Re: [OPE-L] Measuring the rate of profit

From: Jerry Levy (Gerald_A_Levy@MSN.COM)
Date: Thu Mar 16 2006 - 08:20:41 EST

Hello VicenÁ,

Lack of instruments of measure of the rate of profit
> In my opinion not enough emphasis have been given to the
> capability to measure profit. <snip, JL>
> From time to time money  quantities seem to vanish and there
> remain only the basic things: where to live, what to eat, and the
> capability to produce services how to communicate, etc: the
> real wealth.

The rate of profit, though, if understood to be  S / C+V, is not
a direct measure of wealth -- it is a measure of value.  This is
an important distinction since there are objects which have a
price and represent wealth but do not represent value.  Yet,
national income accounting values objects which are not
produced by labor in the same way as commodities produced
by labor.

>  The question then would be: are we producing more goods and
> are we able to produce more services with the existing money
> capital or do we just have more money capital?

That is why you have to look at statistics for real GDP rather than
just nominal GDP, right?

Almost free goods due technological progress
> Another thing relates to the falling rate of profit: there is an effect -
> contrary to certain extent, to that of accumulating capital  (increasing
> OCC) in order to produce a lower per unit product, provided there is
> enough demand - we can see nowadays: the almost no cost for some Internet
> application e-mail, for instance. There is no way to make business
> provided that the cost of giving the service is so low: similar to selling
> air -which is good for society and bad or the business or for the economy
> as we understand it -.

This might be thought of as a 'rent effect' which would lead to a
redistribution of value and wealth within and between social
classes.  To show the exact amount of the rent, in terms of which
classes paid the rent or what proportion of the rent, would
require disaggregated data.  It wouldn't be immediately obvious
from an input-output table.

Role of public facilities
> A third point would be: public facilities. It is a way  to promote a
> higher rate of profit because diminishes the unit prices of the rest of
> the sectors: think in the lower cost for firms in Stockholm where there is
> a municipal optical fiber network - I assume they have!  - and costs in
> cities where each company has its own network. The same for household
> facilities, i.e. having a computer to access the bank account or buying.

The last point is interesting since some banks have recently created
types of savings accounts which offer a significantly greater rate
of interest if all banking is done online.  This could be thought of as
a cost-cutting move:  if a greater proportion of bank customers bank
online then it means that banks can retain less tellers and close down
more bank branches.

The municipal optical fiber network could have been created by
the state or is a private venture -- most likely a firm which is a 'public
utility'  and has a monopoly in a specific geographic area. In any
event,  this could be thought of as 'infrastructure' which gives firms
in a specific region/nation a competitive advantage over firms in
regions/nations which have an infrastructure which hasn't been
developed to the same extent.  In the instance you cite, the firms in
Stockholm would experience lower costs then the firms in
other areas of Sweden which would have to bear the cost of
developing their own network.  I do not think that national accounts
data will show these regional cost disparities.  It is an issue for firms,
though, and is recognized as such in mainstream  micro 'location
theory'  and urban economic literature

In solidarity, Jerry

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