THE OKISHIO THEOREM: AN OBITUARY

Andrew Kliman 2nd draft. Please obtain author's permission before quoting.

I. INTRODUCTION
Karl Marx (19 !" #$% &onsidered the law of the tendential fall in the profit rate ('()P*% to be +in e,errespe&t the most important law in modern politi&al e&onom-. and the most essential for understanding the most diffi&ult relations.+ /owe,er. the 01ishio theorem (01ishio 1921% is generall- thought to ha,e refuted this law on logi&al grounds. in a manner +so de,astating that it depri,es all arguments (pro and &ontra% ... of their rele,an&e+ (Pari3s 19$4"9%. 5n other words. it is &ommonl- a&&epted that 01ishio's and subsequent ,ersions of the theorem ha,e shown it to be impossible for profit6maximi7ing &apitalists to adopt labor6 sa,ing inno,ations that &ause the equilibrium (uniform% rate of profit to fall. Mu&h of the subsequent literature has shown. not surprisingl-. that b- altering one of the theorem's premises. one &an deri,e a fall in the profit rate. 5f the theorem were true. this would indeed be the onlwa- to deri,e a falling profit rate. And be&ause the theorem is widel- a&&epted as true. the &ounter6 demonstrations put forward b- proponents of the +temporal single6s-stem+ interpretation of Marx's ,alue theor- (8rnst 19$29 Kliman 19$$. 19929 )reeman 1992% are 6 when the- are a&1nowledged at all 6 &ommonl- regarded as alternati,e +models+ whi&h. li1e the rest of the literature. alter some premise of the theorem in order to arri,e at different results.1 (he tas1 of the present paper is to show that. on the &ontrar-.

61 the 01ishio theorem has not been pro,en9 62 the (:: &ounter6demonstrations are genuine refutations. negating the &on&lusions of the theorem
without altering an- of its stated premises9 and

6! when the theorem's a&tual results are stated in a ,alid manner. the- do no damage to the logi& of Marx's
'()P*. M- &laim. it should be noted. is not that the theorem suffers from a mathemati&al error. (he rele,ant matrix algebra theorem of Perron and )robenius. upon whi&h the 01ishio theorem is based. is true. *ather. the problem is a dis3un&tion between the a&tual impli&ation of the mathemati&s and the e&onomi& &on&lusions whi&h proponents of the 01ishio theorem draw from it. namel- that if a uniform rate of profit is re6established after a &ost6redu&ing te&hni&al &hange. this profit rate &annot be lower than the initial one. (o see this. it will help first to re,iew the theorem briefl-.

II. THE OKISHIO THEOREM

;e&ause 5 ha,e &laimed that the (:: &ritiques negate the &on&lusion of the 01ishio theorem without altering an- of its premises. it is important to identif- whi&h features of the theorem are premises and whi&h are &on&lusions. <o existing ,ersion of the theorem full- spells this out. but 5 belie,e the following is faithful to the intentions of the theorem's proponents. (he theorem begins from the following premises"

6# 6= 62 6

an n6industr- &apitalist e&onomsingle6produ&t industries onlno nonprodu&ed means of produ&tion other than labor are used

the real wage rate is equali7ed and &onstant and an initial state of the e&onom- is &onsidered. in whi&h

6$ initial unit pri&es are stationar- (input and output pri&es are equal%.
and

69 the profit rate is equali7ed a&ross industries.

(he next premise. in the no6fixed6&apital &ase.>2? is that

614

a new te&hnique will be adopted if and onl- if it redu&es &ost per unit of output. when &osts are e,aluated at &urrent pri&es.

and the final premise is that

611

the profit rate is re6equali7ed after the adoption of su&h a new te&hnique. )rom these eight premises. proponents of the 01ishio theorem use the Perron6)robenius theorem to draw the following &on&lusion" the post6inno,ation profit rate &annot be lower than the initial one. and must be greater than the initial one if the te&hni&al inno,ation o&&urs in a +basi&+ industr-.

