[OPE-L:5305] Re: Re: Re: rent and expectations of value and profit

From: Steve Keen (s.keen@uws.edu.au)
Date: Sun Apr 01 2001 - 07:53:24 EDT

Hi Francisco,

Nice to get a reply; it seemed that this thread had died a death.

I'd have to generally agree with what you say here--that both sides are 
perceiving a quantitative use-value, so to some extent a partitioning of 
profits is going on.

There is a further nuance, though: finance profits have a different legal 
status to capitalist profits, since interest must be paid whether or not 
the venture financed actually turns a profit. The rate of interest itself 
is also, as Post Keynesians argue, a barometer of our distrust of our 
expectations of the future--it is therefore to a large degree out of the 
(individual) control of both capitalists and bankers.

In other words, Marx's logic here was merely a first-pass at a value-based 
analysis of finance. But it is a very perceptive first pass, and something 
which a labour theory of value approach to finance lacks.

At 11:08 AM 3/30/01 -0300, you wrote:
>Hi Steve, your implicit answer can be misleading. One can be lead to think 
>that since what is paid is the use value then all profits would be paid in 
>the form of interest. But if we consider that a borrowed sum is capital 
>for the borrower and capital for the lender then the same sum of money 
>have to function as capital for both of them. In other words it has to 
>function as use value for both of them. There is only one way that same 
>sum can function as use value for both, that is through the partition of 
>profits. So to pay for the use value and to pay the use value have 
>different meanings: the first one leaves room for thinking in terms of a 
>partition; the second one leads us to think that all profits have to be 
>paid as interest. I am only saying this because once we think of use value 
>as quantitative then formulations such as "payment of the use value of the 
>loan" seem to mean the payment of all the profits obtained.
>Hi Jerry,
>>I don't have much to add here, except to note that what Marx was
>>contemplating when considering Ricardo was not rental of an existing mine,
>>but the price a capitalist might pay to purchase a body of undeveloped ore.
>>Rent would apply when the mine was actually producing, and a charge was
>>being placed on the income flow. That is an interesting subject, but Marx
>>and Ricardo were considering the purchase price of an undeveloped ore body.
>>In this case, Marx raises an important issue which, I argue, is only
>>understandable from the use-value/exchange-value/dialectic front. If you
>>work from an LTV "labor is the source of all value" front, then no value
>>can be placed upon an undeveloped ore body save the labor needed to
>>discover its existence and estimate its size. If that did determine the
>>price of the ore body, then it would sell very cheaply indeed. However,
>>that's not the reality, as Marx clearly knew.
>>However, if you approach it from the point of view that use-value is
>>quantitative in the M--C--M+ circuit, and acknowledge that an undeveloped
>>ore body is not a strict commodity (since no labor has gone into its
>>production beyond the exploration labor), then you get the possibility Marx
>>entertains: that the exchange-value of the ore body is set by its perceived
>>quantitative use-value.
>>I agree that this quantity is set normally by extrapolating current trends
>>into the future--a common human means of coping with uncertainty about the
>>future which Keynes wrote of very eloquently.
>>The same sort of logic is used by Marx to discuss the price paid for
>>credit. Here his answer is implicit:
>>"What, now, does the industrial capitalist pay, and what is, therefore, the
>>price of the loaned capital?... What the buyer of an ordinary commodity,
>>buys is its use-value; what he pays for is its value. What the borrower of
>>money buys is likewise its use-value as capital; but what does he pay for?
>>Surely not its price, or value, as in the case of ordinary commodities."
>>(Marx 1894,  p. 352.)
>>The implicit answer is that the borrower pays the use-value of the loan,
>>which is:
>>"Its use-value, however, lies in producing profit" (Ibid., p. 355. See also
>>Marx 1861, Part III., pp. 457-58).
>>As you comment in closing, this type of analysis entertains the conclusion
>>that prices for many vital entities in capitalism--from workers wages to
>>machinery to credit money--could deviate substantially from their
>>labor-values. This leads to a theory of cyclical behaviour which I also see
>>as a strength of Marx's analysis, when compared to the static focus of
>>neoclassical and other classical schools.
>>At 07:10 AM 3/25/01 -0500, you wrote:
>> >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
>> >which
>> > > explains it resides in Marx.
>> >
>> >I agree with this even though we differ in terms
>> >of our perspectives on Marx's theory of value.
>Dr. Steve Keen
>Senior Lecturer
>Economics & Finance
>Campbelltown, Building 11 Room 30,
>School of Economics and Finance
>s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683
>Home 02 9558-8018 Mobile 0409 716 088
>Home Page: http://bus.uws.edu.au/steve-keen/

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