Re: [OPE-L] Marx on the general rate of profit/rate of interest: a translation error

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Tue Nov 13 2007 - 09:27:23 EST

>On Tue, 30 Oct 2007, Rakesh Bhandari asked, of Paul C:
>>  I must say that I am not following your explanation of what is
>>  frustrating even in this day age of unleashed capital flows and
>>  shareholder value the tendency towards an equal profit rate.
>>  I don't get the point about firm death either. Wouldn't there be
>>  some tendency for all firms which within a branch are not
>>  achieving average profitability to die? Why would that disrupt
>>  the tendency to the equal profit rate?
>>  I am distracted, and I am asking you to start the argument from
>>  scratch.
>The point that Paul is making is based on empirical work done by
>Paul and myself, subsequently backed up by independent work by
>Dave Zachariah.  That is, it seems to be a fairly robust empirical
>finding that the rate of profit tends to be lower in sectors with
>above-average organic composition of capital.
>It is not obvious how this can be rationalized.  It seems
>implausible that capitalists willingly undertake investment in
>sectors where they _expect_ to receive below-average profit.
>I presume, though, that you will see it's very much a hard-nosed
>neoclassical argument to say, "Thus can't really be happening
>because it implies irrationality on the part of capitalists".

Yes the reason I dropped the challenge to Paul C is that I don't think it would
be ethical to continue it without challenging your empirical findings to see
for example whether the result depends only on a few outlier industries. But
it seems not to. So I dropped the challenge.

>I think the mechanism behind this empirical finding needs further
>research.  Why might it be that -- even though the ex ante
>expectation might be for at least average profit -- high organic
>composition sectors ending up realizing a lesser rate?  I can
>imagine various possible mechanisms but I don't have definite
>evidence for any.
>I will say this, however: "unleashed capital flows and shareholder
>value" are not to the point.  For equalization of the sectoral
>rate of profit (as opposed to equalization of the expected rate of
>return on financial assets, given the current prices of such paper
>assets), we require inherently slow "flows" (in fact, real
>accumulation and decumulation) of _real_ capital -- flows that
>have in no way been speeded up by the hyper-development of paper
>asset-trading in the last couple of decades.

Here I think you are missing one possible point. Shareholder value
means disgorging of cash
from mature industries; this should slow their growth and possibly
allow price adjustments
to achieve equal profitability.


>Hyperactive stock markets -- plus options, derivatives, futures,
>and so on -- make it no easier to transform, say, railway lines
>into chip-fab plants, or power stations into pizza ovens.
>Allin Cottrell

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