III. THE MISSING PROOF

'et us use r to denote the initial profit rate. and r@ to denote that profit rate whi&h proponents of the theorem &all the post6inno,ation profit rate. 5t is indeed true that r@ &annot be lower than r. and that it must be greater than r if the te&hni&al &hange has o&&urred in a +basi&+ industr-. (his mu&h is implied b- the Perron6)robenius theorem. Aet it is insuffi&ient to support the &on&lusion abo,e. /ow do we 1now that r@ will be the e&onom-'s a&tual post6inno,ation uniform profit rateB (he t-pi&al answer to this question. and the one whi&h presumabl- underlies the belief that the 01ishio theorem has been pro,en. is that te&hni&al and real wage &oeffi&ients. together with the stipulation that the profit rate is equali7ed a&ross se&tors. suffi&e to determine a unique rate of return on &apital ad,an&ed. (hus. r@ is repeatedl- referred to as +the general rate of profit+ b- 01ishio (1921" 94. 9!. 99. emphasis added% and as +the equilibrium+ profit rate b- *oemer (19 $"1=!. 1=#. emphasis added%. impl-ing that if profit rates are equali7ed a&ross se&tors. the le,el of the uniform profit rate is uniquel- determined bph-si&al &oeffi&ients. And sin&e premise (,iii% stipulates that profit rates are indeed equali7ed after the te&hni&al inno,ation. then supposedl- r@ must be the post6inno,ation profit rate. Aet. &ontrar- to the apparent belief of the proponents of the 01ishio theorem (and most readers of Cmitrie, and :raffa%. it is simpl- not true that the magnitude of the uniform profit rate is uniqueldetermined b- ph-si&al inputDoutput &oeffi&ients. (o demonstrate this &ru&ial point. let us turn to the example in whi&h :raffa (1924" % supposedl- pro,es that the uniform profit rate is uniquel- determined. /e posits the following inputDoutput relations" 2$4qr. wheat E 12 t. iron 6F = = qr. wheat 124qr. wheat E $ t. iron 6F 24 t. iron and immediatel- &on&ludes" (he ex&hange6ratio whi&h enables the ad,an&es >on the left6hand sides? to be repla&ed and the profits to be distributed to both industries in proportion to their ad,an&es >so that the rate of return on &apital ad,an&ed is equali7ed? is 1= qr. of wheat for 1 t. of iron9 and the &orresponding rate of profits in ea&h industr- is 2=G. (o obtain 1="1 as the unique ex&hange ratio. :raffa impli&itl- assumes that the ex&hange ratio between wheat and iron at the time of input is equal to the ex&hange ratio at the time of output. (his will not ne&essaril- be the &ase. but e,en if it is. the uniform profit rate is not uniquel- determined b- the data abo,e. as we shall see presentl-. 'etting Pwt and Pit be the input pri&es. and PwtE1 and PitE1 be the output pri&es. of wheat and iron. respe&ti,el-. :raffa's ex&hange ratio implies that Pit H 1= Pwt and that PitE1 H 1= PwtE1. (he rate of return on &apital ad,an&ed in the wheat se&tor is therefore (= = PwtE1%D(2$4 Pwt E 12 Pit% 6 1 H (= = PwtE1%D(2$4 Pwt E 1$4 Pwt% 6 1 H 1.2=(PwtE1DPwt% 6 1 and the rate of return on &apital ad,an&ed in the iron se&tor is (24 PitE1%D(124 Pwt E $ Pit% 6 1 H (!44 PwtE1%D(124 Pwt E 124 Pwt% 6 1 H 1.2=(PwtE1DPwt% 6 1. (he &onstant ex&hange ratio of 1="1 thus guarantees that the two rates of profit are equal. Aet the le,el of the equilibrium profit rate is still not determined. 5t depends as well on the ratio of the output to the input pri&e of wheat. and it &an ,ar-. theoreti&all-. from 6144G to E (%(% /en&e. if we imagine this to be the post6inno,ation profit rate. it &an in prin&iple alwa-s be lower than the pre6inno,ation rate. if PwtE1DPwt is suffi&ientl- small. 5f. for instan&e. the pre6inno,ation rate was 24G. the post6inno,ation rate will be lower if PwtE1DPwt I 4.92. 5n general. then. the magnitude of profit rates. e,en the magnitude of profit rates that are &onstrained to be equal. depend on the relationship between output and input pri&es. (he 01ishio theorem's r@ is therefore simpl- one parti&ular post6inno,ation profit rate among an infinite number of possible uniform rates. a rate that &orresponds to one parti&ular set of input and output pri&es. :pe&ifi&all-. r@ is that parti&ular uniform

