A ‘class’ rate of profit

I recently attended a presentation by Simon Mohun as part of the London Seminar on Contemporary Marxist Theory at Kings College, London.  Simon Mohun (SM) is Emeritus Professor at Queen Mary College, London and has made many important contributions to Marxist economics.   His presentation was entitled, The rate of profit, crisis and periodisation in the US economy.  SM said he aimed to try apply Marxist economic theory to the facts so that we could understand better the causes of capitalist crisis after the Great Recession.

SM’s presentation was similar to one that he made at the recent HM conference ( see my post, Measuring the rate of profit, up or down?, 20 November 2011).   SM looked at the data for the US rate of profit and found that the rate of profit had not fallen but risen, although punctuated by downturns leading to economic crises in 1929, 1979 and 2007-8.  How could he reach this conclusion when nearly everybody else, including me, had found a long-term trend decline in the US rate of profit, at least in the post WW2 period?

Well, the answer is that SM redefines what he calls the ‘conventional’ rate of profit into a ‘class’ rate of profit.  SM argues that the conventional measure of profits, based on net added value less employee compensation, does not express the true class relations under modern capitalism.  Modern capitalism can no longer be defined by a class that owns the means of production but must be defined by a class that ‘controls’ investment, employment and the workplace.  SM quoted John Kay, the Oxford economist, who had just written a piece on the crisis of capitalism in the FT (see my post, Capitalism in crisis – the apologia, 13 January 2012), in which Kay argued capitalism had moved on from Marx’s day and the ownership of the means of production was no longer the criterion of class.  Instead it was “control” of production.  Now managers rule and shareholders don’t in modern capitalist companies.  So the wages of managers who “control” the workers should be added to surplus value because they are “agents of capital”.

In the US data, SM applied this definition of a managerial class to the category of  ‘supervisory’ workers (19% of the workforce) i.e workers who boss or supervise others, to be found in the official US data.  By doing so, between 15-35% of all wages that goes to supervisory workers is then transferred to profits.   When SM does that (not surprisingly) , he finds that there has been a rising, not falling, rate of profit in the US since 1890!   This leads Mohun to the conclusion that capitalism is really a ‘vibrant and dynamic’ mode of production, just interspersed with the occasional crises (a much overused word, in his opinion).  And this class rate of profit is a better indicator of crisis than the conventional one, as when it fell on three occasions, a crisis ensued, while the conventional rate was not such a good indicator.
I have big problems with this approach. First, I don’t accept the thesis that ownership of the means of production is now an irrelevant criterion for the class nature of capitalism.  Marx’s original key category for class rule still seems on the spot to me.  In a past post, I showed a recent study found that ownership through interlocking shareholdings was key to the control of global investment  (see my post, It’s a not so funny old world, 5 November 2011).  And anyway, Marx was perfectly aware of ‘joint stock’ companies and the growing ‘arms length’ control that shareholders allowed to managers. Sure, chief executives of the big banks and corporations have been able to get away with huge increases in bonuses, share options etc at the expense of shareholders.  But if they eventually don’t deliver on profits, dividends and the share price, they will find themselves out of a job (even if it is with a large ‘golden handshake’).
Also, on SM’s workings, nearly one on five US workers are apparently ‘agents of capital’ whose incomes are really profit.  This would include a manager or supervisor on an office floor who might have, say, two employees to manage.  Does this ‘agent of capital’ have any say on the distribution of profits or investment in a company, on hiring and firing, or even his own remuneration?  I don’t think so.   SM recognised that his category of suprevisory workers was too large and included people who were clearly not ‘agents of capital’.  But he argued that most of the income earned by these ‘supervisory workers’ went to the top layers, in other words, income was skewed to the top.  So reducing the 19% to a lower figure would make little difference to the amount to transfer from wages to profits.
Well, I have had a look at that.  I think it is more likely that just 1% of those 19% supervisory workers are really ‘agents of capital’ (the top 1% of income earners, if you like).  These are the managers who occupy the boardrooms, the CEOs and very senior management who make decisions on behalf of the shareholders and other managers.  Indeed, an excellent study of where the top 1% of income earners get their money (J Bakija, A Cole and Bradley Heim, Jobs and income growth of top earners, November 2010), found that the majority of the top 1% of earners were top executives in corporations.  On Mohun’s workings, supervisory workers are 19% of the workforce and currently receive some 35% of all wage income (2007).  That’s a ratio of about 2 to 1.   Now, according to Piketty and Saez’s recent study of US incomes (Atkinson, Piketty and Saez, Top incomes in the long run of history, 2011), the top 1% of income earners took 23.5% of all income in 2007.  But this includes all income (dividends, capital gains etc) and not just income from work.  Income from work (excluding capital gains and other capital incomes) was only one-quarter of that.  So the top 1% took just 6% of all wage income, as against 35% taken by the 19%.  And if you switch only 6% of wage income into profit, then SM’s ‘class’ rate of profit is unlikely to be much different from the ‘conventional’ rate.  Even if this is still underestimates the proportion and 10% of that 35% went to the top echelons, that is still less one-third of SM’s estimate.
Interestingly, SM produced a ‘conventional’ rate of profit measure (based on current costs of fixed assets, of course! ) for the US that totally matches mine.  It showed a fall just before the current crisis and at most key turns.  It looks fine to me.   Indeed, SM originally presented this conventional rate in a paper to an earlier HM conference (see SimonMohun-Trends).  He concluded then that “US capitalism is characterised by long secular periods of falling profitability and long secular periods of rising profitability and crises are associated with major turning points” (see his figure 7 in that paper).  I see no need to change (or support) that view with the invention of a class rate of profit.

