[OPE-L:4160] RE: No Sheep

andrew klima (Andrew_Kliman@msn.com)
Thu, 6 Feb 1997 09:35:07 -0800 (PST)

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A reply to John's ope-l 4157.

John: "1. If we say that there may be differences between your calculation of
the rate of profit and that of the capitalists', then which one is to be used
as we consider the tendency of the rate of profit to fall?"

Surplus-value divided by capital advanced, i.e., "mine."

John: "Can one fall while the other rises or stays the same?"

Yes. Note that Marx indicates that the tendency is *overcome* --- by means of
crises. His theory doesn't necessarily predict a fall in the observed profit
rate. We have to think very broadly of how the tendency expresses itself,
because it doesn't necessarily have to be through a fall in the observed
profit rate.

Actually, this is obvious. One possibility is that firms anticipate moral
depreciation and take depreciation charges that reduce profit below
surplus-value. Assume that s is constant while C rises throughout time.
Over-depreciating the C masks this rise. If depreciation charges are evened
out throughout the life of the investment, profit will be lower than s,
always, but perhaps by a constant amount, which makes what they call profit
constant. So we could see a constant rate of profit.

John: "2. Let's back up a minute and consider where we agree about the
transfer of the value of constant capital. If the constant capital is used up
in a single period and has a value of 100 and in a period of production 200 of
living labor is added, we both agree that the total output is 300. Indeed, we
would say the output has a value of 300 even if the unit input values are
greater than the unit output values. But now let's add something to this. If
in the middle of this period, the same means of production become available at
one half the value or price. Further, let us assume that half of the
means of production are used up at the half way point of the period and half
of the labor is added at that point. We could then represent our initial one
period process as one taking place in two periods given the periods are now
half as long as before. You would then represent the two periods as follows:

Period Capital Depreciation Value Value of
Advanced Added Output

1 100 50 100 150
2 25 25 100 125

Total Value Produced 275

"Initially we saw an output of 300; now we see 275. Where did the difference
of 25 go?"

Ah! You've asked the key question! I want to answer it by reframing it in a
manner that (1) does not get us involved in the problem of what constitutes a
"period," and (2) *shows* how the changes in value actually arise instead of
letting them drop in from the sky.

Imagine a capitalist economy having a single firm that produces corn by means
of corn and living labor. (I could introduce multiple sectors, or multiple
firms in this sector, or both, and come to the same results, but it would only
muddy and complicate things, so let's stay simple). Corn is circulating
capital, but not all of it is used during one period (year), because some is
stored in the barn. Assume that in period 0, the unit output value of corn is
$2, so the unit input value in your period 1 is also $2. Thus the farmer in
your example begins period 1 with 50 units of corn. 25 are planted, so
used-up constant capital is $2*25 = $50. 25 units of corn, having a value of
$2*25 = $50, sit in the barn. Constant capital advanced is $50 + $50 = $100.
$100 of living labor are added during year 1. The total value of output is
$50 + $100 = $150. Note that I'm getting the same numbers as you have; I'll
continue to do so.

Now, the corn produced in year 1 is, say, 150 units. Since, according to
Marx, the value of a commodity is determined by the labor-time socially
necessary to RE-produce it, I maintain that the unit value of corn at the end
of year 1 is $150/150 = $1. Do you agree?

If this is the case, the unit input value of corn at the start of period 2 is
also $1. It has fallen by 1/2, just as in your example. How much are the 25
units of corn in the barn now worth? $1*25 = $25. Assume that this is now
planted, and that $100 of living labor are added. The value of output in year
2 is $25 + $100 = $125.

Let us examine the flows of value. At the start of period 1, there existed in
the economy assets worth $2*50 = $100. At the end of period 1, there existed
assets worth $1*150 = $150, the value of the new corn produced, PLUS $1*25 =
$25, the value of the corn still in the barn. So the assets of the firm =
$150 + $25 = $175. It has increased its worth by $175 - $100 = $75. But new
value of $100 was produced, and the workers didn't get any (by assumption).
"Where did the difference of [$]25 go?" If you want to answer that, *period
1* is the place to look, not period 2. (At the end of period 1, the farmer
pays himself $150 in dividends, and uses it to buy 150 units of the corn. So,
in period 2, the firm begins with assets of $25, the value of the 25 units of
corn that remain. It ends period 2 with assets of $125, the value of the corn
produced in period 2. The difference is the value added by living labor
during period 2, $100).

So let's focus on period 1. The difference of $25 clearly does NOT arise in
exchange. Value is not being either created or destroyed in exchange. At the
end of PRODUCTION in period 1, each unit of corn is now worth $1, even BEFORE
the farmer sells 150 units of it to himself (partly as a consumer and partly
as a capitalist). The corn is sold at its value, bought at its value, yet the
capitalist comes out of the process worth $25 less than the self-expansion of
value within production would seem to indicate. (These are the conditions of
the problem. Hic Rhodus! Hic Salta!)

Nor does the difference arise in production. Workers really did work 100
worker-years (or whatever) and that really did add $100 in value, not $75.
(If we had $75 as value added, we could account for the apparent discrepancy,
but then the total value of output in year 1 would only be $125, not $150, so
the same discrepancy reappears.)

So where did the $25 go? Nowhere. We are not dealing with a physical object,
like some gold or paper money. This $25 is not money. It is the monetary
*representation* of the value of some corn, and the value itself has no
physical existence, only a purely social one. So a loss or gain of value is
not necessarily the result of any physical process. In the above example,
clearly, there is no absolutely no physical process that caused the loss of

Once we get rid of capitalism, a lot of use-values will still remain from the
past, but they won't have any value. So where will the value have gone?
Nowhere. It won't exist anymore. Period.

What happened is simply that the 25 units of corn in the barn are worth $25
less at the end of year 1 than at the start of year 1, because the labor-time
socially necessary to RE-produce them fell by 1/2. The farmer incurs a
capital loss of $25. Were the unit value to have risen, a capital gain would
have accrued. Putting the same thing differently, moral depreciation was $25.

There are only two ways to avoid this conclusion. One is that the value of a
commodity cannot change between time of input and time of output. The other
is that the value of a commodity is not determined by the labor-time socially
necessary to RE-produce it, but by the weighted average of the labor-time
needed to reproduce and the labor-time originally needed to produce.
According to the latter conception, in the above example, the 150 in new corn
of period 1 took 150 labor-years to produce, and the 25 units of corn in the
barn took 50 labor-years to produce, so the value of the corn would be (150 +
50)/(150 + 25) = 1.125. The 175 units of corn at the end of year 1 would thus
be worth $200, not $175, and their would be no capital loss.

But this means that (1) a capital loss in the system as a whole is impossible,
(2) capital as a whole does not suffer from technical change, and (3) the
value of a commodity is not determined by the labor-time socially necessary to
RE-produce it, at least not according to the normal meaning of "reproduce."

Again, I think John has pinpointed THE crucial issue that needs to be
addressed when dealing with moral depreciation. It has nothing to do with
machinery, per se. It applies there as well, but it is theoretically prior to
that and needs to be clarified first.

Andrew Kliman