A REFUTATION OF THE COMMODITY EXPLOITATION THEOREM Takao Fujimoto and Yukihiko Fujita! Fukuoka University, Japan 0th, May, & Sth, 11th, June, 2006 at Fukuoka University ABSTRACT This note is to show that the generalized commodity exploitation theorem put forward by Bowles and Gintis (1981) and Roemer (1982, 1986) is nothing but an alternative form of the Hawkins-Simon condition for a given technical data, and that it has nothing to do with exploitation. That is, the Hawkins-Simon condition means a mere possibility of an economic ayatem to produce a surplus in each commodity, and as such does not guarantee the existence of positive profits. To consider exploitation or the existence of positive profits, we need to introduce prices at which unequal exchanges may be carried out, One more point is that labour is reproduced in a process which is supposed to earn no profit. 1. INTRODUCTION ‘Some economists, especially in the USA and Japan, argue that positive profits can accrue from “exploitation” of any one commodity chosen, and so it is useless to tick to the labour theory of value to explain profits based upon exploitation of labour as advocated by Marx. (See Bowles and Gintis (1981) and Roemer (1982, 1986).) This proposition is called the ‘commodity exploitation theorem” (CET), and not a few people think that this theorem puts an end to the fundamental Marxian theorem (FIT) established by Okishio (1963) and Morishima (1972) The suthors ave grateful ty our culls gues fx theis weful comments made in a seminar at the Center Sr Advanced Economic Study, Fuleaula University, and tu lan Steadman Sr his information sbvut a esntsibution ly BriyIn this note, however, we show, using a simple Leontief model, that the CET is merely an alternative representation of the Hawkins-Simon condition, and simply ays that a given linear economic model is productive enough to produce a surplus in each commodity. As such, the CET describes a physical condition, and haa nothing todo with exploitation, a phenomenon of social relationship, ot mare specifically a phenomenon dependent on the capitalist mode of production (Alarx (1967). Exploitation turns out after products ate exchanged in the markets at stable or equilibrium prices as the economy dictates the participants. We then prove that labour is exchanged for the real wage basket of commadi- ties which ia of leas value whichever commodity in the basket is chosen as the numeraire or the standard of value. Thus, labour aa a whole is exploited by the owners of products, the ‘capitalist class’ or the haves In Section 2, we restate the generalized commodity exploitation theorem, ‘using the proof method in Fujita (2006), and Section 3 presents our propositions Two numerical examples are given in the following Section 4. The final section contains some remarks, among which we describe how to generalize our resulta in a joint production model. 2. THE COMMODITY EXPLOITATION THEOREM RESTATED (Our model is a simple Leontiet model of circulating capital. There exiat n(n > 1) kinds of normal commodities and one type of labour. Let A represent a given nx n material input coefficient matrix, { a given n-row labour input coefficient vector, and ¢ a given n-column vector of consumption goods which is exchanged for @ unit of labour force as the real wage basket. All the given matrix and the vectors are nonnegative. We define an extended (n-+1) x (m+ 1) matrix A as Ae (* 4) This mati is called the ‘complete matrix’ in Brédy(1970, p.22). Let us make the fallowing assumption. Assumption (HS). The matrix (I-A) satisfies the Hawkins-Simon condition (Hawkins and Simon (1949). Here, I is the (n+) x (n+1) identity matrix.) This assumption means that the technology of our economy is a0 productive that it can produce a surplus in each commodity including labour force. Let Ag,» denote the nxn matrix obtained by deleting the i-th row and the i-th column from A. Now we consider the aystem of values in terms of i-th commodity. These values are defined by PAP 38, AW) y=, Pa a Oe Meier Nea Note that on the LHS, the i-th entry in the variable vector is \{, while onthe RHS the corresponding entry is unity: Here, the symbol \¢ stands for the value of one unit of commodity j in terms of commodity i. For short, we call this \ , “commodity i value ot commodity j ’ like labour value of bread? Let us define the following vectors AO PAP DAP AR a) AR, = OPP. Rt aR ee ah) AB = OPAPP aie Ga), and Afr = OPP A TAR AP) (A