# Keen/Ernst Discussion (Topic I)

John R. Ernst ernst at pipeline.com
Wed Oct 18 23:30:30 MDT 1995

```Steve,

topic by topic. As you recall, the first topic was

"Marx's Example on pp. 383-385 of the GRUNDRISSE"

For the sake of those, who are lurking, let's see
if I can recreate Marx's example.

Assume there are two capitals, I and II, and II is
more mechanized than I.  Save for the outputs, let us
assume that all the units are in money terms.

I.
Machine    Materials   Labor   Profit      Output in
Sheets

30         30        40       10              30

Assuming the machine depreciates in 10 periods,
then in each period

3         30        40       10              30

(Note the total price of the 30 sheets of
output is 83.)

II.
Machine    Materials   Labor   Profit      Output
Sheets

60        100        40       13.3333        100

Assuming the machine depreciates in 10 periods, then
in each period,

6        100        40       13.3333        100

(Note the total price of the 100 sheets of
output is 159.3333.)

Now for Marx, the rate of profit for I. is  10/100
and for II is 13.3333/200

This would seem to show a falling rate of profit with
mechanization, or, as we move from I to II.  It also
shows as I stated previously in this thread that outputs
are increasing as a rate faster than inputs.  So where
are the problems?  Here, let's consider two of them.

1.  We do not know why newly added labor, 40+13.3333,
differs from that in I, 40+10.

2.  It's not clear why the price drops from 83/30 to
100/159.3333.

Problem 1.  From your perspective, Steve, I doubt this
is a problem.  That is, I suppose you could attribute
the additional value created as stemming from the machine.
For those of us who insist on orthodoxy we would say that
the social value has not yet fallen to the individual value.
When that takes place,  the more mechanized technique
could be represented as

II.
Machine    Materials   Labor   Profit      Output
in  Sheets

60        100        40       10           100

Assuming the machine depreciates in 10 periods, then
in each period,

6        100        40       10           100

(Note the total price of the 100 sheets of
output is 156.)

The price of a sheet would then be 156/100 and not
159.3333/100.

I'm not sure when Marx begins using social value and
individual value as a way of presenting his view of
mechanization, but clearly we see it in the first
book of CAPITAL (Chapter 13).

Problem 2.  How do we explain not only the price drop
assumed as the social value falls to the individual
value (159.333/100 to 156/100) but the price or value
decrease from 83/30 to 159.3333/100?  Again, if we
turn to Chapter 13 of Book I, we find Marx merely
assuming that as capitalist mechanize they drop their
prices a bit to make sure they can sell their greatly
increased outputs.  In this example, however, the
initial price decrease seems a bit steep.  That is, the
capitalist drops the price to such an extent that the
rate of profit falls immediately.  Why not keep the price
higher, if possible, and make more money?  Perhaps, Steve,
the lack of effective demand is a problem?

___________________

So much for Marx.  Relative to this example,
Steve says:

(A) Marx is countenancing the possibility that technical
change can increase the rate of surplus value, s/v.

(B) He does this within the context I first pointed out (and
which John has forced me to examine more closely--for which
many thanks): "It also has to be postulated (which was not
done above) that the use-value of the machine significantly
greater than its value; i.e. that its devaluation in the
service of production is not proportional to its increasing
effect on production."

I would agree with both of your points. On
point B, however, I would stress that which
comes after the "i.e."  I assume you like
best what he first says.

You then continue,

Steve says:

Now if increasing the ratio c/(c+v) can result in the
ratio s/v also rising, then there is no tendency for
the rate of profit s/(c+v) to fall! That tendency only
exists if s/v remains constant:

Wait a minute.  We just saw a falling rate of profit
in the GRUNDRISSE example, with both a rising s/v and
an increasing c/(c+v).  Now, you say we can't have
that.  Indeed, you continue by giving us a quote from
the third book of CAPITAL

"the gradual growth of constant capital in relation to
the general rate of profit*, so long as the rate of
surplus-value, ... remain (sic) the same." (Capital Vol
III, p. 212)

It seems to me that the key word in this quote is MUST.
That is, given s/v is constant, if c/(c+v) increases,
the rate of profit MUST fall.  My point is that your
statement

"Now if increasing the ratio of c/(c+v) can result in
the ratio s/v also rising, then there is no tendency for
the rate of profit s/(c+v) to fall!"

I do not think you are saying that the rate of profit
CANNOT fall under the conditions you specify.  Clearly,
it MIGHT.   Or, if you want to show that it CANNOT, it
would seem that you've got a bit more showing to do.

________________________

So far I have pointed some differences in the way we
look at this passage.  Now let's look at some points
of potential agreement.

1. As I stated in a prior post, the GRUNDRISSE example
teaches us much about the way in which Marx thought
of technical change.  That is, the capital inputs
(here, the fixed capital inputs) increase more slowly
than outputs.  For me, this is significant as those
who simultaneously value inputs and outputs would
never see a falling rate of profit as possible under
that condition save cases where the wage changes
make the rate of profit fall.

2. For you, the GRUNDRISSE example should be
interesting not only for trying to construct
your notion of value creation  and transfer
but also because it points to the possibility
of effective demand playing a role in Marx's
theory.

3. The entire way in which Marx approaches the problem
of the fall in price such that social value
becomes individual value cries out for further
explanation.  Again, we have to ask how and why
the capitalist (a) voluntarily decreases price
and (b) is forced to decrease price even more
so that the social value falls to the individual
value. Demand must play a role in this.

4. We would both agree that in the GRUNDRISSE example
Capitalist I  is a "dead meat."

Keeping the faith,

John

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