From: Allin Cottrell (cottrell@WFU.EDU)
Date: Mon Nov 12 2007 - 23:07:06 EST
On Tue, 30 Oct 2007, Rakesh Bhandari asked, of Paul C: > I must say that I am not following your explanation of what is > frustrating even in this day age of unleashed capital flows and > shareholder value the tendency towards an equal profit rate. > I don't get the point about firm death either. Wouldn't there be > some tendency for all firms which within a branch are not > achieving average profitability to die? Why would that disrupt > the tendency to the equal profit rate? > I am distracted, and I am asking you to start the argument from > scratch. The point that Paul is making is based on empirical work done by Paul and myself, subsequently backed up by independent work by Dave Zachariah. That is, it seems to be a fairly robust empirical finding that the rate of profit tends to be lower in sectors with above-average organic composition of capital. It is not obvious how this can be rationalized. It seems implausible that capitalists willingly undertake investment in sectors where they _expect_ to receive below-average profit. I presume, though, that you will see it's very much a hard-nosed neoclassical argument to say, "Thus can't really be happening because it implies irrationality on the part of capitalists". I think the mechanism behind this empirical finding needs further research. Why might it be that -- even though the ex ante expectation might be for at least average profit -- high organic composition sectors ending up realizing a lesser rate? I can imagine various possible mechanisms but I don't have definite evidence for any. I will say this, however: "unleashed capital flows and shareholder value" are not to the point. For equalization of the sectoral rate of profit (as opposed to equalization of the expected rate of return on financial assets, given the current prices of such paper assets), we require inherently slow "flows" (in fact, real accumulation and decumulation) of _real_ capital -- flows that have in no way been speeded up by the hyper-development of paper asset-trading in the last couple of decades. Hyperactive stock markets -- plus options, derivatives, futures, and so on -- make it no easier to transform, say, railway lines into chip-fab plants, or power stations into pizza ovens. Allin Cottrell
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