Profit warning

The final estimate of US GDP in the fourth quarter of 2014 came out today. US real GDP growth was left unrevised at 2.2% year-on-year in the final three months of the year and the figure for the whole of 2014 was unrevised at 2.4%. Mainstream economists were keen to suggest that the current quarter in 2015 ending this week could show a pick-up.

But none mentioned the really important development – that corporate profits fell in the fourth quarter, increasing the risk of a new slump in investment in 2015-16. Profits fell $30.4 billion in the fourth quarter, in contrast to an increase of $64.5 billion in the third. This seems mainly due to a fall in profits from overseas as the dollar’s strength drove income gathered in other currencies down. This meant that corporate profits are lower by 0.2% from this time last year and are down 0.8% in 2014 compared to 2013.

In previous posts, I have argued that profits drive investment; and investment leads real GDP growth in capitalist economies – the opposite, by the way, of the causal sequence claimed by the Keynesians, who see it as consumer spending and investment leading to income and thus to profits (see my many posts on this issue, https://thenextrecession.wordpress.com/2012/06/26/profits-call-the-tune/
and the excellent paper by Tapia Granados
http://sitemaker.umich.edu/tapia_granados/files/does_investment_call_the_tune_may_2012__forthcoming_rpe_.pdf).

In 2014, there were clear signs that US corporate profit growth was slowing, see my post
https://thenextrecession.wordpress.com/…/us-gdp-up-but-pro…/.
I argued that, when corporate profits slow, some six months to year later, so will business investment. Well in Q4 2014, profits went negative for the first time since the beginning of the Great Recession in January 2008. The time before that was at the beginning of the mild recession of 2001. Now as the graph below shows, that would suggest a new investment slump before the year is out.

US corporate profit and investment

And it is not just US corporate profits. I have been tracking corporate profits in some of the major capitalist economies, namely, the US, UK, Japan, China and Germany. Combined corporate profits growth has been slowing sharply, from 11% yoy this time last year to just 3.2% at the end of 2014. Indeed, corporate profits growth has been very weak since the end of the Great Recession compared to before and now appears to be running out of steam.

Global corporate profits

This was mirrored by the figures for China’s industrial profits, also out today for the first two months of this year. Profits fell 4.2% from the same period in 2014, the biggest drop since early 2012.

The latest updated figures for the US mean that I can also make a pretty good stab at the movement in the US rate of profit right up to 2014. I have updated the estimate using the same sources, categories and methods adopted in my paper for a ‘whole economy’ rate of profit (see my paper, The profit cycle and economic recession).

For those of you who like to know how I get my results in detail (and there are many of you!), suffice it to say, that I have used the US Bureau of Economic Analysis NIPA accounts. I get the US net domestic income (GDP less capital consumption) and employee compensation from NIPA Table 1.10 and capital stock from the NIPA fixed asset tables 6.1 (for current cost measures) and 6.3 (for historic cost measures). Also, in my rate of profit measure, I include variable capital (employee compensation) in the denominator – something nearly all other analysts do not do. I won’t explain why I differ from others on this now (there is unpublished paper on this by myself and G Carchedi); again suffice it to say that if the rate of profit is measured with just fixed assets as the denominator, it does not make a decisive difference.

US rate of profit 2014

My results show that the US rate of profit fell in 2014, whether measured on a current cost or historic cost basis for fixed assets and depreciation, for the first time since the start of the Great Depression.

In the graph, the data confirm yet again what I and many other Marxist economists have argued (contrary to Thomas Piketty, among others) that the US rate of profit has been in secular decline since the end of the second world war. There was a ‘golden age’ from 1946 to 1965, when profitability held up (at least on the current cost measure) but then there was a period of sharply falling profitability (the crisis period) from 1965 to 1980-2. From 1982 to 1997 there was a significant revival in profitability (on a current cost basis) and a small pick-up, or end to the decline (on a historic cost basis) – the neo-liberal period, if you like. From 1997, US rate of profit entered a downward phase. Since the end of the Great Recession, profitability revived from lows in 2009 but is still below the level reached in 1997. And it fell in 2014.

From the data, we can see in more detail how profitability has changed. Between 1946 and 2014, US profitability in the capitalist sector fell 21% on a current cost basis and 29% on an historic cost basis. Most of the fall in the HC profit rate took place between 1946 and 1965, whereas on a current cost basis it dropped hugely between 1965 and 1982. There was a revival between 1982 and 1997, the neoliberal era, greater on a current cost basis. Since 1997, profitability has declined.

changes in us rate of profit

As I have explained before, the closest measure to the Marxian rate of profit requires the use of historic cost measures for fixed assets and depreciation. There is an exaggerated fall and rise in the current cost measure compared to the historic cost measure, due to the current cost inflation of fixed asset prices and depreciation. But the long-term story is the same (see Basu on RC versus HC for the argument that, over a long time, the current costs and historic measures can converge.)

Marx’s law of the tendency of the rate of profit to fall is just that. The rate of profit in a capitalist economy will tend to fall over time and will do just that. BUT there are periods when counteracting factors come into play, so the tendency to fall does not materialise in an actual fall for a period of time. Thus you can get a profit cycle of falling profitability followed by a period of rising profitability and then a new fall, all within a secular process of decline. The US rate of profit in the post-war period exhibits just that with a 32-36 year cycle from trough to trough (for more on this, see my book, The Great Recession).

Marx’s law says that the rate of profit will fall because there will be a rising organic composition of capital (the value of constant capital – machinery, plant and raw materials – will rise faster than variable capital – wages and benefits paid to the employed workforce). The US data confirm that. There is strong inverse correlation (-0.67) between the organic composition of capital and the rate of profit. The organic composition of capital rose 20% from 1946 to 2014 and the rate of profit fell 20%. In the period when profitability rose, from 1982 to 1997, counteracting factors came into play, in particular, a rising rate of exploitation (surplus value) and a cheapening of the value of constant capital that led to a fall in the organic composition. In that period, the rate of surplus value rose 13% and the organic composition of capital fell 16%. I calculate that the rise in the rate of profit from 1980 to 2014 was two-thirds due to a rise in exploitation of labour during the neo-liberal period and only one-third due to cheaper technology. Again this supports Marx’s law.

So in sum, the US rate of profit fell in 2014 for the first time since 2008 and the mass of corporate profits fell in 2014 and went negative in the last quarter. Global corporate profit growth is also slowing significantly. All this suggests that the days (years?) of the economic recovery, such as it is, may be coming to an end. The current economic cycle of boom and slump seems to be about 8-9 years. The trough of the last slump was mid-2009. That would suggest that the next trough would be about 2017-2018. And the peak before the slump is usually 12-18 months before – so about 2016-17.

30 Responses to “Profit warning”

  1. Daniel Rocha Says:

    Michael,

    I think a considerable part of the fixed assets do not constitute its real price. The reason it is that the price of the assets, as they were originally sold, were not realized in terms of law of value, since the money originally paid for it was not money but, non cancelled credit in fractional banking. Note that the amount of credit since the counteracting factor started, has been growing a lot.

