‘Lets be clear’ it was Fisher
‘Before we had a rate of physical surplus all of which went to wages as labour was the only factor’
‘Now we have introduced a capitalist who creates a firm and introduces an enhanced process, this increases the rate of surplus, this additional value may flow to extra wages or more likely to the capitalist as profit’.
‘We need to be very careful here’ it was James Mill ‘where the profit comes from intensive actions they add to the surplus of society as a whole, where they come from extensive actions, such as market power, monopolies and so on it subtracts from the surplus of society as a whole’
‘The value surplus then is split between the factors wages and profits’ said Ricardo
‘Which is why I term profits –surplus value’ added Marx ‘value created by labour but not returning to labour’.
In our scheme an increase in the rate of profit reduces the labour share ‘Added Sraffa
‘But you can still have a decrease in the labour share and an increase in the real wage’ added Adam Smith, if the source of profit is innovation – an intensive rent – not market power – an extensive rent – it is difficult to see the whole of the latter as exploitative, only if it is above a level reasonable to ensure the innovation is brought into play.
‘Thus far you have considered changes in supply conditions’ stated Fisher ‘Lets now consider changes in demand, such as from metal to plastic toys’.
‘If the cost of production between metal and plastic toys is the same’ said Ricardo ‘and the overall demand for toys remains the same then the price of production of the toy alone will determine the price’
‘It the prices of production are different then the price will vary in proportion to those prices, in other words to the embodied labour making the toy as we have calculated it’
‘A shift in demand from metal to plastic toys will simply see less metal toys sols and more plastic, in all cases it will be the objective conditions of production which set the price’.
‘What about the preferences of the consumer?’ askled Hotelling
‘That can also be thought of in terms of labour’ said James Mill ‘ for which money is just a creditory token’
‘Lets say someone is paid for 35 hours a week at an average wage of which 20 hours a week were disposable income’
‘If someone invents a highly desirable consumer good, an innovation which only takes 15 hours labour (as we measure to make)’
‘As the first supplier of that good they are able to charge a price greater than the labour embodied price, but no higher than the price of labour commanded that the consumers are willing to part with it for, they are able to leverage a monopoloy power.’
Ricardo spat out his tea
‘Are we then saying that the labour theory applies also to monopoly goods – but at a labour commanded rate?’
‘Yes’ said JS Mill
‘If the demand is greater than the supply the good will trade at the labour commanded rate the higher rate, but conversely if the demand is less than the supply the good will trade at the labour commanded rate the lower rate, in both cases labour is production will shift or cease so that the long run trend is for labour commanded to equal labour embodied’
Hotelling chipped in ‘Both are examples of the short side rule for trading in disequilibrium – the short side of the market rules’
‘And because we have a comparator in the labour embodied value we don’t suffer from Ricardo’s measuring problem if we relied on labour commanded alone’
‘Each element of labour commanded represents a bundle of effective demand, the demand for the good and the proportion of the overall real wage labour budget devoted to it’
‘I of course object to any measure of demand that does not wise hen a want for supply of a good has not risen’ said Ricardo
‘It hasn’t’ said Fisher ‘but if say fuel has a shortage that means its price doubles then a budget holder will have to reduce consumption of other goods relative to it to compensate, from a producers perspective the money flow thye effective demand has doubled, it is the demand expressed through money that creates market signals’
In part 6 ill consider rent