Pasinetti on the Pure Labour Theory of Value

Pasinetti (1986) argues that the exchange-production duality may be traced back to a deeper dichotomy in the theories of value. According to him, many important insights are to be gained from the pre-theoretical stages of the discussions on value, where diverging principles become acceptable being considered within a normative framework. Pasinetti identifies in Smith and William Stanley Jevons, respectively, the reference points for discussing two alternative paradigms: (1) thepure-preference model (or pure-exchange model), which looks at all economic problems as if they were problems of the optimum allocation of resources, and where prices are determined by individual’s preferences and resources endowment; (2) a pure labour economy model, where production and exchange are inherently linked by labour specialization and where prices emerge from the necessity of an extensive division of labour. In particular, Pasinetti stresses the importance for each paradigm of developing its basic structure by concentrating on one single principle. Pasinetti maintains that alternative visions of the economic system may be associated with different aims of analysis, each of them with a large degree of autonomy.

Starting from this analytical scheme, Pasinetti puts forward a ‘pure’ labour theory of value and distribution. He first introduced a set of ‘newly defined subsystems’, much more comprehensive than those considered in Pasinetti (1973, 1981: Chapter 7) since ‘they include not only the labour and the means of production for the reproduction of each subsystem, but also the labour and the means of production necessary to its expansion at its particular rate of growth (g+ r) (Pasinetti 1988: 126-127; italics in original). By additionally assuming that (1) the rate of growth of these ‘newly defined sub-systems’ may be different (due to a different rate of growth of technical progress and changes in the level and/or composition of demand), (2) there will be a particular natural rate of profits for each hyper subsystem (where a natural rate of profits is defined as a rate of profits which is equal to the rate of growth of demand for the corresponding consumption good), and (3) defining by P the vector of the vertically hyper-integrated labour coefficient for commodity i, Pasinetti (ibid.: 129) obtains the specific set of natural prices p⁽ⁱ⁾ = P w, where w is the wage rate. This result is remarkable since, as Pasinetti himself points out, it is a complete generalization of the pure labour theory of value; in fact, each physical quantity of any consumption good is shown to be unambiguously related to a physical quantity of labour. What is more important is that ‘the two [i.e. physical quantities of consumption and of labour] have, in between them, a physically defined self-replacing, and expanding, circular process’ (ibid.: 130).

Not surprisingly, Pasinetti’s analysis reveals a strong intellectual sympathy with Smith (see Porta 1998), first for the representation of the productive system as a set of vertically integrated sectors and second for the associated concept (common to both Pasinetti and Smith) that labour may be considered as the ultimate source of wealth. So it happens that Pasinetti’s 1993 volume (Pasinetti 1993), as mentioned above, offers a theoretical investigation of the development through time, as a consequence of human learning, of a ‘pure labour economy’, that is to say, of an economy in which production activity is carried out by labour alone—‘labour unassisted by any intermediate commodity’ (ibid.: xiii) (as the author himself defines it). Economists have known for a long time the two basic phenomena at the root of the long-term movements of our industrial societies: capital accumulation and technical progress. But, according to Pasinetti, the privileged position has always been given to capital accumulation. In Pasinetti’s 1993 volume, this approach is reversed, and technical progress is assigned the central role. Within a multisector framework, he first describes (against a background of ‘natural relations’) the structural dynamics of prices, of production, and of employment (implied by differentiated rates of productivity growth and of expansion of demand); he then discusses a whole series of problems that arise at the institutional level. According to Pasinetti, personal and social learning, know-how, and diffusion of information emerge as the fundamental factors accounting for the features and fate of industrial societies: the source of their wealth, but also the source of their troubles. The ‘pure labour theory of value’ allows Pasinetti to shift the theory of long-term economic development from a traditional framework based on capital accumulation to new foundations based on learning, technical progress, and diffusion of knowledge.