    So, perhaps there should be a way to actually subtract from the fixed assets part the non realized price. I think this would reflect better the actual marxian rate of profit.

  2. vallebaeza Says:

    Reblogged this on Alejandro Valle Baeza.

  3. Boffy Says:

    Michael,

    I have no desire to rehearse the historic cost versus current reproduction cost argument, as its a bit of a distraction here, other than to say that Marx always makes clear that his calculation of the rate of profit is based upon the current reproduction cost. That i s because he makes clear, following on from his recognition of the method used by the Physiocrats, that social reproduction can only take place on the basis of the physical replacement of the commodities that comprise the constant and variable capital (means of production and consumption). He describes that in Part 1 of Chapter 2 of Theories of Surplus Value Part 1, for example.

    And, in Capital III, Chapter 49, he states,

    “In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness. If the productiveness of labour remains the same, then this replacement in kind implies replacing the same value which the constant capital had in its old form. But should the productiveness of labour increase, so that the same material elements may be reproduced with less labour, then a smaller portion of the value of the product can completely replace the constant part in kind. The excess may then be employed to form new additional capital or a larger portion of the product may be given the form of articles of consumption, or the surplus-labour may be reduced. On the other hand, should the productiveness of labour decrease, then a larger portion of the product must be used for the replacement of the former capital, and the surplus-product decreases.”

    As he goes on to demonstrate, the rate of profit here is nothing more than the ratio of this social product left over after that portion of gross output required for the physical replacement of the commodities that comprise the consumed constant and variable capital has been set aside, in relation to those set aside portions. And, that necessarily means calculating it on the basis of the current production, and the current reproduction cost.

    However, the main point I wanted to raise, is that whilst I agree that we are entering a period where the rate of profit will be falling, because we are entering the Summer phase of the long wave cycle, where productivity gains decline, and wage costs rise, this does not at all mean that investment falls.

    The reason that investment falls at certain points of the long wave cycle, i.e. during and after the Autumn or crisis phase, is because profits are squeezed by high wages, and a lack of new large investment opportunities where high profits can be made. It leads to a search to get round these constraints by a search for innovation, that brings about intensive rather than extensive investment. That is investment in labour saving technologies, rather than a general extensive investment, during which existing technologies are spread across the economy.

    The current early Summer phase of the cycle, rather sees falling profits resulting in individual firms seeking to gain additional market share, and making up for a falling rate of profit via a rising mass of profit, as they invest to increase production.

    That is the kind of situation that Marx cites when he quotes Richard Jones,

    “”All other things being equal, the power of a nation to save from its profits varies with the rate of profits: is great when they are high, less, when low; but as the rate of profits declines, all other things do not remain equal…. A low rate of profits is ordinarily accompanied by a rapid rate of accumulation, relatively to the numbers of the people, as in England … a high rate of profit by a slower rate of accumulation, relatively to the numbers of the people. Examples: Poland, Russia, India, etc.” (Richard Jones, An Introductory Lecture on Political Economy, London, 1833, p. 50 ff.)

    Jones emphasises correctly that in spite of the falling rate of profit the inducements and faculties to accumulate are augmented; first, on account of the growing relative overpopulation; second, because the growing productivity of labour is accompanied by an increase in the mass of use-values represented by the same exchange-value, hence in the material elements of capital; third, because the branches of production become more varied; fourth, due to the development of the credit system, the stock companies, etc., and the resultant case of converting money into capital without becoming an industrial capitalist; fifth, because the wants and the greed for wealth increase; and, sixth, because the mass of investments in fixed capital grows, etc.”

    Capital III, Chapter 15

  4. sartesian Says:

    “The current early Summer phase of the cycle, rather sees falling profits resulting in individual firms seeking to gain additional market share, and making up for a falling rate of profit via a rising mass of profit, as they invest to increase production.”

    Well, then, Bofforino, we should look forward to increasing capital investment. My bet is….we’re not going to see that. Seeing as how energy related capital expenditure has accounted for what? about 70% of all capital spending by US industry 2008 and such spending is on track to be reduced by about 25% I don’t think the early summer is going to be all that different from an early winter.

    And you know what else is happening in the energy sector– the tight oil (fracking) producers are cutting capital expenditures dramatically but………not production. What we are more likely to see is a decline in the fixed asset replacement rates as capital is literally consumed at a rate about the rate of replacement, kind of what took place in the 2001-2003 recession and that recovery.

    Oh…one other thing you are confusing replacement costs with rate of profit. The rate of profit is always calculated on “sunk” costs–historic costs. That’s how much was spent; that’s how much I’m into the banks, the equipment trusts, the bond markets for. That’s how I calculate my rate of profit.

    Does anyone here think if I buy a locomotive for $5,000,000, financing $4,000,000 of through a loan or a bond secured by the locomotive, that improved technology which now makes this locomotive I own valued at $3 million– that somehow that devaluation reduces the face sum of the notes held against me?

  5. Allan Harris Says:

    I think another factor to take into account is the unemployment rate. The declining rate (y-y change) of profit is matched by a decline in the rate of unemployment. As more people are working there begins to appear a corresponding decline in profit. The economy improves, more businesses and factories begin to hire and employers are forced to compete with each other for workers. (Even Walmart has to increase its semi-slave wages.) Wages in general then rise. As Marx said, higher wages mean lower profits. At some point capital begins to feel the squeeze in profits and a new crisis, recession, depression, etc. begins. It then takes one to two years to destroy the gains made by labor and reinstate the growth in profit.

    When the unemployment rate gets down to around 5% and the decline in profit begins to get below zero %, then you will, in my opinion, see a new recession. Then unemployment rockets up to 10%, profits rise again…and the whole crisis-boom cycle starts over again.

    • Boffy Says:

      Alan,

      That is the point I was making above. As Marx makes clear not every fall in the rate of profit is due to The Law of The Tendency For The Rate of Profit To Fall. As he sets out in Capital III, Chapter 6 and 15, the rate of profit more frequently falls, because at different points of the cycle, available labour supplies begin to get used up, so wages are pushed up, and the rate of surplus value declines, or stagnates, and also at various stages of the cycle similar causes result in primary product prices rises sharply, that cannot be passed on in the final prices of commodities. It is particularly the former, which ultimately leads in the Autumn phase of the cycle to crises of overproduction.

      “Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.”

      (Capital III, Chapter 15)

      The point being that in the Summer and Autumn phase of the cycle, the kinds of new base technology developed in the previous Innovation cycle, and implemented as part of intensive labour-saving innovation have waned, and become the standard technology, which is then spread out across the economy, i.e. accumulation becomes extensive rather than intensive, so employment expands more rapidly, wages rise, and consumption by workers rises.

