Keen/Ernst Discussion

John R. Ernst ernst at
Mon Oct 23 01:11:45 MDT 1995

All the material you sent me under separate cover 
remains unread. Indeed, some of it needs some 
cleaning as strange symbols appear hear and  
there.  At any rate, here goes. 
Without continuing to delve into the same example, 
let me see if I can state the issue by using some 
simpler numbers. Should I depart from the  
assumptions of the original example in a significant  
way, I will, hopefully, not only see it  
but also acknowledge it. 
At first a change in technique, requires greater  
investment in constant capital on the part of  
the innovating capitalist. This greater investment  
results in greater output.   
Let's start with a capital of $150, with $100 in 
constant capital, and $50 in variable capital. 
This capital produces 10 cartons of cigarettes that 
sell for $20 each or $200. 
Initial State  (Period I) 
      c   +   v   +  s    =     w 
    $100  +  $50  + $50   =  $200 
Now let's assume that by doubling the investment in 
constant capital, out cigarette producer is able to 
triple his output. (Note the degree to which the 
increase in investment  brings about an increase  
in output is in keeping with the spirit 
of this example; but it does differ from Marx's  
example in Chapter 12 of the Book I of CAPITAL where 
a doubling of constant capital invested brings about 
a doubling of output.) 
Period II 
    $200  +  $50  + $150  =  $400 
Unlike Marx of CAPITAL, we assume no immediate price 
decrease in the price of cigarettes.  How does Marx  
explain the extra $100 in profit or surplus value.  For 
him, the social value created is greater than the  
individual value.  The rate of surplus value(s/v)  
increases from 100% to 300%. Unless we assume price 
decreases, little more can be said.  Cigarettes are 
selling at their social value and above their individual 
value.   Now the question becomes what if the cigarettes 
sold at their individual value, say in the next period. 
If we assume, the nominal wage remains the same. 
Period III 
    $200 +   $50 + $50 =  $300 
Cigarettes now sell for $15 a carton.  Note that with 
this constant rate of surplus value the profit rate, 
s/(c+v) falls from an initial 33.33% to 25%.  And there 
you have it, the falling rate of profit proved at last. 
Seriously, why is this questioned?  First, we've not said 
how the prices of inputs (c and v) are affected by this  
price decrease as well as by others taking place at the  
same time.  Second, Marx himself assumed that this type of 
innovation would bring about increases in the ratio of  
s/v even in what we call period 3.  But what really  
lacks is any kind of dynamic treatment of technical  
change that shows how the value of the outputs of one 
period are treated as the value of the inputs of the 
next period.  Unless we presume that everyone lives on 
cigarettes and uses them to produce more cigarettes  
that cannot be done in this example.  It cannot be 
done with the sheets in Marx's example from the  
GRUNDRISSE either.   So what this example really show? 
For Marx's treatment of technical change and 
the falling rate of profit to be taken seriously, one 
needs to develop such models.  Here I'll simply suggest 
looking at the work of what someone has called the  
New Orthodox Marxists (NOM) -- Kliman, Freeman, et al. 
Yet there are still issues between Steve and me.   
1.  What is the point, Steve, of assigning the  
    extra value produced when the social value 
    is above the individual value to the machine? 
    When the prices fall, does the machine cease 
    to produce value? Or, does the worker create 
    less value in a day then before so that the 
    machine can still be seen as a creator of  
2.  By giving the machines the power to create value 
    it would seem that you loose a rather powerful 
    analytical tool -- Marx's "dynamic" concept of 
    value.  That is, what Marx is able to do is 
    analyze an economy in time.  Each period is  
    connected to the next even if there is technical 
    change.  Periods can be compared and their origins 
    taken into account.  Unlike the neo-Ricardians, 
    Marx does not use an eraser as he moves from one 
    period of production to the next.  Here I am 
    suggesting that the NOM approach be taken seriously 
    lest in dealing with Marx we read him only through  
    the eyes of neo-Ricardians who have dominated the 
    field all too long.   
Those seem to me to be the major issues.  Note well, 
I am not saying Steve is a neo-Ricardians; rather I am 
asking how his approach to value can capture a really 
dynamic economy -- where technical change is more or 
less continuous.  Indeed, Steve has oft remarked that 
he, like other post-Keynesians, is not a neo-Ricardians; 
thus, my question is serious.  On the other hand, I  
think that many of his criticisms of Marx's FRP assume 
that Marx is a neo-Ricardians (perhaps, even a minor  
post-Ricardians(smile)).  What we really need to see 
is how your way of defining value helps  
the analysis of a dynamic economy.  Without that, our 
differences appear scholastic. 
Steve, the issues between us will not easily go  
away; but we have only begun the process of convincing  
you of the deviant way in which you have been  
reading Marx.(another smile). 

     --- from list marxism at ---

More information about the Marxism mailing list