[OPE-L:3193] Re: TSS and the Value of Money

John Ernst (ernst@nyc.pipeline.com)
Mon, 30 Sep 1996 17:37:06 -0700 (PDT)

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I do disagree with the overall emphasis in your post of 09/30/96.
Here are some specific comments.

Fred writes:

OK, John insists that we stick to the assumption of a constant value of
at least for the time being, and later consider the implications of
this assumption. That is fine with me. I imagine that this will lead to
some interesting results, that will probably be useful in understanding
and early 20th century capitalism, which is of course is a very important

But I continue to insist that these results will be of little use in
understanding contemporary capitalism, which is characterized by a
value of money. This is not a case where dropping an initial assumption
will slightly modify the conclusions. Instead, this is a case where the
conclusions are changed into their opposite. If one assumes historical
costs and a declining value of money, then the rate of profit in general
rises, not falls. There will be no "breakdown" such as John describes in
the case of a constant value of money. We don't have to wait and see what
the effects of changing the assumption will be; we already know what the
effects will be.

John responds:

Let me avoid referring to the specific examples and note that no matter
which one we used, using simultaneous valuation with a constant value
of money, there was no self-expansion of value. M-C-M' became
M-C-M" where M"< or =M. To be sure, this was, in part, a result of
the numbers chosen in the examples. As I stated in OPE 3164, if the
loss in capital value is greater than the living labor added, value
not only does not expand in production but contracts. My point is
that if one is to insist that simultaneous valuation is a result
of the accumulation process, then one must also show how and why
these periodic contractions of the economy must occur.

In fairness, let me say that TSS has a similiar problem. That is, if
we maintain that prices fall as productivity increases, we must also
show the how's and why's of those price decreases. More than a few
times have I pestered Alan and Andrew with this one.

What is interesting is that we seem to have encountered a fundamental
contradiction in the accumulation process in our very simple one-sector
models. How did we do this? By assuming that money has a constant
value. ($1/1hr)

If nothing else, our assumption shows that the accumulation of capital
is problematic. If we move to an ultimate simultaneous valuation of
inputs and outputs, the crisis itself is generally a necessity.
In the best of all possible worlds, we would conclude this phase
of our discussion with a crisis theory. We could then move to a
discussion in which the value of money varies. Here, the case you
mention most -- a fall in the value of money -- would take priority.
Yet, given my high hopes and whatever, we would enter that discussion
with some idea of crisis theory. To be sure, it would not be one
in which the rate of profit as you measure it is the cause but rather
one in which the rate of profit falls due to other problems in the
accumulation process. What might they be? Perhaps, lack of effective
demand. Or, stagnation as monopolies dominate the economy. Or, to
be a bit closer to Marx's notion in CAPITAL, we may relate the
periodicity of crisis to the turnover of fixed capital as
productivity increases.

Fred writes:

If, on the other hand, one assumes that constant capital is valued in
current costs, then dropping the assumption of a constant value of money
little or no effect on the conclusions. A change in the value of money
leaves the "current cost" rate of profit unchanged. So it is not just a
matter of assuming or not assuming a constant value of money. The effect
dropping the assumption of a constant value of money depends on whether one

is also assuming that constant capital is valued at current or historical

John responds:

Dropping the assumption of a constant value of money in the one sector
models we are discussing where v is very,very, very small will not
result in a falling rate of profit using simultaneous valuation. Why?
See Okishio. Or, more accurately, see Tugan who in 1898 used a
one-commodity to show that capitalists would see that the technique
of period 2 would lead to falling rate of profit using simultaneous
valuation. Hence, to get at a falling rate of profit in your way
it seems to me that you'd also have to insist that the wage rate
plays some role in the process. Thus, taking the path you propose
at this point would simply lead us back to consider the Okishio


I do think that once we agree to discuss a particular example many
of my comments will be clearer.