[OPE-L:5170] [JOHN] Re: RRI and The Rate of Profit

Gerald Levy (glevy@pratt.edu)
Wed, 4 Jun 1997 11:03:28 -0700 (PDT)

[ show plain text ]

RE: 5162

Some Comments of Duncan's 5162
(Various Topics)


As you will see, I've tried to shorten things up a bit by
quoting less whenever possible and listing only those
points where I felt that a response was needed.


Duncan wrote:
Some comments on some of the points in John's OPE-L:5122:

>John wrote:

>For example, if we were to say that a machine is built to last 10 years,
>but due to moral depreciation will only last 5 years, which of the two
>lifetimes are to be used in calculating the RRI? the rate of profit?
>The way I read what you are saying is that the 10 year period is to be
>used and asset revaluation will be taken into account for each of
>the 5 years the machine actually lasts. Am I reading you correctly
>on this?

Duncan wrote:

I think the rate of profit in production is calculated as if current prices
would be in effect for the whole period of production. A separate account
has to be kept of the gains and losses on stocks (including fixed capital)
during the production period. The capitalist's "bottom line" is the sum of
the two effects.

I think, in fact, this is the way that ordinary capitalist accounts are kept.

It might clarify things if we specified who is calculating the rate of
profit and the RRI (us economists or the capitalists?) and for what purpose.

John responds:

Ok. Let me reformulate the question. Given that capitalists
anticipate a 5 year life for the machine, do we economists use
that figure in calculating the rate of return and the rate of
profit? What's the purpose of the calculation? Here, I think,
we are simply trying to gain clarity on the valuation of fixed
capital within the accumulation process.

By using the 5 year figure, economists as well as capitalists
agree that in each of the 5 years the rate of return will be
greater than that possible by abandoning the machine and investing
in a new one. Obviously, this projection may or may not be right.

>John wrote:
>I, of course, agree that Marx was aware of the devaluation of capital
>assets due to technical change. What I'm unclear about is how well
>Marx was able to distinguish between a falling rate of profit due to
>enormous increases in fixed capital and one, say, due to what we have
>been calling "Marx biased" technical change. In the former case, we
>could observe a falling rate of profit simply because of the changing
>stratification of fixed capital. In this case, we may find a falling
>rate of profit with a rising RRI as capital saving innovations
>are introduced. The changing stratification of fixed capital could
>appear as "Marx biased" technical change even when the dominant form of
>technical change is capital saving.

Duncan commented:

I must say I have problems understanding exactly what you have in mind
here. In the 1920s and 1930s the evidence seems to be that the rate of
profit in production rose due to capital-saving technical change. This
probably "devalued" a lot of existing capital, and may have contributed to
the debt crisis.

John responds:

Fair enough. Let me refer to OPE-L 5168 where I am ever so clear (smile).

John wrote:

>2. What we find in V2 is Marx's recognition that the turnover of fixed
>capital may be the "material basis" for a theory of crisis. We also
>see that he could and did develop the idea of an annual rate of surplus
>value. In V3, we know he wrote nothing concerning "The Effect of Turnover
>on the Rate of Profit."(Ch 4) The entire chapter, written by
>Engels, does little more than consider the manner in which the turnover
>of circulating capital effects the annual rate of profit. How the
>turnover of fixed capital influences the rate of profit is not discussed.

Duncan commented:

I still don't see how this gets rid of the fact that a great part of Volume
II precisely concerns the influence of the turnover period on the rate of
profit. I think the first chapter of Volume III makes the same point, that
turnover mediates the markup into the rate of profit.

John responds:

I did not mean to even give the impression that Marx knew nothing of the
effect of turnover on the rate of profit. My point is simply that the
manner in which the turnover of fixed capital effects the rate of profit
is not discussed by Marx anywhere.

John wrote:

>In Ch 25 of Vol 1, Marx uses the expression "accelerated accumulation."
>For me, this would mean that K in the above is growing quite rapidly at
>times. The average age of machinery is decreasing as the rate of profit
>computed in the usual fashion is falling even as the RRI may be increasing.
>One problem I see in stressing the rate of profit is the tendency to
>ignore the stratification of fixed capital which might change rather
>dramatically in periods where there is "accelerated accumulation."
>My point is that one can generate a falling rate of profit even
>without technical change given "accelerated accumulation."

Duncan wrote:

I'd have to see this worked out in detail before I could comment on it.

John responds:
Fair enough. Again, I refer to OPE-L 5168. There, I have worked one
example without technical change.

Duncan wrote:

On the whole I'm sympathetic with this critique of prices of production.
One point I tried to make in my treatment of the "transformation problem"
was that it shouldn't depend on any particular theory of pricing and
competition, and that the "prices of production" are important only as a
particular example. In real capitalist life technology is always changing,
so there is no chance for competition fully to equalize rates of profit. Of
course, if technology moved very slowly, and competition very rapidly,
competition might keep rates of profit pretty closely in line. Mark Glick
and Hans Ehrbar did some interesting work trying to see how similar rates
of profit are across sectors in the 1980s.

John asks:

I am not familiar with the efforts of Ehrbar and Glick. Are they published?
Did they look at the RRI to see if competition kept it "closely in line"?

>John had written:
>>Should capitalists not consider possible decreases or increases in
>>the prices of their inputs and outputs, they would, of course, compute
>>RRI's much higher than the ones they actually experience since they
>>would be assuming the returns each year would be higher and that the
>>machines would last longer. Losses in asset values would have to
>>be seen as deductions from profits and the continual revaluation
>>of constant capital would appear justified. The RRI on a given
>>capital would be continually adjusted downward. Yet, Marx himself
>>recognized that this does not happen by including "moral depreciation"
>>within the concept of depreciation itself.
>Duncan wrote:
>I don't think we have any disagreement on this point.
>John asks:
>I always like no disagreement. But what I now do not understand is
>why you want to separate asset revaluation from the production of
>surplus value? Here, you seem to agree that Marx made no such

Duncan commented:

Well, I think he did make this distinction. It also seems to me to be
crucial in sorting out issues like those raised by Andrew's examples. The
value changes that arise in production ought to be linked to the
expenditure of living labor in my opinion, while the revaluation of stocks
due to technical change doesn't arise from the expenditure of living labor.

Maybe it would be more useful at this point to focus the discussion around
a specific question rather than keeping on with these generalities.

John responds:

You're right we have to get to a specific question on this. Let me
see if I can come up with one.