[OPE-L:3086] Re: Fred's Comments on 3074

John Ernst (ernst@nyc.pipeline.com)
Sun, 22 Sep 1996 11:53:25 -0700 (PDT)

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Welcome back, Fred.

You seemed to have jumped right into it with your comments on
Duncan's OPE-3074. Let me (for the record wherever it is)
state that, for now, in using TSS, I am assuming a constant
value of money. My point is to extract from Marx's
CAPITAL a theory of accumulation which contains a valid way
of developing a falling rate of profit. That's it. Here,
I think you will agree that I follow Marx in making that
assumption. With that in mind, let's look at your post.

Fred says:

The term "inventory valuation adjustment" (IVA) brings to mind a point that

I have been wanting to make for some time - about changes in the prices of
raw materials and machinery, etc. that are due to a DECLINE IN THE VALUE OF

MONEY. The TSS interpretation so far (that I have seen) assumes that the
value of money remains constant. Under this assumption, technological
change reduces the prices of raw materials and machinery, etc., so that the

IVA and the capital consumption adjustment (CCA) are negative. Therefore,
the TSS profit net of the IVA and the CCA will be less that the profit
independent of these adjustments, and from this the TSS interpretation
deduces a falling rate of profit.

John says:

TSS simply holds that the funds invested in constant capital should
be used in computing the rate of profit for a given period of
production. For example, if someone invests $100 in constant capital
and the product produced sells for $110, the profit rate is 10%,
assuming v is very,very,very small.

What others (including you) seem to say is that if the means of
production that were purchased for $100 sell for, say, $80 as the
product is being sold for $110, the profit rate would be 37.5%.
It seems to me that is using an eraser with great gusto. What
happens to to the $20? Is the capitalist unaware of it?

You then go on to state:

Therefore, the TSS argument concerning a falling rate of profit is true
for the special case of a constant value of money. If the value of money
declines, as it in general does in contemporary capitalism, then the TSS
"historical cost" interpretation leads to the opposite conclusion. I do
think that Marx's theory of a falling rate of profit applies only to the
case of a constant value of money.

John says:

I do not agree that a constant value of money is a special case. As
I stated above, it is an assumption that Marx uses in CAPITAL. Thus,
in making that assumption I am merely attempting to follow his

Fred says:

In at least one passage, Marx stated explicitly that a change in the value
of money does not affect the rate of profit. In commenting on Section 7 of

Chapter 1 of Ricardo's Principles (where Ricardo made the same point), Marx


... this section contains nothing but the theory that a fall or rise in the

value of money accompanied by a corresponding rise or fall in wages, etc.
does not alter the relations, but only their monetary expression. If the
same commodity is expressed in double the number of pounds sterling, so
also is that part of it which resolves into profit, wages or rent. But the

ratio of these three to one another and the real values they represent,
remain the same. The same applies when the profit is expressed in double
the number of pounds, $100 is then however represented by $200, *so that
the relation between profit and capital, the rate of profit, remains
unchanged.* *The changes in the monetary expression affect profit and
capital simultaneously,* ditto profit, wages, and rent. (TSV. II 203;
my emphasis)

John responds:

This misses the mark. Ricardo sees no difference between the
rate of surplus value and the rate of profit. There is no
"constant capital" advanced in Ricardo. Thus, it not clear how
Marx's comments are at all applicable to the issue at hand.