Re: [OPE-L] Marx on the general rate of profit/rate of interest: a translation error

[Allin Cottrell <cottrell@xxxxxxx>]

On Tue, 30 Oct 2007, Rakesh Bhandari asked, of Paul C:

> I must say that I am not following your explanation of what is
> frustrating even in this day age of unleashed capital flows and
> shareholder value the tendency towards an equal profit rate.

> I don't get the point about firm death either. Wouldn't there be
> some tendency for all firms which within a branch are not
> achieving average profitability to die? Why would that disrupt
> the tendency to the equal profit rate?

> I am distracted, and I am asking you to start the argument from
> scratch.

The point that Paul is making is based on empirical work done by
Paul and myself, subsequently backed up by independent work by
Dave Zachariah.  That is, it seems to be a fairly robust empirical
finding that the rate of profit tends to be lower in sectors with
above-average organic composition of capital.

It is not obvious how this can be rationalized.  It seems
implausible that capitalists willingly undertake investment in
sectors where they _expect_ to receive below-average profit.

I presume, though, that you will see it's very much a hard-nosed
neoclassical argument to say, "Thus can't really be happening
because it implies irrationality on the part of capitalists".

I think the mechanism behind this empirical finding needs further
research.  Why might it be that -- even though the ex ante
expectation might be for at least average profit -- high organic
composition sectors ending up realizing a lesser rate?  I can
imagine various possible mechanisms but I don't have definite
evidence for any.

I will say this, however: "unleashed capital flows and shareholder
value" are not to the point.  For equalization of the sectoral
rate of profit (as opposed to equalization of the expected rate of
return on financial assets, given the current prices of such paper
assets), we require inherently slow "flows" (in fact, real
accumulation and decumulation) of _real_ capital -- flows that
have in no way been speeded up by the hyper-development of paper
asset-trading in the last couple of decades.

Hyperactive stock markets -- plus options, derivatives, futures,
and so on -- make it no easier to transform, say, railway lines
into chip-fab plants, or power stations into pizza ovens.

Allin Cottrell