[OPE-L:3098] Re: Fred's Comments on 3074

Fred Moseley (fmoseley@laneta.apc.org)
Mon, 23 Sep 1996 12:48:40 -0700 (PDT)

[ show plain text ]

This is a response to John's (3086) who was responding to my (3084).
(Thanks, John, for your welcome back. It's good to be back.)

John said:

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.

Fred's response:

I agree that Marx generally assumed a constant value of money in CAPITAL.
I also am in complete sympathy with John's project of extracting a theory of
accumulation from CAPITAL. However:

1. Marx also considered briefly at times the effects of a change in the
value of money, and from these passages, it is clear that such a change in
the value of money results in a reevaluation of constant capital, which in
turn implies that constant capital is not evaluated at historical costs (see
more below).

2. Even though I want to begin with Marx's theory in CAPITAL, I also want
to develop this theory further where necessary in order to be able to
analyze contemporary capitalism (I am sure John does too). One important
area in which further development is necessary is to allow more
systematically for changes in the value of money. If this is done along
with the assumption that constant capital is evaluated at historical costs,
then under today's inflationary conditions, the rate of profit in this
theory will rise.

Such a conclusion is consistent with the facts for the postwar US economy
(and I think for other economies in the postwar inflationary period). The
rate of profit measured in historical costs has risen. I don't remember a
specific reference right now, but one author who has written several
articles on this subject is Rudy Ficthenberg (I am not sure the last name is
correct; maybe somebody else could help with the name and with the specific

However, the rate of profit measured in current costs (as I and all others
working on estimates of the rate of profit have done) fell through the
mid-1970s (and has remained roughly constant since then).

It seems to me that the rate of profit in current costs is the most relevant
for the determination of the possible rate of accumulation, since new means
of production will have to be purchased in current costs. Therefore, it is
the decline in this (current costs) rate of profit that has reduced the rate
of accumulation since the mid-1970s and it is the decline in this rate of
profit that needs to be explained on the basis of Marx's theory.

John then gives the following example, which is supposed to be of my

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 the $20? Is the capitalist
unaware of it?

My response:

My key disagreement here is with the determination of the price of the
output. If the means of production have been reduced from $100 to $80,
then, according to my interpretation, this would effect not only the
denominator in the rate of profit, but also would affect the constant
capital component of the price of the output (the "value transferred").
Therefore, the new price of the output would be $90 and the rate of profit
would be 11%. In this case, there is a very small increase in the rate of
profit, but nothing like the outlandish increase (to 37%) in John's example.
John has assumed in his example of my interpretation that the change in the
price of the means of production affects only the denominator in the rate of
profit and does not affect the "value transferred". This is clearly

Note also that the absolute amount of profit remains unchanged at $10. The
absolute amount of profit is not affected by the change in the price of the
means of production, because this change affects equally the constant
capital component and the total price. There is no extra $20 for
capitalists to be aware or not to be aware of.

Finally, John commented on my quote of Marx on Ricardo from TSV.

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.

Fred's response:

I agree that Ricardo confused the rate of profit and the rate of
surplus-value, but Marx did not, and in the passage quoted, Marx clearly
said that a change in the value of money would affect both profit and
capital simultaneously and therefore would leave the rate of profit
unchanged. To quote again:

... the relation between profit and capital, the rate of profit, remains
unchanged. The changes in the monetary expression affect profit and
capital simultaneously ... (TSV.II 203)

In other words, capital is not evaluated at historical costs, but is
reevaluated in terms of current costs, which have changed due to a change in
the value of money.

In solidarity,