2.3 FUNDAMENTO LEGAL
2.3.2 Plan Nacional de Desarrollo
The profit rate is central to accumulation because profit is the very purpose of capital- ist investment, and the profit rate is the ultimate measure of its success. Since growth is an intrinsic aspect of capitalist reproduction, new capital is always flowing into most sectors. Thus, when sectoral profit rates are unequal, new capital tends to flow more rapidly into sectors in which the profit rate is higher than the average, and less rapidly into those in which the profit rate is lower. It is not a question of entry and exit, but of acceleration and deceleration. In the accelerating sectors, the faster influx of new capital will raise supply relative to demand, and drive down prices and profits. The opposite effect will occur in decelerating sectors. Thus, the search for higher profits tends to diminish high profit rates and raise low ones. This gives rise to a general ten- dency for profit rates to be equalized across sectors. A roughly equalized profit rate is an emergent property: it is not desired by any, yet it is imposed on all.
happened to be losing money at a particular moment would have to be assigned a negative value. Theoreticians get around this difficulty by confining their discussion to the long run, in which it is supposed that no money-losing vintages would have survived (i.e., that they are dead in the long run). Neither businesses nor national accounts follow such procedures.
Several features of this arbitrage process are important to note. First of all, the movement is a never-ending one, with profit rates always overshooting and under- shooting their ever-changing centers of gravity. There is never a state of equilibrium, but rather an average balance achieved only through perpetually offsetting errors. This is turbulent arbitrage, characterized by recurrent fluctuations. Instead of a uniform rate of profit, competition actually produces a persistent distribution around the av- erage (chapter 17). Second, because this process is driven by the movement of new capital, the relevant profit rates are those on new investment. It is these profit rates, not those on all vintages of capital, which we would expect to see equalized across sectors.
Figure 2.12 depicts the average profit rates of sectors within US manufacturing, with the heavy line representing that of the manufacturing sector as a whole (chap- ter 7 and appendix 7.1) We can see that turbulence is normal to profitability. It is in this climate that firms make their decisions about investment in new capacity and new methods of production. An obvious implication, which seems to have been lost to the theoretical literature, is that all such decisions must be robust: given that profit rates normally fluctuate a great deal from year to year, all new investment must embody a substantial margin of error. Real competition, not perfect competition, must therefore be the point of departure for the analysis of technical change (“choice of technique”). Even though the profit rates shown in figure 2.12 are clustered together, they often remain persistently different. The standard interpretation of such evidence is that the differences are due to some combination of risk premia5and oligopoly power. But the picture changes substantially when we consider the profit rates on new investment, that is, the incremental rate of return on capital (figure 2.13). This is measured here
1960 1964 USMANAVG USACHE USAMAI USAFOD USAMNM USAMIO USATEX USABMI USAMEL USAWOD USAMEQ USAMTR USAPAP USABMA USAMOT 1968 1972 1976 1980 1984 1988 –10% 0% 10% 20% 30% 40% 50% 60%
Figure 2.12Average Rates of Profit in US Manufacturing 1960–1989
5Risk is most often measured by the volatility of the rate of return. As we can see, this varies across sectors. Economic theory says that competition will give rise to higher profit rates in sectors with higher intrinsic risk (see chapter 7, table 7.7).
1960 1964 USMANAVG USACHE USAMAI USAFOD USAMNM USAMIO USATEX USABMI USAMEL USAWOD USAMEQ USAMTR USAPAP USABMA USAMOT 1968 1972 1976 1980 1984 1988 –10% –15% –20% –5% 0% 5% 10% 15% 20% 25%
Figure 2.13Incremental Rates of Profit in US Manufacturing 1960–1989
as the change in gross profits divided by the gross investment in the previous year (Christodoulopoulos 1995, 138–140; Shaikh 1998b, 395).6It is then apparent that incremental profit rates, unlike average ones, do “cross over” a great deal, again and again. This is profit rate equalization in its true form: incremental rates that careen in rapid succession from one level to another, and even from positive to negative—a far cry from the placid “margins” that dominate orthodox economics; and turbulent equalization occurs with recurrent overshooting and undershooting, quite unlike the “attained and held” equality that is commonly assumed in theoretical models. These phenomena are discussed in detail in chapter 7, section VI.5, and their implications are developed in chapters 7–11. We will see that the incremental rate of profit plays a crucial role in explaining the movements of stock and bond prices, and hence in those of interest rates (chapter 10). But for now we turn to its more traditional role of profit rate equalization in explaining the long-run structure of relative industrial prices.
6Given that the average rate of profit is r = P/K, where P = profit and K = capital stock, we can define the incremental rate of profit asr = P/K. But this measure requires estimates of the capital stock, which are dependent on a whole chain of assumptions for which there is often little basis except convenience (see chapter 6, appendix 6.5). It is therefore far more robust to de- fine the incremental rate of profit asr = PG/IG(–1), where PG = profits gross of depreciation and IG = gross investment. Both PG and IG are invariant to the Capital Consumption Adjust- ment needed to distinguish “true” (i.e., economic) depreciation from book depreciation, and to estimates of useful life or true depreciation rates needed to create measures of the capital stock (Christodoulopoulos 1995; Shaikh 1998b). It should be noted that the AMECO Database the Eu- ropean Commission’s Directorate General for Economic and Financial Affairs (DG ECFIN) has recently produced measures of the Marginal Efficiency of Capital (MEC) that follow essentially the same procedure by defining the MEC as the ratio of the change in gross output to the lagged value of past investment (AMECO).