[OPE-L:6416] Two rates of profit?

Alan Freeman (a.freeman@greenwich.ac.uk)
Sat, 04 Apr 1998 22:28:26 -0600

I have followed Chris's posts on this topic with great interest, beginning
with [Mon, 23 March 21:26] and agree with a great deal of what he says.

The idea is discussed at length in the much-neglected but seminal article
by Jesus Albarracin in 'Marx, Ricardo and Sraffa' which was entitled
'Constant Returns and Uniform Profit Rates: Two False Assumptions'. This
was one of the decisive articles that led me to my present views. It
centres on the difference between a homogenous equal profit rate and an
average of different profit rates.

Albarrracin's central point is that the standard surplus school
('neoricardian') results depend on the actual equalisation of profit rates,
which is an illegitimate assumption corresponding neither to reality nor
to Marx's own ideas.

Ernest emphatically endorsed this view: throughout his work the driving
theme was that the motor-force of capitalist development is the search
for surplus-profit. Surplus profit being a profit different from the
average, this idea vanishes, and Marx's dynamics are deprived of their
central element, if we suppose that Marx presupposed equal profit rates.

Albarracin shows that on normal neoricardian assumptions, the average
profit rate depends on the structure of individual profit rates. Instead of
a uniform profit rate r he supposes a vector of profit rates R. This is the
same assumption Steedman makes on p180 of 'Marx After Sraffa'; however,
Steedman does not recognise that with this change, neo-ricardian prices are
no longer determinate but depend on the structure of the profit vector.

If these profit rates are all equal, we get the standard neoricardian
results. If they are not equal we can establish any average profit rate
we want by a suitable choice of individual profit rates. Moreover there
is no strict trade-off between wages and profits and hence no unique
'wage-profit frontier'. It is perfectly possible, for example, that the
real wage may rise while the price of corn falls in such a manner that
the profit rate in the corn industry falls whilst other profit rates rise
and the average profit rate rises also, all these magnitudes being defined
in the standard manner of the surplus approach.

The (neo-Ricardian) average profit rate is thus not only numerically
different from the 'homogenous general' profit rate but varies with
distribution between capitals. This is a generalisation of the better-known
result that the 'value profit rate' differs from the 'price profit rate' if
we use the dualist definition of value.

This may seem to conflict with Chris's [Wed, 1 Apr 12:03] statement that
"both definitions give the same numerical result". Maybe Chris would like
to comment on this. It was not clear to me from his original post whether
he seeks to define both the 'general' and the 'average' as two different
means of deriving a uniform rate in which case the assertion above is
tautologically true; or whether he means, as his discussion suggests, that
there is a distinction to be made between an average of actually different
profit rates, and the uniform rate that these actually different profit
rates would reach, were they to equalise. Albarracin's distinction is the
second, and this seems to me to be the key one. I will assume in what
follows that this is an aspect of the substance of Chris's distinction.

The assertion that the general and the average profit rate are numerically
the same is true, if advanced capital is defined temporally. In this case,
the magnitude of the advanced constant capital cannot be altered by the
subsequent distribution of profits.

If, however, the simultaneous definition is adopted, then any variation in
the vector of sectoral profit rates will result in a variation in the
prices of the produced goods. This in turn, under simultaneist assumptions,
means that the value of the advanced capital will be altered
restrospectively by this change in prices. The average profit rate
therefore depends on the distribution of the vector of sectoral profit
rates, making nonsense of Marx's notion that this profit rate is formed and
exists prior to distribution.

My guess is that Chris instinctively adopted the very reasonable assumption
that the magnitude of advanced capital cannot be altered by a subsequent
variation in the distribution of profit. Indeed this is a very natural
assumption. But if simultaneist definitions are used, it does not hold.