Prices of production/direct prices trajectories
In this section, we study the price trajectories consequent upon changes in income distribution using our aggregated into five sectors input—output data of the U.S. economy of the year 2014. The price trajectories and, in general, changes in distribution are more transparent in models with a few sectors. We explore these changes used at the beginning a circulating capital model;
subsequently, the model expands to include fixed capital estimated according to the two methods, whose details have been outlined in Chapter 4 and in Section 7.4.
For the price trajectories, we invoke Equation 4.6 below:
and we apply it in the case of the circulating capital model with H = (A + bl)[I-A]-1 and subsequently in the Fixed capital models with H = K[I-A]“ 1 of course with appropriate adjustments in R.
PP/DP trajectories, circulating capital model
As we can see from Figure 7.1, the movement of relative prices is monotonic and the same is true with the movement of capital—output ratio as shown in Figure 7.2 ruling out the case of Sraffian effect. We know that the circulating capital model is more likely to display switching in the price rate of profit (PRP) curves. In principle, we cannot rule completely out the change in rankings. However, we do know that crossings are more likely to occur when the number of industries increases, but even in this case, it has been shown empirically that the likelihood is very limited (see Chapter 4), exactly as suggested by theoretical studies (Pertz 1980; Mainwaring and Steedman 2000).
The movement of the capital intensity, as measured by the circulating capital—output ratio, induced by changes in the relative rate of profit is also
Figure 7.1 Price trajectories and the relative rate of profit, circulating capital model, USA 2014.
monotonic and does not display any empirically significant variations (Figure 7.2). In general, the reevaluation of capital stock in response to changes in income distribution is moderate and less pronounced than those of relative prices shown in Figure 7.2.
Figure 7.2 Capital intensities and the relative rate of profit, circulating capital model, USA 2014.
This analysis in terms of a circulating capital model displayed linearities in the movement of relative prices and in capital intensities. As we have already pointed out, the results depend to a great extent, on the limited number of sectors; more industry-detailed input—output tables may give rise to non-monotonic movements in prices with extrema and crossings, as we have shown in Chapter 4.