profit rate whi&h &orresponds to the &ase in whi&h post6inno,ation input and output pri&es are equal. <ot onl- does the establishment of r@ as the profit rate require that relati,e input pri&es equal relati,e output pri&es 6 that was the &ase in the example abo,e. and it was shown that this stipulation was insuffi&ient to fix the le,el of the profit rate 6 but the absolute pri&es of &ommodities must be equal as inputs and as outputs. 5n other words. it is onl- b- impli&itl- &onstraining the output pri&e of wheat to equal its input pri&e (and thereb- similarl- ma1ing the ratio of the output and input pri&es of iron equal unit-% that :raffa obtains 2=G as the unique rate of return on &apital ad,an&ed. and that proponents of the 01ishio theorem obtain r@ as the post6inno,ation profit rate. 0ur original question 66 how do we 1now that r@ will be the e&onom-'s a&tual post6inno,ation uniform profit rateB 66 &an thus be restated as" how do we 1now that the absolute magnitudes of post6inno,ation input and output pri&es will be equalB Jnless the- are equal. r@ will not be the a&tual post6inno,ation profit rate. e,en if profit rates are equali7ed. Authors who ha,e attempted to pro,e the 01ishio theorem show little re&ognition of this diffi&ult-. (he equalit- of post6inno,ation input and output pri&es is ne,er stated expli&itl- as a premise of the theorem. nor is it e,er pro,en within the theorem. ;ut sin&e it is absolutelne&essar- to the theorem's &on&lusion. the theorem remains unpro,ed. (he problem appears to be that the proponents of the 01ishio theorem. along with almost all the post6 :raffa literature. seem simpl- to ha,e ta1en for granted that input and output pri&es must be equal if profit rates are to be equali7ed. 5n the passage quoted abo,e. :raffa (1924" . emphasis added% spea1s of +(he ex&hange6ratio+ whi&h permits a uniform rate of return on &apital ad,an&ed. A&tuall-. ex&hange ratios of inputs and outputs &an differ e,en with a uniform rate of return9 -et. as we ha,e seen. e,en if the- are the same. the le,el of the rate of return depends on absolute pri&es. not onl- relati,e pri&es (ex&hange ratios%. 5n one of his presentations of the 01ishio theorem. *oemer (19 $% did e,in&e some awareness that the ,alidit- of the theorem depends on the ad3ustment of post6inno,ation pri&es to a stationar- state. 8mplo-ing a two6se&tor example with the te&hni&al &hange ha,ing ta1en pla&e in se&tor 1. he wrote the profit rate will immediatel- rise in se&tor 1. (his will en&ourage more firms to enter se&tor 1 from se&tor 29 pri&es will be &ut in &ompetition and e,entuall- a new equilibrium tableau will emerge >... so that? &ost6 redu&ing te&hni&al inno,ations gi,e rise. e,entuall-. to a rise in the equilibrium rate of profit in a &ompetiti,e situation (*oemer 19 $"1=#. emphases added%. (his passage shows &learl- that *oemer did not regard the establishment of a stationar- post6inno,ation pri&e ,e&tor as a premise of the theorem. but rather as a result of a d-nami& ad3ustment pro&ess in whi&h &apital flows in sear&h of the highest rate of return and &ompetition leads to ad3ustments in pri&es. 5nstead of pro,ing that the +equilibrium tableau.+ in whi&h pri&es are stationar- and r@ is the uniform profit rate. +will emerge.+ howe,er. he merel- asserted it. Apparentl- he belie,ed that proof was not required be&ause he shared the &ommon. albeit erroneous. belief that if an equali7ed rate of profit was to re6emerge after the te&hni&al inno,ation (premise (,iii%%. this would immediatel- entail that pri&es had ad3usted to a stationarstate. )or the sa1e of maximum &larit-. let me stress again that the issue is not whether it has been shown. or &an be shown. that profit rates will a&tuall- equali7e after the adoption of a te&hni&al &hange. (hough in,estigations into the d-nami& stabilit- of the :raffian model ha,e -ielded ambiguous &on&lusions in this regard (see. e.g.. CumKnil and 'i,-. 199!%. the 01ishio theorem is restri&ted. and &ommonl- understood to be restri&ted. to &ases in whi&h a uniform rate of profit is indeed re6established.! *ather. the issue is whether the &apital mobilit- that tends to equali7e rates of return on &apital ad,an&ed also leads to the establishment of stationar- absolute pri&es. 5 1now of no e,iden&e that this is the &ase. nor of ansimulation that shows it to be generall- true. nor e,en of an- theoreti&al argument that supports it.#

