Re: Falsifiability and the law of value

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L] Falsifiability and the law of value

I wrote:

"I agree that price falls _can_ cause falls in profitability."

Drewk:
Good.

I continued:
"But I don't see why "Output prices must fall BEFORE input prices
fall.""

Drewk:
Because the input prices that are relevant to profit and profit rate
computations are prices of earlier times than the output prices.  E.g.,
investments are made at time t; sales of output occur at time t+1.
Profits and the profit rate are computed for the time span between t and
t+1.  If prices fall between t and t+1, the fall affects the sales
revenue of this period, but not the input prices of *this* period.  It
affects input prices of the period t+1 to t+2.

------------------------

me: we're talking past each other. Not only was I discussing operating costs rather than capital costs, but have different "models" at play. I was talking about the common sense of business: it's possible to cut operating costs (prime labor costs and raw material costs) per unit while keeping prices from falling, boosting profits per unit (for awhile).

You are talking about capital costs -- and are assuming some sort of model in which the fall in output prices (the subject of this thread) is linked by some sort of general (dis)equilibrium model to the later fall in input prices. That makes sense for the production of raw materials and intermediate goods: the capitalists who produce iron _lose_ from falling iron prices before the capitalists who produce steel _gain_, so that in the initial period, the average profit rate for both groups would fall.

It doesn't make sense for the commodity labor-power: the initial loss due to fall in wages would be taken by the workers and would not be part of the calculation of the average profit rate and so would not depress that rate. Instead, from the capitalist point of view, it's a total gain (unless wage declines cause social disorder and the like) until later, when competition drives prices down in line with wages.

 

"A counter-example: it happens all the time that production is sped up
-- raising output per unit of labor-power hired and thus lowers cost per
unit of output (given the wage rate) -- which has the immediate effect
of raising profits."

This isn't a counter-example.  That is, it is not an example of input
prices falling before output prices.  It is an example of a fall in
per-unit costs that is not accompanied by a fall in prices.  Again, the
impact of technological changes that do not trigger price reductions is
obvious, and not at issue.

 

"I don't see why we should assume that "continual technological change"
exists. Sometimes it does, sometimes it doesn't."

Technological change is always occurring at some firm in some industry.
At least the situation is close enough to "always" to make this a
reasonable abstraction.

Andrew Kliman

-----Original Message-----
From: PEN-L list [mailto:PEN-L@xxxxxxxxxxxxxxxx]On Behalf Of Devine,
James
Sent: Saturday, June 14, 2003 1:39 PM
To: PEN-L@xxxxxxxxxxxxxxxx
Subject: Re: Falsifiability and the law of value

 I agree that price falls _can_ cause falls in profitability. But I
don't see why "Output prices must fall BEFORE input prices fall." A
counter-example: it happens all the time that production is sped up --
raising output per unit of labor-power hired and thus lowers cost per
unit of output (given the wage rate) -- which has the immediate effect
of raising profits. After all, businesses do not simply cancel out their
profit-seeking actions by cutting prices in step (or more)! Over time,
however, as the speed-up becomes general in the industry, prices will
likely fall, counteracting the initial profit boost. This example
doesn't suggest that prices should fall enough to actually hurt profits
in the end.

I don't see why we should assume that "continual technological change"
exists. Sometimes it does, sometimes it doesn't.

Jim