# [OPE-L:6398] RE: Re: Two Rates of Profit?

andrew kliman (Andrew_Kliman@CLASSIC.MSN.COM)
Wed, 1 Apr 98 19:58:49 UT

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From: owner-ope-l@galaxy.csuchico.edu on behalf of C. J. Arthur
Sent: Wednesday, April 01, 1998 6:03 AM
To: ope-l@galaxy.csuchico.edu
Subject: Re: [OPE-L] Re: Two Rates of Profit?

I found Chris's clarifications quite helpful. I now think I understand what
he's getting at, at least better than I did originally, and I think I agree
with the main thrust of his argument.

I suspect that Chris's major distinction, which he presents as a distinction
between the general rate of profit (GRP) and the average rate of profit (ARP)
is the same as, or at least similar to, a distinction Marx was trying to make.
Marx, however, *identifying* the GRP and ARP (as everyone seems to agree),
presented it as a distinction between the *formation* of the GRP/ARP and the
*equalization* of the GRP/ARP. I refer of course to _Capital_ III, Chs. 9 and
10, respectively.

To return to Chris's original post, he defines the (his) ARP as follows:

"b) the notion of an 'average rate' implies an average of prior
differences; hence a redistribution (of something created in particular
sites) as a result of the interrelations of individual capitals, that is to
say, as a result of competition. (An average can of course also be worked
out in advance theoretically but this is of no consequence; in reality it
is a question of the conditions of competition and whether they really tend
to form a uniform profit rate across the capitals concerned.)"

Mathematically, Chris is absolutely correct. Yet I don't think this was
Marx's conception of the ARP. Put differently, Marx's ARP is not a true
average. He uses the term "average" to refer to a ratio of two totals
(total surplus-value and total capital advanced) , neither of which is itself
a profit rate. But mathematically, the average profit rate is the (weighted)
average of terms which are themselves profit rates. (If the weighting is
done correctly, these two concepts always yield the same answer, but the
implied relations of determination may differ, as Chris has stressed.)

Although Marx's use of "average" to refer to a ratio of totals is not what
mathematicians mean by average, his usage is very common in economics -- so
much so that this prevented me from grasping Chris's point originally. For
instance, average cost is *defined* as (total cost)/(total output). It is not
*defined* as the weighted average of incremental costs [(increment to
cost)/(increment to output)]. The two will always be equal, however.

The way I interpret the determination of the profit rate in Marx is as
follows. What is determined first are the amounts of capital advanced in each
branch, because they are advanced *before* production (M-C). *Then* the
profit *produced* (surplus-value) is determined, in the production process in
each workplace (or branch) (C ... P ... C'). The amount of profit produced in
each workplace is the (monetary expression of the) amount of living labor
pumped out of the workers in excess of the value of their wages. Only
*thereafter*, once production is *completed*, is it possible to speak of rates
of profit -- of any sort whatever -- because only then is there profit.

This is all a precondition to Ch. 9 of Vol. III. When Marx there discusses
the formation of the GRP, he first briefly alludes to individual "rates of
profit". But what he means is simply the surplus-value produced in each
branch divided by the capital advanced in it. And he merely notes that these
ratios differ -- in order to state the problem he is tackling.

Yet to understand the *determination* of the general rate, he does not
theorize in terms of these individual ratios. He rather says that the general
rate is determined as the ratio of the "total sum" of the surplus-values
produced, and the "total sum" of the capitals advanced. This is the
*formation* of the GRP/ARP.

Now this ratio, the GRP, exists prior to a *different* set of individual
profit rates, the ratios of profit *received* to capital advanced. The GRP is
"prior" in two senses. First, production of surplus-value precedes (is
temporally prior to) its realization as profit in the market. Second, the
level of the GRP is given once production is completed, so it cannot be
affected by different distributions of profit in the market. The converse is
not true: the surplus-value produced in the production process does affect
the distribution of profit, because it determines the amount that exists to be
distributed.

It follows from this that the *equalization* of the GRP/ARP, to the extent it
takes place, is merely a process that pushes the individual profit rates into
GRP/ARP.

Now, if there's any difference between what I'm saying and what Chris is
saying, it is probably my claim that the preconditions for discussion of rates
of profit are the individual sums of capital advanced and the individual sums
of surplus-value produced. Chris writes:

"here in the dertermination of the GRP it is inappropriate to speak of
aggregates but better of totalities. More hair-splitting I'm afraid: by
aggregate I mean a theoretical sum of individually detrermined amounts; by
totality I mean a whole of which individual amounts are mere aliquot parts.
The difference is that a totality acts as a whole while an aggregate can only
act in piecemeal fashion since ontologically it comprises independent
individuals."

So we may disagree. However, I don't deny that general social processes
affect either the amounts of capital advanced or the sums of surplus-value
produced. Rather, all I'm saying is that, according to Marx, the sum of the
individual capital advances and the sum of the surplus-values produced are the
sufficient proximate determinants of the GRP and the sufficient proximate
determinants of the level to which competition tends to push individual profit
rates.

Andrew Kliman