IV. THE TSS INTERPRETATION

(he (:: interpretation of Marx's ,alue theor- has been +dis&o,ered+ numerous times b- theorists wor1ing independentl- of one another.= 5t differs from the standard interpretation in two seemingl- minor but &ru&ial wa-s. A&&ording to the standard interpretation. Marx's ,alues and pri&es are two separate and timelessl- determined +s-stems.+ A&&ording to the (:: interpretation. the- are determined within histori&al time. and interdependentl-" output pri&es depend on the +,alue+ rate of profit (surplus6,alue di,ided b- the ,alue of &apital ad,an&ed%. while the ,alue of the &apital ad,an&ed depends on the pri&es. not ,alues. of means of produ&tion and subsisten&e. (his re6interpretation refutes all the allegations of logi&al in&onsisten&- in the +quantitati,e+ dimension of Marx's ,alue theor-. (otal pri&e and profit equal total ,alue and surplus6,alue. the aggregate +,alue+ and

+pri&e+ rates of profit are equal. ,alues &annot be negati,e and profits &an be positi,e onl- if surplus6,alue is positi,e. the rate of profit in luxur- industries affe&ts the general rate and. what is most rele,ant to the present paper. labor6sa,ing inno,ation itself &an lead to a lower general (uniform or nonuniform% rate of profit (see )reeman and Lar&hedi. eds.. 1992%. (he (:: refutations of the 01ishio theorem ma1e use of the fa&t. emphasi7ed abo,e. that e,en if a uniform rate of profit is postulated. the le,el of the profit rate is not determined b- ph-si&al &oeffi&ients alone9 it depends also on the relation between input and output pri&es. 0nl- when input and output pri&es happen to be equal to ph-si&al &oeffi&ients suffi&e to determine the le,el of the profit rate. otherwise one or another ,alue theor- is needed. (he (:: refutations of the 01ishio theorem emplo- Marx's ,alue theor- for this purpose. :pe&ifi&all-. the rate of profit is &omputed in the following wa-. ;oth input and output pri&es are measured in labor6time per unit of output or. equi,alentl-. in mone- per unit of output if the monetarexpression of ,alue is assumed to be &onstant o,er time. 5nput pri&es are ta1en as gi,en (determined in the pre,ious period or stipulated as initial &onditions in the first period%. and the-. together with the means of produ&tion and subsisten&e ad,an&ed. determine the ,alue of the &onstant (L% and ,ariable (M% &apital ad,an&ed. <ew ,alue added equals the amount of li,ing labor ('% extra&ted in produ&tion (or its monetarexpression. assuming the monetar- expression of ,alue is &onstant%. :urplus6,alue (:% equals ' 6 M. and the general profit rate equals :D(LEM%. (his is a temporal profit rate be&ause the input pri&es used to &ompute L and M need not equal the subsequent output pri&es. and be&ause the general rate is full- determined as a result of the produ&tion pro&ess. before outputs are sold. 5t is a single6s-stem profit rate be&ause L and M depend on the pri&es. not the ,alues. of means of produ&tion and subsisten&e. 5f the profit rate is assumed to be uniform. then the aggregate output pri&es of ea&h se&tor. in the absen&e of fixed &apital. are determined b- mar1ing up &osts in a&&ordan&e with :D(LEM%. ;- di,iding the aggregate output pri&es b- the gross outputs of the ,arious se&tors. the unit output pri&es are obtained. and the- be&ome the input pri&es of the next period.

V. REFUTING THE OKISHIO THEOREM

<ote that no premise of the 01ishio theorem pre&ludes the emplo-ment of Marx's ,alue theor- for the purpose of determining pri&es or the profit rate. 5ndeed. if the theorem is to be an internal &ritique of the logi& of Marx's '()P*. as it is meant to be. and not merel- a &onfli&ting theor- of the profit rate based on an alien ,alue theor-. it &annot pre&lude the emplo-ment of Marx's ,alue theor- in this &ontext. <ote. moreo,er. that if one is to determine whether the 01ishio theorem is true. i.e.. determine whether post6 inno,ation input and output pri&es will ne&essaril- be&ome equali7ed and therefore whether r@ will ne&essaril- be&ome the e&onom-'s a&tual uniform post6inno,ation profit rate. the emplo-ment of some ,alue theor- is simpl- una,oidable. As has been stressed abo,e. ph-si&al data and a uniform profitabilit&ondition are insuffi&ient to determine either pri&es or the rate of profit unless input and output pri&es are postulated a priori to be equal. (o in,o1e su&h a postulate here would be to assume awa- the ,er- problem under in,estigation. Marx's ,alue theor-. as interpreted abo,e. does impl- that post6inno,ation pri&es rea&h a stationar- state and therefore that the a&tual uniform profit rate &on,erges on r@ in the spe&ial &ase in whi&h the labor6 sa,ing inno,ation is one6time6onl-. (hereafter. ph-si&al &oeffi&ients remain un&hanged throughout all time. As is well 1nown. if the profit rate is alwa-s uniform and ph-si&al &oeffi&ients remain &onstant. pri&es will &on,erge to a stationar- state. Nhat happens. howe,er. if the inno,ation is followed b- subsequent inno,ations before pri&es ha,e time to approa&h the stationar- stateB ;e&ause labor6sa,ing inno,ation redu&es &ommodities' pri&es (measured in labor6time or in mone- pri&es that express &onstant quanta of ,alue%. &ontinuous labor6sa,ing inno,ation leads to &ontinuous redu&tions in pri&es (on a,erage%. And if pri&es are &ontinuall- falling. output pri&es are alwa-s lower than input pri&es. (his implies that the general rate of profit will be lower than r@. and it is thus possible for labor6sa,ing te&hni&al &hanges to lower the profit rate. e,en if uniform profitabilit- is assumed. All of this is possible. moreo,er. without ,iolating an- premise of the 01ishio theorem. A simple example will illustrate this. Assume a two6se&tor e&onom- with the following as the initial te&hniques" 2 t. iron E 2# hrs. li,ing labor 6F !4 qr. wheat ## t. iron E 11 hrs. li,ing labor 6F == t. iron

