Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

Ricardo’s Theory of Distribution

Yagi Takashi, Meiji University

Kaldor(1955)explained Ricardo’s Theory of distribution as one commodity model. Pasinetti (1960) and (1977) extend Kaldor’s model to two commodity model. In this paper, we extend their theories by showing the relationship among distribution, price(s), labour productivity, wage and profit shares, the rate of profit to the wage, labour commanded by corn and labour embodied in corn. We extend it into four quadrant chart. It enables us to grasp Rocardo’s theory of distribution, price and value. In this paper, we focus on the relationship between the wage share and the profit share measured in terms of labour by setting the value of labour equal to unity. The value of labour of ours is defined by the equality between the value of product and the value of labour. Adam Smith called labour as the ‘original money’ (the second paragraph of Chapter 5, Book 1,Wealth of Nations). D. Ricardo wrote in the first sentence of his draft on ‘absolute value and exchangeable value’ as ‘The only qualities necessary to make a measure of value a perfect one are, that it should itself have value, and that that value should be itself invariable’ (Ricardo, 1823, in Sraffa (ed.), 1951, p.361). Considering Adam Smith’s word ‘original money’ and this sentence by D. Ricardo, we consider the equality between the total value of product and the total value of labour. We denote the value of one unit of labour by vL. Distribution is examined under the condition of vL=1. If we denote the wage share measured in terms of labour by ωv, and the rate of profit to the wage by rw, then distribution is expressed by vL =1=ωv+rw ωv. Both Kaldor’s model and Pasinetti’s model consider that commodities are produced by means of un-assisted labour. Therefore in their model, the price measured in terms of labour (commandable labour) becomes equal to the labour coefficient (embodied labour). The ordinary notion of the rate of profit is the rate of profit to the ordinary capital (rK). We consider that Ricardo’s interests are not in the distribution explained by rK but that explained by rw. This relationship gives the definition of value of labour. Denoting the aggregate product by Y, its price (or general price level) by P, and total labour by L, we have YP= vL L. This is our basic viewpoint of value, price, productivity and distribution. From YP= vL L, we have P/ vL =L/Y, or Pv=l. When Ricardo search for an invariable standard of value, he considered the case that the pure labour theory of value does not hold. Even in such case, he pursuit the relationship of vL =1=ωv+rw ωv. Since Ricardo did not or cannot define the maximum rate of profit. Therefore his theory of distribution may has no choice but to focus on the wage share and profit share. We will discuss Ricardo’s theory of distribution from invariance of the value of labour vL and the viewpoint of the rate of profit to the wage rw.


Keywords: Ricardo, Distribution and Price, Wage share and Profit Share, Rate of Profit to the wage, Labour Commanded and Labour Embodied

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