[OPE-L:355] Re: Chaion Lee's Short Question

Gilbert Skillman (gskillman@mail.wesleyan.edu)
Fri, 27 Oct 1995 18:26:42 -0700

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Paul writes in response to my comments about defining SNLT in average
rather than marginal terms:

> Gil
> ---
> Once we put aside natural monopoly, non-reproducible differences in
> input quality translate into different levels of average cost, so
> that if price equals *average* rather than *marginal* SNLT, the
> marginal firms will be continually driven out of business, as
> mentioned before.
> Paul
> ----
> Why forced out of business?
> That would only be true if the rate of surplus value was zero.

No, it would be true as long as the rate of profit was smaller than
the rate of variation between marginal and average costs of

> Since that is not the case, differences in costs of production
> merely mean that there will be a variety of different apparent
> rates of surplus value. Those producers useing excess labour do
> not have all of it count as value creating and hence appear to
> and I suppose in fact do, get less surplus value. But less profit
> is not not the same as bankruptcy.

But it does mean that the *marginal* firm will receive an effective
rate of profit which may well be lower than the prevailing interest
rate (for example), *even if* the condition stated above does not
hold. Thus the firm might choose to liquidate even if this is
strictly not a matter of "bankruptcy".

Take the point a step further. Suppose "inframarginal" rents
deriving from nonreproducible input quality differences go to the
owners of the inputs (e.g., land) rather than to capitalists. Then,
as Ricardo argued, all capitalists will receive the same rate of
profit--if SNLT is defined at the margin. If it is defined in
average terms, as Marx does, some capitalists must receive less than
the average rate of profit and will thus liquidate the firm,
confirming my original story

Let's put this more directly: Marx gives no reason for departing
from Ricardo in defining SNLT in average rather than marginal terms.
In general it does not make economic sense, although one can, as Paul
does, invent cases in which Marx's story does not self-destruct.
I don't think that's good enough.

Gil Skillman