(hese assumptions satisf- premises (i%6(iii%. Premise (i,% is satisfied b- assuming that the real wage per unit of li,ing labor is a &onstant 4.2$9! qrs. of wheat. 5nitial input pri&es of 2.!422 and 4. $29 for iron and wheat. respe&ti,el-. ensure that. initiall-. absolute pri&es are stationar- and profit rates are equal. satisf-ing premises (,% and (,i%. <ow imagine that the output of both wheat and iron. and the input of iron into the produ&tion of ea&h goods. all in&rease b- 14G per period. and that the amount of li,ing labor extra&ted in&reases b- 1.2G per period in both se&tors. ;e&ause the new te&hniques of ea&h period thus use no more iron. and less li,ing labor. per unit of output. the- are &ost6redu&ing at &urrent pri&es. thus satisf-ing premise (,ii%. )inall-. assume that the profit rates of the two se&tors are &ontinuall- equali7ed. whi&h satisfies the last remaining premise. premise (,iii%. *esults are reported in (able 1. Ne see that the relati,e pri&e of iron6to6wheat. PitDPwt. does &on,erge to a stationar- le,el. #.44. and that the time path of the relati,e pri&e &on,erges on the time path of the h-potheti&al relati,e pri&e. Pi@DPw@. (he latter is the relati,e pri&e whi&h would exist were absolute input and output pri&es equal. Aet the a&tual input and output pri&es do not &on,erge to a stationar- state. but &ontinuall- de&line. and the ratio of the output pri&e to the input pri&e &on,erges to 4.924 I 1 in both &ases. ;e&ause the output pri&es are lower than the input pri&es. the a&tual profit rate. :D(LEM%. is lower than the h-potheti&al r@ and. whereas r@ rises monotoni&all- from 22G to 2=G. the a&tual profit rate falls monotoni&all- from 22G to 1=G.2 :in&e all of the premises of the 01ishio theorem were satisfied. while the &on&lusion that the post6inno,ation profit rate &annot be lower than the initial rate was negated. the 01ishio theorem has been refuted. 5t is eas- to &ome up with a multipli&it- of similar &ounter6 demonstrations. b- ,ar-ing the assumptions &on&erning the pre&ise nature of the te&hni&al &hanges. the number of se&tors. fixed &apital. the si7e of the real wage. and so forth. in numerous wa-s. (o refute the 01ishio theorem. in other words. no parti&ular model of te&hni&al &hange and a&&umulation is required. Nhat is ne&essar- is that the te&hni&al &hanges be labor6sa,ing. that pri&es (measured in labor6time% fall when the amount of labor needed to produ&e the &ommodities falls. and that the inno,ations o&&ur in rapid enough su&&ession that &on,ergen&e of pri&es towards a stationar- state does not o&&ur. (able 1
t 0 Pit/ Pwt 4 0 2.9 4.0 Pi*/ Pw* 4 0 2.9 4.0 Pit 2.30 26 . 0059 Pwt
it

