# [OPE-L:4340] Re: Problems in Vol. III

john erns (ernst@pipeline.com)
Mon, 10 Mar 1997 16:21:53 -0800 (PST)

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Given Allin's and David's responses (OPE 4337 and 4339,
respectively) to my questions, I am clear that I, once
again, have been unclear. Let me see if I can extirpate
some of the unclarity.

CAPITAL 1. ADVANCES AT THE BEGINNING OF A YEAR \$1000 TO
PURCHASE RAW AND AUXILIARY MATERIALS. THERE IS NO FIXED
CAPITAL. AT THE END OF THE YEAR, THE CAPITALIST SELLS
ALL THE COMMODITIES PRODUCED AND MAKES A PROFIT OF \$100.
THERE ARE NO LEFT OVER MATERIALS FOR THE NEXT YEAR. WAGES
ARE PAID AFTER THE SALE OF THE OUTPUT.

CAPITAL 2. ADVANCES AT THE BEGINNING OF A YEAR \$2000 TO
PURCHASE \$1000 WORTH OF RAW AND AUXILIARY MATERIALS. THE
OTHER \$1000 IS USED TO PURCHASE A MACHINE WHICH WILL LAST
10 YEARS. AT THE END OF THE YEAR, THE CAPITALIST SELLS
ALL THE COMMODITIES PRODUCED AND MAKES A PROFIT OF \$200.
THERE ARE NO MATERIALS LEFT OVER FOR THE NEXT YEAR, SAVE
THE MACHINE. WAGES ARE PAID AFTER THE SALE OF THE OUTPUT.

My basic question was, "Which of the two capitals is earning a
higher rate of return?" If we use the usual formula for the
rate of profit -- s/C -- it would seem that the both are
earning 10%.

__________

Allin suggests (OPE 4337) another way of coming at this. My
question to you, Allin, is "What is the rate of return for
CAPITAL 2?"

David (OPE 4339) asks why I thought that the second capitalist would
have only \$1900 tied up in the next year. I used straight line
depreciation and assumed that the depreciation charges in the
first year amounted to \$100. Hence, at the beginning of the
second year only \$900 would be tied up in the machine. I also
assumed that the \$1000 would have to be invested in raw and
auxiliary materials. Hence, the \$1900 advanced in the second
year.
_____________

I think this is an important problem for the following reasons.

1. In the various models and examples we use and/or see in
CAPITAL itself, it is not clear that the current prices or
values of fixed capital can be simply inserted into the
denominator of the formula for the rate of profit, s/C, without
considering depreciation as well as the ages and economic

2. In empirical estimates of the rate of profit, my concernst
are in the same area.

3. In our seemingly endless discussions of "moral depreciation",
I was unable to advance matters without a clear understanding of
how to compute the rate of profit, given the existence of fixed
capital.

4. In the "choice of technique problem" aka the Okishio Theorem, the
introduction of fixed capital always seems problematic. As far
as I know, the lifetime of fixed capital is assumed to be infinite
or you run into the problems Shaikh did in his 1978 piece on Dobb.

5. Given a "correct" way to compute the rate of profit, I am
curious how various treatments of the "transformation problem"
would be affected.

6. I, again, note that this problem may well have been in Marx's
mind as he failed to write even a sentence of Chapter 4 of Vol. III,
"The Effect of Turnover on the Rate of Profit." (I trust Engels on
this.)

John