[lbo-talk] An Orgy of Speculation?

[Mark Wain]

I understand the Marxist concept of average rate of profit means an averaged 
rate of profit over all industries or major industries in a given country. 
The adjective "average" is an important modifier because capital's return 
rates vary according to spheres and countries of production. (Capital Vol. 
3, p.142, 155)  In so far as the temporal effect on the rate is concerned, 
the time period in which the profit is calculated is uniform among all 
branches of production, usually being a year. In such a general analysis of 
rate of profit (also called general rate of profit), Marx had made 
simplifications. He said, "In a definite period of time which is posited as 
the unit measure of its turnovers because it is the natural measure of its 
reproduction in agriculture, capital produces a definite surplus value, 
which is determined not only by the surplus value it posits in one 
production process, but rather by the number of repetitions of the 
production process, or of its reproduction in a specified period of time." 
(Grundrisse, p. 745)

Marx emphasized turnovers of capital more than depreciation of fixed capital 
as a simplification. To him price and market value are secondary in the 
general analysis of value-based profitability.

Mark

----- Original Message ----- 
From: "Shane Mage" <shmage at pipeline.com>
To: <lbo-talk at lbo-talk.org>
Sent: Saturday, March 05, 2011 11:40 PM
Subject: Re: [lbo-talk] An Orgy of Speculation?

On Mar 5, 2011, at 11:14 PM, Peter Fay wrote:
> Chris Harman, 2010 - http://www.isj.org.uk/?id=613 :
> "aggregating the different investments made at different times in a
> particular period is a necessarily complicated procedure, and most 
> attempts
> to measure national rates of profit use a different procedure—that of
> current cost accounting. The profit made in a given year is measured 
> against
> the market value (ie the replacement cost) of the structures and 
> equipment
> used. This necessarily leads to a distortion in the figures since any
> increase in productivity since the investment was made will mean  that its
> current market value is less than what was laid out on it: the rate of
> profit will appear higher than it actually was.

There are striking errors here.  The "market value  of the structures
and equipment" is not their "replacement cost" but their *depreciated*
replacement cost (original cost times inflation rate since purchase
divided by depreciation rate) and that depreciation rate is in part a
function precisely of "increase in productivity" since that increase
in productivity is a cause of the obsolescense of the fixed capital
stock (what Marx called "moral wear and tear.")  And Harman is
precisely wrong that his notion of "market value" will understate the
value embodied in the fixed-capital stock--because depreciation is
excluded it will overstate that value just as the flow of reported
profits will also be overstated for the same reason, leaving the
effect on realized profitability calculations indeterminate.  But it
has no significance anyway, because the decisive variable in Marxian
theory is not the average rate of profit--it is the *incremental* rate
of profit, the rate of profit on *new* investment (what Keynes called
the Marginal Efficiency of Capital).

Shane Mage

"All things are an equal exchange for fire and fire for all things,
as goods are for gold and gold for goods."

Herakleitos of Ephesos, fr, 90

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