[OPE-L:2115] Re: Kliman-McGlone interpretation of the transformation problem

Allin Cottrell (cottrell@wfu.edu)
Wed, 8 May 1996 19:26:22 -0700

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> Alan's point in ope-l 2087 had nothing to do *fundamentally* with bank
> loans as a source of capital. As I understood him, he brought in the
> banker simply to *show* the objectivity of the rate of return on
> investment; inputs can't be revalued retroactively. The point is the
> same w/out banks: if I bought a computer for $5000 six years ago, and
> got profit of $1000 each year by employing it, my rate of return
> on investment (ignoring some complications) was 20%. If it could
> be replaced for $1000 in the sixth year, that wouldn't raise my rate of
> return that year to 100%.

Let's consider a tale of two capitalists. A makes an outlay of $100,000
and then receives sales revenue of $125,000 one period later. B likewise.
So they both made a profit of 25%, right? But now let me tell you this:
In order to maintain production on the current scale, A now has to
make an outlay of $110,000, while B has to make an outlay of $90,000.
This is not due to technical change or anything of the sort -- it's
simply the result of the endogenous period-to-period differences
between input and output prices that are cheerfully accepted in
certain versions of The Transformation. Now which capitalist would
you rather be? Which has the greater scope for consumption and/or
accumulation? Would any capitalist really be indifferent, ex ante,
between these options?

Of course, if the change in the outlays required to maintain production
is a total surprise, then nothing follows. But in Andrew's scheme it's
no surprise at all; it's an entirely predictable result of his
period-by-period transformation algorithm.

Seems to me, the 'profit rate' is equalized for A and B (above) only
if we think of A and B as shutting up shop at the end of the period
and consuming the proceeds.

Allin Cottrell.