pair of parentheses () in aubacript implies the removal of the index inside, and the dimension gets one less.) Then the above equation becomes AO = AS a. a This formulation is coherent with the usual definition of labour values when i=l, ie, labour is selected as the standard commodity of value, and 2°? means the quantity ofcommoclty # whichis directly and indirectly required to produce one net unit of commodity j With a slight manipulation, eq,(1) is rewritten as A) = AB) A+(.0....01- M9, 0.006, 0), or (2) ‘where a poasibly nonzero element in the second term on the RHS is in the #-the entry. Thus, AM = (0,0,...,0,1- X09, 00+, 0). (=A) Denote by by; the (i, j) element of (J —&)-1, then we have AP) = NP) ar Bias bent) In particular, it follows 1 = (1=N)-b4, and MP = A=2) 5 These lead to and @)a, oO Way a By the Hawking-Simon condition postulated in Assumption (HS), (i-aytaTtatate with the RHS converging. This implies by, 21 for any 15k <(n +1), Therefore, from eq(3) , we get oi (8) Note that bj; > 0 is enough to obtain A!) <1. Insum, Commodity Exploitation Theorem. Given the assumption (HS), \ <1 for any i ‘The result \( <1 in eq(6) is claimed by some people to express the ex- ploitation of commodity i. It should be noted that commodity i has been chosen in an arbitrary way, hence so long as the Hawkins Simon condition is satisfied for the matrix (J/— A), all the commodities are ‘exploited’, including labour. (Eqz.(2) and (4) were obtained by Jeong (1982, 1984) and by Fujita (1991). These equations are now essential in the total flow analysis of Leontiet models, See Seyrmer (1992) and Gallego and Lenzen (2005).) We had better here explain a theorem by Fujita (2006) related to the above result Theorem, Let us assume the Hawkine-Simon condition for (I~ Ag,:)). Then, the Hawkine-Simon condition for the extended matrix. (I-A) is equivalent to Ned * This theorem can be proved as follows, Eq.(2) can be transformed to MOT =A) = (0,0,....0,1-40, 0,0) By the Cramer’s rule, we get, forthe i-th variable, Usual , Wal lal VAcal Thus, \? <1 if and only if | — Al > 0 because |f — Ay, | > 0. Thanks to a proposition by Georgescu-Roegen (1951), the condition |/ — A| > 0 is enough to guarantee the Hawkins-Simon condition for (J — A) This theorem due to Fujita, in a somewhat different context, can be inter- preted as follows. When a productive system is enlarged to include one more , MY) r (- aMcommodity, the aystem can remain productive if and only if the value of the com- madity in terms of that commodity is leas than unity in the extencled system, In fact, the theorem tells us more: the system remains productive if and only if the value of any arbitrarily chosen commodity in terms of that commodity ia leas than unity. 3. A REFUTATION OF THE COMMODITY EXPLOITATION THEOREM Eq.(5) in the previous section is mathematically nothing but an alternative ex- pression of the Hawkins-Simon condition for the matrix (I-A) , and aa auch this is confined within the physical world, and has nothing to do with exploitation, as is warned by Okishio almost everywhere in Okishio (1977). Exploitation may be realized when exchanges at prices in the markets are practiced as the rules of the society orders. Eq,(5) tells us simply that the economic system is productive enough to produce a surplus in every sector. Who gets those surpluses ia quite another problem. In order to discuss this problem, we need to introduce prices at which products are exchanged, Through exchanges of products, some obtain aurpluses while others do not. In our model, the price equations are written as (22 Ggneato and pee=l where p is an r-row wage-unit price vector. In this section we have to make cone more assumption about the positiveness of the money wage rate. That is, Assumption (PW). The price equations above have a nonnegative aolution vector (Let us assume ¢ has at least one positive entry, and call those commodities in ¢ the basic consumption goods. Then, this assumption (PW) is guaranteed wwhen the submatrix of (4+c:) composed solely of basic consumption goods is indecomposable, ancl at least one process of basic consumption goods induatries employs direct labour input. See Sraffa (1960).) ‘Actually, we do not have to solve the above equation. The important equation is p-e=1, and the fact that one unit of labour force is exchanged for the real \wage constimption basket Now, we consider the labour values of commodities, A(*+1), which ia written 2s \(0 in this section. In a similar way, the index (n1) is changed to (0) to stress that the variable concerned is related to labour. By definition, that ia, by eq.