[OPE-L:4871] Re: business cycles

Duncan K. Foley (dkf2@columbia.edu)
Fri, 25 Apr 1997 12:43:35 -0700 (PDT)

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In reply to Gerry's OPE-L:4841:

>Duncan wrote in [OPE-L:4839]:
>> I agree that Marx's distinction between "constant" and "variable" capital
>> is foreign to neoclassical economics, but the distinction between "fixed"
>> and "circulating" capital seems essentially the same, since in both
>> theories the issue is the length of time the capital remains in the
>> production process.
>Isn't what we call variable capital normally understood in neoclassical
>theory to be a part of circulating capital? Thus, in looking at
>changes in "circulating capital", how do we decompose that measure
>when it is presented in neoclassical studies into constant
>circulating capital and expenditures on variable capital?

There may be a need here to distinguish between "neoclassical theory" and
various statistical accounts. What we call variable capital (the flow of
wage costs for productive workers) does not appear as part of the capital
in most neoclassical production function studies, which use just the
current value of the stock of fixed capital at reproduction cost in the
production function. What Marx calls "circulating capital" is the sum of
variable capital and capitalist outlays on non-labor means of production
other than investment in fixed capital goods. I don't know of any
neoclassical studies that focus much attention at all on intermediate goods
flows, which are netted out of national income accounts. The main body of
work that includes this is input-output analysis. The only statistical
accounts I know of that present capital outlays on non-labor means of
production are the Census of Manufactures, which also distinguishes between
wages of "production workers" and "other workers", so that you can see
constant and variable circulating capital explicitly. Unfortunately
Manufacturing is only a small percentage of the whole economy today
measured either by value added or employment.

As I pointed out, while circulating capital flows other than wage payments
are not usually included in accounting systems, the inventories of raw
materials, goods in process and finished goods awaiting sale do include the
stocks of value corresponding to the flows of both constant and variable
circulating capital.


>Let me rephrase my question. In the "story" where changes in constant
>circulating capital explain changes in the trade cycle, where and how does
>the production of relative surplus value and changes in investment in
>constant fixed capital enter the "picture"?

I'm puzzled by your introduction of "relative surplus value" in this
context. If you look at the components of aggregate demand the largest
swing in most business cycles is in inventory accumulation, and the next
largest in fixed capital investment. The issue here is not the quality of
constant capital, but the quantity of capital outlays firms are making to
build inventories in preparation for production, since those outlays
constitute the market for other firms' output.


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