concerning
my notes that I posted on-line (at http://bellarmine.lmu.edu/faculty/jdevine/FROP/sacramento.htm), Rakesh
writes:
> 1. you have confused changes in vcc with changes in occ.<
> 1. you have confused changes in vcc with changes in occ.<
I don't care,
since what's important is the change in K/Y (the fixed capital-output ratio).
It's via this ratio that changes in the vcc and/or the occ play a role in
determining the rate of profit. If the vcc and/or occ rise and don't raise K/Y,
they're irrelevant.
> 2. You don't say anything about the effect of interest rates. Doug H and Fred M have both argued that spike of profit rate (as conventionally measured) especially in the 90s was a result influx of foreign capital, which reduced borrowing costs. But in the last few years borrowing costs have risen considerably for weaker and highly leveraged firms. Does this increased interest burden play any role in your explanation of crisis?<
Yeah, I also
didn't discuss Mattick or the price of tea in China. I agree that interest rates
play a role, especially in the short run (though I don't have much faith in the
power of Alan G. & the Fed). Look at the other papers I put on my web-site
(http://bellarmine.lmu.edu/faculty/jdevine/papers.htm#research).
But in the paper at hand, I had to limit myself. So I put my
emphasis on the longer term. I focus on the rate of profit -- what Keynes
might have called the "average efficiency of capital" -- as the main determinant
of private domestic fixed investment (outside of housing). In econ-lingo, my
emphasis in this paper was on _shifts_ in the IS curve rather than on _movements
along_ it.
The increased interest burden does play a role, though I didn't emphasize that as much as the burden of debt relative to income. The two explanations go together; they're complementary.
> 3. Aren't you arguing that there is a tendency for ex ante saving to exceed ex ante investment? But why in the face of underconsumption isn't there just more building of mills for the sake of building mills?<
I didn't deal
with the saving/investment nexus _at all_. However, since I reject
Say's Law, the fact that ex ante investment sometimes falls below ex ante saving
should go without saying.
In my
papers that I cite in the bibliography, I talk about the "more building of mills
for the sake of building mills," which I call either the "Tugan-Baranowsky Path"
or "bootstrap growth" or "profit-led growth." Indeed, as suggested by the last
name listed, I argue that rising profit rates and shares _encourage_ such
craziness. The problem, as I argue, is that as this kind of boom persists, the
economy becomes increasingly unstable (prone to collapse). I won't bother you
with the details of the arguments.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine
"From the east side of Chicago / to the down side of L.A.
There's no place
that he goes / We don't bow down to him and pray.
Yeah
we follow him to the slaughter / We go through the fire and ash.
Cause he's
the doll inside our dollars / Our Lord and Savior Jesus Cash
(chorus): Ah we
blow him up -- inflated / and we let him down -- depressed
We play with him
forever -- he's our doll / and we love him best."
-- Terry
Allen.
