>I may sound like a broken record but I don't see how we can ignore the
>age-stratification of fixed capital when looking at profitability. If
>capitalists are investing on the basis of an anticipated rate of
>return rather than a simple expected profit rate, then the profit
>rates earned using newer plant and equipment may well be less than
>those earned using older, less productive techniques. Further, the
>drive for immediate increases in profits would seem to be less in
>industries that are dominated by relatively few firms. These firms
>can give less attention to immediate profitablitly and make investment
>decisions that give a higher priority to the rate of return over several
>years.
Patrick wrote:
1. Agreed, age stratification of fixed capital shouldn't be ignored. Newer
firms are more likely to be using the best generally available means of
production and therefore are more likely to have lower unit costs.
My comment: My question to you is: How do you take age stratification
into account as you look at profitablilty in terms of the rate of
profit? That is, if we use s/(c+v) or a simple rate of profit and look
at the process of production in some given period of time, then it
would seem that the firm that has the higher rate of return on investment
may have the lower rate of profit.
For me, it is not a question of stocks and flows but rather which measure
to use given the presence of fixed capital.
Patrick wrote:
2. Agreed, capitalists invest on the basis of anticipated rate of return
rather than current average.
My comment: I'm not sure we're agreed here. That is, I am stressing
the difference between the rate of return and the rate of profit. Generally,
the empirical studies ignore the former and focus solely on the latter.
Patrick wrote:
3. It does not follow from point 2 that, "the profit rates earned using
newer plant and equipment may well be less than those earned using older,
less productive techniques." Newer firms have lower unit cost and greater
capacity, they will be the price setters. Higher cost older firms will lose
market share, have lower profit margins, and lower profit rate - relative
to the regulating capitals in their industry.
My comment:
Consider the firm that uses almost no fixed capital; indeed, let its profit
rate be equal to its rate of return on investment. A new investment
may have a higher rate of return on investment and a lower profit rate as
it enters the production process. Because of this the rate of profit as an
average of the two investments may even appear to fall as the rate of return
on investment increases.
Patrick wrote:
4. I don't know if the drive for immediate profitability is greater or less
among industries dominated by relatively few firms. I regard this as an
unnecessary psychological assumption. What is different and what is
empirically verifiable is that firms that operate in highly concentrated
industries have greater barriers to entry and greater barriers to exit. So,
when they are earning about average profits it is more difficult for new firms
to enter and compete them away. When they are earning below average profits
it is more different
for these firms to exit.
My comment: I agree. I simply used domination by relatively few
firms rather than explicitly deal with concentration itself.
Patrick wrote:
5. Agreed, larger and more capital intensive firms the financial reserves
to operate with a longer planning horizon than less capital intensive
firms. Indeed, the huge capital investment and the greater barriers to
entry and exit forces these firms to engage in long term planning.
My comment: Again, agreed. But how does that long term planner
measure profitablility -- a rate of profit or a rate of return on
investment?
Patrick wrote:
6. Willi Semmler covered both the empirical and theoretical literature on
these issues in his 1984 book,
"Competition, monopoly, and differential profit rates: on the relevance of
the classical and
Marxian theories of production prices for modern industrial and corporate
pricing."
I haven't followed the literature forward from Semmler's book, but newer
work should not summarily overlook the excellent theoretical and
empirical work of that text.
My comment: I'll check it out. Did Semmler note the difference between
the rate of profit and the rate of return on investment? Like you,
I'm curious about more recent work.
John