[OPE-L:2970] Maximum Rate of Profit

andrew kliman (Andrew_Kliman@msn.com)
Thu, 5 Sep 1996 13:23:36 -0700 (PDT)

[ show plain text ]

There's been some discussion of the maximum rate of profit on this list
recently, and there still seems to be some confusion concerning the
implications of a falling maximum rate. In ope-l 2937, for instance, Allin
wrote (in part):

"I think it is jumping to an unwarranted conclusion to suppose that Okishio
(if accepted) knocks the bottom out of Marx's FRP. Marx's argument is not
limited to the particular alleged paradox of individually profitable technical
innovations reducing general profitability. The "bottom line" is surely that
the accumulation of capital itself tends to reduce profitability. ... The
maximum rate of exploitation [... equals] the inverse of the ratio of
labour-time accumulated as capital to current labour performed. *If* capital
is truly accumulating, and the total social working time is not increasing to
match, this maximum r is inevitably forced down."

In light of these remarks, and similar ones made by others, it is imperative
to point out that arguments concerning the tendency of the maximum rate of
profit have absolutely NO implications for the tendency of the actual rate of
profit. This was demonstrated conclusively by Okishio, in his original 1961
paper. Okishio devoted two whole sections to presenting this maximum profit
rate argument. What is now known as the Okishio theorem was developed in the
subsequent sections of that paper in order to demonstrate that *nothing* about
the movement in the actual profit rate can be inferred from this argument.

Unfortunately, by continuing to discuss the falling tendency of the maximum
profit rate as if it were something significant, long into the next decade,
writers such as Mario Cogoy and Anwar Shaikh may have helped create the
impression that if Okishio's theorem is right, Marx's law of the FRP may still
be right, that the theorem doesn't "knock the bottom out of Marx's FRP."
Because the maximum rate falls with capital-using/labor-saving technical
change, and because it sets an upper bound on the actual rate, it is indeed
very tempting to conclude that a continuing series of such technical changes
must eventually reduce the actual rate as well.

Very tempting, but false. Any and every Okishio-viable technical change that
lowers the maximum rate of profit *must* nevertheless raise what Okishio
claims is the actual equilibrium rate of profit. Thus, if we imagine a
continuing series of such changes, and we plot the associated maximum and
actual profit rates against time, we have two curves that converge toward one
another; one is always falling (maximum rate) and one is always rising
("actual" rate). Roemer discusses this thoroughly, in his _Analytical
Foundations_ I believe.

I am no fan of the Okishio theorem, as list members know, but what Okishio and
Roemer say in regard to the maximum vs. the "actual" profit rate is absolutely
airtight. It follows directly from the simultaneist measurement of the profit
rate and the definition of Okishio-viable technical change. Inferences from
the tendency of the maximum rate to the tendency of the actual rate are simply

Once one repudiates Okishio's smuggling away of differences between input and
output prices, however, then the actual profit rate can fall as a result of
Okishio-viable technical changes, as John, Alan, and I have shown. (The
maximum profit rate will differ from the simultaneist maximum rate, too.)

If Okishio's profit rate is the *actual* actual general rate, then, no matter
what happens to the maximum rate, Marx *was* indeed wrong to say that
technical changes introduced by profit-maximizing capitalists can lower the
general profit rate and, yes, the law of the FRP therefore crashes to the
ground. Surely Allin is right that Marx's thinking on the FRP was not
*limited* to this micro argument, but he certainly did make it, and without
it, there are no behaviors consistent with Marx's argument that would enforce
the macro law concerning the effect of accumulation itself. I am discounting
the Shaikh/Nakatani micro argument, because it posits competition as the
driving force behind the FRP, which Marx flatly rejected.

I find it disheartening that so many people have tried to evade the
implications of Okishio's theorem through false arguments, such as the maximum
profit rate argument. (I am NOT of course suggesting that anyone on the list
who has used it has known it is false.) The theorem is a very serious and
important piece of work, however much it lacks the crucial proof of complete
adjustment to a post-innovation stationary price "equilibrium." It *does*
demolish a lot of pro-FRP thinking, as Allin rightly pointed out in his post,
and it needs to be studied carefully before any alleged counter-arguments are
advanced. The maximum profit rate argument is the kind of thing that has led
people like Samuelson and Steedman and Roemer to issue charges of
obscurantism. I was initially very unsympathetic to these charges, but over
the years I have gradually become convinced that they are justified in almost
every case.

Andrew Kliman