[OPE-L:7189] [OPE-L:707] Re: Market Values and Market Prices

John R. Ernst (ernst@PIPELINE.COM)
Fri, 19 Mar 1999 04:10:21

RE: Jerry's OPE-L 702
RE: Rakesh's OPE-L 703
RE: Michael's OPE-L 706

Jerry in OPE-L 702 wrote:

John writes in [OPE-L:699]:

> <snip> Why try to arrive at equal rates
> of profit at all? It might be interesting if we were studying an economy
> in which there is no fixed capital but those days have been over for some
> time.

True enough, but "those days" were over in Marx's day. In fact, those days
never existed. I.e. there has never been a period of capitalist history in
which there has been no fixed capital. It has always been a simplifying
assumption rather than a statement about capitalist reality. As a
simplifying assumption, it might be useful in certain contexts (Marx
clearly thought so). The problem is when we remain trapped by our own
assumptions and refuse to take the next step and consider the variables
that we either held constant or assumed away at a prior level of analysis.

My comment: You're right -- Marx does at times focus entirely on
circulating capital. But when you say that it is a "simplifying
assumption", I assume that the simplification is done for some reason.
To show the manner in which surplus value is allocated based on the
assumption of no fixed capital does not seem to have any purpose other
than to recite some refutation of Marx. Let me explain.

If we set Marx aside for a moment and not argue whether or not he was
the dummy who forgot to transform the inputs. Rather let's simply
admit that if fixed capital is present, there is no way to proceed
from a set of production processes in physical terms to one in value
terms. Why then do we keep using these circulating capital "models"
from which we garner useless concepts and techniques for dealing
with fixed capital?

Right now, I tend to think that Marx knew what he was doing by not
transforming the inputs since one cannot do this when fixed capital
is present.

I had written:

> First, equal rates of profit are a "theoretical *possibility*" only by
> chance. That is, given that any rate of profit is possible, it too
> is possible. There is no tendency for capitalists to shift their
> capital investments on the basis of rates of profit.

Jerry wrote:

I would say, rather, that any tendency to shift their capital investments
must take into account that they recognize that capital exists as both a
"flow" and a "stock". Clearly, they are not so foolhardy as to base their
investment decisions under the presumption that all of their capital
exists in the form of money capital.

My comment:
I am unclear about what you are saying. My claim was that capitalists
do not shift from one investment to another on the basis of a rate of
profit. Are you saying that the rate of profit must be based upon a

RE: OPE-L 703

Rakesh wrote:

Re fixed capital, I am having a tough time figuring out what Marx means here

Capital 3 (Vintage pp 374)

" The application of machinery reduces the price of the commodities
produced with that machinery owing to various factors,which can always be
reduced to the decline in [direct?rnb] labor absorbed by each individual
commodity; but in addition to this there is the decline in the portion of
value that goes into the individual commodity as the depreciation element
of the machinery. The slower the machinery's depreciation, the more
commodities it is distributed over, the more living labour it replaces
before the day when its reproduction falls due. In both cases the quantity
and value of the fixed constant capital are increased as against the

My comment: In the first sentence, Marx points out that the fixed
capital to output ratio falls as machinery is used in processes of
production. In that sentence, I would not insert the word -- direct.

In the next sentence, Marx notes the effects of slower depreciation and
in the third notes that in either case the C/v rises where C is fixed

I'm not sure how and why you have problems here. To be sure, the passage
does seem go against the grain of the usual way of reading Marx. That is,
the fixed capital to output ratio falls as the organic composition of
capital increases. This is indeed the opposite of what we usually hear.

Rakesh continues:

Let's say we work from Prof Duncan Foley's example in Understanding Capital

Marx seems to be talking about "corn-intensive" (!) technological change
that reduces cost prices by reducing in prices direct labor costs more than
the incurring of additional costs from the use of more seed corn in
material terms. Only at prevailing prices or a constant real wage will such
seed corn intensive technical change not reduce the rate of profit.

My comment: I'm not sure of the context of this quote. However,
if we assume that "corn" is more or less a proxy for all
capital inputs, then Duncan's statements are clearly limited to a
situation in which little or almost no fixed capital is used to one
in which a significant amount is present. In this case fixed capital
can grow faster than output. However, as Marx tells us in the passage
you cited, when fixed capital is present, increases in output are
generally greater than increases in fixed capital.

Rakesh continued:

But once we treat fixed capital instead of seed corn, we understand that
the reduction of cost price can even be steeper. The longer the machine is
used, the less the depreciation cost and thus the less the cost price per

That is, once the move has been made to a capital intensive technology,
there are further reductions in cost prices the longer the machine is used.

Not only then does the machine replace direct labor, its slower turnover
displaces the labor that would have been required for the construction of
replacement machinery if machines were not enjoying such a leisurely
depreciation. Sturdier machines enjoy a slower turnover, which means that
Dept I absorbs less labor to use the existing means of production to produce
additional means of production.

Marx makes the fascinating argument that we tend to understand only how
machinery replaces labor directly, not how machinery in its fixedness and
thus inherently slower turnover displaces the labor that would have been
required to reproduce if its turnover were up to speed with, say,
circulating capital.

Here seems to be an additional reason to reject Brenner: if intl
competition speeds up the rate of turnover by disallowing capitalists to
sit on mountains of antiquated fixed capital, Dept I should absorb more
labor to use the means of prod there to produce ever more advanced means of
production; and this addition of labor should thus increase the mass of
surplus value in the system, thereby exerting upward pressure on the
profit rate.

My comment: I think you're jumping too fast here. A few problems.

1. What is "antiquated" fixed capital?

2. If the process of innovation speeds up for whatever reason, the lifetime
of fixed capital would tend to decrease. I don't think Marx would argue with
Brenner over this.

3. To argue against Brenner, you introduce the notion of an increase in the
labor force in Dept. 1 and a consequent increase in the mass of surplus value.
But does not the very process Brenner suggests shorten the lifetime of fixed
capital? Moral depreciation, in his scenario, is increases. With that
increase there is the possibility that the introduction of new techniques
becomes foolhardy in the eyes of the capitalist.

Re: Michael's comment on Rakesh's remark about Brenner(OPE-L706):

Yes, that was the point of my Keynes book.

My comment: Given my comments on Rakesh's statement, I'd like to
hear more about your book on this matter.