Profit is the bottom line of the capitalist system.

profitis the bottom lineof thecapitalist system.

UMKC Marx Seminar, Part 3• Topics (probably can’t all be covered, and/or will be

covered very superficially):

– I. some introductory issues– II. reproduction schemes, cont., – III. General Law of Capitalist Accumulation, cont., – IV. Law of the Tendency for the Rate of Profit to Fall– V. Transformation problem– VI. time of production, time of circulation, turnover time– VII. some historical issues

Introductory Issues

The Marxist view of capitalist development is one of turbulent and erratic processes with constant fluctuations around various built-in inner tendencies:

Introductory Issues

The Marxist view of capitalist development is one of turbulent and erratic processes with constant fluctuations around various built-in inner tendencies:

“Social reality is an historically concretesystem, a concrete totality thathistorically develops on the basis of itsimmanent and contradictory elements.”

‘Laws’ or ‘tendencies’


• Dominant tendencies (or laws)



• Countervailing tendencies



• Countervailing tendencies

• Subordinate tendencies

Question

Question

• What are the tendencies?

Question

• What are the tendencies? (first, “What did Marx argue?” not “Do I agree with it?”—How can we know if we agree if we don’t know what was proposed??)

Question

• What are the tendencies? (first, “What did Marx argue?” not “Do I agree with it?”—How can we know if we agree if we don’t know what was proposed??)

• What are the possibilities for external (State or other) influencing of the tendencies; what are the limits to intervening (with the system remaining ‘capitalism’)? Can the laws be pushed or stretched, this way or that, and how far?

Marx’s economics

We are interested in Marx’s economics. Of course, his philosophy, politics, historical analyses, etc., are all related to his economics, but our primary interest is in how Marx views the operation of capitalism.

What we do with this information could differ fro person to person (overthrow it, fix [some of?] it?).

crises

• surface, partial crises—crop failures, speculative attacks.

• business cycles—short, medium and longer term cycles.

• longer rhythms of accelerating and decelerating accumulation—falling rate of profit, e.g.

• all operate simultaneously, and interact, so careful analysis is required to separate them all out and study the actual system.

reproduction schemes

Direct line from Quesnay’s Tableaux to Marx’s reproduction schemes to Leontief’s input-output analysis.

Model sectoral interdependencies and conditions that must be fulfilled for system continuity.

Disproportionalities—both aggregate and sectoral proportionality and balance.

expanded reproduction

I c1 + v1 + s01 + Δc1 + Δv1 = w1

II c2 + v2 + s02 + Δc2 + Δv2 = w2

• s0 = amount of surplus value remaining for consumption by capitalists after investment in additional constant capital, Δc and variable capital, Δv.


the reproduction conditions are that the output in Dept. 1 has to equal the demand for means of production in both sectors (w1 = c1 + Δc1 + c2 + Δc2). If workers and capitalists spend all of their revenues on consumer goods, then:

w2 = v1 + Δv1 + s01 + v2 + Δv2 + s02


The exchange ratio between departments to sustain balanced growth is:

c2 + Δc2 = v1 + Δv1 + s01

Total demand for means of production in Dept. 2 must exactly equal total demand for consumer goods in Dept. 1.

General Law of Capitalist Accumulation (Vol. 1, ch. 25)

Concerns the business cycle, but also helps explain the longer swings in accumulation (falling rate of profit).

General Law of Capitalist Accumulation (Vol. 1, ch. 25)

Concerns the business cycle, but also helps explain the longer swings in accumulation (falling rate of profit).

• Firms must accumulate (“that is Moses and the Prophets!”) or go under (“..or die!”). Competition compels firms to invest in producing on a larger scale.

General Law of K’ist Accumulation

As capitalist expansion takes place, firms increase their demand for labor, the reserve army shrinks, market wages get bid up, which are costs for business that cut into profits.


As capitalist expansion takes place, firms increase their demand for labor, the reserve army shrinks, market wages get bid up, which are costs for business that cut into profits.

This then leads to the first limit on wages–wages can never rise to the point of completely cutting off capital accumulation.


As capitalist expansion takes place, firms increase their demand for labor, wages get bid up, which are costs for business that cut into profits.

This then leads to the first limit on wages–wages can never rise to the point of completely cutting off capital accumulation.

But firms will respond by instituting cost cutting technical change. This technical change is labor displacing, so unemployment rises, meaning the reserve army expands, dampening wages, productivity advances and profits rise.


