globalisation/Landauer/Grossmann

jones/bhandari djones at uclink.berkeley.edu
Thu Aug 24 03:55:33 MDT 1995


Paul, I admire your commitment to face the facts to fight revisionism (for
my part, I referred to the failure of  interest rate reduction reforms
during the Great Depression and the rise of idle reserves in even the
contemporary dyanamo of Japan  despite the Central Bank's reformist efforts
to reduce interest rates to stimulate business and consumer spending).

 Let me emphasize the obvious-- I have nowhere close to your skills or
knowledge of economic theory. I quote other people extensively for three
reasons: 1)as an autodidact, I don't want to bring the level of the
discussion down as I try to raise the level of my own understanding; 2)I am
trying to elicit the opinion of others (like yourself) about the arguments
which I find persuasive so I can better understand their weaknesses and
strengths and 3)as I have had time to read, I want to share with others
some of the relatively neglected great books which I have come across.

Now to the issues at hand:

>a) use some simple calculus to express the rate of change
>   of the rate of profit as a function of the rate of
>   accumulation.

Grossmann's extension of Bauer's model  shows that in order to  employ
fully additional variable and additional capital, a rising percentage of
surplus value must be accumulated.  Grossmann's model also shows that  even
though value-producing workers are being added at half the rate of the
constant capital which  only  transfers its value, the mass of surplus
value remains adequate *even at a constant rate of exploitation*  to
continue accumulation for decades at the rates prescribed in Bauer's
model-- a five percent increase in variable capital and twice that for in
constant capital.

Grossmann is not primarily interested to show that the rate of profit must
fall though it is an obvious consquence of the model itself-- which
stipulates that  the ratio of constant to variable capital rises while
assuming both that that variable capital is the only source of surplus
value and that it is exploited at a constant rate.

Indeed Grossmann emphasizes that a falling profit rate in itself poses no
problem for capital accumulation.  As noted,  he shows indeed that despite
a falling profit rate, the mass of surplus value still increases
sufficiently for continued accumulation--which I take by the way to be an
interesting, counter-intuitive result.

However, at a certain  point, there is a shift from quantity to quality:
the mass is not sufficient to accumulate at the prescribed rates even if
the capitalists were to live on air.

The assumptions in Bauer's and Grossmann's model have been subject to very
important criticism. And even his staunchest defender Paul Mattick finds
the model to be an unnecessary detour.

Why must capital accumulate a rising percentage of its surplus value other
than to meet the requirements for full employment equilibrium in the
simplified model of one Otto Bauer?

Grossmann seems to give no justification for this, and Landauer suggests
that the assumption is grounded in Grossmann's theory of the falling profit
rate: "The law of the tendential fall of the rate of profit presupposes
that the individual capitalist, in an effort to get ahead of other
capitalists, introduces machinery, thereby augments constant capital at the
expense of variable capital, and thus helps digging the grave of the
capitalist order." (1584)

In a word, the introduction of machinery enables a drop in value per unit
for the innovator who selling at just below social value can dispose of a
greater quantity, produced at the expense of a higher rate of exploitation,
 and accumulate a greater mass of surplus value.  As social value drops to
the innovator's value--extra surplus value proving transient for both Marx
and Schumpeter-- the rate  of profit will now even fall for the innovator,
thus establishing the conditions for a new round of what Crotty may call
coerced, capital-deepening investment.

In other words, once we provide the microfoundations of the falling rate of
profit argument, we can see why Grossmann takes as reasonable Bauer's
assumption that constant capital must be accumulated at a higher rate than
variable capital, though the latter is the only source of surplus value.
As Landauer puts it: "competition will force [the entrepreneurs] to
continue technological improvement and thereby eventually reduce the rate
of profit below the minimum required for production."

Even if we drop the assumptions of a constant rate of exploitation and the
constancy in the unit values of constant capital, it can still be shown
that surplus value is insufficient to amortize past investments and
continue accumulation, whatever  revolutions in value technological change
may yield.

To show this calculus is indeed required.

But it has been done before by Mario Cogoy in the International Journal of
Political Economy vol 17, no 3 and by Andrew Kliman in his contribution to
the new volume edited by Guglielmo Carchedi and Alan Freeman. I most
certainly cannot improve on the mathematics of it.

Yet if all this is true: how are we to explain the post WWII boom in which
variable and constant capital, as well as surplus value, all increased
together even if capital already changed qualitatively by the late 30s?

Helene Bauer raised another question: wouldn't the scaling down of capital
values during a depression  allow the rate of profit to be restored by
relating the same amount of surplus value to a smaller amount of capital
value?

>b) develop some historical time series of rates of accumulation
>   as a percentage of profit for some major economies.

I know from previous posts that you are skeptical on empirical grounds that
an increasing percentage of surplus value is necessarily capitalized.  But
based on the time series which you provided sometime ago of imperial
Britain, an immediate question arises: why did  a bourgeoisie once known
for its capitalization of surplus value in the form of ever more advanced
technology become staganant on the one  hand and increasingly parasatic
abroad on the other? How are we to explain this dialectical change in the
character of British capital?  The time series in itself will not explain
the change.  Grossmann's elaboration of Marx's theory of the law of motion
of capital does offer a powerful explanation, however.
Rakesh

>'Seek truth from the facts, practice marxism not
>revisionism'.

Whom are you quoting?




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