" Lest we travel too quickly into a dispute over method, let me
be more clear on the problems I see when we deal with the matter
at hand. If assume that fixed capital is present, then
1. There is no tendency for the rate of profit measured in
the usual fashion to equalize.
2. Even in an equilibrium situation the rates of profit would
generally not be equal but the rates of return would be.
3. Prices of production should be computed using rates of return
not rates of profit.
4. Capitalists do not use the usual rate of profit to guide
their investment decisions rather they would consider the rate of
return on the investment.
5. The falling rate of profit can occur as the rate of return on
investment is increasing."
Again quoting,
" Hence, when we look at the transformation procedure in Marx or in
those who attempt to correct him or to defend him, it is unclear to
me how and why we arrive at equal rates of profit. Surplus value
is not redistributed among capitals according to the rate of profit.
I do not know how by abstracting from a system in which the rates of
return are used one arrives at one in which the rates of profit are
equal."
Jerry writes:
"Your question, then -- if I understand you correctly -- asks how it is
possible to 'arrive at equal rates of profit' once one includes constant
fixed capital and substitutes RRI for (individual) rates of profit when
one is computing POP."
My comment:
I think I'd go a bit further on this. Why try to arrive at equal rates
of profit at all? It might be interesting if we were studying an economy
in which there is no fixed capital but those days have been over for some
time.
Jerry adds
"Why begin, though, with the tacit assumption that we will 'arrive at equal
rates of profit'? For instance, just because profit equalization is
posited as a theoretical *possibility* without fixed capital et. al., why
is it important to show that profit rate equalization remains anything
more than an abstract possibility once one includes those variables?
By analogy, if one were to show 'equilibrium conditions' exist at one
level of the analysis (say in the reproduction schemes in Volume II),
does this suggest that equilibrium is anything more than an abstract
possibility once we move to another level (such as 'capitalist production
as a whole')? I think not.
My comment:
First, equal rates of profit are a "theoretical *possibility*" only by
chance. That is, given that any rate of profit is possible, it too
is possible. There is no tendency for capitalists to shift their
capital investments on the basis of rates of profit.
Second, my only reason for starting from a position in which the rates
of return are equal is based upon the equality of prices of production
in Marx's transformation procedure. He moved from values to prices of
production. I'm suggesting attempt the value picture by starting with
prices of production based upon equal rates of return.
Third, I do not think it follows that since the rates of return are
equal, the system is in equilibrium.
Jerry concluded:
btw, if what you are saying is correct, doesn't that mean that *all*
solutions to the "transformation problem" and *all* presentations of the
FRP following Marx are fundamentally flawed?
My comment: I'd say that at least the vast majority are indeed
"flawed." Some more than others. If you start with a physical
system, make the usual assumptions, and then set up a system in
terms of values, you're nowhere. This simply does not work if
fixed capital is present unless one assumes conditions that lead
both to an equal rate of profit and to a simultaneously equal rate
of return in all branches.
More important, if we push on from Marx's Part II of Vol. 3 with
the idea that the profit rates are equal or tend to equality, we
are read Marx's efforts in Part 3 as though fixed capital need not
be present for the rate of profit to fall. We thus "abstract from"
Marx's notion that his FRP begins to occur in the period of modern
industry and is not present in that of manufacture. With that
abstraction, it seems almost logical to conclude that the use values
used as inputs have the same unit values or prices as outputs.
But with technical change, the valuation of, say, an x-year old
has different value as an input than it does as an output. Unlike
circulating constant capital, however, its valuation is clearly
based upon profitability. For example, if 10 apples can be used
to produce 12 apples in one period and 15 in the next, assuming
that apples are the only inputs, many would say that the rate
of profit has increased in terms of apples. With technical
change and fixed capital, this type of comparison is impossible.
The new and better machine produced in some period of production
may not be present as an input in that period. Yet, its very
presence effects the valuation of the older machines still
existing at the end of the period. The simultaneous valuation of
inputs and outputs is now impossible.
John