[OPE-L:4174] A Simple Sheep?

john erns (ernst@pipeline.com)
Sat, 8 Feb 1997 14:13:03 -0800 (PST)

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A partial reply to Andrew's ope-l 4160.

Note: As you will see in what follows, I have returned
to some unanswered questions concerning a circulating
capital model. This may allow us to focus on one issue
at a time as an economy is considered in real time.

John in 4157: "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?"

Andrew in 4160: "Surplus-value divided by capital advanced,
i.e., 'mine.'"

John now says: How about both? That is, it seems to me that we
have to explain the phenomena encountered by the actors in the
society we are analyzing. Thus, if "your" or "our" rate of profit
differs from theirs, we must explain the relation between the

John in 4157: "Can one fall while the other rises or stays the same?"

Andrew in 4160:

"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 t
he 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 now says: The rate of profit on an investment ought
to be calculated by considering the surplus value produced
and the amount of capital invested. If all capital is
circulating, it is clear that one simply divides surplus
value by capital advanced. But what happens if we consider
an annual rate of profit when the production period is
longer than one year?

c + (v+s) = w

100 + 100 = 200

If v is very,very small, then the rate of profit would be
100%. But how do we figure the annual rate? Perhaps one
way to approach the question is to ask, "What is the
business worth at the end of the first year?" Assuming each
year is a period and the value added each year is the same,
we see

Period c + (v+s) = w

1 100 + 50 = 150

2 150 + 50 = 200

We then obtain different rates of profit for the each year or
50/100 for the first year and 50/150 for the second. Selling
at the end of 1st year would appear to be a good deal for the
seller. On the other hand, it would seem that we could
find the rate of profit,r by using the following.

100 = 200/(1+r)^2

r = ((200/100) ^.5) - 1

(A lot of rounding here.)

r = .414 or about 41.4 %

This would mean that some of surplus value of the 1st period is
"shared" with that of that of second. Looking at investment on
a period by period basis we see

Period c + r(C) = w

1 100 + 41.4 = 141.4

2 141 + 58.6 = 200

Here then we see to obtain uniform rates of profit in each period
that capital is invested, profit and surplus value produced in
any given period are not equal. Yet the overall profit for the
entire investment is equal to the overall surplus value produced.
This, god help us, looks like Marx's transformation procedure and
is perhaps why he never wrote the chapter concerning turnover in
Part I of Vol. 3.

If we can agree on this manner of dealing with the production of
surplus value and its conversion into profit, then we should be
able to return to our discussion of "moral depreciation."