# [OPE-L:6181] Re: formula for the rate of profit

From: Allin Cottrell (cottrell@wfu.edu)
Date: Wed Nov 14 2001 - 19:09:40 EST

```On Tue, 13 Nov 2001, Gerald_A_Levy wrote:

> What, if anything, is wrong with the following formula for the rate
> of profit?  (Note: the following formula is for the profit rate in
> contemporary capitalism and does not purport to be a
> rendition of Marx's formula)
>
>
>            Pz    ed    --  Pm    m    --  w
>   r  =   __________________________
>
>            Pc   (1/cu)    (cg in use)
>
>
>    where:
>
>    r     = profit rate
>    Pz  = price of output
>    e    = amount of gross output produced per unit of work done
>    d    = work done per hour
>    Pm = price of materials used and wear and tear on machines
>    m   = amount of materials used and wear and tear on
>                  machines per hour of labor
>    Pc  = price of  [constant] capital goods
>    cu   = capacity utilization ratio or the percentage of owned
>                  [constant] capital goods actually in use
>    cg in use = amount of [constant] capital goods in use per labor
>                  hour

The variable 'w' is undefined, but I suppose it represents wages and
salaries.  Well, the formula boils down to

(sales revenue - costs) / (constant capital)

or s/C, in money or price terms.  Which seems like a defensible
formula.  The decomposition in the denominator seems a bit odd.  Such
identical decompositions are usually intended to show how a given
magnitude may be broken down into independently varying terms, but cu
and cg are obviously not independently varying (for a given capital
stock, a rise in cg will produce a rise in cu).

> Extra credit: answer the above question *plus* identify the author(s)
>     of the above formula.

No idea who's the author.  My "extra credit" point: From where do we
get the idea that the appropriate formula for the rate of profit in
"contemporary capitalism" is something quite distinct from "Marx's
formula"?  There's nothing in the above formula that makes it more
applicable in 2001 than in 1867.

Allin Cottrell.
```

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