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In this section we begin to develop a neo-Ricardian model, based directly on the one presented by Sraffa in his book.

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7.3 The rudiments of neo-Ricardian theory

In this section we begin to develop a neo-Ricardian model, based directly on the one presented by Sraffa in his book. We start with an extremely simple situation and gradually build up to more complex situations.

The primary feature of this model is that it does not consider the long- run aspects of social and technological growth. Specifically, a given state in the long-run process of development of a capitalist economy is examined. To do this, the total quantity of output produced, and its composition, are taken as given. Also taken as given are the techniques of production. These techniques are rooted in the history of society and embody all of society's past achievements.

In this regard the analysis is a static analysis. Insofar as we will be comparing alternative static states, our analysis may also be termed comparative statics. This implies that we ignore the time sequence of events which, like a motion picture, takes us forward in time, showing how the economy grows and changes. Such an analysis would be a dynamic analysis.

7.3A A subsistence economy

Assume a very primitive noncapitalist society which produces no surplus. That is, it produces exactly enough to replace the commodities used up, and no more. The amount which is produced is the minimal requirement for continued survival. It is further assumed that there are only three industries which, respectively, produce 400 bushels of corn, 20 tons of iron, and 40 goats. Each of these three commodities directlyenters into the production of the other two. We choose a three- commodity model because with less than three commodities there is no need for money, and with less than two commodities there is no basis for exchange.

The commodities are produced during the course of a year and, at the end of that year, exchanged for the other commodities required for the next year's production. These commodity inputs are used both as means of production and a subsistence goods for the producers. It is finally assumed that no fixed capital is employed and that each industry produces only a single output."

In the corn industry, 260 bushels of corn, 10 tons of iron, and 20 goats are necessary to produce 400 bushels of corn. Remember that these inputs are used both as means of production and as subsistence goods for the workers. Similarly, in the iron industry, 100 bushels of corn, 8 tons of iron, and 10 goats are required to produce 20 tons of iron. Finally, in the goat industry, 40 bushels of corn, 2 tons of iron, and 10 goats are needed to produce 40 goats.

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