      “The working-class (now actively reinforced by its entire reserve army) also enjoys momentarily articles of luxury ordinarily beyond its reach, and those articles which at other times constitute for the greater part consumer “necessities” only for the capitalist class. This on its part calls forth a rise in prices.”

      (Capital II, Chapter 20)

      Which also impacts profits from another angle, because under these conditions, the elasticity of demand increases, because workers have satisfied more of their wants, and any price rises by sellers cause workers to shift their consumption to some alternative commodity, including some of these luxury products. Capital faces rising input costs, and reduced surplus value on one side, and an increased inability to pass on increased costs in selling prices on the other.

      Its this which ultimately leads to crises of overproduction typical of the Autumn phase.

      “As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC.” (Capital III, Chapter 15)

      Its in order to overcome these constraints of the using up of available labour supplies, which push up wages and squeeze surplus value that leads capital to turn to the need for Innovation, so as to introduce labour-saving equipment. An example that Marx gives, for example in Value, Price and Profit is the rise in UK agricultural wages as part of the long wave boom that started in 1843. But, it was not until after 1859 that agricultural capital was able to develop and introduce the necessary labour-saving equipment. A similar thing was seen in Britain, with the introduction of more intensive accumulation and labour saving technology in the 1980’s.

      Its this introduction of intensive accumulation in the Autumn phase, which is the means of overcoming these constraints that squeeze profits, which are behind the Law of the Tendency for the Rate of Profit To Fall. But, as Marx describes, that Law is the means by which capital overcomes crises of overproduction, not the Cause of such crises!

      “The specific feature about it is that it uses the existing value of capital as a means of increasing this value to the utmost. The methods by which it accomplishes this include the fall of the rate of profit, depreciation of existing capital, and development of the productive forces of labour at the expense of already created productive forces.”

      (Capital III, Chapter 15

      It is the shift to intensive from extensive accumulation, which thereby creates the conditions for ending the period of crisis, followed by stagnation.

      “The stagnation of production would have laid off a part of the working-class and would thereby have placed the employed part in a situation, where it would have to submit to a reduction of wages even below the average. This has the very same effect on capital as an increase of the relative or absolute surplus-value at average wages would have had. Prosperity would have led to more marriages among labourers and reduced the decimation of offspring. While implying a real increase in population, this does not signify an increase in the actual working population. But it affects the relations of the labourer to capital in the same way as an increase of the number of actually working labourers would have affected them. On the other hand, the fall in prices and the competitive struggle would have driven every capitalist to lower the individual value of his total product below its general value by means of new machines, new and improved working methods, new combinations, i.e., to increase the productivity of a given quantity of labour, to lower the proportion of variable to constant capital, and thereby to release some labourers; in short, to create an artificial over-population. Ultimately, the depreciation of the elements of constant capital would itself tend to raise the rate of profit. The mass of employed constant capital would have increased in relation to variable, but its value could have fallen. The ensuing stagnation of production would have prepared — within capitalistic limits — a subsequent expansion of production.”

      (Capital III, Chapter 15)

      The period when intensive accumulation dominates over extensive accumulation, is necessarily a period when social productivity rises, and where therefore, output grows faster than employment, and where wages grow, but by less than profits. The Law of Falling profits, thereby creates the conditions for a period of a rising rate of profit in the Winter and Spring phase of the cycle, which is the basis of the new boom, along with the range of new industries which the Innovation has itself made possible.

      “Its propagation is inseparable from, and hastened by, the development of the productivity of labour as expressed by a fall in the rate of profit… On the other hand, new lines of production are opened up, especially for the production of luxuries, and it is these that take as their basis this relative over-population, often set free in other lines of production through the increase of their constant capital. These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high. Since the general rate of profit is formed by levelling the rates of profit in the individual branches of production, however, the same factor which brings about the tendency in the rate of profit to fall, again produces a counterbalance to this tendency and more or less paralyses its effects.”

      (Capital III, Chapter 14)

      You are quite right about employment. We are at the start of the Summer phase of the cycle, and extensive accumulation characterises the economy as opposed to intensive accumulation, which means that employment tends to rise at a faster rate relative to growth. The annual rate of profit can still rise during such periods, because extensive accumulation brings rises in the rate of capital turnover as does intensive accumulation. Two machines produce the output required for a working period twice as fast as does one machine, for example.

      • Boffy Says:

        My grammar above was not quite correct. Where I say,

        “Its this introduction of intensive accumulation in the Autumn phase, which is the means of overcoming these constraints that squeeze profits, which are behind the Law of the Tendency for the Rate of Profit To Fall. But, as Marx describes, that Law is the means by which capital overcomes crises of overproduction, not the Cause of such crises!”

        It should read “… which is behind the Law of the Tendency for The Rate of Profit To Fall.”

        In other words, although, as Marx describes in Chapter 6 and 15, the crisis of overproduction – apart from those he describes where production of some or several commodities has just been massively expanded beyond what the market can absorb at the time, for example his description in Theories of Surplus Value, of the glut of yarn caused by the introduction of spinning machines – is a consequence of the using up of available labour supplies at the existing level of exploitation, which means that wages rise and surplus value is correspondingly reduced, this fall in profits is not caused by the Law.

        The resolution of this constraint, of the drying up of labour supplies, is thereby resolved by introducing labour-saving technology. It creates a relative surplus population, and increases the rate of surplus value. So, the two constraints that Marx sets out above to the problem of creating surplus value – 1) size of the exploitable labour force, 2) rate of exploitation are resolved at different points of the long wave cycle.

        In the Winter and Spring Phase, new labour saving technologies have been developed, and increasingly introduced which creates the relative surplus population, which means more exploitable labour is available – often accompanied by the expansion of exchange value into additional areas, for example new geographical markets are established, and more sectors, such as domestic production are brought under the control of the market.

        In the Summer phase, these technologies have become more or less established, and the new rate of exploitation fixed. The constraint increasingly develops therefore, of the availability of exploitable labour at this given rate of exploitation. With this given rate of exploitation, the more growth occurs, the more it dry’s up the available labour supply and pushes up wages, until the point is once more established above that output cannot be increased without pushing up wages, and reducing surplus value.

        It is to resolve this problem, therefore, that capital addresses itself, by raising the rate of exploitation, through innovation and the consequent introduction of labour-saving technology. It creates the condition for a period of intensive rather than extensive accumulation, and it is this intensive accumulation which creates the conditions for the operation of the Law of the Tendency for The Rate of profit To Fall, not as the cause of crises of overproduction, but as a means of resolving them!

      • sartesian Says:

        ‘My grammar above was not quite correct. Where I say,

        “Its this introduction of intensive accumulation in the Autumn phase, which is the means of overcoming these constraints that squeeze profits, which are behind the Law of the Tendency for the Rate of Profit To Fall. But, as Marx describes, that Law is the means by which capital overcomes crises of overproduction, not the Cause of such crises!”