(1), we have oat MO eal 6 where A Ah = OWA MO)Eq (6) tautologically means that one unit of labour is exchanged for the basket which has the same labour value. In this event, workers do not acquire any surplus. Thus, Proposition 1. Given the assumptions (HS) and (PW), in the exchange be- thveen one unit of labour force and the workers” consumption basket, their labour values are equal Next let us consider the exchange between one unit of labour and the basket cin term of the commodity i value. We assume that ¢ > 0. The comparison can then be expressed aa follows A) = ABy-e fom ea(1) > AW c became 1> 30 and 6 >0 This inequality demonstrates that when commodity i is included in the workers” consumption basket c, commodity i value of one unit of labour force is greater than commodity i value of the basket c Hence, Proposition 2. Given the assumptions (HS) and (PW), in the exchange be- ‘tween one unit of labour force and the workers’ consumption basket, the com- madity i value of labour is greater than that of the basket provided commodity {is contained in the basket So, the above two mathematical propositions lead us to the following. Corollary. Given the assumptions (HS) and (PW), the combined commodity basket c ot its owners can obtain surpluses through exchanges with workers 4 TWO NUMERICAL EXAMPLES Firat, we take up an economy where there exists only one normal commodity, say, bread, and labour. The technological data are: A= (0), ¢= (05), and e=(1) ne(%s 5) me-n=(4os 7) It is easy to verify the matrix (J — A) satisfies the Hawkins-Simon condition, w-w'=(2 3) From ega.(3) and (4), we get These give wo ‘ yIt is not difficult to compute the equilibrium wage-unit price of bread, and we have p) = 1 with the equilibrium rate of profit is 1, Thus, one unit of labour force is exchanged for the basket, ie., one unit of bread equally in terms of labour values, both being 0.5, On the other hand, the exchange between one unit of labour force and one unit of bread in terms of bread values is unequal since bread value of labour force is 1 while bread value of bread is 0.5, which verifies Proposition 2 in the preceding section, Next, we consider an economy in which there are two normal commodities, bread and wine. The given data are a= (2 $2) 20.0, ant c= (92) These then yield 02 01 02 os -01 -02 A=[ 02 03 02 | and(s—ay=| -02 07 1 1 0 -1 The determinant of (J — A) is 0.18, and thus positive, satistying the Hawkins- Simon condition. The inverse of this matrix is computed as 25/9 5/3 8/9 (r-ayt={ 20/9 10/2 10/9 5 58 8 From eqs.) and (4), the values are: co A? = 0 My The equilibrium wage-unit prices are both p: = p: = 25, and the uniform rate of profit is 0.25. The comparison of values involved in the exchange of one unit cf labour force and the consumption basket are first made for bread value Since NY 20.22 >A x 0240 «020288 ‘the bread value of labour force is greater than that of basket. Second, in terms cof wine value, we have AP) 21/30 4 AP) x 024M) x02=2/2x02407x02= 0275This inequality again confirms our Proposition 2. Brédy (1970, pp.$5-86) has made a similar calculation, dealing with a apecial ccase where the matrix ([—A) is singular, and obtained a proposition that values in terms of any commodity are proportional to one another. 5, CONCLUDING REMARKS One of the important clfferences of labour ftom normal commodities is that labour is reproduced inthe household sector, where no profit is earned, and one tit of labour is gold for the fixed consumption basket. The normal commodi- tieo are, on the other hand, produced in the production processes seeking for larger profs, and will have their prices datinet ftom the values in whichever commodity as the standard Under various prices, ech commodity can be ex- hanged fora different amount of other commodities. On the cther hand, one Unit of labour force is bound to be exchanged for one fixed consumption basket, whatever prices are going in the markets, An asymmetry between labour and normal commodities in Proposition 2 comes trom the fact that labour input to reproduce one unit of labour fore is mull ‘This means that the fnal column Of the extended input matrix is the real wage basket exchanged for one unit Of labour force rather than an input vector to reproduce labour in an efficient ‘ray. On the other