# [OPE-L:4151] Re: New Quiz and New New Quiz!

aramos@aramos.b (aramos@aramos.bo)
Wed, 5 Feb 1997 07:51:00 -0800 (PST)

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First of all: Hi Allin!! Welcome!!

You say:

"In Andrews setup were not told anything about
changes in the prices of means of production."

That is right. Andrew didnt assume anything about this. But, how can
changes in the prices of the means of production affect the
calculation of the rate of profit obtained by Mr Wolf?

Note that Mr Wolf advanced some capital at the beginning of t and he
owes this money to the banker (seem my ope-l 4140). If the prices of
the means of production go up, down or remain the same at the end of
t, he FIRSTLY must pay the price of the means of production used
during t. Only after this, he can "replace" his machines.
Consequently, his rate of profit must be calculated according to the
prices prevailing at the beginning of t, not by means of those
prevailing at the beginning of t+1.

This suggest me that we are dealing with another pun: there are 2
meanings of "replacement cost" which I will call "soft replacement
cost" and "hard replacement cost":

"Hard replacement cost position" means to think that the price paid
at the beginning of t (or the money owed) is completely irrelevant in
calculating the profit rate. The only thing that counts is the price
Mr Wolf will pay at the beginning of t+1. As I argue in 4140 --and
Rieu acknowledeges in 4147-- this is not a "reasonable" position, as
far as we are discussing about Mr Wolf, who is already established in
the branch, i.e. is not a "potential entrant", as Rieu says.

"Soft replacement cost position" is what Andrew defines as
"replacement cost" in 4136 (in the first table). It is to "assume
that prices in one year will be the same as today's prices". IMO this
is not a true "replacement cost" position because it could happen
that prices remain the same. In this case the calculation of the
profit rate according to TSS (cost price "priced" at the beginning of
t) yields the same result that if we use the prices prevailing at the
beginning of t+1 for the obvious reason that, in this particular
case, Pt = Pt+1.

I would agree that this is a very abstract and irrealistic case, but
it does not imply automatically to hold a very "hard" replacement
cost position. That is, the formula for the profit rate still states
that cost price corresponds to the prices prevailing at the beginning
of t but, incidentally, gives the same results that the hard
replacement cost position.

Contrarily, the hard replacement cost position argues that, in the
formula of the profit rate, the cost price corresponds to the prices
prevaliling at the beginning of t+1, and those paid at the beginning
of t are completely irrelevant.

Lastly: Thanks to Rieu for his clarification. Although this is "an
ordinary assumption" your phrasing was not clear enough.

Alejandro Ramos M.
5.2.97

P.S. I would want to call Andrew's attention about the fact that this
matter is quite complicated and people use the same term (e.g.
"replacement cost") with different meanings. Puns are usual in the
life!!