        It should read “… which is behind the Law of the Tendency for The Rate of Profit To Fall.” ‘

        Grammar ain’t Boffy’s only problem. Accuracy is another. Marx states in Vol 3 Chapter 15:

        “On the other hand, however, in view of the fact that the rate which the total capital is valorized, i.e. the rate of profit, is the spur to capitalist production (in the same way as the valorization of capital is its sole purpose), a fall in this rate slows down the formation of new, independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises, and leads to the existence of excess capital along side a surplus population.”

        If only Marx said what Boffy says he said instead of what he did say…….

        Wait there’s more. Boffy gives us this:

        ‘The point being that in the Summer and Autumn phase of the cycle, the kinds of new base technology developed in the previous Innovation cycle, and implemented as part of intensive labour-saving innovation have waned, and become the standard technology, which is then spread out across the economy, i.e. accumulation becomes extensive rather than intensive, so employment expands more rapidly, wages rise, and consumption by workers rises.

        “The working-class (now actively reinforced by its entire reserve army) also enjoys momentarily articles of luxury ordinarily beyond its reach, and those articles which at other times constitute for the greater part consumer “necessities” only for the capitalist class. This on its part calls forth a rise in prices.”

        (Capital II, Chapter 20)

        Which also impacts profits from another angle, because under these conditions, the elasticity of demand increases, because workers have satisfied more of their wants, and any price rises by sellers cause workers to shift their consumption to some alternative commodity, including some of these luxury products. Capital faces rising input costs, and reduced surplus value on one side, and an increased inability to pass on increased costs in selling prices on the other.’

        Where in the current “Summer” of the long wave do we see the working class actively reinforced by its entire reserve army? Where do we see the working class enjoying momentarily articles of luxury ordinarily beyond its reach? Where do we this calling forth a rise in prices?

        Last time I checked unemployment everywhere in the advanced capitalist countries was at or near historic highs, even in the US if temporary employment, and those who have dropped out of the work force are included in the calculation.

        Anybody care to the check the numbers unemployed in the EU? In Japan? The growth of temporary, part-time employment.

        Last time I checked there was this persistent problem of deflation.

        And the last time I checked, wages have been basically stagnant.

        The Boffy gives us this:

        “In the Summer phase, these technologies have become more or less established, and the new rate of exploitation fixed. The constraint increasingly develops therefore, of the availability of exploitable labour at this given rate of exploitation. With this given rate of exploitation, the more growth occurs, the more it dry’s up the available labour supply and pushes up wages, until the point is once more established above that output cannot be increased without pushing up wages, and reducing surplus value.

        It is to resolve this problem, therefore, that capital addresses itself, by raising the rate of exploitation, through innovation and the consequent introduction of labour-saving technology. It creates the condition for a period of intensive rather than extensive accumulation, and it is this intensive accumulation which creates the conditions for the operation of the Law of the Tendency for The Rate of profit To Fall, not as the cause of crises of overproduction, but as a means of resolving them!”

        Really? One would never guess that capital addresses “this”–even though the real this is not the this Boffy pretends this is– by massive unemployment, devaluation and destruction of the means of production, attacks on wage rates, lowering of living standards.

        Oh and that last bit about intensive accumulation creates the condition for the operation of the LTFROP? No shit, Sherlock. Right, the augmentation of the productivity of labor is the cause. And that law is both the cause of capitalist crises of overproduction, and the capitalist means of resolving them.

    • sartesian Says:

      “As Marx said, higher wages mean lower profits.”

      Where does Marx say that? Marx certainly does show how higher wages are compatible with higher and rising profits, but I don’t recall Marx saying anywhere that higher wages always mean lower profits.

      If that were the case wages would determine profits, and they do not. Surplus value, the proportion of the unpaid labor time concealed in the wage determines profit.

  6. km Says:

    there’s plenty of discussion amongst Marxist economists on the statistics of profitability.
    however, there’s very little in the way of a causal theory on how profitability and investment behaviour is linked. a small drop in profitability could be counteracted by a rise in the rate of reinvestment, leading to actually more investment in total.
    the investment behaviour of firms depend on many factors (competition, indebtedness, prospects for expansion AND profitability) and not just on their RoP.
    Clearly, there’s a correlation between the RoP and the amount of (subsequent) investment but it’s not a perfect correlation, leaving space for other factors determining investment behaviour.
    I would like to see more discussion on this question.

  7. luke Says:

    Some blogger attacks lately Marxist theory, what do you think ??:
    http://socialdemocracy21stcentury.blogspot.com/

  8. SimonH Says:

    Well Luke I’ve read it and replied to it, we’ll see if my replies get through, I had to reply as anonymous because I didn’t have any of the accounts. Anyway, he’s needlessly insulting, he’s done little research on the topic, he compares Marx to Rothbard at one point! He jokes about a doctrine called Marxbardianism. It’s funny though to see him try to pretend that the conflicts between Keynesians is much different and better then conflict between Marxists. I suppose the future will tell, if we get to a point where technological unemployment has decimated the work force but capitalism is producing surplus value just fine well then I might start listening to the Post-Keynesians or anyone else with a credible explanation.

    • Boffy Says:

      “I suppose the future will tell, if we get to a point where technological unemployment has decimated the work force but capitalism is producing surplus value just fine well then I might start listening to the Post-Keynesians or anyone else with a credible explanation.”

      I suppose it depends on your definition of surplus value. In the Grundrisse, for example, Marx makes clear that slaves do not produce surplus value. He says a slave is no different from a pack animal or a machine. If the same terms were being used for a slave society as for capitalism, then slaves, like animals and machines would count as fixed constant capital, whose value is merely transferred to the end product. Yet, Marx was far from saying that slaves do not produce a surplus product! Clearly, they do, and that surplus product is the basis of slave society’s existence, and reproduction.

      Similarly, in Marx’s historical analysis of the development of pre-capitalist forms of rent, he sets out that from its original form of some kind of occasional tribute to tribal chiefs, rent becomes established in custom and law as a right of the land lord, to regular tribute first in the shape of labour rent, which is determined by the amount of surplus labour time each serf has available after they have devoted the necessary labour-time to their own reproduction. The surplus labour-time is then expended on the feudal lord’s land.

      Labour rent is then replaced by rent in kind, which has the same basis, i.e. the serf after expending necessary labour time for their own reproduction, in the production of a necessary product, then gives the equivalent of their previous surplus labour-time, to the lord of the manor in the form of a surplus product. The final form of this is money rent, whereby the serf provides the money equivalent of this surplus product to the lord of the manor. Its this, in fact, as marx describes, which creates the basis for the differentiation of the peasantry, because those peasants that have more productive land etc., as well as the benefit all peasants obtain from rising social productivity, which is not directly reflected in the increase in money rents, enables the more favoured peasants to accumulate means of production, whilst the least favoured get ruined, and turned into day labourers.

