# [OPE-L:4204] RE: A Simple Sheep?

andrew klima (Andrew_Kliman@msn.com)
Thu, 13 Feb 1997 09:42:19 -0800 (PST)

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A reply to John's ope-l 4174.

John had asked: "If we say that there may be differences between your
calculation of the rate of profit and that of the capitalists', then which one
is to be used as we consider the tendency of the rate of profit to fall?"

John responded: "How about both? That is, it seems to me that we have to
explain the phenomena encountered by the actors in the society we are
analyzing. Thus, if 'your' or 'our' rate of profit differs from theirs, we
must explain the relation between the two."

I now say: I agree with your last two sentences. That doesn't mean the first
is correct. "[A]s we consider the tendency of the rate of profit to fall," we
need to be considering s/(c+v), because that is the profit rate that has a
tendency to fall, according to Marx.

John: "c + (v+s) = w

100 + 100 = 200

If v is very,very small, then the rate of profit would be 100%."

If v is very, very small, then the rate of profit would be very, very close to
100%. It will equal 100% when v is exactly zero. No talk about actual
economies can alter the mathematical facts.

John then presents a numerical example and a calculation that makes the annual
rate of profit constant throughout the lifetime of the investment. I do not
accept the calculation.

First, it is based on looking at the change in the value of the firm, i.e.,
the change in what it is worth. This is fine, but I don't accept John's way
of determining the value of the firm. He computes the new value of the firm
as the initial value plus the value added by living labor. This presumes that
there is no capital gain or loss. I addressed this issue in some detail in
ope-l 4160, the very post to which he was replying. Unfortunately, he didn't
comment on this issue.

Second, the calculation is able to obtain a constant annual rate of profit
only by redistributing value added across periods. In the example, what
presumably gets counted as profit of year 1 is less than value added, and what
presumably gets counted as profit of year 2 is greater than year 2's actual
value added by the same amount. It is an ingenious procedure, but the
theoretical justification for it is not at all clear to me. If one wants to
measure s/(c+v), then one needs to use the actual s and v and count them when
they occur, instead of using a hypothetical s and v by playing with time. One
can always get a constant, or rising, or falling rate of profit by juggling
figures across time periods. That has nothing to do with the tendency of
which Marx speaks. Or, it could be that John is trying to get at how firms
compute their profit rates. But then DO NOT MIX AND MATCH THEIR CATEGORIES
WITH CATEGORIES OF VALUE *DETERMINATION*. I repeat: DO NOT MIX AND MATCH
THEIR CATEGORIES WITH CATEGORIES OF VALUE *DETERMINATION*. It's fine with me
to talk about the determination of s/(c+v) and about the profit rates that
firms compute, but not to talk about them together. Capitalists know nothing
about the determination of value and care about it even less. How they keep
their books cannot alter things that have already taken place.

Third, the problem seems to be mostly a non-problem. If the \$50 of value
added in the first year is re-invested in the 2nd and obtains the same rate of
return as the original investment, then we would have

year 1:

100 (investment) + 50 (value added) = 150

year 2:

(a) 100 (investment) + 50 (value added) = 150
(b) 50 (new investment) + 25 (interest) = 75

150/100 = (150+75)/(100+50) = 1.5, so in both years the rate of return on
total investment is 50%.

Fourth, John justifies his calculation by referring to "the production of
surplus value and its conversion into profit." His calculation has nothing to
do with what Marx means by the conversion of surplus-value into profit.

It seems to me that the key issue we need to discuss is the *other* one that
John raised, and to which I responded: can there be a capital gain or loss in
the system as a whole, so that the change in the value of capital does not
equal surplus-value but surplus value *plus* the capital gain or *minus* the
capital loss.

Baaah,

Andrew Kliman