Pit+1/P
wt

Pwt+1/P 1.000 .920

. 7829 . 0015

1.000 .920

S/ (C+ V) 22. 0% 15. 0

r* 22. 0% 25. 0

<ote" Pi@DPw@ is the h-potheti&al iron6to6wheat pri&e ratio that would exist were input and output pri&es equal. 5n des&ribing te&hniques. the pre&eding demonstration deals onl- with se&toral aggregates. 5t ma1es no assumptions &on&erning the te&hniques emplo-ed b- the indi,idual firms within ea&h se&tor. 5t is therefore &onsistent with the demonstration to assume that it deals with the &ase in whi&h there is onl- a single firm in ea&h se&tor or. equi,alentl-. with the &ase in whi&h all firms in the se&tor emplo- the same te&hniques. 'et us now assume this. Nhat. then. does the demonstration re,ealB ;e&ause this is an example without fixed &apital. if all firms in a se&tor emplo- the same te&hnique. theall emplo- the most up6to6date. state6of6the6art te&hnique. (he- begin from s&rat&h ea&h new period.

/en&e. no firm is te&hnologi&all- ba&1ward. or te&hnologi&all- ad,an&ed. relati,e to the others in the industr-. (his is true not onl- of existing firms. but of new entrants. An- new entrant into either se&tor in an- period emplo-s the exa&t same te&hniques as the existing firms. sin&e better te&hniques are not -et a,ailable. (herefore super6profit (surplus profit% does not exist here. (hat is. no firm. e,en new entrants. &an obtain a higher rate of return than the a,erage b- ha,ing produ&ed at a lower &ost per unit. (he- ha,e all. in&luding new entrants. produ&ed at the exa&t same &ost per unit and therefore the- all. in&luding new entrants. obtain the exa&t same rate of return as the others. /en&e. the fall in the a&tual profit rate. despite a &onstant real wage and a &ontinuing series of 01ishio6,iable te&hni&al &hanges. simpl- cannot be attributed to the existen&e of te&hnologi&all- ba&1ward firms. (he a&tual rate of profit is not the rate of profit obtained b- the te&hnologi&all- ba&1ward firms onl-. <or does the existen&e of te&hnologi&all- ba&1ward firms lower the general rate of profit below the rate obtained b- the te&hnologi&all- most ad,an&ed firms. (hese explanations are false for the simple reason that. in this example. all the firms in the industr- are +most ad,an&ed.+ (herefore the de&line in the rate of profit pertains to them all. And therefore the de&line in the rate of profit is a de&line in the profit rate obtained b- the te&hnologi&all- most up6to6date produ&er. emplo-ing the state6of6the6art te&hnique. (here is no reason to belie,e. i.e.. no textual e,iden&e of whi&h 5 am aware. that Marx's '()P* refers to the tenden&- of the rate of profit re&ei,ed b- the most ad,an&ed produ&ers onl-. *ather. it refers to the tenden&- of the general rate of profit. the weighted a,erage of all the profit rates throughout the e&onom-. ;ut e,en if one has the opposite interpretation. or for some reason wishes to restri&t the examination of the tenden&- of the profit rate to the profit rate obtained b- the most ad,an&ed produ&ers onl-. the example abo,e demonstrates &on&lusi,el- that their rate of return on &apital ad,an&ed &an fall. e,en when theemplo- 01ishio6,iable te&hniques and the real wage rate is &onstant.

