Heterodox
This post is for my commonplace book. I have been reading Enrico Bellino and Gabriel Brondino's "Circular vs. one-way production processes: two different views on production and income distribution" (Review of Political Economy, 2024). Bellino and Brondino draw a distinction between a circular model of production and a one-way model. In the latter, a finite, dated series of non-produced inputs (for example, labor) results in the production of the output. This dichotomoy is distinct from the distinction between a theory focusing on the reproduction of society and a theory focusing on the allocation of scarce resources. Bellino and Brondino argue that, if subsistence wages enter into the costs of production, the one-way model becomes a circular model of production. The one-way model
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This post is for my commonplace book. I have been reading Enrico Bellino and Gabriel Brondino's "Circular vs. one-way production processes: two different views on production and income distribution" (Review of Political Economy, 2024).
Bellino and Brondino draw a distinction between a circular model of production and a one-way model. In the latter, a finite, dated series of non-produced inputs (for example, labor) results in the production of the output. This dichotomoy is distinct from the distinction between a theory focusing on the reproduction of society and a theory focusing on the allocation of scarce resources.
Bellino and Brondino argue that, if subsistence wages enter into the costs of production, the one-way model becomes a circular model of production.
The one-way model supports the illusion that returns to capital can come from markups over costs. The circular model demonstrates that profits come from the ability of a surplus product to be generated in production. It is not a matter of prices.
"Finally, when production is circular, profits depend first and foremost on the ability of the economic system to generate a surplus, that is, the possibility to produce commodities such as corn, cloth, wood, steel and chips to a greater degree than required, and secondly on the capitalists' power to appropriate a part of it (if workers also get a share of the surplus) or all of it (if workers earn only the subsistence wage). Profits thus emerge in the sphere of production and in the relative bargaining strength of capitalists in fixing real wages. They are not the merit of a particular input, firm, or industry. The profits of an individual are a claim on the surplus, a claim which is independent of the risk taken, the ability to compete, or the sector in which it produces. These qualities may explain why one capitalist can get more than others, but not why there are profits in the economic system. In a circular system, the generation of surplus is a necessary condition for the existence of profits. [Footnote]
[Footnote:] Saying that profits depend on the economy's capacity to generate a surplus does not deny the possibility that, at an individual level, a capitalist may attempt to increase their profits by raising prices. However, such increases can only be temporary under competitive conditions. The daring capitalist will eventually lose market share since they will attract other competitors, making their rate of profit converge to the general one..." -- Bellino and Brondino
I have a question about the history of economic thought. Ricardo had examples of the one-way model of production, for example, in his first chapter showing why a simple labor theory of value. The Ricardian socialists, as I understand it, often explained profits by capitalists being able to exert force to markup prices over costs. Does Bellino and Brondino's argument illustrate a superiority of Marx over the Ricardian socialists?