Economic Theory and Its History by Unknown

Author:Unknown
Language: eng
Format: epub
ISBN: 9781317286943
Publisher: Taylor & Francis Ltd

If the production of gold increases then Ng increases and total wages increase, while profits decrease from a certain point onward. In fact, the profits of the gold industry (in terms of gold) are . On the basis that any increase of employment in the gold industry requires a corresponding increase of employment in the corn industry (to produce the wage-good for the additional workers of the gold industry), we can assume that dNc / dNg > 0. Hence

The first addendum is positive and decreasing as long as , where is the stationary state employment level for the corn industry, while the second addendum is always negative. When Nc approaches , the first addendum of the derivative tends to zero, and thus real profits in the gold industry decrease.

Moreover, the rate of profits for the whole system, given by the ratios , with t = 1, 2, …, always decreases.

In conclusion, the main consequence of the accumulation of capital is that the rate of profits decreases and tends to zero while profits decrease and tend to zero from a certain point on. Here both the incentive to accumulate and the source from which to draw additional capital are exhausted. The economy has reached its stationary state. It is in the condition to indefinitely replicate the same productive cycle without expanding or contracting. More realistically, according to Ricardo, the stationary state will be reached before profits completely disappear, i.e. when the rate of profits has reached that minimum level which no longer induces capitalists to invest.

The above analysis makes it clear that the cause of the decrease in profits during the process of accumulation of capital is rooted in the decreasing returns to scale of lands. In the corn industry profits are eroded in favour of rents (this emerges clearly from the left-hand diagram of Figure 16.3). But, as corn is the wage-good, this phenomenon extends to the rest of the economy through a higher wage rate expressed in terms of the other commodity(ies). The wage rate remains constant in physical terms at the given level , but its value in terms of gold, , increases as new workers are employed on new (and less fertile) plots of land. The right-hand diagram of 16.3 depicts this effect very clearly. This reasoning faithfully replicates the description of the effects of accumulation of capital described by Ricardo (1817, pp. 120–1).

In the above analysis, we have considered the wage rate fixed at the subsistence level () during the whole process of capital accumulation. This is clearly a shortcut, because according to the Malthusian principle, is that level of the wage rate which keeps the population size constant. This is contrary to the need of increasing employment according to the accumulation requirements.11 However, as showed by Kurz and Salvadori (2006, pp. 110–1), the conclusions reached above would not be significantly affected if a non-constant path were assumed for the wage rate. Consequently, the accumulation process could be described by the same formal apparatus described before,

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