Re: [OPE] Just published: THE NATIONAL QUESTION AND THE QUESTION O F CRISIS (RPE, Vol. 26)

Let me try and explain it with a pair of scenarios:

First let us assume that we are in a country with negligible growth in the population.

In that case it is clear that any net accumulation of capital must lead to a rise in the ratio of dead labour relative to the maximum possible workforce.
It is a well known result that in these circumstances, if there is no change in the rate of surplus value, then the rate of profit must fall.

In fact under these circumstances, so long as there is net accumulation, the long run rate of profit must tend to 0.

Japan gives us an example of this sort of process happening.

There can only be a stable positive rate of profit to the extent that the attempted accumulation of capital is offset by
physical depreciation of the capital stock (d in the equation ) or by moral depreciation (t' in the equation).

Suppose capital stock is 100 billion, wages 10 billion and profit 10 billion, both of the latter being annual flow rates, then the rate of profit is 10%
If all the profit is reinvested, the only way that capital stock can stay stable at 100 billion and preserve the rate of profit is if the combined effect
of depreciation and technical change cause depreciation of the 100 billion exactly equal to all the 10 billion reinvested.
Suppose that physical depreciation is over a 20 year horizon and amounts to 5% andmoral depreciation due to rising productivity is also at 5% per annum.
We would then be in a stable situation with gross profit at 10% , investment at 100% of profit, and depreciation at a total of 10%.

Now suppose the capitalists end up paying half the total profit out in bankers bonuses, which get spent of champagne, fast cars and fine houses.
The new rate of gross investment is only 50% of profit or 5 billion. If the capital stock of 100 billion is depreciating at 10% a year then the new investment
will not be enough to maintain the stock. In consequence after a year the capital stock will have fallen to 95 billion. The rate of profit will now be
10 billion
------------- which is more than 10%.
95 billion

Year by year the capital stock will fall until the system is once more stable with a capital stock of 50 billion, this will depreciate by 5 billion a year
just enough to compensate for the gross investment of 5 billion. But in this new stable state the rate of profit is

10 billion
---------- = 20%
50 billion

So the effect of waste has been to reduce the capital stock, but increase the rate of profit.
Running a few numerical examples will convince you of the validity of the formula that

d + T' + g
------------ = long term stable rate of profit
(1 -u )

where d is the depreciation rate, T' the rate of technical change, and g the growth rate of the labour force
and u is the fraction of surplus value that is unproductively consumed.

________________________________________
From: ope-bounces@lists.csuchico.edu [ope-bounces@lists.csuchico.edu] On Behalf Of Paul Zarembka [zarembka@buffalo.edu]
Sent: Monday, November 29, 2010 10:32 PM
To: ope@lists.csuchico.edu
Subject: Re: [OPE] Just published: THE NATIONAL QUESTION AND THE QUESTION O F CRISIS (RPE, Vol. 26)

Dave, I think you want a sentence before "Is this clearer?" intended to
show the next step before concluding.

In any case, where is this mechansim in the paper you believe Paul C. is
referring to, namely,

  http://reality.gn.apc.org/econ/Smithconf.pdf ?

I don't see it explicitly or implicitly, but I may be missing it. Paul

On 11/29/2010 5:12 PM, Dave Zachariah wrote:
> OK, in my view the mechanism could be understood in relatively simple
> terms too. The result follows from Marx's idea of a falling ratio of
> 'living to dead labour'. If capitalists unproductively consume a large
> share of their surplus value, less dead labour will accumulate. Is this
> clearer?
>
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Received on Mon Nov 29 18:21:35 2010