[OPE-L:2184] Re: Depreciation(?);Kliman/McGlone

Bruce Robert (broberts@usm.maine.edu)
Mon, 13 May 1996 12:50:21 -0700

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A partial reply to Andrew (#2154).

Andrew writes: "... assume one industry with a higher historical but a
lower "real" rate. That's the one I'd prefer to be in, BECAUSE THERE IS NO
HAVE THE HIGHER HISTORICAL RATE NEXT PERIOD -- and possibly move some of my
existing capital as well."

We agree that you would have an incentive to leave this industry. I argue
that you would go to the industry with the highest current real rate; you
say you would go where the historical rate will be highest the next period.
But that's unknowable--both the historical and real rates for the next
period are unknowns (they depend on next period's *market* prices). The
argument that "if we ignore fixed capital, the other industry, having the
higher "real" rate this period, will have a higher historical rate the
next, c.p." would seem to depend on assuming a two industry economy; I
doubt very much that this holds in an n industry case, even with the most
convenient possible set of assumptions about what determines market prices.

Irrespective, the key point to me is that you agree that *exiting* this
industry makes sense, despite its high historical rate. That makes perfect
sense on my argument (low real rate leads to exit) but it's hard to see
this as behavior that tends to directly equalize the historical rate.
Looks to me like your example helps to make my point.

Andrew: "One thus sees a glaring contradiction in the simultaneist
reasoning, namely the attempt to talk about capital mobility while adopting
as a choice criterion a profit rate based on the lack of any such

Huh? This makes no sense to me. Since when does simultaneous calculation
deny the possibility of capital mobility?

On dynamic stability: If I was proposing a "long-period equilibrium"
theory, a la Garegnani, the absence of a convergence proof would be a real
problem. But I'm not (and despite the frequent tendency of TSSers to lump
together any and all uses of simultaneous equations into one all-purpose
straw man, there are *different* interpretations of what the equations
Suppose I'm a capitalist with available investment funds, contemplating my
options, and suppose I have complete information on both the historical and
real rates of profit currently earned on the basis of existing market
prices in all industries (note the plural-- rates--neither rate is now,
ever was, or ever will be uniform in any actual time period). I'd say
"Gee, I wish I'd been invested where the historical rate was high *this*
year, but for next year, in hopes of getting a high historical rate, I'd
prefer to have my capital invested where the real rate is currently high
and not where the historical rate is currently high (unless that leads to
the same conclusion)." If capitalists do reason like this,
then--irrespective of whether a proof of dynamic convergence under c.p.
conditions exists--there's a legitimate *theoretical* reason to ask what a
uniform real rate would be and what price structure it entails. NOT
because this rate and its prices represent the *future* state that
competitive adjustments will enforce (absurd in a world that includes,
among other things, continuous technical change--I'm happy to agree that
that's an appropriate premise for dynamic analyses). But because this rate
and its associated prices represent the current structure of equivalent
exchange, and equivalent exchange is a concept integral to (my
interpretation of) all of Marx's value categories. (To defend that claim
would require a much longer discussion than I have time for now.)

But again, if capitalists do reason like this, there's no reason *ever* to
construct a sequence of time-subscripted price vectors based on a uniform,
period-to-period *historical* rate of profit .

Andrew: "I agree *completely* that the idea of constructing a theory of
prices based on profit rate equalization is misplaced. I have no intention
of doing so..."

I'm totally mystified. There is an equalized period-to-period profit rate
in every Kliman piece I've ever read, and the rest of Andrew's post
continues to refer to "the" rate of profit, the "actual tendency of the
rate of profit," etc. If profit rate equalization is a bad premise, then
shouldn't one refrain from referring to "the" rate of profit?

Andrew: "...this explanation is simply not consistent with the
simultaneist dynamic story, because once we admit increases and decreases
in supply in relation to normal capacity, THE INPUT COEFFICIENTS UPON WHICH

The straw man is taking a real beating today. Andrew, please, a plea:
there are undoubtedly some people who make the assumption of constant input
coefficients (or constant returns to scale), but please try not to tar all
the rest of us with the same brush. I just finished a response to David
Laibman (you'll get it in another day or so) in which I chide him for
imputing to *you* precisely that assumption. If you find it ludicrous to
have to defend yourself against such a misreading of your work, well, SO DO
I. I, for one, have NEVER assumed constant input coefficients. On this
score, there IS NO "the" simultaneist approach.

There are other points worth discussing, but I have final exams sitting on
my desk and calling to me now, unfortunately...

Bruce B. Roberts
Department of Economics
University of Southern Maine
Portland ME 04104-9300
(O) 207-780-5503
(H) 207-772-7047
fax 207-780-5507-------------------------------------------------