A note on wages, profits and fluctuating growth rates

Abstract

When I first presented my paper on growth cycles (Goodwin, 1967) Joan Robinson dismissed it in what was a double-edged comment: I had made the same crucial mistake as Marx. Like him, I believed, and still believe, that there is a basic conflict of interest between employers and employees—a notion shared, rightly or wrongly, by a great many people in both groups. Though flattered to be lumped with Marx, I was, and still am, much disturbed by the comment, since I too shared the Keynesian view, that, with unem ployment, there can be more of everything for both. So what is the resolution? It is an important issue since most countries, most of the time, have varying degrees of unemploy ment. This short note is an attempt to clarify what is really a rather complicated issue. Amongst the papers left at his death was an unpublished lecture given in Japan by Schumpeter (and only rather inadequately mentioned in his History of Economic Analyses). In it he said that Ricardo had to reduce a formulation of the economic problem involving four simultaneous equations down to one single equation, because of his inability to handle mathematics, a disability keenly felt by Schumpeter himself. The process involved, along with other points, limiting the analysis to the shares of national product, thus evading the determination of its size. This bears on the point at issue between Joan and Karl Marx, as well as constituting a trap into which I, rather inadvertently, fell. Until Sraffa's work, Marx could plausibly be called the last of the Ricardians. It is a plausible guess, that Sraffa, as a life-long Marxist, intended, by reformulating Ricardo, to provide also an improved foundation for Marxian economics. Because of the sharpness of his logic Sraflfa brings the problem into clear relief. In his book (Sraffa, 1960) he begins with the two free parameters, wage rate and profit rate, inversely related in the Marxian tradition. But when it comes to a precise formulation, in terms of the standard commodity, he suddenly switches from the real wage to the share of labour, and, hey presto, he is home and dry: shares of necessity add to unity; the more of the one, the less of the other. Thus he has neatly side-stepped the Keynesian result: with unemployment and a variation in output, we can have more of both. It is highly significant that Sraffa, though a friend and colleague of Keynes, never refers in his book to The General Theory—indeed upon one occasion, by persistently press ing him, I got him to admit he did not like it. Quite logically as a Ricardian, Sraffa is con cerned only with the value dual, never the output primal. Marx, less consistent, did not make the same mistake and refuse to discuss output: witness the industrial reserve army, the pre-occupation with accumulation and technical progress, etc. Nonetheless he was explicitly deeply in the debt of Ricardo, believing in the power of pure value theory to unlock the mysteries of capitalist evolution. This may help to account for the fact that, whilst he was the first economist to give serious attention