[OPE-L:4937] [DUNCAN] Re: RRI and the Rate of Profit

Gerald Levy (glevy@pratt.edu)
Tue, 6 May 1997 11:44:20 -0700 (PDT)

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In [4890], Andrew K referred Duncan to [3945] for the title of Thompson's
paper. I then forwarded Duncan [3945]. Duncan, then, replied to me but I
think he intended his response for the list./In solidarity, Jerry

---------- Forwarded message ----------
Date: Tue, 6 May 1997 13:50:15 +0100
From: "Duncan K. Foley" <dkf2@columbia.edu>
To: Gerald Levy <glevy@pratt.edu>
Subject: Re: source

In reply to Andrew's OPE-L:3945 on accounting measures of the ratio of the
value of net output to the value of capital:

First, thanks for pointing me to Thompson's paper.

>As I noted in an earlier post, Frank Thompson presented a paper, "The
>Composition of Capital and the Rate of Profit: A Reply to Laibman," at the
>ASSA conference in New Orleans. In addition to showing that simultaneism
>implies that a rise in the value composition of capital will tend to RAISE the
>equilibrium rate of profit (given profit-maximization, viable technical
>change, and a direct relation between labor demand and the real wage), he uses
>BEA data to show that there's no upward trend in the aggregate physical
>capital/output ratio in the U.S, which tends to support the point that John's
>been making.
>Frank looks at 6 measures of the capital/output ratio. All have GDP as their
>denominator. The numerators are (1) Gross Fixed Private Nonresidential
>Capital, (2) GFPNC + Gross Government-owned Fixed Capital, (3) Gross Total
>Fixed Reproducible Tangible Wealth, and (4), (5), and (6) are the same as (1),
>(2), and (3), respectively, except that net figures are used instead of gross
>figures. Note that (3) is the sum of (2) plus gross fixed private residential
>capital plus gross durable goods owned by consumers.

I'd like to look at the paper to see how he handled the problem of
revaluation due to price changes.

>During the period 1929-1994, the average annual percentage changes in these
>ratios are -0.32, -0.23, -0.24, 0.01, -0.12, and -0.12.

I'm not surprised at this, because this covers the period Dumenil and Levy
call the "Great Leap Forward" when capital productivity did rise sharply.

>There is a sharp downward fall in all of them from the early 1930s to the
>mid-1940s, having to do with the rise in capacity utilization

This point needs to be looked at very carefully. Dumenil and Levy attempt
to account for capacity utilization and still show a sharp rise in the
output/capital ratio in this period.

>, and so Frank
>also computed the annual percentage changes for the period 1950-1994: 0.49,
>0.09, 0.07, 0.61, 0.12, and 0.11, so there is a slight rise, but the plots of
>the data look basically flat.

The degree to which different specific concepts, sources, and methods
reveal the same tendencies in the output/capital ratio is bound to be
delicate and controversial. I thought the results Marquetti and I found
just looking at the Penn World Tables data were quite striking (though they
certainly do not prove that the output/capital ratio never rises, since it
does in a significant number of cases, and in some very important cases.)

>Finally, for the period 1982-1994, the average annual percentage changes
>-1.28, -1.42, -0.93, -1.74, -1.78, and -1.23.

Here's where I would invoke capacity utilization, I guess.

>Taking the evidence as a whole, my reaction is that the aggregate
>capital/output ratio is very stable except for the Depression years,
>essentially constant.

You're not the only person who concludes this, but there is also evidence
for systematic changes on a 50 year time scale.

I think part of the problem is the biases that our different readings of
the falling rate of profit discussion in Marx lend to our interest in and
evaluation of the data. I think that Marx's falling rate of profit was
connected with a rise in the capital/output ratio and a constant, or nearly
constant, wage share (which in my interpretation is the value of
labor-power), so I confess a bias toward seeing a rising capital/output
ratio as interesting and important, even if it is not universal. Given this
bias it's probably particularly appropriate for me to look carefully at
studies that come to an opposite conclusion, which I will do with Thompson.


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