ABSTRACT
In the last two chapters of his book, Steedman (1979b) provided an analysis of international trade equilibrium; he adopted a procedure that was very popular at the time and was inspired by Sraffa (1960). It consisted of first analysing the properties of a single technique, and only then introducing the problem of a choice of technique. While this two-step procedure is appropriate in many cases, in some cases a direct approach to the problem of the choice of technique is required. One such case is the problem of land and of the rent of land; another is the problem of international trade equilibrium. In these cases (as well as in a few others) the two-step procedure may render obscure the role of quantities in determining prices. In the case of extensive rent, it is well known that marginal land depends on the amounts available of the different qualities of land and on the quantities of the various agricultural commodities that are to be produced. The presentation in terms of two steps, one devoted to the analysis of a single technique and one to the problem of the choice of technique, may somewhat remove
from sight the role of quantities. Similar is the case of international equilibrium, in which the ‘size’ of countries matters. For instance, with only two countries, one being very large compared with the other, the large country must obviously produce all commodities. As a consequence, the international prices are determined by the technology of the large country alone, whereas the small country will adopt an extreme form of specialisation by producing only a single commodity (except in freak cases in which it may produce more than one commodity) and will obtain all the other commodities via trade. In a less extreme case (as regards the relative size of the two countries), the large country produces all commodities except one, and the small country produces two commodities. (In any case there will be a commodity produced by both countries in order to satisfy the requirements for use.) In this chapter we construct a general model in order to analyse international trade equilibrium. The main difference with regard to the models in Steedman (1979b) is that we use inequalities instead of equalities. This amounts to determining international prices jointly with the processes that are operated in the two countries. It also allows us to extend the analysis beyond the case of single production and deal with joint production and fixed capital. As Steedman stressed in several of his contributions, there is reason to presume that these cases are empirically very important and therefore ought to be taken into account in economic analysis. In accordance with Steedman, we focus attention on commodities that can be produced and reproduced and set aside the role of scarce natural resources, whether renewable or exhaustible, in the production process. In order to tackle the problem under consideration we have to represent the size of a country in one way or another. Perhaps the simplest way to do this is in terms of the level of overall employment in the country. Since this level need not be equal to full employment, we have to introduce some assumption about the level of real wages, conceived of as a vector of quantities of wage goods, in the case of unemployment. We shall assume that, in the case in which there is unemployment, wages will be equal to a given ‘reservation price’ of labour, or what classical authors called the ‘necessary’ part of wages, whereas with full employment wages consist of this necessary and a ‘surplus’ part (see also the discussion in Sraffa, 1960, pp. 9-10). For simplicity it is assumed that the necessary part is paid ante factum and can therefore be reckoned among the necessary advances of material inputs, such as raw materials, tools and machines, whereas the surplus part is paid post factum, that is, at the end of the (uniform) production period. In the following section the premises of the model will be expounded in some greater detail.
