[OPE-L:4964] Re: RRI and the Rate of Profit

john ernst (ernst@pipeline.com)
Sat, 10 May 1997 00:07:08 -0700 (PDT)

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Comments on Duncan's OPE-L 4959.

Duncan says quite a bit in this post as well as in
OPE-L 4960. Let me begin my comments with his
statement that


In my accompanying post, I propose distinguishing between
profits on production per se and gains and losses on stocks
of assets held in production due to price changes.


My only fear here is that we will lose sight of Marx's
concept of "moral depreciation." But given that none of
us has successively included any charge for moral
depreciation within the overall depreciation charge I
can hardly dismiss the proposal. My attempts to meld the
two types of depreciation into one while using straight
line depreciation were shown by Andrew to be wrong. As
I mention below, I think we may be able to use "moral
depreciation" in the way Marx intended by giving
consideration to the RRI as we investigate the rate of


I had suggested that to arrive at a falling rate of profit:

>1. We could use the idea that constant capital is valued with
> historic values (TSS).

I find Fred Moseley's case that Marx revalued the stocks of assets held in
production to reproduction cost convincing, and that rules out this as a
general strategy. (snip and restored above and below)

I find Fred's efforts less than convincing primarily for two reasons:

a. I have no idea how Fred incorporates the idea of "moral
depreciation" into the revaluation process. Moral depreciation
seems but an afterthought to the entire accumulation process.
(More on this later as I think using the RRI we can finally
fully integrate the concept of moral depreciation into the
"choice of technique problem" as well as into the accumulation
process itself.)

b. Most, if not all, of the evidence Fred presents are passages
from Marx in which we are told that the value of some quantity
of constant capital is determined by the amount of labor
time it takes to reproduce that constant capital. The
language is rather plain and the concept seemingly simple. At
its best, TSS calls this apparent simplicity into question. In
my view, what is too often forgotten is that the determination
of value in this fashion has to be shown, not merely asserted.
That is, just as one has to show how the social value of a
commodity falls to its individual value, one has to show
how the value of constant capital falls to the value determined
by the time it takes for its reproduction. Or, put still
another way, Fred's quotes are often read as though there
is an immediate revaluation of constant capital from period
to period. Two questions remained unanswered:

i.) Why and how does the value of, say, a machine produced for
sale fall from its social value to its individual value?

ii.) Why and how does the value of constant capital fall?

TSS often assumes that living labor added from period to period
is constant. And, thus we, too, often fail to deal with the
first question. With that assumption, we easily arrive at a
falling rate of profit. Using this immediate visibility of the
falling rate of profit, we can develop scenarios in which the
devaluation of constant capital takes place such that
profitability is restored. The resulting rate of profit after
this devaluation may be higher than that with which we started.
But the point is that it takes time (some number of periods) or
something like a crisis for the restoration of the rate of
profit. (We should recall that for Marx if there is
a uniform fall in the prices of all commodities the rate of
profit does not fall.)

I realize that neither you nor Fred will be convinced by
this. Indeed, as you put it

At best the rate of profit on historical cost is lower than the
rate of profit on reproduction cost, but cannot fall secularly
(pace Andrew's examples) while the rate of profit on reproduction
cost is steady or rising.

It seems to me that you and Fred look for a falling rate of
profit after the revaluation of constant capital takes place
since both of you revalue constant capital after each and
every period of production. Why? I have little doubt that
as capitalism develops from the period of manufacture to that
of large-scale or modern industry you may well find a
secular fall in the rate of profit. But with the domination of
living labor by dead labor in the process of production, why
would we not expect the replacement of machines by machines to
prevail in the accumulation process? Or, in other words, why
would we not expect capital saving albeit with some labor saving
techniques to be the typical form of technical change?

I had written:

>2. We could note that the idea that social values of raw and
> auxiliary materials do not fall as fast as the values of
> other commodities as productivity increases and arrive at
> a falling rate of profit in the same way Rosdolsky does.
> (In the piece Ajit and I referred to recently, Schefold
> mistakenly thinks this is somehow Marx's retreat to Ricardo
> but it isn't.)

