# [OPE-L:3166] TSS and changes in the value of money

Fred Moseley (fmoseley@laneta.apc.org)
Fri, 27 Sep 1996 22:26:29 -0700 (PDT)

[ show plain text ]

This is a response to John's (3144) on the TSS interpretation and a decline
in the value of money.

1. With respect to the numerical example that John presented in (3106) for
the case of inflation, I argued in (3132):

This example assumes away the problem of changes in the value of
the material inputs DURING the period of production, such that input
prices are not equal to output prices, due to changes in the value of
money. This example assumes that inputs are purchased at the same
inflated
prices as the outputs are sold. The real issue is this: assume
that the
inputs were purchased at the old output prices of \$100 (i.e. historical
costs) and the the outputs are sold at the new inflated prices of \$260.
The amount of profit calculated according to historical costs would
then be
\$160 and the "historical cost" rate of profit would then be 160% - a
very
significant increase.

John responded:

As one of our great U.S. statesmen once said, "There you go again."
That is, you want to deal with inflation or a change in the value of
money that occurs SIMULTANEOUSLY WITH INCREASES IN PRODUCTIVITY and
the decreases in value. There is a qualitative difference between the
price increases due to inflation and price decreases due to decreases in
value. (my emphasis)

My response: No, this is not true. I am not assuming a change in the value
of money that occurs simultaneously with changes in productivity. In this
example, I am assuming constant productivity, just as you do. The
difference is that I am assuming that the changes in the value of money
occur DURING the production period and you assumed changes in the value of
money BEFORE the production period. Your assumption avoids the problem of
the difference between historical cost and current cost, because under your
assumption they are the same.

2. I have noted in previous posts that the "historical cost" rate of profit
in the postwar US economy increased and the "current cost" rate of profit
declined significantly. John raised some questions about these empirical
results that I think I answered in (1312), and then I concluded:

One thing is perfectly clear: if the "current cost" rate of
profit did not decline in the inflationary postwar period, then the
"historical cost" rate of profit certainly did not decline and had an even
more positive trend. Where would that leave Marx's theory of the falling
rate of profit as a basis for understanding the current crisis of world
capitalism?

John replied:

You're way ahead of us. Again, we are talking about Marx and working
with his assumptions in dealing with the issues. Once we establish
the validity of his concept of the rate of profit, we can turn to its
application.

My response: As I have said in previous posts, although I agree with the
strategy of beginning with Marx's assumptions in CAPITAL, I also want to
develop Marx's theory further to analyze contemporary capitalism, which will
involve changes in the value of money. Even though there is much more work
to be done for the case of a constant value of money, it is clear even at
this early stage that, when it is later assumed that the value of money
declines AND constant capital is valued at historical costs, then it will be
impossible to derive a falling rate of profit, except perhaps in the special
case where the value of money declines slower than productivity increases.
The assumption of historical costs makes it easier to derive a falling rate
of profit in the case of a constant value of money, but the same assumption
makes it in general impossible to derive a falling rate of profit in the
more realistic case of a declining value of money.