From: "John R. Ernst" <ernst-AT-pipeline.com>
Date: Thu, 23 Nov 1995 20:35:32 -0500
Subject: Back to the Beginning


1. Ok, guys, Jim and Juan, let's not get lost. 
   I'll assume full responsibility for taking us 
   down the blind alley of index numbers and  
   the like. What I propose is that we go  
   back to where we started and determine   
   our concerns.  
 
2. What's basically at issue is the notion of a 
    falling rate of profit in Marx's work.  What  
    I am saying is that nearly everyone who reads 
    Marx, using the common definitions of value,  
    concludes that Marx is wrong.  
 
3.  Let's take Sweezy's criticism first.  For him, 
    capitalists may well increase their investments 
    in new techniques that lower the values of the 
    commodities produced.  But since the materials 
    used in the new techniques are also produced  
    by new techniques, there is no reason to think 
    that even the maximum rate of profit will fall. 
    The maximum is defined as that rate of profit  
    that would be achieved if wages were zero. 
 
4.  The old way of combating Sweezy was to assert that 
    capitalist innovation ruled out the possibility of 
    a non-falling rate of profit.  Put simply, if  
    the number of machines to produce a commodity  
    tripled, then, for a given work force, the increase 
    in productivity for that commodity grew by less 
    than three-fold. Note that even if a similar  
    change of technique occurs in machine production, 
    the maximum rate of profit would fall. (See the 
    Cogoy/Sweezy debates referred to in Sweezy's 1974 
    piece in MONTHLY REVIEW.) 
 
5.  What does this view mean to us in terms of the  
    example we reviewed in Marx's GRUNDRISSE on  
    pp. 383-85?  There, as Jim points out, Marx  
    allows the growth the investment in raw materials 
    and the growth in the quantity of raw materials 
    to grow by a factor of 3 and one-third. But the  
    investment in the new machinery only doubles.   
    Is this a potential example of the FRP?  Under 
    the old way of thinking --  NO!  Why?  The  
    investment in machinery has to grow by more than 
    3 and one third, so that as it undergoes a similar 
    type of productivity increase, the maximum rate of 
    profit will still be lower as innovation takes place. 
 
6.  That Marx gave a specific example in which capitalists 
    double their investment in fixed capital as  
    productivity more than doubles was, for me, a find. 
    For that, I thanked Steve Keen even though he was  
    using the example for an entirely different purpose. 
 
7.  Perhaps, all of us, Jim, Juan, and I, agree that there 
    is something wrong with this way of thinking.  Implicit 
    in it, is the notion that values do not represent what 
    capitalists invest in production but what the replace- 
    ment costs of their investment would be after production 
    takes place, using the new techniques. 
 
8.  Using this old way of thinking, Marxists simply had to  
    deny economies of scale as technology improves.  The 
    Marxist idea of technical change looked like a Rube  
    Goldberg cartoon. 
 
9.  To neo-Ricardians, fresh from their victories over the 
    neo-classical economists, Marxists, in their eyes,  
    often took on the appearance of their vanquished foes, 
    albeit with a bit of technical change tossed into the 
    picture.  In Marxism, reswitching was not only a  
    possibility but a near certainty since only rising 
    wages would cause capitalists to invest in these  
    bizarre techniques.  Falling wages would give capitalists 
    an incentive to switch back to the old less cumbersome 
    but more profitable techniques. 
 
__________________________________ 
 
I hope this not only clears up things a bit, but also  
allows us to proceed clarifying matters.  Jim, you've  
also asked for specifics on a couple of quotes, let me 
put that stuff in another post. 
 
 
John Ernst 
 


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