Re: the profit rate & recession

[Rakesh Bhandari <rakeshb@xxxxxxxxxxxx>]

Title: Re: [PEN-L:20980] the profit rate & recession

> For those interested, I recently gave a
> talk at the Marxist School in
> Sacramento, California, suggesting that the recent recession is
> connected
> with the trend rise of the rate of profit. My notes are available
> at:
> http://bellarmine.lmu.edu/faculty/jdevine/FROP/sacramento.htm
>
> Jim Devine jdevine@xxxxxxx & 
> http://bellarmine.lmu.edu/~jdevine

jim,

i think this is a very valuable piece. it seems to me

1. you have confused changes in vcc with changes in occ.

"This decrease in K/Y seems linked to the 1980s and 1990s shake-out of U.S. manufacturing (dis-investment from old equipment and plant), investment in more modern fixed capital in new sectors or even modified versions of old sectors (as with the rise of steel mini-mills), and the falling prices of some capital goods (e.g., computers) and important raw materials such as oil. "

For example, your first reason for decrease in K/Y is crisis induced devaluation. So this is a change in the VCC, not the OCC. K/Y is a proxy for the former, not the latter.

2. You don't say anything about the effect of interest rates. Doug H and Fred M have both argued that spike of profit rate (as conventionally measured) especially in the 90s was a result influx of foreign capital, which reduced borrowing costs. But in the last few years borrowing costs have risen considerably for weaker and highly leveraged firms. Does this increased interest burden play any role in your explanation of crisis?

3. Aren't you arguing that there is a tendency for ex ante saving to exceed ex ante investment? But why in the face of underconsumption isn't there just more building of mills for the sake of building mills?

Rakesh