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From: owner-ope-l@galaxy.csuchico.edu on behalf of Fred B. Moseley
Sent: Monday, March 23, 1998 6:25 PM
To: ope-l@galaxy.csuchico.edu
Subject: RE: [OPE-L] Re: Historical Costs
Fred writes:
"Andrew has argued that Marx is saying in this section that, although the
existing means of production are devalued, the
existing constant capital is not devalued. I have already argued that this
interpretation is contradicted by the text itself. If constant capital is
not devalued, then how can this be a "counter tendency" to the falling rate of
profit? Why is this
being discussed in a chapter devoted to the counter-tendencies?
"Since there has been no response to my earlier argument, I will reproduce it
here, with your permission: ..."
But Fred, I *did* respond to your earlier argument. See my post sent
Saturday, February 14, 1998 2:20 AM. I reproduce the relevant part below:
Beginning of Excerpt
====================
Fred has also written in the former post: "it seems to me that ... existing
constant capital is cheapened as a result of technological change, i.e. is
valued in current costs. Otherwise, 'cheapening' cannot be a
'countertendency' to the falling rate of profit."
The latter of the two posts, however, adopts a somewhat "softer" position:
"If the capital loss is subtracted from the gross surplus-value, then it is
not clear to me that this cheapening would be a counter-tendency."
As I've mentioned, I think Marx uses "profit rate" in more than one sense.
With respect to this issue, there are at least two rates of profit to
consider, the actual (realized, ex post) profit rate of the past and the
potential (ex ante) profit rate of the future. The cheapening of the elements
of constant capital that occurs today cannot raise the rate of self-expansion
of a sum of value advanced in the past. However, the cheapening of these
elements does raise the potential profit rate on new advances of
capital-value, in the sense that any amount of profit will be measured against
a base that is smaller than the base would have been had the cheapening of the
elements not occurred. Hence, for the cheapening of these elements to act as
a counteracting factor, it is not necessary to spirit away the actual capital
advanced.
==============
End of Excerpt
==============
But not only have I responded to Fred, he has *already* responded to my
response! I'm referring to his post of Friday, February 20, 1998 2:19 PM, in
which he quoted a passage in _Capital_ III, Ch. 7, and concluded from it that
"The original capital advanced is not 'spirited away,' but it is revalued."
So I'm afraid that I don't see anything new in Fred's latest post for me to
respond to.
Yet, although Fred did respond to my comment by quoting and interpreting a
passage from Marx, he has not yet responded to the specific *set of analytical
distinctions* I drew in responding to his point (in the last paragraph of my
excerpt). I think they permit the conclusion that it is possible for the
cheapening of the elements of constant capital to be a counteracting factor
without the original capital advanced being revalued. Instead, Fred has
simply denied this conclusion, most recently in the form of his rhetorical
question "If constant capital is not devalued, then how can this be a "counter
tendency" to the falling rate of profit?" What I would like to know, however,
is what, if anything, is wrong with my reasoning in the last paragraph of the
excerpt?
When Fred writes that "The original capital advanced is not 'spirited away,'
but it is revalued" (Friday, February 20, 1998 2:19 PM), I think he's getting
to the CRUX of the difference between us. I can make no coherent sense of
this statement. As I had already (before he wrote this) noted on this thread
(post sent on Wednesday, January 21, 1998 4:45 PM), "The capital advanced is a
sum of value, right? HOW CAN YOU REVALUE A SUM OF VALUE?????!!!!!" This was
not a rhetorical question. It goes to the very meaning of the categories
involved in thinking of profitability, the very meaning of the categories Marx
employed. I would be much more sympathetic to Fred's position if he could
explain how a sum of value could be revalued.
It seems to me that what Fred -- along with the vast majority of those who
have written on this issue -- has difficulty understanding, and thus
accepting, is that the cheapening of the elements of constant capital can
accompany a fall in the profit rate even though they are a counteracting
factor to the fall. Let me try here to explain this.
My argument has two parts. The first part I have already discussed, in the
last paragraph of the excerpt: "the cheapening of these elements does raise
the potential profit rate on new advances of capital-value, in the sense that
any amount of profit will be measured against a base that is smaller than the
base would have been had the cheapening of the elements not occurred." Thus,
the cheapening of the elements of constant capital is indeed a counteracting
factor.
The second part is that, _ceteris paribus_, the cheapening of the elements of
constant capital and the fall in the profit rate stem from the same source
(rising productivity). They are two different expressions of one and the same
phenomenon. To make things simple, imagine that all profit is reinvested.
Then profit (p) equals investment (I):
(1) p = I
Also for simplicity, imagine that all capital (C) is constant capital (CC),
(2) C = CC
so that all investment goes to expand constant capital. Then
(3) I = (change in C) = (change in CC)
and the rate of profit, R = p/C, therefore equals the rate of accumulation of
constant capital (A):
(4) R = p/C = I/C = I/(CC) = (change in CC)/(CC) = A.
Now, assume, again for simplicity, that we have a one-good economy, or that
relative prices do not change. In either case, we then have two versions of
(4), one measured in value, and one measured in physical (or constant price)
units.
Hence, using v and p to indicate value and physical measures:
(5) Rv = Av.
(6) Rp = Ap.
>From which we get by dividing:
(7) Rv/Rp = Av/Ap.
Now Av/Ap is an index of the cheapening of the elements of constant capital,
specifically, the ratio of the rate of accumulation of capital-*value* to the
rate of accumulation of *means of production*. Only if this number is less
than 1 will the elements of constant capital have become cheapened. But this
clearly implies that Rv/Rp < 1, which means that the value rate of profit
falls below the corresponding physical rate. But Fred's arguments imply that,
under the assumption of a single good or constant relative prices, the value
rate of profit and the physical rate are the same. Hence, Fred's arguments,
not mine, negate the possibility that the elements of constant capital can
become cheapened due to rising productivity.
The basic point here is straightforward. If rising productivity is to cheapen
the elements of constant capital, it *must* likewise reduce the value rate of
profit below the physical rate. You can't have one without the other.
Finally, I wish to concur with John's remark that "Something is wrong here
with respect to your interpretation of Andrew's
position." I do NOT maintain that "the" rate of profit is always measured on
historical costs; in earlier posts on this thread, I've tried to clarify my
position. The essence of the matter is that existing capital may be wiped off
the books, but only if capital losses are charged against profit. Moreover,
if one wants to consider a profit rate that measures the *self-expansion of
capital*, THAT profit rate must measure profit against the original capital
advanced. And that's how the capitalists themselves, and the finance texts,
do it.
Ciao
Andrew Kliman