[OPE-L:536] Value of Constant Capital

John R. Ernst (ernst@pipeline.com)
Tue, 21 Nov 1995 23:36:35 -0800

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Andrew Kliman's post on this topic puts a bit
more content into our discussion. The areas
under discussion are:

a. Falling Prices and Productivity
b. Moral Depreciation
c. Inflation and the Real Rate of Profit
a. Falling Prices and Productivity

Andrew says:

What if prices do not fall when productivity rises?
It's true that computer prices per kilobyte or
whatever have fallen, but if one looks at the postwar
period (in the U.S. and I suspect elsewhere as well),
productivity has increased tremendously, but so have
prices? I suspect that the way the law of value
appears is different than in Marx's day, because we
no longer have a gold standard and thus nothing
forces prices to fall. So for the way in which the
law of value appears, I suspect we need to look
at the problems that develop due to the run-up of
prices--perhaps especially excessive issue of
credit and debt crises? Any thoughts on this?

John says:

I'm not sure that the "gold standard" is the source
of the difficulty. Again, it's not clear in CAPITAL
when and how competition forces the social value to
fall to the individual value. My own thinking is
that these dramatic price drops come with the crisis

But then the question arises -- Why do we, in theory,
NEED these price falls. Generally, it is to show a
fall or a possible fall in the rate of profit. Why
is that important? Again, many think the falling
rate of profit itself is the cause of crisis. Here,
I prefer to follow the path of Grossmann/Mattick and
see the crisis in terms of a lack of surplus value
given the needs of accumulation. This deficiency is
not dependent on price levels.

b. Moral Depreciation

Andrew States:

This relates to another major point of the
discussion--can the capitalists amortize "moral
depreciation" into the price of their outputs
("moral depreciation" no longer seems to be the
correct term then)? Doesn't this depend on how
much they can get for their stuff? What
determines that? For Marx, the whole thing
seemed rather clear--due to productivity increases,
(and competitive markets and gold std., etc.),
prices would have to fall, which means that this
amortization of depreciation couldn't/wouldn't
succeed. Does this no longer hold? Or does it
hold, but in a different way? If it doesn't
hold at all, then they can charge whatever
they want, which is ridiculous. So what sets
the actual limits?

John says:

Again, I think you put too much emphasis on falling
prices in CAPITAL. That is, I do not think that
falling prices mean that "amortization of depreciation
couldn't/wouldn't succeed." If the falling prices are
anticipated or assumed by capitalists as they
"morally" depreciate their capitals, then I am
unclear why full recovery of the advanced capital is
not possible.

c. Inflation and the Real Rate of Profit

Andrew says:

And related to this is the following: clearly if there
is inflation, the capitalists' nominal profit rate can
rise above the "real" profit rate (leaving undefined for
the moment what we mean by "real"). If the inflation
is continuous, then the discrepancy can be so as well.
But that seems to be an illusory phenomenon, since they
can't all get extra "real" profit by overcharging one
another (assuming, ceteris paribus, that the inflation
does not affect wages). Now my question is--what is
the "real" profit rate, the profit rate in terms of
use-values (which is how inflation adjustments are
made in the national income accounts, etc.) or the
profit rate in terms of labor-time? Marx often speaks
of the "inflation" in the monetary expression of value,
meaning a rise in total money value greater than
the rise in value measured in labor-time. This
certainly seems to suggest (and Marx does so explicitly
at one point, maybe Ch. 10 of _Capital_ III?) that a
rise in money values over labor-time values--or a
maintenance of the price level in the face of productivity
increases--is illusory. Why? How? It seems that this
line of thinking ultimately comes down to the notions that
(a) capitalists care about values, not use-values
(for consumption); and (b) value is determined by

If this is right, then it seems that the usual way
of deflating the price level is not appropriate to a
Marxian analysis. But in any case, the question
remains: why and how does productivity matter to
the capitalist system and its crisis tendencies if prices
do not fall when productivity rises? (Obviously there
is premature obsolescence, etc., but I'm looking for an
answer at a different "level of abstraction.")

Any answers, any thoughts?

John says:

It seems to me that we may be back to the point I made
in Section A. The falling rate of profit itself comes
into being as a result of crisis. If capitalists are
simultaneously pricing inputs and outputs, they generally
do not see a crisis. In CAPITAL, the lack of surplus
value relative to the amount necessary for capitalist
accumulation is the cause of crisis. With crisis the
falling rate of profit can make its appearance. (It is
a tendency.)

If capitalist are deflating prices to account for
inflationary profits, that process of deflation has to
be part of our analysis. Pricing is this fashion may
well lead capitalist to believe that as they change
techniques in an inflationary situation they are
achieving ever-increasing rates of profit. This is
what drives them to introduce techniques that yield
those growing rates. As they do, productivity
increases. But when the mass of surplus value is
not enough to continue this process which demands
ever increasing amounts of investment -- the
bubble bursts or the system stagnates.