As I set out that is no different than a slave owner who finds that the cost of feeding his slaves is greater than the food produced by those slaves.

Great link!

Thanks

Sure you can. You can find it on Michel Husson’s taux de profit site along with some excellent papers (including my own!).

http://hussonet.free.fr/tprof.htm

I’ve downloaded the Carchedi paper (Behind and Beyond the Crisis). It is in Word 2007 format (*.docx).

I’m using Word 2003 and although it performs a format conversion, the charts are basically unreadable. I was wondering, is there any way I could get a version of Carchedi’s paper in PDF? Or at least the charts, say in JPG format?

Thanks

Two More Arguments In Favour Of Reproduction Cost Valuation

I think that to understand the reason for Reproduction Cost Valuation its necessary to move beyond M-C-M to think in terms of M-C-M-C.

Suppose we have a Capital made up:

C 100 + V 100 + S100 = E300.

This is materials consisting of 100 units requiring 1 hour to produce. Labour Power consisting of 20 workers, which require 5 hours to produce, and who work for 10 hours producing 5 hours of Surplus Labour. They produce a product whose Value embodies 300 hours of Labour-time as described. Assume 1 hour equals £1, so the Capitalist lays out £200 to buy these materials and this Labour. If we proceed M-C-M, we have M200 – C200 – P – C1 300 – M300.

Now assume, that due to a fall in productivity the cost of producing the materials rises, so that it now takes 200 hours to produce, so that it now costs £200. Of course, looked at historically, this does not change the fact that the capitalist only paid £100 for the materials currently being used. However, everyone agrees that the final commodity should be Valued at its current cost of production. In other words, E will be valued at C 200 plus 200 for the living labour used to transform it. That is E = £400. If we price the capital on an historic basis we will have:

C100 + V100 + S 200 = E 400.

In other words the increase in the price of the final product of £100, has been immediately transferred to profit. If things were to end there that would be fine. The capitalist would walk away with £200 profit rather than the £100 he had previously, not because of anything he had done, not because the workers had worked longer or more efficiently, not because the Rate of Exploitation had risen, but purely and simply because external changes had raised the Value of Constant Capital reproduced within the final output. From a Marxist perspective this increase in the amount of profit is itself objectionable, because it does not represent any real change in the actual productive process that is being analysed.

But, Capitalism is not predicated on Capitalist ceasing production after one cycle, taking the money and running, but is predicated on the idea of capital as self-expanding Value, of its incessant need to expand itself. So, we have to assume that production continues beyond M1, to a new cycle. Let us assume we are talking, here about what Marx calls Simple Reproduction, that is the Capitalist uses the Surplus Value to fund their own consumption rather than as a means of expanding production. So, they take the £200 of profit to spend on coke and champagne. So, now out of the proceeds of the sale M1 = £400, they now spend £200 leaving £200 to spend in the next cycle. In Money terms they have then exactly the same amount of Money Capital to spend as they did at the beginning of the previous cycle. But, the consequence of this is dire for the Capitalist, because we know that the cost of the Constant Capital has risen by 100%. The Capitalist comes to lay out their Capital to reproduce production, and finds they cannot. Now £100 can only buy 50 units rather than 100, and because the amount of Constant Capital has been cut in half, the capitalist now only requires half the number of workers to work with it. So:

C 100 + V 50 + S 50 = E 200. As a consequence of proceeding on an historic cost basis for capital, simple reproduction leads to output being halved, both in terms of the Use Values produced, and their exchange value compared to the previous cycle. Half the workers have been thrown out of the production process, which means only half the Surplus Value can now be produced. Both the quantity and the rate of profit are significantly reduced. But, this method of calculation is objectionable on another basis.

A fundamental aspect of Marx’s analysis of Capital is the concept of the average rate of profit. The idea is simple. Because Capital is forced to continually seek to expand, it will move from areas where the Rate of profit is low and into areas where it is high. In the former it is harder for capital to accumulate, because fewer resources/profit is available to be reinvested, whereas in the latter case the opposite is true. But, consider the consequences of this for capital if the historic pricing model is adopted. The historic pricing model means that where the Cost of Capital has fallen sharply the Rate of Profit will appear lower than it actually is on a current cost Valuation, whereas if the Cost of that Capital has risen the opposite will be true. But, Capital moving into say steelmaking is not interested in what existing capitalists paid for their furnaces and rolling mills ten year ago, it is interested only in what it will have to pay for those things today. Were it to look at the Rate of profit in the steel industry based on an historic cost basis, it would always be led to invest either too much, or too little depending upon whether the cost of Capital had risen or fallen. It would mean the process of formation of the average rate of profit described by Marx, as a result of Capital continually moving to where the Rate of profit was highest, would be made meaningless. It would lead to a permanent condition of misallocation of Capital, because it would be based on Valuations of Capital that no longer exist.

That, of course, is important for another reason, because the Average Rate of Profit, and the movement of Capital described above is central to Marx’s theory of how Exchange Values are transformed into market prices.