11 Responses to “A ‘class’ rate of profit”

  1. Jim Devine Says:

    what’s the difference between Mohun’s “class” ROP and the common Marxist ROP which includes the salaries of “unproductive labor” as part of surplus-value? (I agree that the “conventional ROP” makes more sense, if it excludes unproductive expenditure.)

  2. Edgar Says:

    While you have shown the flaws in the Mohun model I do feel he is onto something here. The ruling class are not just the billionaires imo but also include the managers and the lackeys of capitalism. JK Galbraith made these points a long time ago, and he was correct.

    These people are a class, they send their kids to the same schools and attend the same Rugby matches at the weekend. I want the class attack to extend to these people and the network of back slapping and favours that serves it.

  3. H.A. Cox Says:

    Horace Cox Says:
    January 23, 2012 at 11:13 pm | Reply
    Please delete the previous post before it hurts someone.
    For Marxist productive labor in a capitalist coomodity producing society is all that labor used to produce consumer goods and the means of production of thos goods. Although it is a real quantiy and exist in our society, it is difficult to count since many workers may be perorming productive and unproductive task, capitalist sometimes perform real produvive functions, etc, The fact that it is difficult to add it up does not detract from its importance for understanding capitalist production.
    It does not matter if someone is a foreman, if some of his labor goes into the production of a commodity which can be consumed either directly or consumed productively, he performs productive labor. Because unproduvite labor has negative connotations, I prefer the distinction that Shaikh made: production labor and non-production labor as long as we understand that this means labor hired by capitalist to produce consumer goods or means of production of those consumer goods. It is through investigaing this labor that we can understand how a capitalist commodity producing economy functions and what are its limits. The total production labor used to produce commodites determines the amount of value and surplus value produced by that labor, and out of that surplus labor we get the commodites for the non-production laborers and the rest of society-except for those workers who produce goods not under capitalist condition. My wife was a state worker. She can tell you that she worked very hard, and there is no doubt she was very productive of a service our society needed, but she produced no value and was paid out of surplus value, aShe also hates capitalism. For a scientific examination of capitalism. Productive labor is an essential distinction for understanding capitalism. A class rate of profit is a distraction.

  4. Jim Devine Says:

    “For Marxist productive labor in a capitalist coomodity producing society is all that labor used to produce consumer goods and the means of production of those goods.” This is a long debate and I’m not going to go any further than this note.