As profits expand, growth expands, meaning the demand for labor rises and this puts upward pressure on wages, cutting into profits and growth slackens, leading to cost cutting, labor displacing technical change. This the expansion and contraction of the aggregate reserve army.


BUT—key point!!!--over time, the capital-labor ratio is rising, in other words firms don’t go back to the old higher labor-intensive methods of production when they increase their demand for labor, they are increasing their demand for labor with the new technical organization. So less labor is being used per machine as a secular trend.

General Law and Falling Rate of Profit

While more heavily capitalized methods benefit individual capitalists by lowering their unit costs, they also tend to lower the average rate of profit for the economy as a whole.


While more heavily capitalized methods benefit individual capitalists by lowering their unit costs, they also tend to lower the average rate of profit for the economy as a whole.

The same factor that fuels the competitive struggle among individual capitalists also produces a slow but steady downward drift in the economy-wide average rate of profit.


Another key point—often misunderstood:


Another key point—often misunderstood:

It is important to note that this built-in tendency is not generated by rising wages. If workers are successful in their struggle for higher wages this may accelerate the fall. But this effect is limited because rising real wages are constrained by the growth in productivity.


It is not higher wages that are the source of falling rate of profit. Less labor is still being used per machine as a secular trend.

General Law—more important points


• Marx’s theory of population—critical of Malthus—relative surplus population; ‘laws’ of population specific to particular historical mode of production.


• Marx’s theory of population—critical of Malthus—relative surplus population; ‘laws’ of population specific to particular historical mode of production.

• Endogenous technical change—fueled by capitalist competition—alters the capital structure. When labor demand increases again following technical change, firms don’t go back to the old capital structure; they use more labor with the newer methods.

Proof of the Law of the Falling Tendency of the Rate of Profit

We begin by defining Marx’s notion of living labor and dead labor—these are not simply metaphors, but analytical categories.


The components of living labor, L, are V, the value of labor power, and S, surplus value:

L = V + S


The components of living labor, L, are V, the value of labor power, and S, surplus value:

L = V + S

Dead labor = C


We can write the value rate of profit as:

[S/(C + V)] = [(L – V)/(C + V)]


This allows us to determine the upper and lower bounds of the rate of profit:

As more total labor time becomes paid labor time:

V L and

r 0


As more and more total labor time goes to surplus value:

S L

V 0 and

r (L/C)


rmin = 0

rmax = (L/C)

(rmax - rmin) = [(L/C) – 0] = (L/C)

This is the profit rate band.


If, over time, (C/L) is rising (and (L/C) is falling), then the profit rate is being squeezed downward.

This has nothing to do with what is happening to (S/V), because (V + S = L). In fact, Marx thought that the LFTRP was associated with a rising (S/V).

transformation problem

A 3000c + 1000v + 1000s = 5000• (s/v) = 100% [s/(c+v)] = 1000/4000 = 25%

B 4000c + 1000v + 1000s = 6000• (s/v) = 100% [s/(c+v)] = 1000/5000 = 20%

C 5000c + 1000v + 1000s = 7000• (s/v) = 100% [s/(c+v)] = 1000/6000 = 16.6%


• cannot have different rates of profit—tendency to equalization (competition)

• total surplus value = 3000

• total capital advanced = (4000 + 5000 + 6000) = 15,000

• average rate of social profit = 3000/15000 = 20%


A 3000c + 1000v + 800s = 4800• [s/(c+v)] = 800/4000 = 20%

B 4000c + 1000v + 1000s = 6000• [s/(c+v)] = 1000/5000 = 20%

C 5000c + 1000v + 1200s = 7200• [s/(c+v)] = 1200/6000 = 20%

turnover time

As long as capital remains in the production process it is not capable of circulating; and it is virtually devalued. As long as it remains in circulation it is not capable of producing…As long as it has to remain on the market, it is fixated as commodity. As long as it cannot be exchanged for conditions of production, it is fixated as money.” (Grundrisse, 1973, p. 621).

turnover time

Marx proposed various categories with which to qualitatively distinguish periods and, where necessary, sub-periods, in the circuit of industrial capital, in their relation to value expansion and accumulation. These periods consume time, the length of which may vary, and Marx also examined the effects that changes in the absolute and relative duration of these periods might produce.

turnover time

turnover time:

The time from when capital in a particular form is advanced and goes through an entire circuit until returning in its original form.

turnover time

time of production: time during which capital is in the sphere of production

time of circulation: time during which capital is in the sphere of circulation

time of production + time of circulation =

turnover time

turnover time

working time: period during which labor-power is actively combined with means of production and instruments of labor in the production process, when value is preserved and expanded.