What historic pricing does is to fundamentally undermine the basis of the Labour Theory of Value.

Above it should read E280 not 2080, and the worker works 80 hours not 8. The following points I think clarify the whole matter.

What we have is an equation. The Value of the Commodity Total must equal the sum of the Values, which go into its production, or the equation is out of balance. The value of the commodity is determined by the amount of socially necessary labour-time required for its production currently. No one disagrees with that concept. But, what the amount of labour-time is that goes into its production varies as the amount of Labour-time required for the production of the Constant Capital varies, and as that for labour Power varies.

But, in revaluing Constant and Variable Capital, no one is saying that this changes what has actually been laid out for their purchase, only that their current Value has changed, and this current Value is important for a very obvious reason.

Suppose the cost of wage goods falls. Instead of requiring 40 hours as above, they only require 20 hours. Now, in the example above, this does not change the fact that the Capitalist has already paid the workers their wage in advance! The money he paid out – let’s say £40 – has gone, replaced with the actual worker and their labour power. In this instance, the worker is fortuitous because their £40 will now buy twice as many wage goods as previously. But, in pricing the commodity the Capitalist HAS TO price the Labour Power not at its historic cost but at its current value, because Competition will forcehim to do so. In this case, other Capitalists will reduce their prices, because they will calculate on the basis that they can buy Labour Power cheaper in the next cycle, and so it is this reduced value of Labour Power that they reflect in the price of the commodity. But, unless the Labour power is entered into the equation at that current cost, then the equation must be out of balance, precisely because it is for the purpose of repalcing it, that it was priced in the Value of the product at its current cost, not what was paid for it.

Of course, in reality prices of wage goods are rising and falling all the time, and production is a continuous process. What we are dealing here is a level of abstraction.

I’m assuming you were asking me for an example. Its getting a bit confusing which comment is replying to what now. I’ll have a go. This is top of my head while having tea, so excuse any glaring errors.

Take a Capitalist that has a piece of fixed capital let’s say a mobile chip shop. They buy in frozen chips, fish etc., and employ a worker to process and sell them.

The Van required 1000 hrs of labour time to produce when bought. It gives up 100 hours of this Value consumed in production.

The raw materials required 100 hours when bought.

The Labour Power required 40 hours of labour-time to produce when bought.

The worker works for 8 hours.

So C (100 + 100) V 40 + S40 = E 2080. R is calculated on Total capital, equals 1140. Therefore, S/K = 40/1140 = 3.51%.

Now, changes in productivity mean the Van can be produced in half the time. So, now,

Its value falls to 500 hours. Taking on Bill’s point above and shown in the lengthier example I gave some days ago, the consequence is that the Value of the Value consumed in production also falls proprtionately to 50 hours not 100 hours. But, as marx points out this cannot change the AMOUNT of PROFIT, because whatever the Value of Constant Capital it is only ever transferred to the final commodity it does not expand or contract. Only Variable Capital has that caapcity.

So,

K (500 + 100 + 40) = 640

C (50 + 100) + V 40 + S 40 = 230.

The amount of surplus value (profit) does not change because the same amount of labour power is employed as previously, and no change in its reproduction cost has occurred. Consequently, no change in the Rate of Surplus value occurs either. But, the rate of profit does change, precisely because the Van has been revalued.

Now, K = 640 and S = 40, which gives R = 40/640 = 6.25%.

Here is my difference with Bill. He wants to account for the reduction in the value of the Van, by treating the loss of (500 hours) in its Value, as a one of loss to be deducted from Surplus Value. I do not, because it is not a change resulting from the productive activity of the Capital. It is merely a Capital Loss resulting from exogenous changes. The capitalist would have suffered this loss whether they engaged in productive activity or not.

More importantly, it is only a paper loss if you assume continuing reproduction. This is the point that Marx, makes against Ramsay. The apparent phenomenon of the added 20 qtrs appears if the farmer shuts up shop and sells everything. Here the Capitalist only suffers a loss if they stop production and liquidate their assets. But, assuming continuing production, what has the capitalist actually lost in this devaluation of the Van? When they come to repale it they will by the repalccement for 500 hours not 1000 hours, making a gain of 500 hours over the previous price, so the two things cancel out!

marx deals with this in the quote I provided from him in response to Ramsay where he talks about a capitalist whose fixed Capital lasts for 12 years, during which time its Value could go up and down several times. The capitalist then has to so order things so as to be able to esnure continuing production irrespective of whether the Capital Value has risen or fallen.

Incientally I think its this distinction between Capital Gain and Profit, which is the root of my disagreement with Bill over whether such a devaluation causes a reduction in the Rate of profit in year 1. I think the answer is no, because its a Capital Loss not a trading loss, but I still need to think it through.

I had some argument on a site run by Miseans on this some years ago, so I have some basic feel for the argument, but need to think it through further.

That is how come he also ends up with Smith’s Trinity Formula for the Value of National Output. In this context, Surplus value (property income) is just another cost of production.