[OPE-L:5020] Re: RRI and The Rate Of Profit

john ernst (ernst@pipeline.com)
Thu, 15 May 1997 01:46:44 -0700 (PDT)

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RE: OPE-L 5019

Hi Fred,

Here are few comments on your post.

Textual evidence. Note how your textual evidence is being used. That
is, it is viewed as justification for revaluing constant capital after
each and every period in which changes in productivity take place. You,
quite rightly, point out that the evidence you find in CAPITAL is at a
high level of abstraction. I think we would agree that the revaluation
of constant capital as we move from one period to the next is not part
of any of the evidence you found. Simply applying the principle that
the value of constant capital is equal to its costs of reproduction and
then computing the value of that capital at the end of each and every
period of production seems to be quite a leap. I have suggested that
within the TSS framework one can agree and show how valuation at
current costs can come into being. Is this in CAPITAL itself? Hardly.
But Marx was not challenged by anything like the "Okishio Theorem."

Moral Depreciation.

You state:

John says that he "has no idea how Fred incorporates `moral
depreciation' into the revaluation process." I am surprised by this,
because I explained before on OPEL (over a year ago in an exchange with
John) that I interpret `moral depreciation' to be a loss of capital which
occurs as a result of ongoing technological change (essentially the same I
think as Duncan's definition in (4968): "the revaluation of stocks of
existing machines in light of their value after technical change has
changed prices"). There is no problem of incorporating this 'moral
depreciation' into the process of the revaluation of constant capital.
Indeed, 'moral depreciation' is the MEANS BY WHICH constant capital is
revalued at current costs.

John responds:

OK. You're sticking to your previous position on "moral depreciation."
I thought perhaps past discussions may have persuaded you to reconsider.

I think you are still wrong on this one. For Marx, "moral depreciation"
is part of the depreciation charges. It is the loss in value of
fixed capital as better or, simply, cheaper machines are introduced. It
is a cost anticipated by the capitalists according to Marx. It is not
at all a surprise to them. Having anticipated that loss, they have no
need to revalue their fixed capitals as the expected losses occur.
We could exchange quotes on this again but I have yet to see anything
from Marx's work that contradicts my view on this one.

I do think that incorporating moral depreciation into the accumulation
process while "abstracting" from the RRI is problematic. My discussions
with Andrew demonstrated this to me the hard way. Andrew convinced
me they could not be, given my interpretation of moral depreciation.
Rather than alter the way I read Marx on this, I have become convinced
that to make full use of Marx's idea of moral depreciation we are
forced to introduce the concept of the RRI into Marx's notion of
accumulation. Here, one could claim that in so doing I am, once
again, on the wrong level of abstraction. I would disagree for
two reasons.

1. In V3 of Ch 4, we find that Marx's contribution to the chapter itself
was nothing more than the title -- "The Effect of Turnover on the Rate
of Profit." Nowhere in it do we find how the turnover of fixed capital
changes the way the rate of profit is seen. Indeed, Marx was dead
before capitalist accountants had anything significant to say
on this matter.

2. No one has shown how anticipated moral depreciation can be part of
the rate of profit calculations while abstracting from the RRI.
If they do, I'll have to dig out my exchanges with Andrew on this.

Let me now consider a bit more of your post.

Fred wrote:


(b). John argues that it must be shown, not just asserted, how constant
capital can be valued at current costs. Maybe so, at a lower level of
abstraction, but even if this is accepted, it says nothing about what Marx
actually did in Capital. John seems to be arguing in effect that this is
what Marx SHOULD HAVE done, in the sense that anyone who assumes that
constant capital is valued at current costs SHOULD SHOW how this actually

I agree that this is an important task, at a lower level of abstraction,
especially related to crisis theory. But this is not a task that Marx
himself accomplished or even attempted to in any significant degree,
because Marx's theory in Capital remained at a high level of abstraction.
Marx generally assumed that constant capital (both the stock and the flow
of constant capital) is valued at current costs, not at historical costs,
as my textual evidence shows. The task to develop Marx's theory further
along more and more concrete lines remains for us to do.

It may be, at a lower level of abstraction in modern contemporary
capitalism, that something like John describes may happen, at least to some
extent. But I think that this is something different from what Marx
actually assumed in Capital, although it might be a valid extension of
Marx's theory to a more concrete level of analysis.

John comments:

I am a bit more cautious about these levels of abstraction. As I work
my way through the various issues we encounter, I no longer see V3
of CAPITAL as anything more than a draft completed prior to the first
two volumes with more than a few problems. That is, given the need
to develop the RRI in Ch 4 of V3, Marx simply moves on as
though the rate of profit will by itself can be used to develop the
concepts of price of production, market values and market prices.

But it now baffles me why anyone thinks capitalists invest in such
a way that there is some tendency for rates of profit to equalize. Is
it not a high rate of return they pursue, given the existence of fixed
capital? How can these prices of production be used at all in developing
concepts like market value and market price?

To be sure, if we transformed values to prices using the RRI instead of
the rate of profit, the prices of production would have to given or known
prior to transformation since the RRI would incorporate capitalist