[OPE-L:2241] Re: A Great Leap Forward

ernst@pipeline.co (ernst@pipeline.com)
Wed, 15 May 1996 22:01:43 -0700

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Thanks for the comments on the various "matters" contained in
my post. Sorry for the lack of clear terminology. Hopefully,
what follows can clear things up a bit.

> John:
> A couple of matters:
> 1. My point was that with TSS one expands the set of patterns
> of technical change while considering the falling rate of
> profit. That is, with TSS, we need not focus on "labor
> augmenting and capital using" but rather can include as well
> "labor augmenting and capital saving."


The problem here is whether or not there is any relevant sense in which
the system-wide rate of profit will fall with labor-augmenting and
capital-saving technical change. If you plot the real wage-profit rate
frontier in this case, you see that it moves uniformly to the northeast,
so that it is hard to see how this type of technical change puts
structural pressure on the capitalist economy.

John now says:
First, let me be clear. I attempted to point out that with "capital
saving" technical change, the rate of profit in the TSS can fall.
That is, in your terms, if we use the historic costs of constant
capital in computing the rate of profit, the rate of profit can fall
even as capitalists introduce techniques that are normally considered
"capital saving." Given such a fall, I think it would be "relevant"
to those making investments and seeing a decrease in their rates of
return or profit rate. To be sure, I make no attempt here to argue
that this does occur but merely point out that it can. If we
ignore the "historic costs" and go with simultaneous pricing, this
possibility is simply ignored. Thus, defenses of Marx's falling
rate of profit focus primarily on "capital using" technical change.
The "Great Leap Forward" is that this focus is needless with TSS.
Further, since outputs can grow faster than inputs in TSS, it
forces Marxists, using TSS as a defense of Marx, to take seriously
the issue of effective demand. In other defenses, there is little
need to consider effective demand.


> 2. Given what we are discussing how are we to determine what
> is "empirically confirmed"? I asked for an example of
> a machine used to replace another machine such that the
> constant capital to output ratio rises. I also stated
> that I was unaware of any such machine in the mailing
> industry. Do you know of any in any industry?


I don't know about particular industries, but there's a lot of
macroeconomic evidence for historical patterns with a fall in capital
"productivity", that is, the output-capital ratio. Dumenil and Levy's book
on the Economics of the Profit Rate reports very careful work on this.

John now says:

You are obviously way ahead of me on looking at studies of how
the output-capital ratio behaves on the macro level. But, given
the choice of technique questions that arise in considering the
falling rate of profit, it would be helpful if we could look at
particular industries and observe the effects of technical change.
Clearly, my bit about the mailing industry proves nothing. Yet,
if one is to argue that the rate of profit falls or even that
the output to capital ratio falls, then how individual capitalists
invested to bring this about is surely a question that needs an

I do not think that Dumenil and Levy are wrong but I am curious
about their explanation of the how's and why's of the fall in
the output-capital ratio.

> 3. From what I recall of Smith and Ricardo, each included
> labor augmenting technical change in their views of
> technical change. Perhaps, I misread your use of the
> idea.


>From my reading of Smith it is hard to untangle exactly what he had in
mind in discussing the falling rate of profit, because he is not very
clear in distinguishing individual sectors (where increased competition
due to entry will drive down the rate of profit) from the whole economy
(where it is not clear why overall accumulation should drive down the rate
of profit.)

Ricardo's theory of the falling rate of profit depends on diminishing
returns to labor and capital in the face of a limited land input. He does
discuss the possibility that land-saving technical change could delay the
fall in the rate of profit (parallel to international trade in
agricultural products, which essentially moves the agricultural margin to
more fertile foreign lands).

John now says:

I'm certainly as puzzled by Smith as anyone. Yet it did
seem to me that for Smith and Ricardo the accumulation process
was primarily labor augmenting. For neither did the growth of
fixed capital play much of a role.

> 4. In the standard interpretation of Marx, the rate of profit
> falls since the returns to scale fall with technical change.
> In both Smith and Ricardo, the rate of profit falls since
> the returns to scale fall with technical change. To be sure,
> for Smith and Ricardo, the rise in what Marx called variable
> capital was the cause whereas, for Marx, the rise in constant
> capital is the main factor.


I'm not sure what you mean by "returns to scale fall with technical
change". "Returns to scale" usually means the proportion by which output
increases in response to a uniform proportional increase in all inputs.
I'm not aware of any model of technical change that links t.c. to returns
to scale. Hicks neutral technical change involves a uniform proportional
increase in the productivity of all inputs to production. As I mentioned
above, I think Ricardo's theory does not involve returns to scale, but
diminishing returns to a subset of inputs as they increase while some
other input (in Ricardo's case, land) is held constant. It is true that
Ricardo's theory implies a rise in the share of output going to wages, and
thus, in Marxian terms, a fall in the rate of surplus value, and I agree
with you that Marx was at pains to reconcile the falling rate of profit
with a rising rate of surplus value, which he did by pointing out the
mediating factor of the ratio of constant capital (and turnover) to
variable capital.


Sorry about the terminology. I think I simply slipped into some
"one-commodity model" thinking. I think the point I was trying to
get at is better expressed by using what the output to capital ratio.