# [OPE-L:4359] Re: Problems in Vol. III

john erns (ernst@pipeline.com)
Tue, 11 Mar 1997 10:37:17 -0800 (PST)

[ show plain text ]

Previous message: Paul Cockshott: "[OPE-L:4358] Re: produced and realized profit"

Allin (OPE 4355) and I (OPE 4347) seem to have
come to an agreement about computing the rate of
profit given depreciating fixed capital. Noting
that rates of profit fluctuate, Paul C. (OPE 4352)
asks "Where is the problem?" as he looks at "my
method" of reaching 12.2% Here are a couple of
them.

1. In my table the rate of profit was not fluctuating
but increasing as more funds were withdrawn from the
investment in the form of depreciation. This would mean
that if we look at the average rate of profit of all
capitals in an economy in a given year, capitalists may
well introduce investments which seem to lower rate. In
terms of our example, let's say that as our capitalist
with fixed capital considered purchasing that machine the
average rate of profit was 11%. He is considering making
an investment which in the first year would yield a return
of 10%. This would, of course, lower the average rate
of profit. But he sees that his investment will actually
bring him a return of 12.2% Thus, his investment lowers
the average rate in the first year while allowing him to
garner a return over time which is greater than the average
for that year. This type of thing should play some role
in our investigations of the "Okishio Theorem."

2. From this, it would seem that in examining the rate
of profit in an economy in various years, the ages of
the fixed capital as well as the amounts of depreciation
charges should be carefully considered. That is, if the
capital structure is "stratified" in such a way that much
of it is new, the rate of profit may appear lower than
it is from the point of view of the various capitalists.
Indeed, as investment in new fixed capital increases, the
rate of profit measured on a simple annual basis may
appear to falling as capitalists invest in techniques that
will eventually bring them ever increasing returns. The
shorter the period over which fixed capital is depreciated,
the more likely this may occur.

John