[OPE-L:5260] rent and expectations of value and profit

From: Gerald_A_Levy (Gerald_A_Levy@msn.com)
Date: Sun Mar 25 2001 - 07:10:22 EST

Steve K raises some new issues in [5240]:

> On this issue, I'm extrapolating from my
> interpretation of Marx: there is
> no textual support for this proposition. But there > is the quite explicit
> consideration of the related issue of how the
> exchange-value of an
> undeveloped mine is set (discussed further
> below). That discussion brings
> in the role which expectations of future profit
> play  in setting the price a
> capitalist is willing to pay to secure ownership,
> which is a *subjective*
> estimation of a future quantity.

On the issue of the undeveloped mine, we have
to look at *rent*.  And, it is true, that there
can be, more concretely, a *speculative element*
in the determination of the exchange-value (NB:
not value) of this mine.  The speculation would
take the form of assuming a rate of return on
investment (RRI) that is comparable to the
past earnings of similar-grade mines. This
calculation, which you call subjective, is
usually based on the assumption that past trends
in this market will continue into the future. Yet,
as is the case with all speculative activities,
although the anticipated RRI is greater, the
level of risk and uncertainty is also greater.
How this added risk is accessed -- both
by the seller and buyer of the mine --
is important then for the determination of its
exchange value. Of course, objective facts
can intervene -- like an economic crisis -- and
render the risk calculations of the old or new
owner of the mine meaningless.

In any event, this issue is far more concrete than
the one we have been discussing. It deals, most
fundamentally, with the *division of surplus value
among capitalists and landowners* rather than the
creation of surplus value.

> This same issue
> arises in the case of
> machinery, which means that the price capitalists > are willing to pay for
> machines will rise above value when expectations > of future profit are
> high,
> and fall below it when expectations are dashed.

It is true that there is a level of risk when purchasing
constant fixed capital and that capitalists can not
know with certainty the "lifetime" and total value
that will be transferred by that machinery. This is
due, most fundamentally, to moral depreciation.
Yet, other issues might affect the value transfer as
well. I discussed a couple (capacity utilization
and waste of constant circulating capital) in
recent threads (see [5186] and [5248]). Another
issue, where there emerges possible loss of
value, is as follows: even after capitalists are
assumed to buy the means of production at value,
the transfer of that value requires that these
elements of production must be set in motion
within that process. If they are simply in crates
on the loading dock they are not also transferring
value. Any delay in "start-up time" can,
assuming a fixed working "life" for the constant
fixed capital, thus result in a premature loss
of value. Also, especially for means of production
that represent "first generation" innovations, there
is a "learning by doing" curve that is experienced.
Thus, in the beginning if the learning process is
protracted and the new means of production are
not integrated into the production process
efficiently, then some proportion of value may be
lost. On the other hand, these technological
advances make *possible* (NB: possible not a
necessary consequence) a "technological
rent" by the innovating firm (s). In value terms,
one should see this technological rent as
representing a redistribution of surplus value
among capitalists -- in this sense there is a
similar mechanism to what was discussed above
re the undeveloped mine but in this case the
means of production represent value rather than
exchange-value and potential use-value alone.

As for the question of expected profitability, I think
that Marx was well aware of this problem. Indeed,
his rejection of Say's Law requires a recognition
of the issue. More fundamentally, a recognition
of the temporal sequence in a circuit of capitalist
production and circulation requires a recognition
of this problem. I.e. prior to production, i.e. ex
ante, capitalists go into the market with M and
purchase c and v. Yet, they do not and *can not*
know with certainty what the result of their decision
will be in terms of profitability ex post. This is
because they do not and can not know with
certainty whether the output will be sold and, if
so, what the prices will be. Thus, even if there
is "pre-commensurization" of value prior to sale,
value itself is only fully constituted following sale.
Obviously they must  come to *expect* a RRI for them to purchase the c and
v. But, their expectations may be proven ex post to either be
the case ... or not.  In the latter case, the value that was *presumed* to
exist can be "lost" if no buyer
for the output is found.

In terms of how this plays out in the business
cycle, that is an interesting issue. (I seem to
have accidentally edited this section of your
post where you were referring to the Minsky
financial instability thesis). Marx, as we know,
made the simplifying assumption at various
stages of his analysis that commodities in general,
on average, exchange at their values. Yet, I think
it could be said that this is the case only if,
among other things, we abstract from the different
phases of the cycle. Thus, it is entirely possible
that some commodities could systematically
exchange at market prices above their value
during the expansion when aggregate demand
and rates of return on investment are increasing
and then exchange at market prices below value
during the contractionary phase of the cycle.
This possibility, from my perspective, in no way
contradicts Marx's perspective on value.
Indeed, one might see it as an extension and
expression of that perspective.

> This is something which is fundamental to modern > Post Keynesian
> thought--the role of capitalist expectations in
> setting asset (and
> machinery) prices, the role of uncertainty in
> investment decisions, etc.
> But they have no theory of value from which to
> derive these
> observations--they simply take it as a given. Yet > a theory of value
> explains it resides in Marx.

I agree with this even though we differ in terms
of our perspectives on Marx's theory of value.

In solidarity, Jerry

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