From: "John R. Ernst" <ernst-AT-pipeline.com>
Date: Sun, 26 Nov 1995 16:19:10 -0500
Subject: Value: Organic deteminations, etc.


 
Dear Juan, 
 
As I stated before, I think the whole business about  
comparing the growth of material inputs with that 
of outputs has taken us no where.  I'll take full 
responsibility for leading our discussion into that 
dead end.  To be sure, all I had in mind, was something 
like index numbers but let's put that to rest for now. 
Again, it seems to me that the question before us is 
why readers of Marx have difficulty accepting the notion 
of the falling rate of profit.  I think both of us would 
agree that, in the final analysis, the problem can be  
traced to the misunderstanding of the concepts of value, 
exchange-value, abstract labor, etc. -- Marx's starting 
point. 
 
Key to THEIR understanding is the idea that the value of 
any commodity whether it is used as an input to or  
produced as an output of the process of production  
is to be determined at a given point in time.  Let's take  
a look at Marx's idea of productivity change within the  
period of large scale industry. 
 
"While the circulating part of constant capital, such 
as raw materials, etc. continually increases its mass 
in proportion to the productivity of labour, this is 
not the case with fixed capital, such as buildings, 
machinery, and lighting and heating facilities, etc. 
Although in absolute terms a machine becomes dearer with 
the growth of its bodily mass, it becomes relatively  
cheaper. If five labourers produce ten times as much of  
a commodity as before, this does not increase the outlay 
for fixed capital ten-fold; although the value of this  
part of constant capital increases with the development  
of productiveness, it does not by any means increase in 
the same proportion." (CAPITAL, BK III, pp. 260, Int.ED) 
 
What does this say?  If a capitalist is currently investing 
100 in fixed capital, 90 in raw materials, and 100 in  
variable capital and the fixed capital is to be depreciated 
over 10 periods, then with a depreciation charge of 10 
and an assumed rate of surplus value of 100%, we have 
 
   c(1)+c(2)+ v +  s  =  w 
      
   10 + 90 + 100+ 100 = 300 
 
[Here c(1) is the depreciation allowance, c(2) the  
 value of the raw materials,v the variable capital, 
 s the surplus value, and w the total value.] 
 
Now, let's assume a new technique becomes available with 
assumptions that correspond to the description of  
technical change that Marx states above.  The productivity 
of the given work force is to increase by a factor of 
10, the outlay in raw materials will increase by that  
same factor,  but the investment in fixed capital will 
not increase by that factor but something less, let's  
say 8.  We could then write 
    
 
   80 + 900 + 100 + x  = 3000 (assuming constant prices) 
  
or  
since x=1920 
 
   c(1)+c(2)+   v +    s  =  w 
    
   80  + 900 + 100 + 1920 = 3000  
 
At this point, my temptation is to simply say, "Show 
me how the rate of profit falls."  No doubt, you might 
begin by pointing out that the capitalist would sell 
the produced commodities for something less than 3000. 
Let me see if I have it.  We'll assume that the total 
output is, initially, priced at 2000.  
and then we can write 
 
   c(1)+c(2)+   v +    s  =  w 
 
    80  + 900 + 100 + 920 = 2000 
 
But, eventually, the social value falls to the  
individual value and we have 
 
   c(1)+c(2)+   v +    s  =  w 
 
    80  + 900 + 100 + 100 = 1180 
 
which would indicate a FRP with a constant rate of  
surplus value.    
 
Now, you and I both know this is not the end of the matter. 
 
As those who follow Marx, we still face a difficulty. 
In the above model, the constant capital inputs grew at  
a rate slower than that of the quantity of output. I, still,  
think there is a falling rate of profit here; but I will  
admit that showing how the fall takes place is no  
simple matter.   
 
Where we differ in taking on this task is that you argue 
the price decreases or, if you will,  the decreases  
in social value occur prior to the FRP.  The approach I  
follow is more closely related to that of Grossmann  
and Mattick in which capital accumulation is shown as  
a process in real time.  For me, the crisis itself  
brings about the decreases in social value such  
that the rate of profit has a tendency to fall. 
As I deal with FRP itself, I find myself more and  
more sympathetic to the approach of Rosdolsky. 
 
   
Regards, 
 
John 
 
Nota Bene:  I thought I'd take advantage of your accounting 
skills and allow you to compute the rate of profit in the 
above example according to what you know as generally  
accepted practices.   


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