    The key is that the definition of “productive labor” depends on the author and the context. To Adam Smith, it’s the use-value resulting from labor that defines labor as productive or unproductive. To him, service labor was “unproductive” since (unlike goods) services cannot be accumulated. That is similar to the quoted definition but differs from Marx.

    To Marx, the kind of use-values produced is secondary. Instead, labor is defined as productive by its role in capitalism. (I can imagine that feudalism would have a different definition of “productive.”) That is, under capitalism productive labor produces (1) commodities sold for revenues; and (2) surplus-value. It is the last which can be accumulated, whether it’s reaped from the production and sale of goods or services.

  5. H.A. Cox Says:

    It is not a debate about a ‘definition. It is about Marx’s method for trying to scientifically analize and explain how a capitalist economy -one in which working people sell their labor power to another class, who own the means of production- distributes that labor and why:That total labor mentioned above is the subject of analysis. Marxist economist may disagree about whether that is the proper method for making a scientific analysis of capitalism, but it was Marx’s method. So those disagreeing Marxist may be right, but their disagreement is with Marx.

  6. Henry Says:

    The wages and bonuses of the top managers must be included under that part of the surplus going to reproducing the ruiling class. Any rate of profit that includes these high flyers under wages is not worth anything. We all know that the neo liberal era has been a bonanza for the ruling class, a falling rate of profit would turn reality on its head.

  7. George Hallam Says:

    I suppose it was predictable that an academic marxist, like Simon Mohun, would be drawn to quoting an Oxford economist like, John Kay, to support the view that capitalism has ‘moved on so that, these days, “ownership of the means of production and exchange matters very little”.
    Kay has been around long enough and is witty enough to be able to coquette with Marxist terminology. He is cleaver and has certainly had a glittering career. I am also sure that, in his own way, he has worked very hard.

    Despite, or perhaps because of this, he probably doesn’t realise what, by proletarian standards, constitutes an honest day’s work.

    So while he knows lots about economics he does not understand business. Consequently, he accounts for the success of enterprises in terms of intangibles, such as systems of organisation and reputation, while leaving out the idea of anybody doing anything as boring as actually working.

    Whatever you choose to call the present system, under it everything costs: only death by starvation comes for free. People go into the labour market because that is the only way they can make a living. People may be uncertain as to exactly who owes what, but on one thing they are absolutely clear: it’s not them. And if they should forget this fact for a moment then, as Mr Worrall Thompson has found to his cost, there will be plenty of people around to remind them.

    It is their non-ownership of “the means of production” that makes people keep their noses to the grindstone. This matters a great deal.

  8. Mike B) Says:

    Yep. Workers are wage-slaves because they’re obliged to sell their skills and time to the employing class. The employing class are not obliged to sell their skills and time to make a living. The commodity they own is not their labour; the commodity they own is the product of their wage-slaves, which of course, they sell in order to make a profit. The employing class makes its living by appropriating the collective product of labour.

  9. billj Says:

    I think Mohun has a point. That isn’t related to ownership of the means of production or otherwise. Corporate pay has soared over the last two decades and this represents a portion of surplus value transferred from the direct owners to their agents.
    Net value added less wages is Kliman’s “property income”. The major problem with this is that it measures tax income of the state as profits for the capitalists, as a result it grossly overestimates the rate of profit in its determination to show a “fall” in profitability.

  10. Horace Cox Says:

    It depends on what question you want to ask. If you want to ask how mean and nasty capitalism is, then make yourself up a nice ‘class’ rate of profit. But if you want to figure out what makes ‘sammy’ run-and trip up, then you do what Marx did, you abstract from all labor which does not directly and indirectly go into the capitalistically produced commodities that we all consume or capitalist consume to produce consumer commodities. Your complaint about Kliman is because he dares to be orthodox or dogmatic and try to empirically measure the rate of profit the way Marx did in the three volumes of capital. Again, you can do so if you choose, but your disagreement is with Marx, not Kliman.

  11. billj Says:

    Come off it.

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