[lbo-talk] Re: wotsit madder

Paul paul_ at igc.org
Fri Mar 5 15:09:40 PST 2004


Thanks to Michael Dawson for his posting which I think helps clarify the discussion. I hope doesn't mind if I look at it, bit by bit.

1) Profits
>"I have x-million dollars. If I invest it in Project A, how much more
>money am I likely to get back?

Right! This IS a profit rate calculation. It is also as marxist (or classical in general) as they come [ok, it could also fit others too.] It is/should be your big question. Then come the sub-questions - the things that will help answer this question.

2) Markets
>Are there enough potential buyers of the goods/services we'll make to make
>this bet?

That is ONE sub-question - you need to have a large enough total economy (aggregate demand) to make a large enough market for YOUR market. Unfortunately (in my opinion), most versions of Keynesian economics skip your first question (taking their eye off the ball of profits) and ONLY ask this question. An adequate market is one thing you need to make a profit. But it is not the only thing.

3) Wages and workers a) How much will I have to pay my workers more? That will eat into my profits. How can I pay them less? This gets you into the realm of distribution and some Post-Keynesians. b) How can I control them to produce more and better? (see machinery & technology below)

4) The competition Will they try to undercut me with cheaper prices or better quality? If so, and if I can't squeeze my workers more, I may have to invest in more efficient machinery - even if it lowers my profits (so that I don't lose ALL my profits). [Admittedly, some people say this doesn't happen today in a world of monopolies.]

5) Machinery and Technology.

a) Keeping up with the competition and labor concerns (reducing costs\controling production) may make me cut into my profits and invest in machines. If so, can I find some new technology that may help me get those profits back? If I buy these machines near the end of a recession when my competitors are going bankrupt and my suppliers are desperate can I get them cheap enough to be able to expand? [Now we are in the realm of falling rate of profit\countervailing tendencies and (for some) the end of a long wave.]

Of course all this is VERY crudely put and their are LOTS more questions to ask. But I hope I have made a couple of points:

- for the private sector you have to begin with profit and look at ALL the factors that could affect it. - Keynesians ask an important question (aggregate demand); but it is not the ONLY question to ask. - Some Post-Keynesians add another good question (distribution). But one still has to look at the capital stock (among other things). - Questions that some have lead us to believe are only the concerns of vulgar dogmatic Marxists are, in fact, things that many types of economists look at (and most businessmen do).

Hope this makes a contribution. Paul



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