[OPE-L:3546] Re: Re: Re: Re: Re:returns to scale

[Paul Cockshott <wpc@xxxxxxxxxxxxx>]

At 10:30 27/06/00 +0530, you wrote:
> Paul, but what kind of argument you can come up with to justify the rate
> of profits
> being corelated with the organic composition of capitals? Why can't we
> think of
> rate of profits being determined by social conventions? Cheers, ajit sinha

My belief is that the negative correlation between organic composition and
rate of profit arises due to the effect discussed by Farjoun and Machover where
they argue that if rates of profit constitute a random variable with a
gamma distribution
and if one further assumes that the proportion of firms existing with a
negative
rate of profit is low, a consequence is a fairly strong statistical
correlation between
market prices and vertically integrated labour inputs. Such a correlation
corresponds
to a 'vol 1' price theory, which also implies that profits will be negatively
correlated with organic composition.

Basically what is involved here is a tendancy for firms earning negative
profits
to vanish pretty quickly. A firm earning positive profit, but below average
profit
will on the other hand hang around a long time. Thus the selection pressure
associated
with the law of value is much stronger than the selection pressure exerted by
the average rate of profit. Where the two selection processes come into
conflict
the first tends to win out.