A Two-Sector, Four-Class Model

This chapter investigates the properties of a two-sector model (industry and agriculture) with four classes, landlords, traders, workers and capitalist entrepreneurs. Particular attention is paid to changes in relative prices affecting the distribution of surplus between classes and sectors. This was a crucial aspect of the economics of authors like Quesnay, Smith and Ricardo. Marx named this approach Theories of Surplus Value (Marx, 1963, chs 2, 3). By the end of the last century the surplus approach lost its momentum and economics developed along the lines indicated by the marginalist school. Since the 1940s there has been renewed interest in the theories of surplus thanks to the works of Wassily Leontief (1951) and Piero Sraffa (1960, pp. 8–9, 93). In different ways both authors contributed to the reappraisal of the analysis of the economy by means of multisector models similar to Marx’s reproduction schemes.1 Recent developments in the surplus approach have focused attention on the distribution of income between workers and capitalist entrepreneurs.2 The distinction between primary and industrial sectors often disappears. On the other hand, many economic development studies emphasise the relationships between industry and agriculture and the role of the terms of trade (Rao, 1986, (p. 74; Taylor, 1988, pp. (9–12). In many of these analyses new interest is found in the notion of surplus and in Marxian economics (Chakravarty, 1987, pp. 3–4; Rao, 1986, pp. 42, 53–7).