# [OPE-L:6184] Re: formula for the rate of profit

From: Gerald_A_Levy (Gerald_A_Levy@email.msn.com)
Date: Thu Nov 15 2001 - 07:40:18 EST

```Re [6181]:

Hi Allin.

> The variable 'w' is undefined, but I suppose it represents wages and
> salaries.

'w' is defined by the author(s) as 'wage rate per hour of labor' which
equals money wages and salaries paid during a year (W) divided by
total labor hours employed during a year (N); i.e.
w = wage rate = price per hour of labor = W/N.

>Well, the formula boils down to
> (sales revenue - costs) / (constant capital)
> or s/C, in money or price terms.  Which seems like a defensible
> formula.  The decomposition in the denominator seems a bit odd.  Such
> identical decompositions are usually intended to show how a given
> magnitude may be broken down into independently varying terms, but cu
> and cg are obviously not independently varying (for a given capital
> stock, a rise in cg will produce a rise in cu).

An alternative way of writing the formula for the rate of profit by the same
author(s) is:

value of net output per hour of labor (y)
-- hourly  wage  (w)
profit rate   =  _______________________________________
value of capital goods owned per hour of labor (k)

where:

y = dollar value of the total output minus materials and machine costs
divided by the total number of hours worked.
k= the employer's total investment divided by the total number of
hours worked by employees.

> > Extra credit: answer the above question *plus* identify the author(s)
> >     of the above formula.
> No idea who's the author.

OK, I feel kind-hearted today -- I'll tell you the authors and source.

* Samuel Bowles and Richard Edwards _Understanding Capitalism:
Competition, Command, and Change in the U.S. Economy_, 2nd
edition, NY, HarperCollins College Publishers, 1993

> My "extra credit" point: From where do we
> get the idea that the appropriate formula for the rate of profit in
> "contemporary capitalism" is something quite distinct from "Marx's
> formula"?  There's nothing in the above formula that makes it more
> applicable in 2001 than in 1867.

for two reasons:

1) the author(s) very clearly indicated that the subject was on
contemporary capitalism. While the author(s) would self-identify
as Marxian(s), the author(s)  write that this work represents a 'new
view of economics ....".

2) to focus discussion discussion on the author(s) formula rather than
on what Marx's formula for the rate of profit was. In other words, to
signal to you that this question was not an 'interpreting Marx'
question.

There are, of course, many questions that we could ask _inspired by_
Marx _or other writers_.  E.g.:

-- there is no reference to value or surplus value in the formula.
Yet, if such an issue is to be addressed, I think it is
better posed as 'to what extent, if any, is value necessary
for conceptualizing the rate of profit and its determinants?'
rather than 'what was Marx's perspective on this issue?'.

-- there is a micro/macro question in terms of both the order
of analysis (do we start with micro and then go to macro or
do we begin with macro or is this division irrelevant and
misleading?) and whether the 'macro' rate of profit can be
conceptualized simply as the totaling of individual rates of
profit (this way of conceptualizing the subject might not
reveal the flow and redistribution of value and surplus
value).

In solidarity, Jerry
```

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