[OPE-L:2263] Re: Great LeapS Forward

Duncan K Foley (dkf2@columbia.edu)
Fri, 17 May 1996 12:58:39 -0700

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On Fri, 17 May 1996 ernst@pipeline.com wrote:
(among other things)
> Duncan comments:
> The main issue here, as I understand it from discussions with Andrew, is
> which profit rate, in two senses: 1) which one was Marx thinking about and
> 2) which one is relevant for understanding the evolution of capitalist
> production? I don't agree that the TSS interpretation of value theory is
> at the root of these results about the FRP, which depend instead on a
> particular definition of the profit rate that falls.
> John now adds:
> I am a bit unclear about your comment. In my own muddled way
> I have simply pointed to a type of technical change that can lead
> to a falling rate of profit defined within TSS. Is this what
> you mean by a "result" ? While I do want to understand what
> you are saying here, I will share with you my current understanding
> of your position.

The issue is that the result depends on the particular definition of the
profit rate, as the yearly profits over the historical cost of a fixed
capital investment. Many people would argue that this is bound to fall,
even in the absence of technical change, due to the depreciation of the
fixed capital investment, and that the examples TSSers invoke involving
technical change rest on the intensification of depreciation as a result
of obsolescence. From the point of view of the capitalist thinking about
undertaking a new investment, the issue is the total anticipated stream of
profits over the life of the investment, summarized, for example, in the
Internal Rate of Return. In the examples I've looked at, the IRR does not
fall with the type of technical change you describe (labor augmenting and
capital saving) and a constant real wage.

> I think that as a result of the Dumenil and Levy work you see
> no need to move to a TSS definition of the profit rate. That is,
> they show results compatible with Marx without any such movement.
> Coming from that perspective, I would also add that should
> the usual rate of profit rise or stay the same and the TSS rate
> fall, why bother with the TSS rate?
> While I cannot speak ex cathedra for the TSS school, I
> will say that TSS allows us to make still another "great
> leap forward" -- beyond the falling rate of profit to the
> accumulation process itself. That means that we can begin
> the investigation of matters like the turnover of fixed
> capital and the periodicity of crises. To be sure, this
> type of work has barely started as most treatments of Marx
> abstract from fixed capital entirely or include fixed
> capital which never depreciates within structure of
> production models.

A plug for my book(s): in Understanding Capital (Harvard, 1986) there is
an extensive discussion of the turnover time of fixed capital, and a
treatment of the rate of profit on the assumption of steady-state growth;
and in Money, Accumulation and Crisis (Harcourt Academic, 1986) I
investigate a much wider range of depreciation patterns and turnover

In my mind, I distinguish between theoretical investigations that are
intended to explore the logical structure of the theory (and therefore can
reasonably make violently simplifying assumptions like no fixed capital)
and models that are intended in some way to represent reality (which
would, of course, require some treatment of fixed capital). There is some
literature on Marx's circuit of capital that addresses these questions,
including Andrew Senchak's Columbia PhD thesis (1982), and at least one
later article by David Kotz.

> ______________
> You have piqued my curiosity about Dumenil and Levy and I
> have ordered their book. I will also track down their
> article to which you referred. As I await delivery of the
> text from Vermont, let me ask how, in your judgment, can
> their efforts be used to develop a picture of the individual
> investment decisions that bring about the macro trends
> they find?

They go into this in considerable detail in the first part of their book,
which presents a micro- circuit of capital based model.


> John