[OPE-L:2411] Re: assumptions, assumptions, assumptions

akliman@acl.nyit.edu (akliman@acl.nyit.edu)
Wed, 29 May 1996 11:47:36 -0700

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This is a (belated) reply to Jerry's ope-l 2300. I've responded to
one point--Marx assuming that workers live on air--already, but Jerry
raised other serious issues that deserve a reply as well.

My work on the FRP is both about Marx and not about Marx. It is intended
as a refutation of the Okishio theorem, and in that sense is not about
Marx. But it refutes the Okishio theorem by showing that (without
changing the theorem's assumptions) the profit rate can fall under conditions
in which Okishio/Roemer say it must rise WHEN Marx's conception of the
determination of value by labor-time (as I understand it) is adopted. So
in short, it is a refutation of the theorem from the vantage-point of
Marx's value theory. But it is not intended as a representation of
Marx's theory of how capitalist accumulation actually operates (if indeed
a single seamless model of accumulation is present in _Capital_, about
which I have doubts).

All this is my response to Jerry's question whether I'm critiquing Okishio
or interpreting Marx.

Jerry also wonders whether I'm saying that my way of calculating the
profit rate may not be consistent with Marx's. Yes ... but. I've
*thought* it is, but many others (including TSSers) have raised questions
and objections. So I keep thinking about it and checking it out. There's
also another issue--since my papers critique Roemer's version of the
Okishio theorem, and since Roemer explicitly states that he's proving that
the IRR won't fall, then if my measure of the profit rate is not the IRR,
it fails to refute the theorem (unless Marx himself could be shown not
to be computing the IRR). And there's a third issue--what is the meaning
of my measure of the profit rate anyway, apart from whether it is the
same as Marx's or the same (as a *measure*) as Roemer's? This question
was posed by Duncan (and others), and in the post upon which Jerry was
commenting, this was the issue I was taking up.

This does not contradict the fact that I employ my measure to critique
the Okishio theorem, or the fact that IMO my measure is the same as Marx's
(when he's discussing the FRP).

I think all these questions have a single, simple answer: my profit rate
is consistent with Marx's; it is also the (realized economy-wide) IRR;
so its meaning is also thereby clarified. In a post yesterday I showed
that, under the assumptions Duncan and I have been assuming, the weighted
average (realized) IRR is identical to what I consider to be Marx's profit
rate--the per-period surplus-value divided by capital advanced, the latter
being meassured at historical cost. I *think* this result will hold up
generally, though I haven't worked it out yet.

Thus, in response to Jerry's query about using r = s/NDFC (non-depreciating
fixed capital) as the profit rate--yes, that is my measure, and it's the
IRR. This, however, was not immediately apparent. It is also possible
that I'm wrong; Duncan has raised relevant questions about my way of
translating s/NDFC into an IRR.

One thing I should clarify, however. There definitely is *moral*
depreciation of the fixed capital in my example, if by that we mean that
its price (value) declines independently of wear and tear (of which there
isn't any). But that doesn't necessarily mean one should adjust the
denominator of the profit rate to reflect this decline. Why not? Because
if the rate of profit one wants to measure is the rate of return on the
amount *actually* invested (which is precisely what the IRR does), then
it makes no sense to retroactively revalue the amount invested. If
I buy a computer for $1124 today (which I did, actually), and 4 years
from now the same computer is worth $112.40, that decline in price does
not at all raise my rate of return. This is the basic flaw in the
simultaneist conception of the profit rate, and it is *precisely* this
spurious boost to profitability that enables Okishio/Roemer to "prove"
that Marx's law of the FRP is wrong. The simple fact of the matter is
that the "cheapening of the elements of constant capital" raises the
rate of profit that a new investor can get now, ceteris paribus, but it
DOES NOT benefit those who invested at higher prices (values) in the
past. In fact, it is a detriment to them--they incur a capital loss
(which the IRR takes into account).

So the software example is indeed a good example of the kind of
*physically* nondepreciating fixed capital I often assume. It depreciates
morally but not physically.

I think it clarifies things, instead of obscuring them, to assume v is
zero, in the following sense. If, under that assumption, one gets a
difference between the Marx-ian and the Okishian profit rate, then,
when one is asking why this is the case, one can immediately conclude
that the difference is not due solely to the behavior of v under
technical change.

I do agree with Jerry that Marx wanted his formalizations not only to
clarify theoretical issues, but also to help reveal "the economic law of
motion of modern society." The question is, is it always the most
"realistic" model that helps do so? This was precisely the ground on which
Rosa Luxemburg fought Marx's schema of expanded reproduction. She brought
foreign markets into Marx's stark, sharply dialectical, model of a
two-class closed capitalist society, in which Marx showed that the
way capital "realizes" its surplus-value is through reproduction, with
the market being only a (largely dispensable) transmission belt in the
process. In which he showed that the way expanded reproduction takes
place is by increasing production of means of production at the relative
expense of means of consumption--thus by the domination of dead over
living labor on an increasing scale, which the imbalance of means of
production to means of consumption largely reflects. In which he blew
away "trickle-down" theory in the form Smith originated it (no, all
surplus-value does not "ultimately" go towards the hiring of more workers.
No, investment in means of production does not "ultimately" go to the
increase of consumer goods. The means of production increasingly get used
to produce more and more means of production, ad infinitum, and the
surplus-value goes increasingly into financing this).

IMHO, and I think the record on this issue bears me out, introducing all
sorts of "realistic" features on top of the stark inner dialectical
antagonism of capital and labor just serves to obscure and confuse
everything. Deeper comprehension requires deeper abstraction.

(Much of my understanding of the issue of accumulation expressed in the
above paragraphs comes from the very profound discussion in Ch. 3 of
Raya Dunayevskaya, _Rosa Luxemburg, Women's Liberation, and Marx's
Philosophy of Revolution_.)

Andrew Kliman