i. -.” History of Economic Ideas ; . Lecture’ 11 ” | Click te add subtitleRicardian Value Theory ‘What is a theory of Value?: Determination of Prices Is there no Valuciif there is no exchange? Question of Intrinsic Value of a commodity How is the theory of Value different from the theory of Production? Neoclassical Theory focussed on production, but Classical Political Economy talked of Value Whatis the relationship between Value and Prices? Value and Prices are different. Value is related to distribution. Prices are related to exchange Difference between UseValue and Exchange Value Does exchange value determine prices? This is the point of difference between classical political economy and neoclassical economists. How is the use value determined? Ricardo posed himself against Smith. [pg Hd nates 72 Se I (keting Ricardian Value Theory © Is Value related to distribution? © Independence of Value and Distribution? © Distribution is related to the balance of social classes © Thrust of Smith and Ricardo was development of capitalism © Smith and Ricardo both looked at problem of accumulation of capital © Adam Smith Problem and Ricardian Puzzle: pointed ick to add notesRicardian Distribution Rent is the surplus produce of infra-marginal applications of land where productivity was greater than at the margin Margin is extensive as well as intensive Rent is always the difference between the produce obtained by the employment of two equal quantitities of capital and labour © Rentis dependent on the inequality of the produce obtained from successive portions of capital employed on ’ << Click to add notes.© Rentis the surplus produce of infra-marginal applications of land where productivity was greater than at the margin Margin is extensive as well as intensive Rent is always the difference between the produce obtained by the employment of two equal quantitities of capital and labour Rent is dependent on the inequality of the produce obtained from successive portions of capital employed on the same or on new landRicardian Distribution The idea of rent is creation of value but not creation of wealth 5 No-ent land is not possible Crucial to the theory is theory of profit The theory of surplus was initiated oo So 3. Ricardian theory of profits as surplus or accumulation rejected Smith’s deduction theory of protit k to add notesASMANCALNALCALL £2 ENE © Profits depended upon the difference between the product of Jabour at the margin of cultivation and the subsistence of that labour 3 Ricardo had an idea of net produce Ricardo had a clear presentation of intermediate goods Profit was expressed as a product ratio to wages Dae) _O The ratio fell as the margin was extended and the product of the day’s labour declined and returns to labour had to increase © Rate of profits and of interest must depend on the proportion of production to the consumption necessary to such productionTheory of Profit and Rent ) Wages as subsistence . Profitand rent are governed by differences in the productivity of labour successively applied to land Close to Physiocratic Net Value ) What is the crucial determinant of surplus accumulation! - What determines capitalist accumulation? Ricardian LTV : Quantity of labour determines exchangeable value and that required to replenish it a d notesQuestions Is an increase in rent at the expense of profit? Is rent a transfer in net revenue? Is rent a portion of profits already invested in land? Is it new revenue or a part of created revenue? OD: oO 3-0 I Is the degree of fall in profits and the rise of rent dependent on increased expense of production? 3 How is diminishing marginal productivity of labour a the margin responsible? a ______________Falling rate of profit Smith and Ricardo concern Antagonism between landlords and industrial capitalists Agricultural theory of profit extended to the theory of value oS 3 -0F SD Ricardo’s concern was under what conditions would a change in wage rate would cause a change in relative prices 4 2 Profits depended on prices of commodities and supply and demand © Ricardo rejected the proposition that utility determined exchange value oadd notes~ Labour theory of Value Labour commanded? Labour embodied? Direct and applied labour? Ricardo divided capital into fixed capital and circulating capital Capital as embodiment of past labour Intrinsic Value theory? Absolute theory and relative value theory? 9 39 099 9 39 359 9D Profits seen as surplus i add notes fUnitedStatest aValue ) Profit depended upon the ratio of production to consumption necessary to that production ) Profits fall due to falling productivity of labour and rising value and wages .) Diminishing returns to land means rising rents and fallihg profits ) Towards labour theory of value ) LTVdetermined distribution of income : total value is distributed among three classes in the societye © Profitdepended upon the ratio of productionto. 1 | consumption necessary to that production ! | © Profits fall due to falling productivity of labour and rising —-value and wages 0 Diminishing returns to land means rising rents and falling | profits/Malthus opposed by Ricardo | © Towards labour theory of value © LIVdetermined distribution of income /Smitht total value is distributed among three classes in the societyValue © Profit depended upon the ratio of production to consumption necessary to that production © Profits fall due to falling productivity of labour and rising value and wages © Diminishing returns to land means rising rents and falling profits/Malthus opposed by Ricardo © Towards labour theory of value © LT Vdetermined distribution of income /Smith: total value is distributed among three classes in the society a id nntacCritique of Smith © Confusion between quantity of labour and labour commanded © Dependence on relative quantity of labour © Labour is the foundation of value © Difference between quantity of labour bestowed and quantity of labour exchanged © Hinted class struggle ‘fn add natesDistribution © Value or distribution as the principal problem of political economy? © Smithand Ricardo had two different answers © Rentincreases absolutely or in proportion to capital employed? Long term stationary state Progress of capital accumulation Both Smith and Ricardo explained capitalism but ended with long term problem in capitalist growth aUO 28 2 8B <1 SAI a il a Stes - a Shape Etre Value and Distribution Long term vs. short run Progress of capital accumulation ? Long run stagnation? Pessimism of economic growth?Co Dynamism Problems in dynamism of the structure Recourse to Malthusian theory of population Natural tendency of profits to fall? Distribution is a prerequisite? Role of state? Go - o Oo OD Is there difference between the two views? dd notes