[OPE-L:547] Value of Constant Capital

John R. Ernst (ernst@pipeline.com)
Wed, 22 Nov 1995 16:36:12 -0800

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What follows are comments to comments. Here
I, John, am responding to Andrew's comments to
my OPE post (OPE 536). Our main topics here

a. Grossmann's "breakdown" model.
b. Falling Prices and Crises
c. Moral Depreciation and Crises

a. Grossmann's "breakdown" model.

Andrew says:

Just a few very brief responses. John follows
Grossmann/Mattick in seeing the lack of
surplus-value as not just a cause of crisis,
but a proximate cause or mechanism of crisis.
One problem with this view is that the
Grossmann breakdown model seems to be about
insufficient surplus-value, but it is really
about insufficient *physical* production to
meet the demands of accumulation. I worked
this out algebraically a few years ago on the
basis of G's model. He doesn't tell us the
underlying physical relations, but, since it
is a circulating capital model, I used

V(t+1) = V(t)a + l,

where V is unit value, a is means of production
per unit output, and l is living labor per unit
output (one can infer l from variable capital,
since G gives us the latter and assumes
constant s/v). It turns out that the only thing
underlying the lack of surplus-value IN THAT MODEL
is the fact that the capitalists insist on
investing more than is there. Why don't prices
and interest rates rise to soak up the excess demand
(John has informed me that Mattick also made this
criticism of G's model)? I stress "IN THIS MODEL,"
since I do think the lack of surplus-value matters.

John says:

I agree that the Grossmann model which he calls at
simultaneously a "crisis theory" is based on a lack
of surplus value and that in their quest for greater
profits capitalists do indeed "insist on investing
more than is there." I also agree that Grossmann is
not explicit concerning the physical side of
production. As you know, I have tried to do that
elsewhere. For me, there is a physical shortage of
of that portion of output we call surplus value.
Thus, as the shortage appears so too do rising prices
and rising interest rates -- this means either a crisis
or stagnation. (Note: I'm not sure about the Mattick
criticism of this model and, for the life of me, can't
recall talking about it.)

b. Falling Prices and Crises

Andrew says:

But this brings me to my next point--what IS that
surplus-value. In the aggregate, in money terms,
it is total price minus total costs; in labor-time
terms, it is the same thing, except insofar as the
monetary expression of value changes. So either
(a) a lack of surplus-value implies that prices
minus costs, and thus prices themselves, are
constrained by total value and surplus-value
produced, or (b) there is a non-price mechanism
that implies that a violation of the constraint
of prices by values itself has consequences.
So I think we're back to the questions I posed.
Essence must appear, and "lack of surplus-value"
doesn't answer the question at the level of
appearance, which is the level at which the
Ernst/Cockshott discussion was posed. I agree
that we can't put all the emphasis on falling
prices, especially because capitalism is in
serious crisis without falling prices, so if
we want to understand the link between the FRP
and crisis, we need to look at other things.
I fully agree with John's interpretation that
Marx said that prices fall in crisis, not
because of the gold standard as such. I didn't
mean to imply the opposite. My point was rather
that now that we are off the gold standard, the
tendency for prices to fall in crisis is
overridden, counteracted--so that generally only
the rate of inflation slows in recession; even
that's not always true, as witness the
stagflation of the 1970s.

John says:

Ok. Let's assume that we have a crisis and the
relative prices change. It seems to me if the
prices do not change uniformly, then, with Marx,
we may see a falling rate of profit without the
nominal prices falling. As you point out, this
has nothing to do with a gold standard (Indeed,
the value of gold itself may changing even if
it is the standard.) Thus, the manner in which
the law of value makes itself felt is via the
crisis mechanism itself -- with or without
absolute drops in prices.

c. Moral Depreciation and Crises

Andrew says:

One more thing on prices. In _Capital_ III,
Ch. 15, Marx notes that given price relationships
are presumed in the reproduction process, so that
a disturbance of these relations (through falling
prices) is a mechanism that disrupts repayment of
debt, reproduction, etc. I presume that in a
rational expectations model, one could say along
with John that the capitalists price in such a way
as to anticipate the falling prices but still cover
the devaluation of capital by depreciating it into
price--but something has got to give, since price
= materials costs + wages + depreciation + profit.
Upping depreciation costs tends to up price. If
prices are falling, and depreciation is rising,
what will give? Profits? If so, and if expectations
are rational, then it seems that the answer to this
one is the superprofits gotten through the difference
between individual and social value.

John says:
If there are falling prices and capitalists anticipate
them, then clearly they must base their profit calculations
in such a way that (a) they make at least the same rate
of profit as before and (b) they recover their initial
investment. As they innovate, they do indeed make "super-
profits" ; and, as others enter the industry, that super-
profit begins to disappear.(Remember prices are falling.)
But, if they are clever enough to invest in the ever
improving techniques, they may be the ones to make their
own "moral depreciation" a reality. At some point, they
give up producing under the old technique or are forced
to do so. I do not say they always pull it off; but, if
falling prices are part of the picture, those falling
prices have to part of the "moral depreciation" picture