But inventories of raw materials are part of the capital invested and
contribute to the value composition of capital (and to what I call the
"productivity of capital", that is, the ratio of the value of output to the
value of the capital invested.

I agree with some of what you say here. But I do think this is not
the usual way of describing "Marx bias" technical change.

I had written:

>3. Since our nominal topic is "RRI and the Rate of Profit", it
> seems appropriate that we acknowledge that an increasing
> RRI, the basis on which capitalists' investment decisions are
> made, is completely compatible with a falling rate of profit.
> Indeed, with a rapidly increasing RRI and with the scrapping
> of older, completely depreciated machines, the rate of profit
> could fall given the "accelerated accumulation" Marx mentions in
> Chapter 25 of Vol. I occurs.

Only temporarily unless the productivity of capital were rising at an
accelerating rate, because eventually the old capital would disappear from
the books.


I am willing to read into Marx the notion that "the productivity
of capital" rises "at an accelerating rate." Why not?
After all he does speak of "accelerated accumulation." Here, again,
assuming that investments with technical change bring about an
increasing RRI, we see the rate of profit, computed in the usual
way, falling. Note that the newest investments even with increasing
RRI's will generally have lower rates of profit than those not
yet fully depreciated. As depreciation of a particular capital takes
place, its rate of profit increases. Old capitals could function
beyond the time they are fully depreciatied as long as the profit
rate exceeds the RRI's available with a new investments. Given that
the older capital are retired from production due to obsolesence,
they would be displaced by capital with RRI's higher than their
profit rates while the newer capitals would have lower profit rates.
The falling rate of profit marches on given there is enough capital
to make these type of investments.

Thus, what do we have here? Older techniques with little or no
capital value being replaced by those with much larger capital
values. This is the very process (in value terms) that we see as
we move from the period of manufacture to large-scale industry.
Here, as I stated above, there is little reason to doubt the idea
of a falling rate profit computed in the usual fashion.


Here is our discussion of "co-operation" with my comment.

>Duncan remarked:
>I don't understand how "simple cooperation", which applies to an immediate
>division of labor among workers at a particular point of production can be
>applied to machines.
>John responds:
>Here I think we differ a bit. The "Co-Operation" chapter in CAPITAL
>is prior to that of "The Division of Labour and Manufacture" and
>that of "Machinery and Modern Industry." Indeed, "co-operation is
>the fundamental form of the capitalist mode of production." In
>reading the chapter, I think we are to find the ways in which
>productivity can be increased. The question is how this fundamental
>form applies in the period of large-scale industry where we find
>Marx discussing machines working in "co-operation" with one another.
>In citing an example of the production of envelopes by machinery
>Marx notes that
>"Here, the whole process, which, when carried on as Manufacture,
>was split up into, and carried out by, a series of operations, is
>completed by a single machine, working a combination of various tools.
>Now, whether such a machine be merely a reproduction of a complicated
>manual implement, or a combination of various simple implements
>specialized by Manufacture, in either case, in the factory,
>i.e., in the workshop in which machinery alone is used, we meet
>again with simple co-operation; and, leaving the workman out of
>consideration for the moment, this co-operation presents itself to us,
>in the first instance, as the conglomeration in one place of similar
>and simultaneously acting machines." (Ch. 15,Sec. 1, paragraph 12,
>p 379 Int. Edition)
>Marx goes on to discuss how this simple co-operation of machines develops
>into an automated system of production in which machines are seen to
>be "co-operating" with each other.

I accept that Marx used this (to me rather metaphorical) concept of
cooperation of machines.

John: I'd like you to see a bit more than a mere metaphor here.
Indeed, I would venture to say that if we were to write down all
the ways the productivity of living labor can be increased that
Marx describes in his discussion of "co-operation", all apply to
machinery as well (save the bit about increasing productivity
via increasing the "animal spirits" of those working cooperatively.

As always,