Re: Marx's law(?) of the falling profit rate

["Andrew_Kliman" <Andrew_Kliman@xxxxxxxxxxxxx>]

This bounced; I'm re-sending it.

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I still owe Trond a response to his post of the 24th, which I hope
to get to soon.  But here I want to reply to his latest post.

Trond reads my corn model example as an attempt "to demonstrate
that the 'Temporal single system' interpretation of Marx
*neccessarily* implies a falling profit rate."  But I do not think
the profit rate necessarily falls.  Under some circumstances, for
instance, a fall in (the value of) wages can more than offset the
depressive effect of productivity growth on the profit rate, so
that the profit rate rises.  Rather than trying to demonstrate
that the temporal single-system interpretation of Marx's value
theory implies the *necessity* of a falling profit rate, I was
trying to demonstrate the *possiblility* of a falling rate under
conditions in which the Okishio theorem asserts that a fall is
impossible.

It is unclear to me why Trond has interpreted my argument as he
has.  Perhaps it is because I maintain that Marx's law is
logically valid?  But as I understand Marx's law, it has a
conditional, if ... then, character.  If the premises are not all
satisfied, the conclusion doesn't follow.  That Marx regards
falling wages as a counteracting factor to the law, for instance,
has never been in dispute.

Regarding the rest of Trond's post, we are in agreement.  First,
I'm very glad to see that we agree about a crucial point, which
Marxists and adherents of the "surplus approach" have almost never
understood:  "the profit rate should be calculated on the basis of
actual expenses, not on the basis of ("simultaneist" view)
replacement costs."  Had this been understood, I don't think we
ever would have heard about any Okishio theorem or any logical
error in Marx's law of the falling profit rate.

And because we agree about *that*, we agree about the quantitative
points that Trond makes and that I'm about to make.  We *have* to
agree, since it is all tautological (except for the source of new
value), following immediately from the computation of the profit
rate on the basis of actual expenses.

Trond is thus correct to point out that the profit rate will not
generally tend to *zero* as a consequence of rising productivity.
I wasn't trying to suggest that it does.  The fall-to-zero was an
incidental byproduct of some assumptions that allowed me to
produce a readily understandable numerical example in order to
illustrate the argument in a simple way over e-mail.  In general,
the long-run (steady-state, sustainable) profit rate depends on
(1) the profit share of new value, (2) the growth rate of new
value, (3) the factor Trond emphasizes, the share of value that is
accumulated or reinvested, and (4) the ratio of fixed to
circulating capital.

With respect to (4):  in the example under consideration, there is
no fixed capital.  But if there is fixed capital, and if it is
valued at historical cost (capital losses aren't charged against
earnings), then, if the growth rate of new value is zero, the
long-run profit rate is also zero.  This is true for any positive
rate of accumulation.

Andrew Kliman