[OPE-L:2300] Re: assumptions, assumptions, assumptions

glevy@acnet.pratt.edu (glevy@acnet.pratt.edu)
Mon, 20 May 1996 14:35:24 -0700

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Andrew wrote in [OPE-L:2296]:

> Despite the somewhat sharp tone, [....]

Sorry about that. Let's see if we agree or not:

> (2) The specific issue I was discussing in that post was whether the way
> I *calculate* the profit rate was correct, appropriate, or whatever, not
> whether my conception of the *determination* of the profit rate is correct,
> consistent with Marx's or whatever. I wanted to show that I was indeed
> measuring the IRR, and that the social IRR can fall under conditions in
> which Roemer has said it must rise.

Now I'm somewhat confused. You have repeatedly stressed that your version
of TSS is an "interpretation" of Marx. Now you seem to be saying above
that the way you "*calculate*" the profit rate may or may not be
consistent with with Marx's.

> To do some calculations without getting into a lot of exceedingly messy
> stuff, I assumed away a bunch of things to be able to get IRR's that
> conform to a simple formula. I don't think there's anything wrong with
> that.

Perhaps not. Using the same logic, what would be wrong with the following

r = -------------------

NDFC = non-depreciating fixed capital.

Assumptions: (1) no v
(2) no constant circulating capital
(3) no depreciation (physical or moral).

> But will a table with a bunch of numbers, or a graph, reporting such
> information be meaningful (not to mention convincing)? Not very, I
> think. One wants to know *why* the results differ, no? One wants to
> get to the essential conceptual difference, no? And to do so, it is
> legitimate, I think, to abstract from things that tend to conceal the
> essential differences.

The issue might be whether specific assumptions conceal the essential
differences or whether they conceal the subject of investigation. It
seems to me that a way of calculating the r without taking into
consideration v, for instance, can be misleading.

(4) I can also model depreciating fixed capital. I have used a
> nondepreciating fixed capital model partly because this is what Roemer
> employs to extend Okishio's theorem, and to refute Roemer it is
> helpful to look at his own case. Also, IRR calculations are messy
> if capital depreciates. To explain/defend my way of measuring the profit
> rate, it seems legitimate to work with the simple case of fixed capital
> that lasts forever.

I think that it is legitimate to model NDFC if one is attempting a
critique of a model that also assumes NDFC. You seem to be suggesting a
larger purpose in (2) above for your model ("The specific issue I was
discussing in that post was whether the way I *calculate* the profit rate
was correct, appropriate, or whatever ....").

> There is a kind of physically nondepreciating fixed capital that it
> seems is widely used today. Software.

Software depreciates morally (i.e. socially) as owners of older software
know only too well.

> If capital lasts one period, it is not fixed. If it lasts longer, it is
> fixed. Thus it seems to me that it is "very" fixed if it lasts forever.

Well ... we could go on to model a system in which there was no need for
v (by assumption) and c (since there is no constant circulating capital,
and no physical or moral depreciation of constant fixed capital). This, I
would suggest, would not yield a very meaningful result.

> (5) Marx does talk about workers living on air when discussing the
> FRP. It might be when he's discussing Price's theory of interest in
> Vol. III of Capital. Maybe not. Can anyone provide the citation?

Are you referring to: "The conception of capital as value that reproduces
itself and increases in reproduction, by virtue of its innate property as
ever persisting and growing value - i.e. by virtue of the scholastics'
'hidden quality' - is behind Dr Price's amazing fancies, which leave
far behind the fancies of the alchemists; fancies which Pitt took quite
seriously, and which he made the basis of his financial policy in his
bills setting up the sinking fund"? (Penguin, p. 519, discussion
continues pp. 519-21).

See p. 520, paragraph that begins "Price was simply dazzled by the
incredible figures that arise from geometric progression".

> Of course, Marx didn't think this was a "realistic" assumption. He employed
> it in order to highlight a theoretical point.

i.e. to discredit Price and further explain an alternative conception, no?

> That's basically what my unrealistic assumptions do. That's what, e.g.,
> the Okishio theorem does when it assumes a constant real wage rate. I
> think it is unhelpful and missing the point to critique the theorem on
> the grounds that this assumption is unrealisitc. Oksihio knows this,
> Roemer knows this. But they want to show Marx to be wrong when he said
> that mechanization *itself* can lower the profit rate. So how to get
> a test of this idea? Hold constant everything else that matters to
> profitability, such as the real wage.
> I think that is a legitimate and indeed an unavoidable procedure.

I believe that it must be made clear that the purpose is then to critique
Okishio and Roemer (using their own model and assumptions) rather than to
interpret Marx.

> What seems to be emerging from all this discussion of models is that
> some people take mathematical formalizations to be "models" of the
> way the economy works. But others use them for other purposes, such
> as a way to clarify theoretical issues. Hence, the purpose of the
> formalization should be made clear by the author, and the reader should
> pay attention to such statements and interpret the formalization
> accordingly.

Agreed. Still, I think that Marx wanted his formalizations to not only
clarify theoretical issues, but to also assist in ultimately revealing
"the economic law of motion of modern society."

In OPE-L Solidarity,