All working time is part of the time of production, but the time of production may not all be comprised of working time.

working time

One interruption of working time is due to the limits of the commodity labor-power. Every worker must have rest, eat, etc. Raw materials, machines, and instrument of labor are idle when the worker eats lunch. Capitalists will attempt to both minimize this time and institute shifts to extend working time.

working time

Another interruption of working time is due to the natural processes that must occur with certain commodities, such as fermentation of wine and spirits, maturation of trees for lumber, drying processes of wood and clay. This time period may be shortened in some cases by artificial means, technical applications, chemical advances, etc.

surplus value

Surplus value is produced during the time of production, specifically during working time

Surplus value is realized during time of circulation

There would be no accumulation or even production without time of circulation. Circulation precedes production by transforming money capital into productive capital.

productive and unproductive labor

Marx introduces the concepts of productive and unproductive labor to fully examine the relation of time of circulation to value expansion and accumulation.

This distinction is not the same as either necessary and unnecessary labor or goods and services.

productive and unproductive labor

Productive labor produces surplus value.

Unproductive labor, though it may be both useful and necessary, does not.

In general, productive labor is performed in the sphere of production during time of production and unproductive labor is performed during time of circulation.

production can appear in circulation

There are some cases where the production process extends into the sphere of circulation, such as transportation and some storage (value is added by both the labor–power expended and the consumption of the means of transportation in these activities. These are special cases where the production process appears in the sphere of circulation.

circulationGenerally, capital in the sphere of

circulation, though essential to the realization and capitalization of surplus-value, does not produce value or surplus-value.

The costs of unproductive labor and other circulation costs must be paid out of surplus-value.

During circulation, capital is tied up in unproductive forms. This time is lengthened by gluts, hoards, etc.

turnover time

The shorter the time of circulation is in relation to turnover time, the greater the time of production will be in relation to turnover time, the more time capital will spend in its productive form and the greater the amount of surplus-value a given amount of capital will be able to produce.

effects of changes in duration

Assumptions:

1) unit of analysis is one year

2) The entire turnover time is time of production

3) Straight-line capital depreciation of fixed capital

4) Organic composition of capital is constant

changes in duration

Value of capital advanced = (v/n) = V = 1000

Rate of exploitation = (s/V) = 100%

One turnover in year (n = 1)

Then:

Annual rate of exploitation = ([s(n)]/V) =

([1000(1)]/1000) = 100%

changes in duration

If there are two turnovers in year (turnover reduced by 50%) (n = 2)

Then:

Annual rate of exploitation = ([s(n)]/V) =

([1000(2)]/1000) = 200%

The same variable capital is exploited twice as much in the same period (or equally exploited in half the time)

the annual rate of profit…

…will also be affected:

([s(n)]/[CT + V])

There is a positive correlation between the profit rate and the rate of exploitation, and a negative one between profit rate and organic composition of capital.

annual rate of profit

If total constant capital advanced CT = 2000 and value of variable capital advanced (V) is 1000, then total capital advanced is 3000. if the rate of exploitation is 100%, and one turnover in the year, the annual rate of profit will be

([1000(1)]/[2000 + 1000]) = 33%If there are two turnovers, then it will be

66%.

historical issuesThere can be no doubt—and this very fact has led to

false conceptions—that the great revolutions that took place in trade in the sixteenth and seventeenth centuries, along with the geographical discoveries of that epoch, and which rapidly advanced the development of commercial capital, were a major moment in promoting the transition from the feudal to the capitalist mode of production. The sudden expansion of the world market, the multiplication of commodities in circulation, the competition among the European nations for the seizure of Asiatic products and American treasures, the colonial system, all made a fundamental contribution towards shattering the feudal barriers to production. (Marx, 1991, p. 450)

historical issues

The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the indigenous population of that continent, the beginnings of the conquest and plunder of India, and the conversion of Africa into a preserve for the commercial hunting of blackskins, are all things that characterize the dawn of the era of capitalist production. These idyllic proceedings are the chief moments of primitive accumulation. Hard on their heels follows the commercial war of the European nations, which has the globe as its battlefield. (Marx, 1990, p. 914)

Profit is the bottom line of the capitalist system.

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