[OPE-L:6366] Re: Two Rates of Profit?

John R. Ernst (ernst@PIPELINE.COM)
Fri, 27 Mar 1998 21:26:05 -0500 (EST)

Ajit wrote:

I found Chris Arthur's post on 'general' and 'average' rate of profit quite
thoughtful and interesting. From economics point of view I see the matter
this way:

John comments:
I, too, found it interesting. For the sake of greater clarity, I
wonder, "Which rate of profit has a tendency to fall?" As we know,
Marx indicated that in his discussion of the falling rate of profit,
he includes in profit the entire mass of surplus value including

Ajit wrote:

Marx's surplus value and the rate of surplus value cannot be determined
without taking the 'whole of capital' (actually only all the basic goods
sectors) into account, since to determine surplus value you need to
determine the necessary labor-time and that can only be done by taking all
the basic good sectors into account. So before Marx could move to discuss
profits and rate of profit he had to take capital as a whole. The problem
Chris Arthur is confronting from philosophical point of view is exactly the
transformation problem. Marx thought that the determination of surplus
value derived from capital as a whole can be used directly to deduce the
'average rate of profit'.

John comments: Then why did Marx consciously exclude parts of
surplus value and the corresponding capital from the transformation
process? That is, why are monopolies "abstracted from"? Given that
they are, to proceed from the average rate of profit to the general
rate of profit is equivalent to abstracting from monopolies. Hence,
it would seem that Marx was aware that the general rate of profit
could not be used to "deduce the 'average rate of profit.'"

For now, allow me a pass on the basic vs non-basic bit.

Ajit continues:

However, as Bortkiewicz pointed out, this was a
mistake. Prices of production and the rate of profit must be determined
simultaneously. Marx's average rate of profit derived from capital as a
whole and treated as equivalent to the 'general' rate of profit would, in
general, be incorrect, i.e. the 'average' and the 'general' are not the
same. But one should keep in mind that Marx, in his time, had no way of
determining prices and the rate of profit simultaneously. Given this
handicap, the only way he could proceed, given that Ricardo's LTV had to be
rejected, was to siquencially go from value to 'average/general' rate of
profit to prices of production. Of course, Sraffa becomes extremely
relevant in thinking through this problem. Cheers, ajit sinha

John comments:

1. Try taking monopolies out of the transformation picture. This
would mean, among other things, no absolute rent. If you
hold fast to the claim that the entire amount of surplus value
is depicted in the transformation procedure, then absolute
rent must be ignored. If you want to analyze a society where
there is private ownership of the means of production, absolute
rent would seem to be a useful concept.

2. Let's see if what you say works when fixed capital and technical
change occur. This is no criticism of Sraffa who recognized the
limits of his efforts, but an objection to the claim that the
Sraffian framework can be used as a basis for "correcting" Marx.

Can we even execute the usual transformation procedure given
fixed capital? Would not its durability depend upon the wage
rate actually paid? That is, if we consider technical
change and its effect on the economic lifetime of fixed
capital, we are forced to take into account not the values
but the prices of production, given they represent the
relative prices in effect. So you do not know how long a
machine will last without knowing prices; but to find the
prices you need to know how long a machine will last --
economically. This is an endless loop all too often
broken by the heroic assumption that there is no
technical change and that machines never become obsolete.
Thus, in correcting Marx, we are forced to assume that
technical change does not take place. This seems more
like J.S. Mill's "stationary state."

Let me be a bit more specific. If we begin the transformation
process by assuming a structure of production in physical terms,
how do we know how long the machines will last? Do we assume
as Schefold does that the machines will simply wear out and
never become obsolete before they do? If so, what is the
justification for this assumption?

Be well,