[OPE-L:1412] Where does the value go? (1)

Alan Freeman (100042.617@compuserve.com)
Sun, 10 Mar 1996 23:27:15 -0800

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Paul [OPE-L:1366 of 8/3] writes

"I thus find the hypothesis that there exists a law by which
aggregate value must be conserved, dubious. The fact that I
find it dubious may just be my ignorance. If you can cite
compelling empirical evidence that such a law exists in
reality, then I would be forced to reconsider."

I'm sending a separate post on Paul's (earlier) point about whether
moral depreciation is a result of production or circulation.

But Paul also raises the question of empirical evidence and this is
too important to let pass.

I think the empirical evidence is that the profit rate actually does
fall even when the real wage is also falling, as many studies have
proven. This directly contradicts the mathematically impeccable
theorem of Okishio which adopts minimal (simultaneist) assumptions
which no simultaneist model can deny. Certainly they contradict
nothing Paul has said in the debate.

In my view the profit rate falls because advanced capital
rises. And advanced capital rises because the value of advanced
capital grows, in each period, by the amount of surplus value
which is not consumed by the bourgeoisie, that is, by the amount
of value they invest.

For example, if a capitalist has a stock of $1000, and uses up
$200 of it (in wages, raw materials and [material] depreciation)
to make sales of of $500 then $200 of the sales replaces the used-up
capital and $300 is profit. If of the profit of $300 s/he consumes
$100, the remaining $200 is added to the stock to make it
$1200. It's as simple as that. This 'naive' calculation - which is
what the capitalists actually have to comply with - is rigorously true.

Over the whole of the output and stocks of society, value is
conserved. Therefore, whatever is not used, is added to stock.

This is confirmed by the evidence; Okishio's theorem is refuted
by it.

Therefore, from Paul's assumptions, it follows that the profit
rate cannot possibly fall when empirically it most decisively
does. There is a very extensive literature on this, it has been
studied at great length by many people and no flaw in Okishio's
logic has been found.

There is also an extensive empirical literature on the rate of
profit. In particular I think that the evidence Anwar has produced
on the profit rate is very strong indeed. But it is not just the
Marxists: for example the Bank of England in 1974 produced a very
well-informed report on the falling rate of profit which came to
exactly the same conclusions.

I would reverse Paul's question. Show me, on *your* assumptions,
how this fall in the profit rate can be explained. Show me the
error in the Okishio theorem, which shares your assumptions. Or,
please show me that the profit rate doesn't fall under the stated

My thesis - which produces almost identical results to those of
Andrew - *does* explain this empirically-observed fall in the
profit rate.

This is a straightforward scientific choice. We have two theories
(possibly three, if Andrew's theory turns out to be different from
mine) and an observed reality. One (possibly two) theories explain
reality, the remaining theory does not. I await your promised

Too few people have studied Okishio's theorem; I get the impression
that many don't understand just how unanswerable it really is and
just how dangerous it is to the simultaneist interpretation of Marx.
If they did, they would be a lot more careful.

Particularly when strengthened by Roemer's generalisation to fixed
capital, the theorem is watertight unless you drop simultaneism.
Unless you adopt the most perverse, restricted and artificial
behavioural assumptions, you *cannot* otherwise explain the
observed behaviour of the rate of profit.