I agree with that, but I would still argue that the investors will often
have a good hunch about the "normal" or "ruling" level of profitability.
But you are very likely correct in saying that for most investment
decisions "what is relevant is what the bank will charge you for the
capital, not what a rival is earning on their capital".
you write:
>I feel that this word tendency is used loosely. What exactly do
>you mean by a tendency, and how can you determine when a
>tendency really exists?
Sorry for being vague. I meant "tendency" in the sense of a law or a
law-like (causal) statement along the lines that if conditions A, B, C
exist then D will happen, ceteris paribus. I think this is what Marx has in
mind, and unlike many economists he spends a great deal of effort on
examining situations where the "ceteris paribus" does not apply, i.e. where
other things are not equal. Marx distinguishes main tendencies from
subsidiary tendencies, arguing that the main tendencies will win through
"with iron necessity", despite being counteracted.
He could be right or wrong about that.
(For more discussion on causal tendencies, one might want to consult Mario
Bunge's studies, e.g. his book Causality and Modern Science (Dover Press)).
You can of course also talk about a probabilistic tendencies but then it's
more a question of a statistical predictor of an empirical trend.
Probability analysis wasn't well developed in Marx's time.
It may, or may not, be possible to test directly for a causal tendency
through empirical correlations. But unless you can empirically verify the
tendency, such a law-like statement is not very useful, it would be a
"speculative hypothesis" only. This happens often in astronomy, but no one
has stopped calling it a science. I believe that, unlike what Karl Popper
claimed, that almost all of Marx's "tendencies" are empirically verifiable
in the sense of empirical trends, at least in principle (we may simply not
have the data for a direct test). I also believe Marx intended that to
happen, and that economics wouldn't be useful if it didn't happen.
En passant: W. Leontief notes that late in his life Marx talked with Samuel
Moore about the possibility of predicting cyclical movements of the economy
using mathematical techniques, but as Marx wrote to Engels, he didn't have
sufficient statistical data to do such a thing. He was about half a century
ahead of his time in this.
As regards the equalisation of the rate of profit, some empirical studies
have been done (including, if I recall correctly, by OPE-L subscribers ?)
looking at trends in industry and sectoral profit rates over time in order
to see if there is a convergence over time. (I don't have the references
handy unfortunately, it's a long time ago that I looked at it). Other
things being equal, you would expect to see that the dispersion of profit
rates in a new branch of production would decline over time as the branch
becomes established. Without being totally sure of my facts, I would say
this has happened in the parts of the computer industry for instance.
If you do not discover a convergence over time, then the theory would lead
you to look at counteracting influences or obstacles which would need to be
verified independently. You would expect, in the absence of a convergence,
that the countertendency really exists, and if it doesn't, then that casts
doubt on the validity of your theory (on the existence of the tendency)
you need to develop the theory further. All of this seems to me basic
scientific procedure.
As regards the equalisation of the rate of profit, Marx actually talks for
example about surplus profits arising when a branch of production is "in
the position to evade the conversion of the values of their commodities
into prices of production [principally through evading the competitive
process altogether] and thus the reduction of their profits to the average
rate of profit". This would seem to happen more often these days than
Marx's own theory would lead us to expect.
The late E. Mandel, who cites this last quote, identifies at least five
sources of surplus profits not entering into the process of the
equalisation of the rate of profit in the short (or even medium) term, and
indeed Mandel hypothesises a dual (broken) process of equalisation, one in
the monopoly sector and one in the non-monopoly sector of the economy.
Paul writes:
>Kalecki's analysis is, in my opinion, also very subtle and also shows
>that the real process in the economy is the inverse of what it appears
>to the economic actors.
Well I now feel obliged to read more of Kalecki !
In summary: presumably the objective of economic research is to bring the
theory and the data closer together. The theory has to inform us about
what data to look for, the data are supposed to discipline or correct the
theory. Be that as it may, of course scientific development always remains
a three-cornered fight between rival theories and the evidence ! If I was
back at university I would do more of it, but regrettably I am not in that
position at the moment. It's a pity, really, because Dutch socio-economic
data are very comprehensive and of relatively good quality.
Regards
Jurriaan.