[OPE-L:319] Re: INTERIM PROPOSAL [951021]

Duncan K Foley (dkf2@columbia.edu)
Mon, 23 Oct 1995 10:34:10 -0700

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On Sat, 21 Oct 1995, Paul Cockshott wrote:

> I would like to report some interesting results that
> Allin and I have just produced this week in dealing with
> empirical value theory. There consequence is, I think
> to completely disprove the whole problematic of the
> transformation problem and confirm the simple labout
> theory of value. I would be interested if anyone can
> confirm them.
> Our previous work with UK input output tables indicated that:
> 1.There was some degree of equalisation of profit rates between
> industries with different organic compositions.
> 2.That this equalisation was only partial, so that industries with a low
> organic composition of capital tended to gain a higher rate of profit.
> However since our work with UK input-output tables used a flow rather
> tha a stock measure of organic composition it was not conclusive. Using
> capital stock data from the BEA for the USA we have attempted to test
> these hypotheses for the US economy. In computing the organic
> compositionsby industry we found it necessary to aggregate some of the
> indstrial categories in the I/O tables as the capital stock figures were
> not so broken down into such fine categories. But we found that the
> results indicate, even more strongly than the UK data, that any tendancy
> toward profit rate equalisation is very weak, and that the effects of the
> raw labour theory of value predominate. Organic composition is negatively
> correlated with profit rates for the US. This is true whether we specify
> the rate of profit as s/c ( correlation -0.47) or as p/c (correlation
> -0.43).
Profit rate equalization is a rather indirect way to test for prices.

> The consequences of this can be shown by graphing three sets of points:
> 1 the observed rate of profit, measured as s/v,
I'm puzzled by this, since I would have thought the rate of profit would
be s/K, where K is the invested capital, somehow measured. s/v is the
rate of exploitation.

> 2 the rate of profit that would be predited on the basis of Volume 1 of
> caital, where it would be given by v*s'/c where s' is the mean rate of
> exploitation in the econmy,
> 3 the rate of profit that would be preicted by volume III of capital or
> any other variant of transformed values.
> When this is done it can be seen that the observed rates of profit fall
> clse to the asymtotic distribution of profit rates that would be
> predicted by the vol 1, theory. The exception is for a few industries
> with unusually high orgnaic compsitions >10. But what are these
> industries?
> At an organic compition of 23.15, we have the electricity supply
> utilities with a rate of profit half way between that predicted by the
> simple labour theory of value and that predicted by the price of
> production theory. Then we find at an organic composition of 16.4, the
> crude petroleum and natural gas industry, with a rate of profit
> substantially in excess of that predicted by the labour theory of value,
> and approximating much more closely to that predicted by an equalisation
> of the rate of profit. But an industry like this, would, on the basis of
> the Ricardian theory of differential rent, be expected to sell its
> productabove its mean value, and hence report above average profits. In a
> similar position we find the oil refining industry with an organic
> composition of 9.4. Both oil production and oil refining have similar
> rates of profit, at 31% and 32%. Since the industry is vertically
> integrated, this would indicate that the oil monopolies chose to report
> their super profits as earned pro-rata to capital employed in primary and
> secondary production. In both cases, however, the super profit can be
> explined by differential rent.
> Next we come to the gas utilities with a rate of profit of 200n an
> organic composition of 10.4. The labour theory of value would have
> predicted 7% and the production price theory 32%. But like the
> electricityutilities, these industries are regulated and the assumptions
> built into the regulatory system include that the utilities should earn
> an average rate of profit.
> There is a positive correlation between the rate of surplus value s/v and
> the organic composition of capital c/v. This can be interpreted either
> as:
> A result of profit equalisation boosting the apparent rate of surplus
> valu in high organic composition industries.
> Both high rates of profit and high organic compsitions being due to a
> thir independent variable - low wage rates in some industries, which
> reduces the denominator in both cases.
> Thus whilst there may be some support for the production price theory in
> this correlation, it would need further investigation to confirm that the
> correlation was not an effect of low wage rates in some sectors.
> With these exceptions, the observed rates of profit are much better
> explained by the labour theory of value than the prices of production
> theory.
This type of empirical result is extremely interesting, but I don't think
it could bear on the transformation problem issues, which are
definitional. If they hold up, they suggest something about the form of
competition in contemporary capitalism, I think.