VI. A POST-MORTEM
Although the 01ishio theorem is false. the exer&ise does enable us to draw some ,alid &on&lusions &on&erning the impa&t of te&hni&al &hange on the profit rate. (he mathemati&s does demonstrate that r@. the parti&ular h-potheti&al uniform profit rate whi&h would exist were pri&es to rea&h a stationar- state after a ,iable te&hni&al inno,ation. &annot be lower than the initial h-potheti&al rate r. Moreo,er. were te&hni&al inno,ation a rare +perturbation+ of an otherwise stationar- state. and not an ongoing phenomenon. then the &on,ergen&e propert- of the uniform profit rate equations implies that the a&tual profit rate. if &ontinuallequali7ed. would &on,erge to r@. (hese &on&lusions. though ,alid. suggest ,er- little about how labor6sa,ing te&hni&al &hange will affe&t the tenden&- of the general profit rate in a&tual &apitalist e&onomies. <or do the- &hallenge the logi& of Marx's '()P* in the least. 8,en a &ursor- reading of the law immediatel- dis&loses that it refers to the impa&t of a &ontinuing series of te&hni&al &hanges%. and that these te&hni&al &hanges are held to lead to a &ontinuing series of redu&tions in &ommodities' pri&es (gi,en a &onstant monetar- expression of ,alue% (Marx 19$1. Lh. 1!9 see. espe&iall-. pp. !1$619 and !!26!!%. 5t has re&entl- been suggested in pri,ate &orresponden&e that the (:: &ritiques ha,e not refuted the 01ishio theorem. sin&e it was meant all along to appl- onl- to the &ase of one6time6onl- te&hni&al &hange or. alternati,el-. that the theorem was meant all along to be restri&ted to the spe&ial &ase in whi&h post6 inno,ation input and output pri&es are equal. 5 do not find these suggestions plausible9 apart from the (:: literature. dis&ussions of the 01ishio theorem do not e,en raise these issues. 5t seems doubtful. moreo,er. that the theorem would ha,e gained the prominen&e it has. or that it would ha,e been so widel- regarded as refuting Marx's '()P*. had it been interpreted as being so restri&ted in s&ope. 5n an- &ase. none of this has the slightest bearing on whether the theorem is true or false. All that matters is whether its &on&lusion follows ne&essaril- from the expli&itl- stated premises of the theorem. 5n no existing ,ersion of the theorem is it stated expli&itl- that onl- a single new inno,ation is permitted. nor that the equalit- of input and output pri&es is a premise. (he theorem. as stated in all existing ,ersions. is therefore false. (his should be a&1nowledged. and the ex&essi,e &laims that ha,e been made &on&erning the import of the theorem should be retra&ted. in print. 5t ma- turn out that readers will then still find the theorem signifi&ant. and perhaps e,en still regarding it as a &hallenge to the logi&al &oheren&e of Marx's '()P*. (hat is for them to de&ide. (he- &annot ma1e that de&ision. howe,er. unless and until the re&ord is &orre&ted. As long as the re&ord is not &orre&ted. moreo,er. those who see1 to build upon Marx's own presentation of the

'()P* and to anal-7e &urrent realities on its basis. will wrongl- &ontinue to be regarded as ignorant and as dogmati& apologists. Jnfortunatel-. nearl- fifteen -ears ha,e elapsed sin&e the publi&ation of the first (:: refutation of the theorem (8rnst 19$2%. and the re&ord has -et to be &orre&ted.

NOTES
1. (his interpretation. whi&h will be dis&ussed below. is also 1nown as +sequential non6dualist.+ (he term +temporal single6s-stem+ was first used in :1illman (199=%. *e&entl-. *amos (1992% has also &hallenged the 01ishio theorem from a (:: perspe&ti,e. fo&using on the problem of &hanges in the mone-Dlabor6time relation brought about b- te&hni&al &hange. 2. *oemer (19$1% generali7ed 01ishio's theorem to in&lude fixed &apital. )or simpli&it-. 5 will abstra&t from fixed &apital below. although the ensuing dis&ussion applies equall- to the fixed &apital ,ersion of the theorem. (he refutations of the theorem b- Kliman (19$$. 1992% and )reeman (1992% appl- to both the &ir&ulating &apital and fixed &apital &ases. !. Apparentl- the rationale for this restri&tion is a passage in Lapital 555. in whi&h Marx dis&usses wh- a profit6maximi7ing &apitalist would ,oluntaril- adopt inno,ations that lower the general profit rate. i.e.. pre&isel- the argument that the 01ishio theorem re6 examines. Marx (19$1"! !6 #% argues that the inno,ating &apitalist at first reaps superprofits (and thus raises hisDher own profit rate%. but that +&ompetition ma1es the new pro&edure uni,ersal and sub3e&ts it to the general law >of ,alue?. A fall in the profit rate then ensues 6 firstl- perhaps in this sphere of produ&tion. and subsequentl- equali7ed with the rest 6 a fall that is &ompletel- independent of the &apitalists' will.+ Oi,en that the theorem is intended as a disproof of Marx's '()P*. and not a &laim &on&erning a&tual e&onomies. it is reasonable for its s&ope to be restri&ted to the &ase of uniform profitabilit-. Marx's referen&e here to the equali7ation of the rate of profit. howe,er. is best understood as a referen&e to a tenden&-. not a stati& out&ome. #. (he simulation models that in,estigate the d-nami& stabilit- of the :raffian model do not address this issue at all. sin&e the- wor1 with relati,e pri&es onl-. (o guarantee that pri&es will be stationar- throughout all time. neo&lassi&al intertemporal equilibrium models need to assume not onl- perfe&t mobilit- of &apital. but also perfe&t 1nowledge of the future. perfe&t futures' mar1ets for all &ommodities. and no time preferen&es. :u&h postulates are of &ourse absent from Marx's '()P* and from all ,ersions of the 01ishio theorem. =. 5n addition to the (:: wor1s alread- &ited. see. for instan&e. Oiussani (1991692%. Maldonado )ilho (199=%. and the &ontributions bLar&hedi. de /aan. )reeman. and M&Olone and Kliman in )reeman and Lar&hedi. eds. (1992%. 2. (he importan&e of the s-stemati& di,ergen&e between these two profit rates. and the &on&omitant failure of the a&tual input and output pri&es to &on,erge. &annot be o,eremphasi7ed. 5t is &ommonl- belie,ed that the ,alue. pri&e. and profit magnitudes of the (:: interpretation differ from those deri,ed from simultaneous equation models onl- during a +disequilibrium+ d-nami& ad3ustment pro&ess. so that the +true+ magnitudes are those of the simultaneous equation models. whi&h a&t as +&enters of gra,it-+ to whi&h the a&tual magnitudes &on,erge or around whi&h the- flu&tuate. *esults su&h as those abo,e show the utter falsit- of this belief. . (hese ,iews ha,e been put forward on the 0utline of Politi&al 8&onom- 'ist (0P86'%. a &losed e6mail dis&ussion list.

