# [OPE-L:3043] Re: Math Theorems, Economic Theorems

Paul Cockshott (wpc@cs.strath.ac.uk)
Wed, 18 Sep 1996 01:26:27 -0700 (PDT)

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>3. On Andrew's response re. my remarks on the maximum profit rate:
>Fair enough, this was too sloppy. I wonder, though (I haven't yet
>attempted to think this through in detail) to what extent the
>counter-argument (i.e. that what happens to r-max cannot be
>used to make non-trivial inferences about what happens to r)
>depends on r-equalization? That is, on everything being
>measured in prices of production. If -- as Paul C and I have
>urged -- we conceive of prices as being stochastically
>distributed around values, exactly what difference does that
>make to the argument? I know that Roemer, for instance, does
>talk some about the trajectory of the value rate of profit in
>an Okishio-type context... (to be continued, I hope).
>
>Allin Cottrell
>Department of Economics
>Wake Forest University
>
>
>
I would suggest that the whole debate around Okishio is flawed by the
price of production equal rate of profit assumption. The criteria for
investment can not in practice be whether each individual investment
in plant and equipment will, current prices prevailing, earn greater
than the average rate of profit, since the average rate of profit is
unknown to firms.

What they know is their current profit and the rate of interest.
Their current profit constitutes a random variable whose expected
value is the average rate of profit. What is relevant to their
calculation is the difference between their anticipated profit and the
rate of interest at which capital can be borrowed.

One can not even take the difference between the expected value ( in the
statistical not psychological sense ) of their profit and the
rate of interest as a predictor for the level of investment unless one
assumes a investment to be a linear function of profit of enterprise -
a very unlikely assumption. If we assume instead that
it is bounded below by a polynomial function of order greater than 1 and
given that we know the probability density function of profit rates to
be kurtotic, then even the difference between average profit rates and
the rate of interest will be a poor predictor of the level of
investment.
Paul Cockshott

wpc@cs.strath.ac.uk
http://www.cs.strath.ac.uk/CS/Biog/wpc/index.html