[OPE-L:2320] Re: Profit Rate

John Ernst (ernst@nyc.pipeline.com)
Wed, 22 May 1996 06:55:41 -0700

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In his comment on Alan's post, Paul Cockshott raises a questions
for me. Here's the exchange, followed by my questions.

Alan Freeman
I am worried lest we become too sophisticated to appreciate a
point which depends on no special formula, no debatable reading
of the texts, no contestable models and absolutely no theory of
what might or might not be equalised. The figures yielded by
valuing capital at current costs *cannot* conform to what the
capitalists report. Moreover, the impact of all modifications so
far suggested is to widen this gap. If capitalists choose, for
example, to anticipate or recognise the cheapening of constant
capital by writing their assets down, this will make current
profits smaller, not larger, and hence even farther from what is
predicted by Okishio or any variant of the current cost hypothesis.

Paul C
I do not for a moment dispute that technical change can lead to
losses on capital account due to depreciation. One does not have
to accept the TSS definition of value to accept this. However one
must distinguish this cause of a reduction in profits, from that
brought about by an increase in the c/v ratio.

A rise in c/v reduces profit rates by spreading a surplus value over
a larger amount of capital, and as such it can never make profits

Depreciation due to technical change on the other hand is a direct
deduction from current revenues, and, if sufficiently great can
make profits negative. Furthermore, the greater its impact on the
current profits, the lower will be the resultant c/v ratio.

All this is quite compatible with valuation of capital assets at
current cost.

John E

I have no doubt that Paul is quite capable of envisioning decreases
in the valuation of constant capital due to technical change. To do
so, he is quite right when he points out that he need not accept TSS
at all.

Yet, as I am sure he will admit, these losses are not taken into
account by models that simultaneously assign unit prices to inputs
and outputs with NO reference to the unit prices assigned in the prior
period. Indeed, how could they be? There need be no prior period for
the determination of the amount invested in the present period. Hence,
there is nothing to lose.

Now, should Paul want to simultaneously assign unit prices in each
period, he could determine the losses involved. But if the losses
are to be seen as deductions from profit, would not the unit
prices and the rate of profit change as well? Thus, how does one
compute the rate of profit and unit prices in such a model, given
these losses are deductions from profits?