      Marx describes rent here as the form that surplus value takes, and he goes on to say that the determining factor of productive and social relation for each mode of production, is the form in which surplus labour is pumped out of the producers. What makes this form of surplus value – rent – different from surplus value produced under Capitalism, is that it does not arise out of an exchange between wage labour and capital.

      Its quite clearly possible for a post-capitalist society to exist, theoretically, much like a slave system, where robots produce a surplus product, much as slaves did in the past, without this being a surplus value, in the sense such surplus value is produced under capitalism. It simply requires that the material components of the means of production can be reproduced by these robots, out of each years gross output, with a sufficient material surplus over and above it, so that a social surplus product exists each year.

      But, this social surplus would not constitute a surplus value in the sense that it exists under capitalism. The main problem would be that its hard to see why millions of unemployed workers would simply sit by and starve to death whilst that happened.

  9. SimonH Says:

    Well of course I agree Boffy but if the labour theory of value is wrong as LK on that social democracy web site argues then we would see a different future. He’s really going out of his way to try and undermine the LTV, a common canard is to state that Marx was pushing mysticism when he talked about labour embodied in commodities.

    • Boffy Says:

      Simon,

      Most of these critics of the LTV do so, I spent some time a couple of years ago debunking such nonsense from a Keynesian blogger, the Austrians do a similar thing basically putting forward Lassallean postulates as being Marxism, in order to knock them down.

      In fact, of course, Marx makes clear that labour as value is not embodied in commodities, though in various places, its just semantically difficult to not refer to the value embodied in commodities.

      The idea of value being embodied in commodities is wrong as Marx sets out for two reasons. Firstly, it is essentially an example of commodity fetishism, which sees value as something which attaches to commodities as things, rather than being a human relation, based on current labour-time required for reproduction.

      Given that the value of each commodity is determined not by the labour-time that was actually used in its production at some time in the past, but on the basis of the labour-time currently required for its reproduction, and so, as Marx describes is constantly changing, its clear that this value cannot possibly be “embodied” within the commodity. The commodity is merely a shell, which provides a manifestation of that changing quantity of value, a changing proportion of available social-labour-time.

      • Edgar Says:

        Just so I am getting this correctly Boffy.

        Marx didn’t say that labour as value is embodied in commodities but Labour time serves as a measure of the value of commodities, because the capitalist buys labour power and puts that to work. And the worker produces more product within his work time than the value of this labour power.

        Is this about right?

        Also, do you have a link to where you debunked the Keynesian blogger?

      • sartesian Says:

        Marx does in fact say labor is embodied in the commodities, and the measure of that labor is time. In the very chapter of volume 3 of Capital that Boffy loves to cherry-pick, Marx says:

        “The creation of this surplus-value makes up the direct process of production, which, as we have said, has no other limits but those mentioned above. As soon as all the surplus-labour it was possible to squeeze out has been embodied in commodities, surplus-value has been produced.”

        And of course, section 2 of chapter 1 of the first volume of Capital is entitled “The two-fold character of labor embodied in commodities.” In that section Marx writes:

        “Just as, therefore, in viewing the coat and linen as values, we abstract from their different use values, so it is with the labour represented by those values: we disregard the difference between its useful forms, weaving and tailoring. As the use values, coat and linen, are combinations of special productive activities with cloth and yarn, while the values, coat and linen, are, on the other hand, mere homogeneous congelations of undifferentiated labour, so the labour embodied in these latter values does not count by virtue of its productive relation to cloth and yarn, but only as being expenditure of human labour power. Tailoring and weaving are necessary factors in the creation of the use values, coat and linen, precisely because these two kinds of labour are of different qualities; but only in so far as abstraction is made from their special qualities, only in so far as both possess the same quality of being human labour, do tailoring and weaving form the substance of the values of the same articles.”

        That IS labor embodied as a value, as labor-time, in the commodities.

        And of course, Marx’s makes, IMO, his most succinct presentation of labor as value, as a commodity labor-time, embodied in commodities chapter 1 of the 1859 Critique of Political Economy where he writes:

        ” Use-values serve directly as means of existence. But, on the other hand, these means of existence are themselves the products of social activity, the result of expended human energy, materialized labour. As objectification of social labour, all commodities are crystallisations of the same substance. The specific character of this substance, i.e., of labour which is embodied in exchange-value, has now to be examined. ”

        And Marx continues, and so can I. But I think I have concretely established the point here– which is that Boffy literally doesn’t know what he’s talking about and covers his ignorance simply by making shit up.

        Correct me if I’m wrong.

      • sartesian Says:

        Oh, and mos’ def’ yes: the labor so embodied is labor embodied as a value, otherwise it could not be, it would not be exchangeable, it would not be, could not be represented as a whole by both the wage, the necessary equivalent of the value– the reproduction of the laborer; and the surplus value, the labor-time above and beyond the necessary value for its reproduction.

      • Boffy Says:

        Edgar,

        Marx makes clear that the idea of value being “embodied” in the commodity, is what is behind “commodity fetishism” – the idea that the commodity itself has value as some intrinsic quality, and that it is this intrinsic value of “the thing” that is being exchanged, rather than what is happening is in fact a human relation, an exchange of equal amounts of labour-time, just as if I work for one hour on your land, whilst you spend one hour shoeing my horse.

        Of course, at any one time, you can talk about the value embodied in a commodity, provided you understand it in this sense, and both I and Marx can be found to use such an expression, because its often semantically difficult, to discuss anything whilst using the absolutely, and strictly correct formulation of words. It would make such discussion extremely tedious for the reader. The danger, is as marx found even in his time that there are always cranks who will take these phrases, and ignore the context, or the actual explanation provided elsewhere, in order to score points.

        To give another, example, In Capital Volume II, Marx spends some considerable time explaining why firms do not buy or sell capital. You can find the discussion in my series on Marx’s Capital. Yet, there are numerous occasions where Marx and I use the phrase “purchase of constant capital”, actually meaning the purchase of the commodities that comprise constant capital. In fact, in one post discussing that some time ago, I put the rider in at the beginning explaining that point.

        If we come back to the point about “embodied” value, as stated, Marx makes clear that this value is not embodied within the commodity, and that this is what lies behind commodity fetishism. The value cannot be “embodied” within the commodity, because if it were, that would mean that it was fixed. As Marx states, value is labour, and its measure is labour-time. If value were embodied in the commodity, therefore, it would mean that the labour actually expended on its production was actually fixed within it!

        But, the labour-time actually expended on the production of any individual commodity unit is always different to that expended on another, however, marginally. There used to be the concept, of the “Friday afternoon car”, for example, and its a simply physiological fact that workers work faster in a morning than they do at the end of the day. That is before we get to the same class of commodity produced by different workers, each of whom have different abilities, each able to work faster or slower than another.

        If value were embodied within the commodity then we would have to deal with a ridiculous situation, where each and every single commodity unit had a different amount of value embodied within it. But, we don;t, because as marx sets out at length, when we talk about the value of commodities, we talk about their social value, the value of the entire class of a commodity, not its individual unit, irrespective of which worker produced, on what day, or at what time of day.

