[OPE-L:6408] Re: Re: Two Rates of Profit

Ajit Sinha (ecas@cc.newcastle.edu.au)
Fri, 03 Apr 1998 19:18:52 +1000

At 17:01 2/04/98 -0500, John Ernst wrote:
>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.
Tell me how would you do it?

I'm not completely satisfied with your presentation of Marx's theory of
absolute rent. But that is a minor point.
>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?

If you have read Marx's critique of Ricardo in TSV II, then, in my opinion,
you would not believe in what you have said above. The transformation
problem is a very serious theoretical problem for Marx. He is extremely
upset with Ricardo for not taking up his own first modification of the
labor theory of value seriously enough and getting bogged down with,
according to Marx, the secondary issue of effects on prices due to changes
in wages. The problem the modern day Marxists have with understanding the
transformation problem is that they have no understanding of Ricardo.
Engels was not a stupid guy to have made the solution to the transformation
problem the defining issue in the preface of the second volume of *Capital*.
>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.

Again the meaning of this is not clear. The "correction", as i understand
it, suggest that you got to take prices of production on both sides of the
equation and not what you are suggesting above. First of all, what are the
units of value and prices of production in your understanding?
>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?"
You keep asking me this question of yours without telling me how do you
propose to solve it. We all are working on our own little research
projects, how do you expect us to take on your research project and solve
it for you. We can only help by critiquing what you are doing and suggest a
few other ways of looking at it at best. My sense is that you should look
at your problem from the point of view of choice of technique first.
Because the question of whether to carry on with the old machine or discard
it and use a new machine is basically a question of choice of technique.
>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.

There is no need to *explicitly* assume no technical change when the
question of technical change is simply not a part of the problem under
investigation. It is a proble of deriving a set of prices from a *given*
set of technology. Why should anybody explicitly mention that there is no
technical change here? This should satisfy Andrew, so that I don't have to
repeat the same thing in a separate message.
>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.

Because IInd volume is mainly concerned with reproduction and accumulation
over time, where technical change becomes a legitimate variable. Thus when
you are developing your theory on the assumption of no technical change
over time, it is simply proper to spell the assumption out.
>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

Do you find fixed capital in Marx's transformation equations? There is no
fixed capital there john. So now you should see my point.
>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."

I think we need to keep working on it. As I have said, I think your problem
is a worthy problem.
>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.

If you leave Marx out of it, i.e. your interpretation of the transformation
problem, then I'll not have much problem with what you have said above.
>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.

My sense is that those so-called "equilibrium" prices have important
theoretical role to play. They are kind of reference points. Without them
it may be too difficult to navigate.
>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.)

It is because it is not that easy. But the Schefold reference I gave you
does broach the issue. Cheers, ajit sinha
>The best,