Subject: [OPE-L:1632] Re: Subjectivity and the Rate of Profit
From: John Ernst (email@example.com)
Date: Tue Nov 02 1999 - 21:28:38 EST
RE: OPE-l 1538
> John wrote:
> It seems to me that no matter which rate of profit one uses,
> there is a subjective guess involved. That is, both the
> ARR and the RRI require an estimate of how long, say, a machine
> will last. Further, no matter which you use you've got to
> guess what the returns will be in each of the estimated
> number of periods.
I think the key here is to distinguish between guesses about the
past and present, and those about the future: the former I'd call
"estimates", since in principle you ought to be able to find out what is in
fact the case. *Some* of the latter I'd also call estimates, on the grounds
that capitalism is not so utterly chaotic (usually) that the past gives *no*
guidance about the future: I'd include among these guesses about the life of
Obviously these won't be such good guesses as estimates about the
past and present, especially if we are talking about the "economic" rather
than "physical" life of machinery. (1)
Claims about future returns strike me as having a status akin to
(1) If you're unwilling to enter what you call the realm of astrology,
I'm not at all clear how you estimate the economic life of
machinery. Given that you base estimates concerning the
the lifetime of machines on experience, are you not
implicitly assuming something about "future returns"?
It seems to me that one way of proceeding *in theory* would
be to consider basic cases. Capitalists can over- or under- estimate
the life of a machine or hit the mark. If the average life of a
machine is 10 years, then some machines will last longer than 10 years
and some less than 10 years. That's obvious. But what is less than
obvious is that a set of machines whose average life is 10 years can
all be rendered economically obsolete at the same time. Some may have
lasted 9 years and some 11 and so on. The average may well remain
(2) As the rate of surplus value increases, the economic life time
of fixed capital would tend to increase. By using the ARR, this
is not at all obvious.
(3) The ARR fails to take into account the age stratification of fixed
capital. To use the ARR one must make the heroic assumption that
stratification is unchanging as accumulation takes place. As we try
to show the problematic nature of the accumulation of capital, we
have already granted that the pace of investment is more or
(4) Using the ARR we focus on that variable itself and fail to
question whether it is the FRP that causes a lack of investment
or a lack of investment that causes the FRP.
In your earlier researches, did you come across Parker and
Harcourt's compilation ("Readings in the concept and measurement of
income")? In it Kaldor has some (not so) innocent fun with Hicks and other
subjectivists, pointing out that once your notion of income depends on
expectations, even ex post measures are subjective (because they depend on
comparing actual current values of assets with the hypothetical value they
would have had at some past moment, if events in the intervening period had
then been correctly foreseen -- loc. cit. p. 167-168).
John replies: No, I had not seen this. I'll think about it. I am
curious how Kaldor thinks he gets around the problem.
(1) In one of your 1997 posts  you mention that you had
earlier rejected the idea that moral depreciation was simply a deduction
from profit. Does this imply that you would account for it by writing it off
as capital loss, or have I missed something?
John writes: I think you've not missed a thing. If we say a machine
lasts, say, ten years, then if we were to sum up the gross value
produced in that period time and deduct the costs of all constant capital,
we would have computed all the value added by living labor in that
period of time. This assumes that the machine is worth 0 at the end of
the 10 years and can no longer be of economic use. The capital losses
due to moral depreciation are part of the overall depreciation.
For living labor to add value to the value of constant capital
the value of the constant capital must be preserved, i.e.
transferred to the output. If we ignore this, then we may well
end up declaring that a given process is highly profitable in
cases where capitalists actually realize negative profits.
This archive was generated by hypermail 2a24 : Sun Dec 12 1999 - 17:29:13 EST