A Sraffian model of Pasinetti's natural economic system

Abstract

Pasinetti's (1981) natural economic system is a central idea of Pasinetti's structural economic dynamics, which explains various features of a growing economy, focusing on an evolving structure of commodity prices, an evolving structure of production, and the time pass of the wage rate and the rate of profit (Pasinetti, 1981, p.128). It exhibits three core properties: first, the sum of the growth rate of the quantity of labour and the growth rate of demand or the growth rate of labour productivity determines the rate of profit (the natural rate of profit). Second, under a ‘positive’ natural rate of profit, the quantity of labour commanded by a commodity equals the quantity of labour embodied in the commodity (a pure labour theory of value). Finally, equal rewards should be paid for equal amounts of homogenous labour (the basic principle of equal rewards). These core properties were examined, using our Sraffian discrete-time models corresponding to the three cases. The first model explains the simple case of a growing economy with no technical change and an invariant composition of demand. The second model treats the difference between the actual net product and the standard net product, assuming no technical change and an invariant composition of demand. The third model explains the occurrence of technical progress in a growing economy. The validity of three core properties of the natural economic system in Pasinetti (1981) is examined by three Sraffian models.