        But, that leads us to his other explanation of why this value cannot be embodied within the commodity, which is that this social value itself continually changes. The importance of his discussion of commodity fetishism, is that it explains why the exchange value of commodities continually changes.

        People like Samuel Bailey, who were the originators of theories of subjective value, argued that the exchange value of a commodity is nothing more than this “embodied” value of a commodity imputed to it, by individuals at any one time, and so different commodities exchange at different rates, because individuals change their perception of what this subjective “embodied” value of the commodity is compared to others.

        The actual reason that the exchange value of commodities continually changes, Marx sets out is because, their value itself continually changes, because the labour-time required for their production continually changes. Its impossible to have a concept of a value that is embodied, i.e. fixed into a commodity, that continually changes, because one is the opposite of the other, something cannot be fixed that continually changes.

        What is it that changes? Not the actual labour-time “embodied” or actually used in the production of any commodity, but the value, the social labour-time currently required for its production. Marx, gives the example, of the hand weaver, who produces a quantity of commodities in 8 hours, and describes how, with the introduction of power looms, the value of the product of the weaver’s labour was thereby, slashed overnight.

        To answer your specific question, value is labour-time, and so the amount of value a worker creates in a day of the same length, is always the same. If a worker works for 8 hours, they produce 8 hours of new positive value. What changes is how many use values, this value is “embodied” in – an example of the difficulty in expression referred to above, because technically the correct way of expressing this would have been to say “What changes is the quantity of use values, in which this quantity of value is represented.”

        So, in an 8 hour day, for example, an agricultural worker might produce 100 quarters of grain. They may require 50 quarters of grain per day for their own consumption, i.e. to reproduce their labour-power, and this 50 quarters, equal to 4 hours of labour is the value of their labour-power.

        If productivity rises and instead in this 8 hours they produce 200 quarters, they still only require 50 quarters for their consumption to reproduce their labour-power, so its value falls to just 2 hours of labour-time – the amount required to produce this 50 quarters. But, they have still worked 8 hours, and thereby produced 8 hours of positive new value, leaving now 150 quarters as the surplus product, which represents a surplus value of 6 hours. Previously 100 quarters was the value of 8 hours labour, giving a value of £0.80 per quarter, now 200 quarters is the value of 8 hours labour, giving a value of £0.40 per quarter.

        If, say there was a crop failure, so that productivity fell dramatically, the workers my only produce 50 quarters in the 8 hours. But, the worker still requires 50 quarters to reproduce their labour-power. All of their output then goes to meet the need for the reproduction of their labour-power, and there is no surplus product. Similarly, the worker has created 8 hours of positive new value, as before, but all of this 8 hours of value is required to reproduce the workers labour-power. If the output was lower, say 40 quarters, the worker would still require 50 quarters to reproduce their labour power.

        The capitalist would make a loss equal to 10 quarters, which they would have to make up from their own capital, or else they would have to shrink their capital for the next cycle, thereby contracting rather than expanding reproduction.

        But, as Marx sets out, in describing that it is the requirement for this material reproduction that lies at the heart of social reproduction, its not just the commodities required for the reproduction of the worker that are affected by such changes in productivity. If productivity rises, the proportion of the social working day required to reproduce the material constituents of the constant capital also falls, so its value falls. Capital is thereby released, the surplus product increases, and the proportion of this surplus product to the material constituents of constant and variable capital also rises, so the potential for a higher rate of expansion of social reproduction is thereby created.

        I’ll have to look out the post dealing with the keynesian blogger, as it was a few years ago. They went under the pseudonym Lord Keynes.

      • sartesian Says:

        So Edgar just keep in mind, then, that when Marx describes labor-power as a commodity, having value; a value determined by the time necessary for its own reproduction, he’s not really saying that; and he’s not really saying that the value gets embedded in the commodity; and when he says the value of capital is “c + v +s,” where v is “variable capital”– the value of the labor power, that doesn’t really mean that the value of the labor power is embedded in the commodity, commodities, or capital, because…….because why?

        And if there’s no “v” then how can “s” be embedded?

        In fact, if there is no “v” then how can “c” be embedded?

        See, when Marx describes the value embedded in fixed capital being transferred incrementally in the production process to the commodities, and that transfer being accomplished gratis by the application of labor power, that’s not really value being transferred because there couldn’t have been any value embedded to begin with because after all fixed capital is…..a commodity.

        Who needs to attack Marx’s labor theory of value when you have a defense like this?

      • Boffy Says:

        Edgar,

        I think this Lord Keynes guy is the same one that was referred to previously, as his blog is socialdemocracy21stcentury.

        My response to his comments are given in my comments on this blog post. I think I also posted a reply to his own blog too, but I can’t remember now.

        One of the commonest flaws made by those who know nothing of Marx’s theory is the basic mistake of confusing the commodity labour-power, with the value creating substance labour, which as Marx states at length has no value.

        You can always detect the cranks and trolls who pretend to know something about Marx, because they always make the same mistake.

        Marx’s main achievement, in discovering the source of surplus value is precisely in making this distinction as against Adam Smith, who got into an irresolvable contradiction, as a result of failing to understand the distinction. It also led Smith into the contradiction of sometimes advocating a labour theory of value, and at other times advocating a cost of production theory of value.

        For example, as Marx sets out at length in Capital Volume II, and in Volume III, and Theories of Surplus Value, Smith makes the mistake of believing that because the value of commodities, and society’s commodity-capital or gross output, is comprised of c + v + s, that it is the value of the commodities that comprise these components which thereby establish the value of the commodity.

        So, by this means, you take the value of the constant capital, add in the value of the variable capital, and the surplus value, and hey presto, by embodying all of these values into the value of the commodity they comprise, you end up with its value.

        But, Marx shows that not only is this the wrong way round, but this method of determining the value of commodities by the value of commodities itself leads you into irreconcilable contradictions.

        As Marx puts it if I have a metre long length of string, I can cut it into three pieces each of different lengths, which in total sum up to the metre of string, but it is ridiculous to say that the length of the string is determined by the lengths of the three separate pieces!

        If the value of commodities is determined not as marx says, by the labour-time required for their production, but the value of the labour-power embodied in them, then as Marx points out, you arrive at the vicious circle that Smith found himself in. The value of labour-power is determined by the value of the commodities required for its reproduction, but in turn those commodities value is then determined by the labour-power embodied in them!

        If the value of commodities is determined by the value of labour-power, rather than the labour-time required for production, then the value of any commodity is comprised of the value of the commodities required to reproduce the labour-power, and the commodities required to reproduce the constant capital, but these latter commodities value is then also determined by the value of the labour-power embodied in them, and the value of this constant capital is then also part of the value of the commodities that are required to reproduce labour-power, and so on.

