Re: Falsifiability and the law of value

[Drewk <Andrew_Kliman@xxxxxxx>]

Jim Devine wrote:

 "My assertion wasn't based on Okishio or anything like that. It
was based on accounting. If input prices (per unit of output) fall
and output prices stay constant, profits rise."

Right, Jim.  But if *output* prices (per unit of output) fall and
*input* prices stay constant ....

And the latter must always be the case *before* the former can be
the case.  That's important.

E.g., the price of machines falls during period t.  At the end of
period t, the revenue received by machine producers falls.  Input
prices of period t -- prices of inputs acquired at the start of
period t, or before -- cannot change because they are a thing of
the past.  So there is a fall in the machine producers' profit
rate, and therefore the general rate, of period t.

In period t+1, the input price of machines falls (since it is the
output price of period t).  This *tends* to raise the profit rate
of period t+1.  But if there's another fall in the price of
machines, or of anything else, during period t+1, it will
partially, fully, or more-than-fully offset the benefit of cheaper
machines.  Thus it is possible for the general profit rate of
period t+1 to be lower than the "starting" rate, and possible
lower than that of period t as well.

And the same goes for periods t+2, t+3, etc.  So continuous
productivity increases can cause profitability to be permanently
depressed.  Marx was right about this.

Andrew Kliman


------------------------
Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine




> -----Original Message-----
> From: Drewk [mailto:Andrew_Kliman@xxxxxxx]
> Sent: Friday, June 13, 2003 2:33 PM
> To: PEN-L@xxxxxxxxxxxxxxxx
> Subject: Re: [PEN-L] Falsifiability and the law of value
>
>
> Jim Devine wrote:
>
> "But if labor productivity rises (or wages fall) before prices
> fall, the first thing to happen would be a rise in the rate of
> profit (likely temporary)."
>
> I don't think so.  Greenspan, Brenner, and others tell this
story,
> but it is based either on a fallacy of composition (the
> innovator's profit rate rises, therefore the general rate rises)
> or on the Okishio theorem, which is false.  If you do not
> retroactively revalue inputs, as the theorem does, then the
> decline in price will tend to offset the increase in physical
> productivity, and it can more than offset it.
>
> The profit rate can't tell "good deflation" from "bad
deflation."
> Whatever the cause of falling prices is, the fall itself reduces
> profitability, cet. par.
>
> Andrew Kliman
>
> -----Original Message-----
> From: PEN-L list [mailto:PEN-L@xxxxxxxxxxxxxxxx]On Behalf Of
> Devine, James
> Sent: Friday, June 13, 2003 5:16 PM
> To: PEN-L@xxxxxxxxxxxxxxxx
> Subject: Re: Falsifiability and the law of value
>
>
> Drewk writes:
> >  If
> > increases in productivity imply falling prices, ceteris
paribus,
> > and if falling prices imply falling profit rates, ceteris
> paribus
> > (which they do), then ....
> doesn't it matter what comes first? if prices fall (say, due to
> rising international competition due to a high US$ exchange
rate),
> that would squeeze profit rates. But if labor productivity rises
> (or wages fall) before prices fall, the first thing to happen
> would be a rise in the rate of profit (likely temporary).
> Jim
>