hand, the columns corresponding to normal commodities are really input vectors, and not those baskets exchanged for one unit of respective Commodities. thove processes are expected to procure profits To obtain Propo. sition 2, however, we do not have to calculate the equilibrium wage-unit prices Oreven the prevalence of equilibrium price isnot required. All we need to have isthe relation p-c= 1. Labour is the sole target of unilateral unequal exchange, ie, exploitation, although some minor unequal exchanges between fro normal commodities may arse. Certainly, surpluses are “born out? collectively from al the commodities. It should be agreed, though, that workers act an “micvives? to realize these surpluses. Tt should also be agreed that a simple Leontiet model may be used to analyze a capitalist mode of mass production where each sector is well standardized and technological information is fairly uniformly difused within a country, but it may be misleading to employ a simple Leontiet model to study an economy in the times of Quesnay when a production sector ould not be described by a single vector and homogeneous unskilled labour was not dominant yet Okishio (1963, 1977) made simple a mathematical representation of exploita- tion and the FMT. Thus, some people have mistaken the inequality, \°) < 1, for an expression of exploitation, while the existence of a nonnegative row” vector p such that p > p+, for the existence of postive profits. These are the mathematical outcome of the Haskins Simon productiveness condition, and are nothing other than a set of technical data, showing a mere possibility Gf positive profits, The one point missing here io that wage-nit prices ae set go that p-c= 1, and one unit of labour force is exchanged for one basket ¢ 8without winning a surplus It is not difficult to generalize our results to a model of joint production. When the aquare nn material output coefficient matrix and the square input matrix are denoted by B and A, respectively, the extended net output matrix becomes naan (254 5f) vine ne(Z 2) md If (B — A) is inverse-positive, ie., (B — A)-! > 0, then more or less the same trun canbe ate ong tA i do ere wwe de care about the nonnegativity of various values. That is, in the case of joint production, eq,(1) becomes = A0 1 AM SAG AB and the relevant inverse is not (J — A)“, but (IAB) ie, (B- A) BU )-! =B-M™. Indeed M js inverse-positive if Ae <1, thanks to the Banachiewicz identity related to the Schur complement (Banachiewicz. (1987): here A = (- (B—A)"!. It is interesting to note that labour values are still guaranteed to be positive because the (n-+1,n-+1)-entry of B-IM~! is greater ‘than unity. (See Fujimoto et al.(2003) tor the inverse-positivity of (B — ).) The last remark is about the indecomposability of the matrices. We do not assume the indecomposability for the whole matrices of (4-te) or A, which has been assumed in most of the literature related to the topic we have discussed in this note. In Section 3, while discussing the Commodity Exploitation Theorem, ‘the matris A can even be decomposable, and the vectors ¢ and ¢ are allowed to be zero vectors! This fact alzo reveals that the theorem is totally disconnected from any social relationships. To discuss about exploitation, labour should be employed, and this at a positive wage rate. REFERENCES Banachiewicz T. (1927): “Zur Berechnung der Determinanten, wie auch der Inversen, und 2ur darauf basierten Auflosung der Systeme linearer Gleichungen”, Acta Astronomica, Series C, 3, pp.41-67. Bowles §., Gintis H. (1981): “Structure and practice in the labor theory of value”, Review of Radical Political Economy, 12, pp.1-26. Brody A. (1970): Proportions, Prices and Planning 4 Mathematical Restatement of the Labor Theory of Value, Akadémiai Kiad6, Budapest. Fujimoto T., Herrero C., Ranade R.R., Silva J.A., Villar A. (2003): “A complete characterization of economies with the nonsubstitution property”,Economic Issues, 8, pp.62-70. Fujita Y. (1991); “A further note on a correct economic interpretation of the Hawkins-Simon conditions”, Journal of Macroeconomics, 13, pp. 281-384 Fujita Y. 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(1992): “Input-output coefficients and multipliers trom a total flow perspective”, Environment and Planning 4, 24, pp.921-037 Corresponding Author: Takao Fujimoto Department of Economics Fukuoka University Nanakuma, Jounan-ku, Fukuoka, 814-0180 Japan ‘takao@econ fukuoks-u.ac.jp 10