[OPE-L:4501] RRI and The Rate of Profit

John Erns (ernst@pipeline.com)
Sun, 23 Mar 1997 12:14:05 -0800 (PST)

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I am beginning to understand some of Duncan's
distinctions between ex post and ex ante concerning
the rate of profit (r) and the rate of return on
investment (RRI). Still given that the two methods
of computing "returns" generally differ, the meaning of
and significance of the rate of profit (r) is unclear,
given the presence of fixed capital. Yet, when it comes
to the frequently discussed issues of Marx's
CAPITAL, we find debate centered on the rate of
profit. That Marx used "r" rather than "RRI" is beyond
dispute. Whether or not Marx knew any method of computing
the RRI should at least be a serious question. Further, if
we use the RRI rather than r in carrying out the transformation
of values into prices of production and in examining matters
concerning the falling rate of profit, other issues arise.

1. Transformation. To compute the RRI, one needs to know
not only the living labor added in each period of production,
but also the values and expected economic lifetimes of the
of the various quantities of fixed capital. Here, we may
well find that the expected economic lifetime of fixed capital
computed using values will generally differ from that
using prices of production. This would seem to justify using
a transformation procedure that simply assumes that the inputs
have "values" that are already transformed or, as Fred puts it,

2. FRP. Given that the RRI is constant with no technical change,
it is clear that "r" will simply increase as fixed capital ages.
Again, assuming RRI is constant, it is also clear that a great
deal of investment in fixed capital will lower "r" as the average
age of fixed capital decreases. In this context, it is not at
all clear what a falling rate of profit means. Yet, if we are
going to eventually link the turnover of fixed capital to the
periodicity of crisis, then it seems clear that tracking the RRI
will at least force us to give attention to the stratification of
fixed capital and its changes within the cycle itself.