[PEN-L:4970] profit rate equalization

[Alan Freeman <A.Freeman@xxxxxxxxxxxxxxx>]

Ajit Sinha [PEN-L 4951] writes, re profit-rate non-equalization:

"Could you provide some reference from *Capital* Paul?"

Gil Skilman [PEN-L4938] already cited the first page of Chapter 10 of
Volume III (Lawrence and Wishart/Progress/International edition,
henceforth L/W). Marx is here translated as:

"Between the spheres more or less approximating the average there
is again a tendency towards equalization, seeking the ideal
average, i.e. an average that does not really exist, i.e. a
tendency to take this ideal as a standard."

On p196 (L/W edition) in the same chapter this is referred to as 'the
incessant equilibration of constant divergences'; that is, the
divergences are as constant as their equilibration.

Hence, first point, the tendency is only an 'ideal' tendency to take it
as a 'standard', that is, a notional average profit rate against which
capitalists judge their actual profit rates, by no means something
actually attained.

Thus, second point, the ideal 'does not really exist'. Prices diverge
from the ideal as often as they move towards it.

p197 continues

"In fact the direct interest taken by the capitalist, or the
capital, of any individual sphere of production in the
exploitation of the labourers who are directly employed is
confined to making an extra gain, a profit exceeding the average."

p198 adds

"Our analysis has revealed how the market-value (and everything
said concerning it applies with appropriate modifications to the
price of production) embraces a surplus-profit for those who
produce in any particular sphere of production under the most
favourable circumstances."

That is, third point, even if a commodity sells at the price of
production determined by an average return for the sector, this
nevertheless always embraces many different producers using different
techniques. If a capital seeks a high rate of return, disregarding
barriers to entry, it will not look for the sector with the highest
profit rate but the _individual process with the highest (super) profit.
This is spelt out unambiguously in Theories of Surplus Value
III(henceforth TSV) p206:

"...the capitalists belonging to the first group - whose
conditions of production are more favourable than the average -
make an excess profit, in other words their profit is _above the
general rate of profit of this sphere. Competition, therefore,
does not bring about the market-value or the market-price by the
equalisation of profits within a particular sphere of production.
.On the contrary, competition here equalises the different
individual values to the same, equal, undifferentiated market-
value, by permitting differences between individual profits,
profits of individual capitalists, and their deviations from the
average rate of profit in the sphere."

Many references exist to superprofit as a permanent and normal feature
of capitalist development. It is first introduced in Volume I on p317 in
the discussion of Relative Surplus Value (itself a somewhat neglected
topic of study, incompatible with equilibrium, and the centre of Marx's
analysis of capitalism. BTW It's where real subsumption comes from).

He there observes that the divergence of individual from average profit
vanishes as soon as the 'new method of production has become general',
from which many have chosen to read him as if he thought superprofit was
transitory and accidental.  But his remark applies only in the branch
concerned, and then only if there is no further innovation. I can see no
theoretical basis for imagining that Marx thought this would happen over
the whole of society; quite the contrary, since he theorises capitalism
after the real subsumption of labour as a society which reproduces by
continuously revolutionising its own means of production, I do not see
how this is possible without endless new sources of superprofit.

Superprofit is a permanent preoccupation of Marx throughout (cf pp264-
265 in CIII,pp642-644, TSVII p83, p336, p472, etc., etc., etc; the
newly-translated volumes of his economic works, particularly Volume 34,
reek of it). So Ajit may be shooting a bit wide of the mark when he
speaks only of the profit rate 'in one sector' [PEN-L 4950]. One can
quite easily envisage a society with homogeneous sectoral profit rates
in which, nevertheless, there was a wide and permanent disperson of
individual profit rates.

But actually I don't think even this is what Marx had in mind. On
CIII:169 (L/W) a further argument appears:

"Within each individual sphere of production, there take place
changes, i.e. deviations from the general rate of profit, which
counterbalance one another in a definite time on the one hand, and
thus have no influence on the general rate of profit, and which,
on the other, do not react upon it, because they are balanced by
other simultaneous local fluctuations. Since the general rate of
profit is not only determined by the average rate of profit in
each sphere, but also by the distribution of the total social
capital among the individual spheres, and since this distributions
is continually changing, it becomes another contant cause of
change in the general rate of profit."

This is a fourth point, on top of the ideal character of the price of
production, its non-actuality, and the incessant divergences and the
existence of individual superprofit; the _general rate of profit is
formed as an average over space and time, and in this form it penetrates
capitalist consciousness and as such weighs on the actual movement of
prices. There are persistent and permanent deviations but they average
out. This is the only sense in which it exists, and then only as an
ideal.

Average is not the same as equilibrium. This is Albarracin's point in
`Marx, Ricardo, Sraffa'. On average we are all five foot 6 inches. There
may even be Darwinian (and oppressive) social pressure against tall and
short people through the size of doorways, chairs and other things.
There is even an 'ideal' of stature, although this seems to be rising.
But there is as little evidence of homogenised people as there is
evidence in Marx of homogenised profit rates.

I tend to think his actual view on this was governed by empirical fact.
On p860 (CIII L/W) he writes

"The market-prices rise above and fall below these regulating
prices of production, but these fluctuations mutually balance each
other. If one examines price lists over a more or less long period
of time, and if one disregards those cases in which the actual
value of commodities is altered by the productivity of labour, and
likewise those cases in which the process of production has been
disturbed by natural or social accidents, one will be surprised,
in the first place, by the relatively narrow limits of the
deviations, and secondly by the regularity of their mutual
compensation'

`If' one abstracts from technical change, `if' one abstracts from
natural and social accidents, and `if' one looks at the price lists over
a long period of time. That's a lot of abstraction.
And then...one is surprised. Why is it 'surprising' to Marx and his
readers? In the current debate, dispersion surprises people, which
indicates to me how much the prevailing ideology directs today's
thinking and how far it has assimilated general equilibrium concepts and
methodology. It could only be surprising to Marx and his readers if
either the culture of the day, or Marx's approach, or both, led him them
to expect a priori that there would be no equalisation. If one reads the
post-Ricardians one finds that in general they conceive as the deviation
of price from value as an empirically superficial phenomenon, because
they want to assert that value is really the `natural price', a concept
of which not a trace survives in Marx.

Finally, the actual observed prices don't converge; they 'balance out'
or 'compensate' each other - a qualitatively different conception from
equilibrium. There is an average position of the matter in the solar
system brought about by the gravitation of the planets towards each
other, and this is observable as a 'compensating movement' (orbits) but
they sure as hell don't fall into the sun. BTW I think that centre of
gravity (Jim Devine [PEN-L4924]) is usable but caution is called for. In
rigid body dynamics the centre of gravity is a really-existing place;
you can balance rigid objects on it. But this is because, in rigid
bodies, compensating virtual forces are called into existence to prevent
the movement of any component of the body relative to any other part of
the body. This is a bad analogy with prices, which incessantly move
relative to each other. In fluid dynamics and the study of planetary and
particle motion, the centre of gravity is a purely ideal construction
and its movement cannot be conceived as _prior to the independent
movement of, for example, the planets. Similarly market prices (defined
in Volume I Part I) are _prior to the formation of prices of production.
You can have bees without a swarm, but you can't have a swarm with no
bees.

The modern concept of attractor is, I think, the closest we have to the
required analytical instrument.

p208 (L/W) of CIII states

"This movement of capitals is primarily caused by the level of
market-prices, which lifts profits above the general average in
one sphere and depress them below it in another."

Thus there is (in Marx) (and in the world) a further mechanism for the
movement of capital as well as industrial or technological superprofit,
namely the fluctuations of supply and demand and the consequent rise and
fall of market prices. Moreover, logic tells us that if there were a
real tendency for differences in profit rates (both sectoral and
individual) to vanish, there would be an equally real tendency for
capital to stop moving between sectors.

Marx was rather harsh on this point. In Poverty of Philosophy he writes

"it is the variations of supply and demand that show the producer
what amount of a given commodity he must produce in order to
receive in exchange at least the cost of production. And as these
variations are continually occurring, there is also a continual
movement of withdrawal and application of capital in the different
branches of industry...If M. Proudhon admits that the value of
products is determined by labour time, he should equally admit that
it is the fluctuating movement alone that makes labour the measure
of value. There is no ready-made constituted "proportional
relation" but only a constituting movement."

Engels' introduction to the same work puts it even more strongly:

"the continual deviation of the prices of commodities from their
values is the necessary condition in and through which alone the
value of the commodities can come into existence."

That is values, much less prices of production, cannot even be _formed
without a constant deviation of supply from demand, hence of market-
price from value and equally from price of production, hence of sectoral
profit rates.

IMHO Volume III involves an _abstraction from the non-equilibriation of
profit rates, very far from the _assumption of equal profit rates. That
is, Marx at no point seriously entertains the idea that homogenous
prices of production or profit rates are actually established. But he is
concerned to demonstrate fundamental laws which apply regardless of this
non-equilibriation. The Ricardian school tried to wish away the problem
of sale at prices other than values by treating them as accidental (cf
TSVIII:26-27); Marx had to show they were non-accidental and so had to
establish the systematic tendencies (such as the movement of capital,
but also rent, etc) which ensured that goods would not, even on average,
sell at values. More than this, he never said, which is why every
passage in which he discusses the equalisation process contains a
caution explaining the actual non-equilibrium from which he abstracts.

Thus (p189 CIII L/W)

"In reality, supply and demand never coincide, or if they do, it
is by mere accident, hence scientifically=0, and to be regarded as
not having occurred. But political economy assumes that supply and
demand coincide with one another. Why? To be able to study
phenomena in their fundamental relations, in the form
corresponding to their conception, that is, to study them
independent of the appearances caused by the movement of supply
and demand. The other reason is to find the actual tendencies of
their movements and to some extent to record them. Since the
inconsistencies are of an antagonistic nature, and since they
continually succeed one another, they balance out one another
through their opposing movements, and their mutual contradiction.
Therefore, Since supply and demand never equal one another in any
given case, their differences follow one another in such a way -
and the result of a deviation in one direction is that it calls
forth a deviation in the opposite direction - that supply and
demand are always equated when the whole is viewed over a certain
period, but only as an average of past movements, and only as the
continuous movement of their contradiction. In this way, the
market-prices which have deviated from the market-values adjust
themselves, as viewed from the standpoint of their average number,
to equal tht market-values, in that the deviations from the latter
cancel each other as plus and minus. And this average is not
merely of theoretical, but also of practical importance to
capital, whose investment is calculated on the fluctuations and
compensations of a more or less fixed period."

Strong language this: if supply equates to demand it is to be regarded
scientifically as =0, as not having occurred. We assume they equate only
to study certain fundamental relations; in the real world we find these
relations present empirically only as averages of divergent magnitudes.

Strong language not from Moshe and Manny but from Charlie himself.

As regards the neoclassicals:

Hahn writes in `General Equilibrium Theory' (Equilibrium and
Macroeconomics, Blackwell 1984, pp73-74) as follows

"there exists at present no alternative theory which explains what
general equilibrium theory seeks to explain, and in particular
none which does this by means of consideration of power and class
conflict. Ask the Marxist economist why the composition of output
is what it is and at best you will get a Leontieff answer which is
a linear general equilibrium answer. Ask him to explain relative
prices and you get the `transformation problem' which you surely
do not want."

Marx forbid. Self-flagellation is a strong trait in the literature and
right now we have enough problems. I don't see who the idea of Marx as
an equlibrium economist helps except people who certainly don't want to
help us. The idea begins, I think, with Dmitriev and then Bortkiewicz
but Bukharin (Politics of the Transition Period p149) in my view
deserves the `credit' for accepting this view into economic orthodoxy:

"To find the law of this equilibrium is the basic problem of
theoretical economics and theoretical economics as a scientific
system is the result of an examination of the entire capitalist
system in its state of equilibrium"

By the time we get to Lange (Review of Economic Studies June 1935,
reprinted in Horowitz `Marx and Modern Economics') the `Marxists' are so
besotted with equilibrium that their friends can make it an accusation:

"the labour theory of value cannot possibly be the source of the
superiority of Marxian over `bourgeois' economics in explaining
the phenomena of economic evolution. In fact, the adherence to an
antiquated form of the theory of economic equilibrium is the cause
of the inferiority of Marxian economics in many fields...That
Marxian economics fails is due to the labour theory of value,
which can explain prices only as equilibrium prices (i.e. `natural
prices' in the terminology of Ricardo). Deviations of actual from
`natural prices' are more or less accidental and the labour theory
has nothing definite to say about them. But the central problem of
business cycle theory is one of deviation from equilibrium - of
the causes, the course and the effect of such deviation. Hence the
labour theory of value inevitably fails. The inability of Marxian
economics to solve the problem of the business cycle is
demonstrated by the considerable Marxist literature concerned with
the famous reproduction schemes of the second volume of Sas
Kapital"

A trenchant analysis of the Marxist literature, pace Grossman, but it
doesn't apply to Marx. Sixty years on, why is anyone still trying to
prove that it does? There's a lot of guys out there trying to kill us;
why do it for them?


Fruitful discussion,

Alan Freeman

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Alan Freeman
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