[PEN-L:10985] Re: K/Y ratios

[djones@xxxxxxxxxxxxxxxxxxx (rakesh bhandari)]

>Fikret Ceyhun wrote:
>
>>One other possible explanation for low capital output ratio in the United
>>States is that K/Ys are correlated with Marx' concept of the organic
>>composition of capital. When  organic composition of capital is low then
>>the rate of profit is high, assuming that the rate of surplus value is the
>>same (or not lower). Since statistically profit rates are higher in the
>>U.S. then OCC must be low.
>
>Well, that's what I was thinking, though obviously I was using bourgeois
>statistics, doubtless to the consternation of Jerry Levy. But we're talking
>about the country that's been the dominant capitalist power for almost a
>century. Isn't the OCC supposed to rise over time?....Oh yes, so is it a
>sign >of weakness or strength that US capital has been so ingenious at
>distributing >profits to rentiers, investing at low levels, and squeezing
>labor to make up >the difference?

I think the following speaks to these questions.

Paul Mattick, 1983:
"For the rate of profit not to decline, output must grow faster than the
constant capital, which is only another way of saying that the rate of
exploitation must exceed the rate of accumulation. As far as can be
established on the basis of the unreliable statistics we have, this was the
case during the last century, although accumulation was interrupted by a
series of depressions. On the basis of then existing capital structure, the
rate of exploitation apparently sufficed to ensure the expanssion process.
This may explain the rather rapid accujmulation of capital during this
period. Since the first decade of the present century, however, the
capital-output ratio has stabilized, which is to say the rate of
accumulation has slowed down, relative to existing capital. But as the
accumulation of capital is also a concentration process and thus plays
larger profits into fewer hands, the accumulating capitals were not for
some time aware of the decline in profits. And because the centralization
process can raise the rate of profit even in the absence of capital
concentration, simply by the reorganization and different utilization of
existing capital, a relative stagnation of capital does not at once express
itself in lower profits. On the other hand, the hastened concentration and
centralization of capital can also be seen as measures forced upon capital
to maintain its profitability. Insofar as these measures compensate for
lack of sufficient new investments, they hold down the rising organic
composition of capital, thus bolstering the rate of profit at the expense
of accumulation. But while the profit rate may be maintained, general
economic activity stagnates, for it cannot advance without the production
of additional capital. Sooner or later, the stagnation leads to a crisis,
which can be overcome through the resumption of the accumulation process.

"As long as the share of surplus value within the value of the total output
allows for both capitalistc consumption and new investments adequate to the
already existing capital, the rate of prift will not fall, even with a
rising organic composition of capital, or in bourgeois terms, with the
increase of the ratio of capital to net output. But this is just the point:
while the rate of profit *must* fall with the rising organic compostion of
capital a more rapid increase  of the rate of exploitation, visible in
larger output, prevents this tendency from showing itself in the actual
profit rates. To progress, capitalism must constantly raise the
productivity of labor, that is, reinvest in more efficient means of
production throught the accumulation of capital. A slowing-down of the rate
of accumulation, or even capital stagnation, while on the one hand reducing
or preventing the rise of the organic composition of capital and thereby
stabilizing the rate of profit, on the other hand will lead to a sudden
fall of profits through the reduction of total production, on account of
the lack of new investments. A part of the surplus value remains in its
monetary form, in which it does not yield surplus value, and to that extent
reduces the total mass of profit over time.

"As capitalist production is the production of capital via the production
of commodities, a lack of new investments can only have one cause,
namenlythe fear that such investment may prove to be unprofitable and
therefore senseless. This fear is not a psychological phenomenon but
derives directly from the fact that the rate of profit on the functioning
capital already shows a strong tendency to decline. The reason for this
decline is not discernible, for it has to do with capital as a whole, with
the total social mass of surplus value in relation to the total social
cpaital. But while not discernible, it nontheless affects all individual
capitals, although to varying degrees, and determines their individual
decisions with regard to investment policies. Thte fall of the rate of
profit precedes the decline, or the arrest, of accumulation, which is thus
merely the outward expression of the fall of the  rate of profit inherent
in the expansion of capital. The falling rate of profit is thus the signal
for the disruption of the spiraling disequilibrium of capital production,
as the necessary condition for its continuing development.

"Without resumption of the accumulation process, the raison d etre for
capital production would be gone. It is thus in capitalist reactions to
declining profitability that Marx's theory of accumulation finds its
obvious verification. These reactions, whatever their consequences, have
only one purpose, namely, the increase of surplus value through a further
increase in the productivity of labor., for the restoration of
profitability of the expanding capital. This is, and always was, the *only
solution* suggested by the capitalists and by the "science of economics" to
overcome a period of economic decline, even though this means accumulation
for the sake of accumulation, regardless of social consequences."

Paul Mattick, 1983. *Marxist: last refuge of the bourgeoisie?*. Ed. Paul
Mattick, Jr. Armonk, NY: ME Sharpe, Publishers. 131-33.

Rakesh Bhandari