        Its clearly nonsense, and as Marx sets out it prevented previous economists from understanding the basis of surplus value, because if the value of commodities is determined by the value of labour-power, i.e. wages not only do you end up in this vicious circle, but it makes surplus value impossible. It is also what is at the bottom of the notion that inflation is caused by rising wages, as the Keynesians suggest.

        It also leads to the false notion that the value of labour-power is somehow transferred to, i.e. embodied in the value of commodities, in the same way that the value of the commodities that comprise constant capital is transferred to the value of the commodity.

        But, marx demolishes that notion way back in Capital Volume I, by showing that there is this fundamental difference between constant and variable capital.

        If the value of labour-power, was transferred to the final product, in the same way that the value of constant capital is transferred then when the value of labour-power rises, for example because there is a fall in productivity, then the value of the final product, would also rise, because this higher value of labour-power would simply be transferred to it.

        That indeed is the basis of the cost of production theory of value, and also lies behind the notion that rising wages cause higher prices. But, of course, as Marx sets out, if that were the case, relative surplus value would be impossible. The whole basis of the existence of surplus value is that the positive new value created by labour during the day is greater than the value of labour-power, and when productivity rises, the value of the latter falls, whilst the amount of new value created by labour remains the same, so surplus value rises.

        Changes in the values of constant capital are transferred to the value of the final product, but have no effect on surplus value (though as Marx sets out in Capital III, Chapter 6, they can affect the amount of realised profit, because under certain conditions this value cannot be passed on in higher prices without causing a significant drop in demand) whereas changes ion the value of labour-power have no effect on the value of the commodity, but do change the proportion of new value created that must go to the reproduction of labour-power relative to that which comprises surplus value.

      • sartesian Says:

        Boffy: “If the value of commodities is determined not as marx says, by the labour-time required for their production, but the value of the labour-power embodied in them, then as Marx points out, you arrive at the vicious circle that Smith found himself in.”

        But that is not now, and was NOT, the original issue. The issue is did Marx argue that labor-time was embedded as a value in the commodity, in the value of the commodity. And the answer is, of course he did.

        Of course the value of the wages is included in the value of the commodity. Variable capital only exists as a value, an exchange value in capitalism. Without the wage being embodied as a value there can be no surplus value, no surplus labor-time which in capitalism is expressed as value.

        Boffy: “One of the commonest flaws made by those who know nothing of Marx’s theory is the basic mistake of confusing the commodity labour-power, with the value creating substance labour, which as Marx states at length has no value.”

        Priceless, no pun intended. The commodity labor-power is precisely the value creating expression of labor under specific social conditions, were the laborer is dispossessed of the means of production and subsistence and must exchange his labor power for a value equivalent to the means of subsistence. That is to say, labor, compelled to present itself as a value in exchange for wages is the source of value by which the capitalist obtains, without payment, the time above and beyond the reproduction of the wage, which time is surplus-value.

        Labor creates use values; the commodity labor-power creates exchange values. Commodities are use-values that exist, function, manifest, circulate, are reproduced SOCIALLY as exchange value

        Simple exercises:

        1. go to Marxist Internet Archive: Click on Marx. in the search function enter: labor, and then labor-time, embedded in commodities. Check the links that come up to the equivalent of the search phrase.

        2. find a quote where Marx says labor-time is actually not contained as a value in the commodities of capitalist production.

      • sartesian Says:

        Because I’m at heart, a helpful guy I thought I’d help out by providing Marx’s own words regarding the labor-time embedded as value in the commodity:

        “Commodities as values are nothing but crystallized labour. The unit of measurement of labour itself is the simple average-labour, the character of which varies admittedly in different lands and cultural epochs, but is given for a particular society. More complex labour counts merely as simple labour to an exponent or rather to a multiple, so that a smaller quantum of complex labour is equal to a larger quantum of simple labour, for example. Precisely how this reduction is to he controlled is not relevant here. That this reduction is constantly occurring is revealed by experience.

        A commodity may be the product of the most complex labour. Its value equates it to the product of simple labour and therefore represents on its own merely a definite quantum of simple labour.

        A use-value or good only has a value because labour is objectified or materialized in it. But now how are we to measure the quantity of its value? By the quantum of the `value-forming substance’ (i.e., labour) which is contained in it. The quantity of labour itself is measured by its temporal duration and the labour-time in turn possesses a measuring rod for particular segments of time, like hour, day, etc.”

        English translation by Albert Dragstedt of the first chapter of the first German edition of Capital.
        ______________________

        “We must now examine more closely this peculiar commodity, labour-power. Like all others it has a value. [5] How is that value determined?

        The value of labour-power is determined, as in the case of every other commodity, by the labour-time necessary for the production, and consequently also the reproduction, of this special article. So far as it has value, it represents no more than a definite quantity of the average labour of society incorporated in it. Labour-power exists only as a capacity, or power of the living individual. Its production consequently pre-supposes his existence. Given the individual, the production of labour-power consists in his reproduction of himself or his maintenance.”
        V1 Chapter 6
        ________
        “As the value of labour is only an irrational expression for the value of labour-power, it follows, of course, that the value of labour must always be less than the value it produces, for the capitalist always makes labour-power work longer than is necessary for the reproduction of its own value. In the above example, the value of the labour-power that functions through 12 hours is 3s., a value for the reproduction of which 6 hours are required. The value which the labour-power produces is, on the other hand, 6s., because it, in fact, functions during 12 hours, and the value it produces depends, not on its own value, but on the length of time it is in action. Thus, we have a result absurd at first sight that labour which creates a value of 6s. possesses a value of 3s.

        We see, further: The value of 3s. by which a part only of the working-day – i.e., 6 hours’ labour-is paid for, appears as the value or price of the whole working-day of 12 hours, which thus includes 6 hours unpaid for. The wage form thus extinguishes every trace of the division of the working-day into necessary labour and surplus-labour, into paid and unpaid labour. All labour appears as paid labour. In the corvée, the labour of the worker for himself, and his compulsory labour for his lord, differ in space and time in the clearest possible way. In slave labour, even that part of the working-day in which the slave is only replacing the value of his own means of existence, in which, therefore, in fact, he works for himself alone, appears as labour for his master. All the slave’s labour appears as unpaid labour. In wage labour, on the contrary, even surplus-labour, or unpaid labour, appears as paid. There the property-relation conceals the labour of the slave for himself; here the money-relation conceals the unrequited labour of the wage labourer.
        Hence, we may understand the decisive importance of the transformation of value and price of labour-power into the form of wages, or into the value and price of labour itself. This phenomenal form, which makes the actual relation invisible, and, indeed, shows the direct opposite of that relation, forms the basis of all the juridical notions of both labourer and capitalist, of all the mystifications of the capitalistic mode of production, of all its illusions as to liberty, of all the apologetic shifts of the vulgar economists.
        If history took a long time to get at the bottom of the mystery of wages, nothing, on the other hand, is more easy to understand than the necessity, the raison d’etre, of this phenomenon.

