[OPE-L:4462] Re: Depreciation and the Rate of Profit

Duncan K. Fole (dkf2@columbia.edu)
Thu, 20 Mar 1997 13:51:47 -0800 (PST)

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A response to John's OPE-L:4404:

>John comments:
>I agree that the particular accounting system is not going to
>change matters relative to the "long-run reproductive health of the
>capitalist system." Concerning the falling rate of profit, I agree
>that the literature is clear on the definition of the rate of profit.
>But it seems to me it's one thing "to get the ex post historical
>record straight" and another to show in theory how a falling rate
>of profit may occur or to show how values are transformed into prices
>of production. To be sure, the projects are not completely distinct.
>Indeed, the task would be to show how capitalists investing in
>techniques that they assume will fetch ever growing IRR's somehow
>end up with falls in both the IRR and what we have called the rate
>of profit.

There are two issues here, viability and solvency. As to viability: if a
new labor-saving, capital-using technique is cost-reducing assuming a
constant real wage, it will be even more cost-reducing on a path of rising
real wages, which is what leads to the system-wide falling rate of profit.
As to solvency: capitalists who borrow on terms they can meet only on the
basis of over-optimistic estimates of the rate of profit will become
insolvent, but that is a different question from the adoption of new
techniques that leads to a general fall in the rate of profit.

>We may also be able to show the how's and why's of that
>10 year lag that Dumenil and Levy uncover between the IRR and the
>rate of profit.

This seems to me to be an excellent research project, and a good starting
point for a PhD thesis.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu