[OPE-L:4654] Rising VCC and the profit rate: Pt. 1

Gil Skillma (gskillman@wesleyan.edu)
Thu, 3 Apr 1997 19:21:49 -0800 (PST)

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Now to Andrew's first question. He asks:
>* Can a rising VCC ITSELF lead to a lower rate of profit in simultaneist value
>theory, as it can in the successivist interpretation of Marx's value theory,
>and in Marx's value theory itself? Or is Frank Thompson's theorem a beautiful
>example of the incompatibility of Marx's value theory and simultaneism?

The phrasing of this question seems to beg an important question by
presuming that "simultaneist value theory" and "Marx's value theory itself"
are separate entities, a point which is still very much in dispute on this
list and elsewhere.

But for the sake of argument, let me grant the possibility that the two are
distinct entities. I will also follow Andrew's explicit lead in treating
"the successivist interpretation of Marx's value theory" and "Marx's value
theory itself" as distinct entities. Given this distinction, the question is
best answered in two parts. Therefore, the first question to be addressed
is: "Can a rising VCC ITSELF lead to a lower rate of profit in simultaneist
value theory, as it can ...in Marx's value theory itself?"

Subject to caveats about the wording of the question, to be discussed below,
the answer to this question is: A rising VCC "can.. lead to a lower rate of
profit" in "simultaneist value theory", in *exactly the same contingent and
problematic sense* that it does so in "Marx's value theory." To which I
would also want to add a Ch. 5-based caveat that *any* version of value
theory based on labor values, be it simultaneist, successivist, or "Marx's
own", is at best redundant in explaining falling profit rate tendencies in a
capitalist economy. Thus, in a deep sense, my Ch. 5 critique suggests that
Andrew has posed the wrong question here.

I begin the answer by lodging two caveats based on Andrew's wording of the
question. I do this mainly to make sure I'm not answering a different
question than Andrew is asking. The first has to do with the notion that a
rising VCC "ITSELF" might lead to a lower rate of profit, and the second has
to do with the meaning of the statement that a rising VCC "can" (as opposed
to, say, "will" "typically will" "must", etc) lead to a lower rate of
profit. Consider each caveat in turn.

1. Does a rising VCC "ITSELF" ever lead to a falling rate of profit in
Marx's own statement of his theory? From the context of past exchanges I
gather that by this Andrew means that the condition of rising VCC is not
accompanied by ancillary conditions about the behavior of wages in response
to VCC-increasing technical change (which implies in value terms conditions
on corresponding changes in variable capital and the rate of surplus
value). Andrew, please correct me if I'm wrong about this.

But if the "ITSELF" condition means anything like the condition indicated
above, i.e. that a rising VCC *categorically* implies a tendentially falling
rate of profit, then the simple response is that "a rising VCC ITSELF"
**does not** imply a falling rate of profit in "Marx's value theory." The
connection Marx draws between rising VCC and falling rate of profit is
*contingent* rather than *categorical*.

As Marx puts it (Capital, V. III, Penguin edition, pp. 316-318) (double-*
emphases added):

"**The same rate of surplus-value**, therefore, and an unchanged level of
exploitation of labour, is expressed in a falling rate of profit, as the
value of the constant capital and hence the total capital grows with the
constant capital's material volume."

"...this gradual growth in the constant capital, in relation to the
variable, must necessarily result in a *gradual fall in the general rate of
profit*, **given that the rate of surplus-value, or the level of
exploitation of labour by capital, remains the same**.

"With the progressive decline in the variable capial in relation to the
constant capital, this tendency leads to a rising organic composition of the
total capital, and the direct result of this is that the rate of
surplus-value, *with the level of exploitation of labour remaining the
same** or even rising, is expressed in a steadily falling general rate of

[It should be quickly added that the rate of surplus value cannot rise by
*too much*, or this claim is not true, as Marx's subsequent discussion

It is clear from the above that Marx never asserts a *categorical* link
between rising organic composition of capital and tendentially falling
rates of profit. Thus the first caveat: if by the term "ITSELF" Andrew
means such a link, then the premise on which his question is based is, in my
understanding, false.

If the caveat does not apply, then the first aspect of my main answer holds:
the connection between rising VCC and tendentially falling RoP is no more
(or less) contingent in simultaneist value theory than in Marx's theory.
The original statement of this contingency, in Okishio's theorem and
Roemer's extensions thereof, involved constant real wage rates. As I'll
discuss later, there are at least plausible microeconomic grounds for such a
stipulation, but the immediate point is that this stipulation translates
into an assumption about the response of the rate of surplus value to
VCC-increasing technical change.

However, this is obviously not the only possible condition with respect to
the rate of surplus value expressible in "simultaneist" terms. Consider in
particular Duncan Foley's stipulation of a constant value of labor power,
understood in "new solutionist" terms. This translates into stipulating a
*constant rate of surplus value*, as most easily seen in the one-commodity,
circulating-capital model: if a units of the produced commodity and l
units of labor are required to produce a single unit of the produced
commodity, and w is the wage rate, then Duncan's condition is that wl/(1-a)=
c, a constant, with the consequence that the rate of surplus value s/v =
(1-c)/c, also a constant. Under these conditions he shows that any
VCC-increasing technical change must lower the rate of profit. Similarly,
it can be shown that the rate of profit will fall if the increase in s/v
induced by the technical change is sufficiently small. [David Laibman
establishes a parallel argument in his 1982 RRPE article.]

Conclusion: subject to my caveat as to Andrew's meaning, the connection
between rising VCC and tendentially falling rate of profit can be
established in "simultaneist" terms which are no more (or less) contingent
than in "Marx's value theory itself."

2. In what sense "can" a rising VCC lead to a tendentially falling rate of
profit, in either Marx's or the simultaneist sense? To answer this question
let me invoke the term "metasocial," understood to relate to "social" in the
same sense that "metaphysical" phenomena relate to "physical" phenomena. My
2nd caveat has to do with whether the prediction of a tendentially falling
rate of profit is to be understood in a "metasocial" sense, with no obvious
connection to real-world capitalist profit rates even potentially speaking,
or in a "social" sense, with a demonstrated theoretical connection to a
profit rate expressed in monetary terms, of the sort that capitalists
actually face.

Specifically, the issue is this: Marx's statement of the argument shows,
contingent on a (virtually) constant rate of surplus value, that the value
rate of profit s/(c+v) must decline in response to rising VCC. But does
this translate into a statement that, under plausible economic conditions,
the money rate of profit akin to that which capitalists actually face will
show a tendency to fall?

There are at least two obstacles in making this translation:

A) Marx's argument in support of tendentially rising VCC implies, if
anything, a rising s/v as well, suggesting that the stipulation of
(virtually) constant rate of surplus value is not applicable to the
operation of capitalist economies, even on Marx's own theoretical terms.
Marx's Volume III premise of a tendentially rising VCC is derived from his
argument in Volume I, Ch. 25 (see III, p. 318), where he argues that
increasing social productivity of labor implies "the increase of the
constant constituent of capital at the expense of its variable constituent"
(I, p. 773). But Marx associates this tendency of change in production
conditions with *increasing* surplus value in the relative sense (I, p. 775
and I, Part IV). Thus, by Marx's own argument, the technical developments
which promote a rising VCC should also be expected to promote a rising rate
of surplus value.

This tendency is if anything compounded by the progressive creation of a
"relative surplus population", which should have the additional effect of
driving wage rates down if they are above the subsistence level, i.e. above
the level corresponding to what is traditionally called the value of labor
power [I, p. 790]This makes sense to me: other things equal, the
substitution of constant for variable capital in production should have the
effect of lowering demand for labor, thus producing a non-increasing wage
rate so long as the supply curve is non-decreasing in wage and supply and
demand equilibrium obtains in the market for labor power (a possibility Marx
seems to find at least plausible--see again I, p. 790). This is the central
point of Frank Thompson's paper: the *ceteris paribus* contribution of
rising VCC to the profit rate *given plausible conditions on the impact of
technical change in the market for labor power* is to increase the rate of
profit rather than reduce it.

