John R. Ernst ernst at
Thu Aug 24 09:10:42 MDT 1995

To: Steve
I do not see how the "post-Keynesian" growth models are, on the one hand,
related to Marxian theory or, on the other hand, connected to Minsky's
efforts.  Can you be more explicit about these matters?  Here,
on this list, I think the manner in which Marx's ideas are captured in the
models would be of interest.

To:  Rakesh

Thanks for your post on Grossmann and Landauer.  I've reproduced part of it
below.  My comments follow.

>From Rakesh
>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
>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
>adequate *even at a constant rate of exploitation*  to continue
>for decades at the rates prescribed in Bauer's model-- a five percent
>in variable capital and twice that for in constant capital.
>Grossmann is not primarily interested to show that the rate of profit must
>though it is an obvious consquence of the model itself-- which stipulates
>the ratio of constant to variable capital rises while assuming both that
>variable capital is the only source of surplus value and that it is
>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
>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:
>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
>model to be an unnecessary detour.
>Why must capital accumulate a rising percentage of its surplus value other
>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
>the assumption is grounded in Grossmann's theory of the falling profit
>"The law of the tendential fall of the rate of profit presupposes
>that the individual capitalist, in an effort to get ahead of other
>introduces machinery, thereby augments constant capital at the expense of

>variable capital, and thus helps digging the grave of the capitalist
>In a word, the introduction of machinery enables a drop in value per unit
>the innovator who selling at just below social value can dispose of a
>quantity, produced at the expense of a higher rate of exploitation,
> and accumulate a greater mass of surplus value.  As social value drops to
>innovator's value--extra surplus value proving transient for both Marx and

>Schumpeter-- the rate  of profit will now even fall for the innovator,
>establishing the conditions for a new round of what Crotty may call
>capital-deepening investment.
>In other words, once we provide the microfoundations of the falling rate
>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.
>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
>surplus value is insufficient to amortize past investments and continue
>accumulation, whatever  revolutions in value technological change may
>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
>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
>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
>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.

Here are some comments on  your point (a).  Before comparing the various
rates of change, I think we should note the problems with the Grossmann

1.   Grossmann in using the Bauer schemes never introduces fixed capital.
Instead, we have a circulating capital model in which capitalism "breaks
down" in 30 or so years.

2.  Nowhere are we given convincing arguments for the falling rate of
profit or the ever-increasing c/(v+s) ratio.  Indeed, as you know, debates
about the falling rate of profit continue and many, seeing no resolution at
hand, insist that the questions can only be resolved empirically.  I would
mantain that even if the falling rate of profit could be shown from data,
we would still be faced with explaining why it happens.

3. Given all the questions surrounding the concept of value, it would be
helpful if a Grossmann model could be developed using prices.  In this way,
we could observe something a bit closer to reality as the system moves from
period to period.  (I tried to do this in 1982 but only in a one-commodity
circulating capital model.  Kliman and Freeman, at least, use more complex
models to show a falling rate of profit, but as far as I know do not relate
it to the growth of constant capital in the way Grossmann does to show a

4. By ignoring fixed capital, the manner in which fixed capital depreciates
is also not part of the picture.  I think that Michael Perelman in his
papers and book on Marx's theory of crisis makes a decent case that this
simply should not be done.


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