REFERENCES
CumKnil. O. and C. 'i,-. 199!. (he 8&onomi&s of the Profit *ate" Lompetition. Lrises and /istori&al (enden&ies in Lapitalism. (Aldershot. JK" 8dward 8lgar%. 8rnst. P.*. 19$2. :imultaneous Maluation 8xtirpated" a &ontribution to the &ritique of the neo6*i&ardian &on&ept of ,alue. *e,iew of *adi&al Politi&al 8&onomi&s 1#"2. )reeman. A. 1992. Pri&e. Malue and Profit66a &ontinuous. general treatment. in A. )reeman and O. Lar&hedi (eds.%. Marx and <onequilibrium 8&onomi&s (Lheltenham. JK" 8dward 8lgar%. )reeman. A. and O. Lar&hedi (eds.%. 1992. Marx and <on6equilibrium 8&onomi&s (Lheltenham. JK" 8dward 8lgar%. Oiussani. P. 1991692. (he Cetermination of Pri&es of Produ&tion. 5nternational Pournal of Politi&al 8&onom- 21"#. Kliman. A.P. 19$$. (he Profit *ate Jnder Lontinuous (e&hnologi&al Lhange. *e,iew of *adi&al Politi&al 8&onomi&s 24"2Q!. RRRRRRRRRR. 1992. A Malue6theoreti& Lritique of the 01ishio (heorem. in A. )reeman and O. Lar&hedi (eds.%. Marx and <onequilibrium 8&onomi&s (Lheltenham. JK" 8dward 8lgar%. Maldonado6)ilho. 8. 199=. *elease and t-ing up of Produ&ti,e Lapital and the +(ransformation Problem.+ Presented at A::A &onferen&e. Nashington. C.L.. Panuar-. Marx. K. 19 !. Orundrisse" )oundations of the &ritique of politi&al e&onom-. (<ew Aor1" Mintage ;oo1s%. RRRRRRRRRR. 19$1. Lapital" A &ritique of politi&al e&onom-. Mol. 555 (<ew Aor1" Mintage ;oo1s%. 01ishio. <. 1921. (e&hni&al Lhanges and the *ate of Profit. Kobe Jni,ersit- 8&onomi& *e,iew . Pari3s. P. ,an. 19$4. (he )alling *ate of Profit (heor- of Lrisis" A rational re&onstru&tion b- wa- of obituar-. *e,iew of *adi&al Politi&al 8&onomi&s 12"1. *amos. A. 1992. 'abor. Mone-. 'abor6:a,ing 5nno,ation and the )alling *ate of Profit (draft manus&ript%. *oemer. P. 19 $. (he 8ffe&t of (e&hnologi&al Lhange on the *eal Nage and Marx's )alling *ate of Profit. Australian 8&onomi& Papers 1 (Pune%. RRRRRRRRRR. 19$1. Anal-ti&al )oundations of Marxian 8&onomi& (heor-. (Lambridge" Lambridge Jni,ersit- Press%. :1illman. O. 199=. (he (emporal :ingle6:-stem Approa&h to the +(ransformation Problem.+ in Kliman6M&Olone and )reeman. Presented at J*P8 :ummer &onferen&e. August. :raffa. P. 1924. Produ&tion of Lommodities b- Means of Lommodities" Prelude to a &ritique of e&onomi& theor-. (Lambridge" Lambridge Jni,ersit- Press%.