[OPE-L:6407] Re: Two Rates of Profit

John R. Ernst (ernst@PIPELINE.COM)
Thu, 2 Apr 1998 17:01:19 -0500 (EST)


Rather than continually duplicating what we have said in
this exchange of viewpoints, I thought I'd summarize the
major points and indicate where I think things stand.

1. Absolute Rent. In developing his notion of absolute rent,
Marx criticized Ricardo for his inability to see the possibility
of absolute rent. In CAPITAL, the landowner earns absolute
rent when the worst producer operates with a below average
composition of capital. Marx assumes that the product
produced under such conditions sells at a price greater than
its price of production. That is, all the value created in
production remains within that sector. The excess profit
becomes absolute rent. Can one carry out the transformation
of values into prices of production, given the inclusion of
absolute rent? Here, I refer to the usual technique of
transforming values into prices. My answer is "Yes." However,
you would need to start from values and not from physical
quantities since you would need to know how much absolute rent,
if any, is produced in each sector. Or, perhaps, one could
develop a different way of determining absolute rent.

For me, the idea that Marx did not include "natural monopolies"
in his transformation procedure indicates that what he had in mind
was something less rigorous than those who correct him do. That
is, all we see in CAPITAL are 5 sectors earning equal rates of
profit. The surplus value created within the 5 is shared according
to amount of investment in each. It seems to me that the
some of the inputs of the 5 might well be products of capitals
in which all types of rent are produced. Further, Marx himself
notes that some of inputs may not have been purchased at value
but rather at prices of production which may differ from the
values. Thus, Marx seems to be adding the newly created value to
prices of production and values in order to obtain the outputs
in terms of prices of production. What is the alternative?

2. Transformation Stuff. Obviously, even with the presence of
absolute rent, one could argue that the inputs must, at first,
be in terms of value and then with the outputs transformed into
prices of production. If we do this, we end up with the usual
correction of Marx. But now we face new problems.

How do we know the economic lifetime of the fixed capital to
transformed? Clearly, it would be effected by the relative prices
of fixed and circulating capital. But those prices change as the
usual type of transformation is carried out. Thus, ex ante or from
a set of values, we know little of the lifetimes of fixed capital.
Put simply, we seem to have no way to proceed. Hence, the question,
"What is to be done?"

We could assume that there is no technical change as we transform
values into prices of production. I find no evidence that Marx
himself pursued this possibility.

a. When he assumes that technical change is not taking place as
he does in Vol. II of CAPITAL, he explictly says so. I may be
wrong but I find no such assumption in his transformation procedure.

b. Given that technical change is taking place, by the time he
gets to transformation procedure, Marx has already described moral
depreciation and its effect upon the lifetime of fixed capital. Why
would he now drop the idea in order to obtain a set of equilibrium

But maybe Marx is simply wrong and one needs to make the necessary
assumptions to carry out the transformation. Then what? We now
have a price theory that cannot take into account either continuous
technical change or moral depreciation. As you put it, perhaps,
I have described an intractable problem. But, with this type of
price theory, we have no way to analyze the reality that involves
traversing from one period to the next as technical change and
moral depreciation take place. Here I do not mean to be "negative"
but am merely following your idea that the problem I pose is
perhaps "intractable."

c. It seems to me that to get to the point of Marx's efforts one
must somehow consider those traverses. After all he was concerned
with "the economic law of motion" of capitalism. If, as he does
so, he is forced to settle for a less rigorous price theory
than you would like, so what. He may well have done so not of
ignorance but for the sake of developing that law of motion.
The choice seems to be -- Prices or Crises.

Here, again, I do not mean to be rhetorical or negative, but
merely want to stress that alternative readings of Marx are possible.
Such readings are not without purpose but rather seek to come to
terms with what you have correctly described as an intractable
problem. Frankly, this description of the problem is helpful since
it's yours and you have always insisted on what I have called a
rigorous theory of prices. Too often, folk use those equilibrium
prices as they describe patterns of economic growth. In so doing,
they often fail to take into account what you have called periods
of rapid technical change and moral depreciation.

A Clearly Positive Thought

Too often, we see descriptions of the accumulation process without
fixed capital or with non-depreciating fixed capital. Here,
Sraffa's notion of viewing fixed capital as a joint product may
be helpful. It comes close to the idea of depreciating fixed
capital on an economic basis rather than on an accounting basis.
For me, this has been useful in understanding Marx's notion of
moral depreciation. I find it a bit sad that none of his
followers attempts to use his idea of joint production to describe
technical change and the devaluation of fixed capital. (Correct me,
if I'm wrong on this.)

The best,