[OPE-L:2948] Re: The Falling Equilibrium Rate of Profit

John Ernst (ernst@nyc.pipeline.com)
Tue, 3 Sep 1996 10:50:15 -0700 (PDT)

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In a valiant attempt to rescue Okishio from my
devastating criticism, Gil begins by citing
my comment:

John writes:

>As Alan, Andrew, Duncan and Gil deal with
>what Roemer and Okishio said or did not say,
>we should not lose sight of Alan's point that
>Marx himself was not an adherent of "The
>Falling Equilibrium Rate of Profit." Yet, the
>Okishio Theorem is often used as an answer
>to Marx's falling rate of profit. The textual
>support for that position has yet to be seen.
>Rather it seems that given economists are
>comfortable with the idea of equilibrium, the
>notion of a falling rate of profit as the economy
>traverses (somehow) from one equilibrium point
>to another is simply imputed to Marx.

Gil then states:

Finally, concerning the extent to which Marx did or did not rely on
"equilibrium" analysis, I note that Marx is evidently willing to take
price-value equivalence as a relevant "base case" in describing capitalist
outcomes, and Marx understands such a condition to result when supply and
demand "coincide, [and therefore] cease to have any effect, they cancel
other out..." [III, p. 478, Penguin ed.] Thus assuming the proportionality

of commodity prices and values is, for Marx, *formally* equivalent to
assuming that all commodity markets clear, which sounds like an equilibrium

condition, even if that's not what Marx intended. Consequently, it's not
totally clear to me what *substantive* violence Okishio-style arguments do
to Marx's analysis.

John responds:

How does Okishio do "substantive" violence to Marx? Let me count
some of the ways.

1. Marx introduces market values prior to the FRP section of Vol. III.
Hence, it is not at all clear that one can assume equal rates of
profit or exchanges at prices of production in discussing the FRP
in CAPITAL. Thus, what prices and values are equivalent in the
"base case" is, at least, debatable.

2. Marx's FRP is presented prior to separating surplus value into its
various components. Okishio assumes that all of surplus value
is seen as profit to the industrial capitalists. Marx, unlike
followers of Okishio, assumes that private property exists and,
hence, that the possibility of absolute rent can exist. Marx
also notes that rent as proportion of surplus value increases
as capital accumulates.* To the best of my knowledge no one
has extended the Okishio Theorem to include rent in the Marxian
sense. (*See the last paragraph of Chapter 37 of Vol. III.)

3. Marx explicitly states that his notion of accumulation includes
capital-saving innovations as techniques change in the period
of large-scale industry. Okishio relies on the simple idea that
technical change in Marx is labor-saving and capital-using.
This corresponds to Marx's description of the period
of manufacture. A relevant critique of Marx should begin
with a model that includes Marx's idea of technical change
within the period of large-scale industry. Marx attempts to
develop a "law of motion of modern society." Okishio dwells
in the realm of the Smithian "period of manufacture."

4. Okishio would agree with Marx that should all prices decrease
uniformly because of increases in productivity, the rate of profit
will not fall. This agreement alone should at least make
one suspect that something is amiss in the Okishio's
interpretation of Marx.

Gil, I think we would both agree that there is unclarity in Marx's
presentation. Our difference seems to be that I am unwilling to
rely on an unserious reading of Marx for the sake of constructing
simple models that purport to refute his ideas. To be sure, the
final results of my "serious" reading may well not lead to
coherence in the form of a valid model. But, for now, I am
willing to give it a shot.

In solidarity (OPE and otherwise),