Jim Devine wrote: "But if labor productivity rises (or wages fall) before prices fall, the first thing to happen would be a rise in the rate of profit (likely temporary)."
I don't think so. Greenspan, Brenner, and others tell this story, but it is based either on a fallacy of composition (the innovator's profit rate rises, therefore the general rate rises) or on the Okishio theorem, which is false. If you do not retroactively revalue inputs, as the theorem does, then the decline in price will tend to offset the increase in physical productivity, and it can more than offset it. The profit rate can't tell "good deflation" from "bad deflation." Whatever the cause of falling prices is, the fall itself reduces profitability, cet. par. Andrew Kliman -----Original Message----- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of Devine, James Sent: Friday, June 13, 2003 5:16 PM To: [EMAIL PROTECTED] Subject: Re: Falsifiability and the law of value Drewk writes: > If > increases in productivity imply falling prices, ceteris paribus, > and if falling prices imply falling profit rates, ceteris paribus > (which they do), then .... doesn't it matter what comes first? if prices fall (say, due to rising international competition due to a high US$ exchange rate), that would squeeze profit rates. But if labor productivity rises (or wages fall) before prices fall, the first thing to happen would be a rise in the rate of profit (likely temporary). Jim