[OPE-L:5273] Re: RRI and The Rate of Profit

john ernst (ernst@pipeline.com)
Mon, 16 Jun 1997 21:06:43 -0700 (PDT)

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Concerning my example of a falling rate of profit due to a
change in the stratification of fixed capital(OPE-L:5168),
Duncan(5193) wrote:

"This is why accountants are not too happy with the rate of profit,
of course. Now, in most capitalist firms and in larger aggregates
like sectors or whole economies, we would expect that a lot of
these investments would overlap, so that the rate of profit would
tend to approximate better the RRI."

John comments:

I'm not sure we should be happy with the rate of profit either.
Here, I had hoped my example would be seen as a possible path
of the entire economy albeit with more than a few simplfying

Duncan continued:

This is why more sophisticated studies of the rate of profit, like
Dumenil and Levy's or Robert Gordon's, actually keep track of the
vintages of capital, to try to control for these stratification
effects. In fact, however, the stratification effects are not
very big, because the fluctuations in the scale of investment
year to year are bounded, and growth rates are not very high
absolutely. So while in principle this could be a big conceptual
problem, it doesn't seem to be so in practice.

John comments:

I am not familiar with Gordon's work save for its mention in
Dumenil and Levy. It's not clear to me how Dumenil and Levy
control for stratification effects. To be sure, they are
aware that they exist. But I'm unclear how their rate of profit
is corrected for them. Further, given that they seem to compute
depreciation charges using a discard schedule rather than the
"actual" depreciation that occured in a particular period, I'm
unclear about the manner in which the correction can be introduced.
They do look at the degree of stratification within a given period
but I am unaware of how they take into account possible changes
from period to period.

We might find also consider observing stratification within
the sectors where surplus value is actually produced as opposed
to all the sectors that Dumenil and Levy include prior to
concluding that the problem "in practice" is of little consequence.
I realize this may open the entire productive/undproductive labor
issue. But given we are considering the US economy with the
relatively recent shift from manufacturing to services, such an
effort might be of interest.

Data aside, the question remains about the extent to which
Marx did or did not take into account stratification effects
in formulating his idea of the falling rate of profit. In
Ch 13 of V3 Marx's illustrations show enormous increases in
constant capital relative to the sum of v+s. This would seem
to indicate that at times Marx might have ignored the vintage
effects as capitalism moved from the period of manufacture to
that of modern industry. On the other hand, he may have taken
them into account without mention since the effects would tend
to strengthen the tendency of the rate of profit to fall during
periods of rapid accumulation and to weaken the tendency during
periods of disinvestment and devaluation.

Given that the FRP is often used as the basis of a crisis theory
in Marx, perhaps we should consider the ratio of

(profits+depreciation)/total capital

as we examine the movement from year to year or period to period
while bearing in mind that the amount of depreciation does not
necessairly equal that needed for replacement of discarded fixed