Two additional comments about Frank's result: first, his methodology is
comparative static rather than comparative dynamic, as would be called for
if technical change were understood as a *continuous* process through time.
But I believe based on my own work that a similar argument to Frank's can be
made in a dynamic context, and anyway static vs. dynamic is not the point at
issue in Andrew's question. Which leads me to the second comment: as
anticipated by Andrew's own comment in an earlier post, it can't possibly be
the case that "Frank Thompson's theorem [is] a beautiful example of the
incompatibility of Marx's value theory and simultaneism", since Frank's
point can be made without any reference to labor values at all (other than
in the trivial translation of rising VCC into capital-using, labor-saving
technical change), and thus there is no intrinsic need for "simultaneism" in
any meaningful sense. [This is the first echo of my Ch. 5 argument, the
essential point of which is that the relationship of prices to values,
separately or in aggregate, is at best an epiphenomenon of the real
phenomena Marx was addressing. More on this below.]

In a paper which Metroeconomica may eventually get around to publishing, I
establish a bargaining-theoretic basis for a process of wage determination
which maintains a (virtually) constant rate of surplus value in the face of
viable capital using, labor saving technical change. If real world wage
determination corresponds to such a process, then one can argue legitimately
that rising VCC corresponds to a constant rate of surplus value and thus a
falling rate of profit, either in a comparative static or a comparative
dynamic context. But this argument clearly goes beyond what Marx was
arguing in Part IV and Ch. 25 of V.I.

B) When there are multiple sectors, a falling value rate of profit need not
imply a falling money rate of profit. To yield this implication additional,
possibly unrealistic conditions must be imposed. Roemer, for example, shows
that the value and money rates of profit for a given economy can move in
opposite directions if organic compositions vary across sectors (_Analytical
Foundations of Marxian Economic Theory_, pp 92-95. To the objection that
Roemer bases this demonstration in simultaneist rather than successivist
terms (true enough), I respond that, mathematically speaking, a successivist
value system allows for even more degrees of variation than a simultaneist
system (since in the former case prices and values are time-dependent,
unlike in the latter case), so that if anything greater scope for
divergences of the money and value rates of profit are possible under a
successivist treatment.

Unless, of course, additional restrictions are imported into such a
treatment. This is another point where the chapter 5 discussion may have
relevance. For example, I argue that Marx establishes no valid basis for
considering price-value equivalence as a relevant or meaningful stipulation
in analyzing the behavior of capitalist economies. In addition, I've argued
contra Alan that no passage in Ch. 5 establishes the equality of aggregate
prices and aggregate values, however the latter are defined (so long as
values aren't defined as equal to prices!). Absent such additional
restrictions, the translation of Marx's "metasocial" result concerning the
value rate of profit into tendential consequences for the money rate of
profit is problematic. But to the extent that a plausible connection
between viable VCC-increasing technical change and a falling rate of profit
can be established, this connection can be made in a "simultaneist"
framework as readily as it can in the framework of "Marx's own value theory."

Moreover, and this is the ultimate point of my Ch. 5 critique, reference to
"values", understood as distinct from "prices", whether understood in a
simultaneist, successivist, or "Marx's own" value framework, is redundant at
best in establishing the possibility of a tendentially falling rate of
profit in capitalist economies.

Bottom line: A rising VCC can lead to a lower rate of profit in exactly the
same contingent and problematic sense under a "simultaneist" value theory as
under "Marx's value theory", if the two are in fact distinct. However, my
Ch. 5 argument suggests that reference to values in the derivation of real
capitalist phenomena (other than, say, for the purpose of *defining*
exploitation) is essentially beside the point, suggesting in turn that
Andrew has perhaps posed the wrong question, or at least a question of at
best secondary interest. In any case, there is no valid sense in which
"Frank Thompson's theorem [is] a beautiful example of the incompatibility of
Marx's value theory and simultaneism."

Well, it's late, and I'm tired. I'll postpone until Part 2 my answer to the
second clause of Andrew's first question.

In exhausted solidarity, Gil