        The exchange between capital and labour at first presents itself to the mind in the same guise as the buying and selling of all other commodities. The buyer gives a certain sum of money, the seller an article of a nature different from money. The jurist’s consciousness recognizes in this, at most, a material difference, expressed in the juridically equivalent formula: “Do ut des, do ut facias, facio ut des, facio ut facias.”

        Furthermore, exchange-value and use-value, being intrinsically incommensurable magnitudes, the expressions “value of labour,” “price of labour,” do not seem more irrational than the expressions “value of cotton,” “price of cotton.” Moreover, the labourer is paid after he has given his labour. In its function of means of payment, money realizes subsequently the value or price of the article supplied – i.e., in this particular case, the value or price of the labour supplied. Finally, the use-value supplied by the labourer to the capitalist is not, in fact, his labour-power, but its function, some definite useful labour, the work of tailoring, shoemaking, spinning, &c. That this same labour is, on the other hand, the universal value-creating element, and thus possesses a property by which it differs from all other commodities, is beyond the cognizance of the ordinary mind.”

        Volume 1 Chapter 19
        _________________
        “If we consider commodities as values, we consider them exclusively under the single aspect of realized, fixed, or, if you like, crystallized social labour. In this respect they can differ only by representing greater or smaller quantities of labour, as, for example, a greater amount of labour may be worked up in a silken handkerchief than in a brick. But how does one measure quantities of labour? By the time the labour lasts, in measuring the labour by the hour, the day, etc. Of course, to apply this measure, all sorts of labour are reduced to average or simple labour as their unit. We arrive, therefore, at this conclusion. A commodity has a value, because it is a crystallization of social labour. The greatness of its value, or its relative value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labour necessary for its production. The relative values of commodities are, therefore, determined by the respective quantities or amounts of labour, worked up, realized, fixed in them. The correlative quantities of commodities which can be produced in the same time of labour are equal. Or the value of one commodity is to the value of another commodity as the quantity of labour fixed in the one is to the quantity of labour fixed in the other.

        Value, Price, Profit, Chapter 6.
        __________

        “The value contained in a commodity is equal to the labour-time expended in its production, and the sum of this labour consists of paid and unpaid portions. But for the capitalist the costs of the commodity consist only of that portion of the labour materialised in it for which he has paid. The surplus-labour contained in the commodity costs the capitalist nothing, although, like the paid portion, it costs the labourer his labour, and although it creates value and enters into the commodity as a value-creating element quite like paid labour. The capitalist’s profit is derived from the fact that he has something to sell for which he has paid nothing. The surplus-value, or profit, consists precisely in the excess value of a commodity over its cost-price, i.e., the excess of the total labour embodied in the commodity over the paid labour embodied in it. The surplus-value, whatever its origin, is thus a surplus over the advanced total capital. The proportion of this surplus to the total capital is therefore expressed by the fraction s/C, in which C stands for total capital. We thus obtain the rate of profit s/C=s/(c+v), as distinct from the rate of surplus-value s/v.”

        Vol 3 Chapter 2.

  10. Boffy Says:

    There was an interesting comment earlier from Tobias Levkovitch on US CNBC that the latest survey data shows US firms outside the energy sector planning a 5% increase in capex. He also made an interesting point that a lot of S&P capex data related to the energy sector is misleading, because it relates to capex elsewhere in the globe, rather than in the US.

    We should also bear in mind when considering data on investment that from a Marxist perspective capex is misleading, because it basically relates only to fixed capital investment, and thereby misses out any large rises in investment in circulating constant capital and variable capital.

    • Daniel Rocha Says:

      It doesn’t make sense to quote Marx as a bible fundamentalist does. You have to understand the reasoning. This is science and logic, not religion. You have to understand the theory well enough to not need to quote him all the time.

  11. Bruce Wallace Says:

    Boffy’s brain is misleading.

    • Boffy Says:

      And yours is just missing completely!

      • Bruce Wallace Says:

        I beg to differ.

      • Boffy Says:

        As is your right, Bruce. A pity as its a right you seem to want to deny to others, as your typical arrogant, school yard Flashman attitude above illustrates.

        No wonder workers have very little appetite for the kind of elitist, “know your place” type of socialist society you seem to want to impose upon them.

  12. sartesian Says:

    1. “There was an interesting comment earlier from Tobias Levkovitch on US CNBC that the latest survey data shows US firms outside the energy sector planning a 5% increase in capex. He also made an interesting point that a lot of S&P capex data related to the energy sector is misleading, because it relates to capex elsewhere in the globe, rather than in the US.”

    Which means what?
    Cap ex in the energy sector in the US is increasing?
    Got any numbers to go with that?

    Anything that refutes the drop in on-shore oil rigs currently at work in the US?

    That says the US rig count has not declined 15% since September 2014?

    That Baker Hughes is wrong in reporting the number of rigs at work is the lowest since 2012?

    Anything that contradicts the decline in new permits issued for drilling in the US?

    Anything that says US Steel did NOT idle factories in Ohio and Texas due to the dramatic decline in orders for the steel pipes used in horizontal drilling and hydraulic fracturing in the US?

    That says Schlumberger did NOT lay off 7% of its work force?

    That US drillers did NOT drill 28% fewer wells in January 2015 vs. June 2014, but produced only 8.5% less oil due to improved productivity from existing wells and the new wells brought online?

    That while estimates for total US business investment are for a 4.8% gain in 2015, this represents a slowing from 2014’s 5.5% ?

    That Whiting Petroleum, the largest producer in the Bakken shale formation, ISN’T seeking a buyer due to its distressed financial condition after the decline in prices?

    That US shale drilling companies have not reduced drilling expenditures by $50 billion, from $129.7 billion in 2014 to a project $78.1 billion in 2015?

    That between 2009-2014 investment in the US for new equipment and structures in the oil and gas industry did NOT account for 70% of net industrial investment in the US?

    That Exxon hasn’t cut capex by 12% for 2015; Chevron has cut capex 12%; that BP has cut its capex by 20% ?

    That the percentage of offshore rigs, laid up or scrapped has reached a 20 year high and represents about 25% of the total number of such rigs?

    2. “We should also bear in mind when considering data on investment that from a Marxist perspective capex is misleading, because it basically relates only to fixed capital investment, and thereby misses out any large rises in investment in circulating constant capital and variable capital.”

    There’s nothing misleading about it at all, except that it doesn’t lead to the place Boffy would like it to lead, which the eternal sunshine of capital accumulation. Capex refers exactly what it refers to– capital expenditures– expenditures for new equipment, structures, and software.

    Increased purchases for elements of current production, even if such production increases dramatically, are segregated in that they are NOT capitalized– i.e. dedicated to expanding the property, plant, and or equipment of the capitalist.

    Hence the increased purchases of lubricants and fracking “mud” that are essential to increasing tight oil extraction from existing wells are not capital expenses, they are operating expenses.

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