the natural wage rate or a change of the 'reactivity' of population's dynamics to thelevel ofthewage rate expressedbyP. In thetwohypotheses have, respectively: we
caw*
csS*

- 23 1

-(Y

P) cbw*

(y-P)2WS+2/3yf'(N1)

(N)w}> 2flJ{(y-fl)2w2+4Pyf

(40a)

a a

-a r*_ (N1)(aW*1awS) < 0 8-w Y c~W8

(42a)

and:
--a Ch*
hi
=

C9W8

pw (8W*(S)28w)
+ 2yf NW l)s]
(N,)WS} +

< 0

(43a)

-222t

I ~~~~~~~ (y P)W L 8~~ {(_)W+4pyf

1 3w* 0

+ (y-,B~w8-/{(y-P)2W2+ 4yf (N)wS) < 0

As* Ar*

(40b) (41b)

f'-(N- -ap

cg* GAB

apl

-f'(N1)(E3)aw*/@)

A w* -s- cw* =+--I

(w*y

0
cr* > 0

(42b)
(43b)

_ y

l Noticethatfrom and (9) we have: (2)

P2 1/c.1

since vpy < 0, Therefore,

aY > 0.

CARLO CASAROSA

63

In otherwords,ifthe natural wage increases(decreases) or population'reacts' less betweenthe marketand the naturalwage rate,the to (more)strongly the divergence equilibrium(real and monetary)wage rate increases.(decreases), while the rate of and the rate of growthfall. profit to A6. Changesin thepropensity accumulateof thecapitalists If there is a change in the capitalists' propensityto accumulate, the dynamic equilibriumvalues change as follows: ~~w* (, P) 2pf WS 1- > 0 aw* 1 WS[ '(Nj)s y uW Y 2+ (44) (yl)IW?2fl'N1w 2/L a f+g)2w~?4/yf'(N1)ws}J
As*
-a

f'(N1) Aa >0
-f '(Nj)(w*1aa) < 0 er* >0

ew*

(45)
(46)

er*= eg* ea
__

f
w8

__

? r aa a if at Therefore, the capitalistswant to investa larger(smaller)share of profits the givenlevel of the price of the luxurygood, we have an increase (a reduction)of the whilethe rate ofprofit values ofthe wage rate and of the rate of growth, equilibrium falls(increases).
ea

eY+

1. 2. 3. 4. 5. 6.

REFERENCES BLAUG, M. (1958), Ricardian Economics: a Historical Study. Yale University Press. CASAROSA, (1974), 'La teoria ricardiana della distribuzionee dello sviluppo C. economico', Rivista di Politica Economica,959-1015. and disequilibrium', FRISCH, R. (1935-6), 'On the notionof equilibrium Reviewof Economic Studies, 100-6. of PASINETTI, L. L. (1960), 'A mathematicalformulation the Ricardian system', Review EconomicStudies, 78-98. of RICARDO, On thePrinciplesofPoliticalEconomyand Taxation. In The Works D., and Correspondence David Ricardo (P. Sraffa,ed.), 1951, vol. i. Cambridge of Press. University Noteson Malthus's PrinciplesofPoliticalEconomy. In The Works, cit., op.
Vol. ii.