In The Time Of Nick (Rogers) - Part 2

In Part 1, I looked at the problem of transforming Exchange Values into Prices of Production on the basis of simply adjusting prices so as to bring about an average rate of profit. This might seem a distraction from the arguments put forward by Nick Rogers. It isn't as I will demonstrate shortly. It relates directly to Nick's charge that I have supported the underconsumptionists.

So, it is impossible to simply turn transformed Output Prices into Input Prices in the next production cycle without knowing how changes in prices will affect the level of demand for each type of commodity. In other words, as Marx makes clear in the statement above, where he demonstrates he understood the principle, the problem cannot be resolved without examining the consequences of price elasticity of demand. As Marx sets out, this may not change the Value of the overall basket of wage goods purchased by workers – they will still need a certain quantum of calories, a certain, level of clothing, of shelter and so on – but how that basket is composed will certainly be affected by such changes in prices!

“As for the variable capital, the average daily wage is indeed always equal to the value produced in the number of hours the labourer must work to produce the necessities of life. But this number of hours is in its turn obscured by the deviation of the prices of production of the necessities of life from their values. However, this always resolves itself to one commodity receiving too little of the surplus-value while another receives too much, so that the deviations from the value which are embodied in the prices of production compensate one another. Under capitalist production, the general law acts as the prevailing tendency only in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations.”

Capital Vol III.

The real process by which Exchange Values are transformed into prices of production is described by Marx in historical terms. Exchange Values predominated prior to Capitalist Production.

He writes,

“Let us first assume that all commodities in the different branches of production are sold at their real values. What would then be the outcome? According to the foregoing, very different rates of profit would then reign in the various spheres of production...

“But in theory it is assumed that the laws of capitalist production operate in their pure form. In reality there exists only approximation; but, this approximation is the greater, the more developed the capitalist mode of production and the less it is adulterated and amalgamated with survivals of former economic conditions.” (p175)

and,

“Apart from the domination of prices and price movement by the law of value, it is quite appropriate to regard the values of commodities as not only theoretically but also historically prius to the prices of production. This applies to conditions in which the labourer owns his means of production, and this is the condition of the land-owning farmer living off his own labour and the craftsman, in the ancient as well as in the modern world. This agrees also with the view we expressed previously that the evolution of products into commodities arises through exchange between different communities, not between the members of the same community. It holds not only for this primitive condition, but also for subsequent conditions, based on slavery and serfdom, and for the guild organisation of handicrafts, so long as the means of production involved in each branch of production can be transferred from one sphere to another only with difficulty and therefore the various spheres of production are related to one another, within certain limits, as foreign countries or communist communities.” (p 177)

In other words, the transition from Exchange Values to Prices of Production is a historical transition, which arises as Capital gradually invades the production process. But, it is quite clear that, as a consequence, there is no General Rate of Profit actually enjoyed by all spheres of production. The historical transition from market prices based on Exchange Values to market prices based on Prices of Production is marked by widely divergent Profit Rates as described by Marx above. Any model that bases itself on the necessity of an average rate of profit across all spheres as the determining factor, and the determination of Prices of Production based on it is bound to miss this historical and material reality of Capitalist Production. To the extent that the conditions Marx describes, in relation to the difficulty of Capital moving freely from one sphere to another, persists, so these divergent profit Rates continue. It is these divergent rates that provide the stimulus for capital to move from one area to another, which raises prices in one sphere (due to Supply being reduced), and lowers them in another (as Supply is increased), which brings about the changes in market prices, which in turn tends towards an equalisation of the rate of profit (though it is never achieved).

As Marx puts it,

“At a certain price, a commodity occupies just so much place on the market. This place remains the same in case of a price change only if the higher price is accompanied by a drop in the supply of the commodity, and a lower price by an increase of supply. ... What has been said here of market-value applies to the price of production as soon as it takes the place of market-value.” (p179)

“What competition, first in a single sphere, achieves is a single market-value and market-price derived from the various individual values of commodities. And it is competition of capitals in different spheres, which first brings out the price of production equalizing the rates of profit in the different spheres. The latter process requires a higher development of capitalist production than the previous one.” (p180)

On this basis the individual producers were not concerned with Rates of Profit. However, once Capital begins to invade the production process, the Capitalists most certainly are concerned to invest their Capital where it can make them the best return. Capital necessarily enters first those areas of production where it can make the highest rate of profit. The immediate consequence is an increase in Supply, which brings about a reduction in market prices, which in turn stimulates additional demand. This process continues until such time as the prices in this area of production fall such that profits are no longer higher than in the next most profitable area of production. At that point Capital begins to enter that sphere, where the same process occurs. What is important to understand here, and which none of the mathematical models seem to account for, is that it is not just market prices which are modified, but the whole structure of the market. It is impossible to know how much additional Capital has to enter any particular sphere of production before prices fall to bring about average profits, without knowing the specific demand elasticities in that sphere.

This continual movement of Capital in search of a higher rate of profit is the means by which the general rate is established – though always only as an abstraction, and continually moving target – as a pivot around which Capital moves. This is also a central aspect to understanding the difference between periods of Long Wave Boom, and decline. In periods of Long Wave Boom there are a large number of new dynamic areas into which Capital can move, where high rates of profit can be achieved. This indeed is one of the areas of Kliman's assessment of the crisis in the US, set out on page 4, I disagree with. Kliman says,

“Yet the destruction of Capital value would indeed be a solution to the systemic problems I have outlined – unless it led to revolution or the collapse of the system. A massive wave of business and personal bankruptcies, bank failures, and write-downs of losses would solve the debt overhang. New owners could take over businesses without assuming their debts and purchase them at fire sale prices. This would raise the potential rate of profit, and it would therefore set the stage for a new boom.”

I would argue that the real problem in the US is not that Capital has not been destroyed, but that it has not been sufficiently restructured towards these high value areas, to bring about a sufficiently dynamic economy. The real problem is that even were large parts of US industrial production written down in the way Kliman suggests, it would not change the fact that Chinese workers, in the same industries are working with later, more efficient, machines in purpose built factories, often in purpose built economic zones, and are being paid a thirtieth of the wages of US workers! Indeed, many parts of US industry e.g. GM have been devalued in the way Kliman suggests, but those problems continue. I do have some sympathy, however, for some of the arguments Kliman puts forward, which could be – and which in the past I have – held responsible for limiting that restructuring. For example, back in September 2010, and long before Kliman's book, I wrote,

“The usual clear out of inefficient Capital that occurs during a severe crisis was cut short in the West by the use of liquidity to stimulate an artificial “boom” from the late 80's through the 90's. Although, the Rate of Profit rose in the West from the late 80's onwards due to the usual mechanism that brings this about from the bottom of a Long Wave cycle, that increase was lower than it should have been, and the Rate of Accumulation was lower than it would otherwise have been. That is why, stripping out the continued role of liquidity injections from the start of this decade, growth has been less than stellar in the West, whilst developing economies have leapt ahead by 10% p.a. and more.

3. The same cause explains why Capital remained locked up in low profit (at best) industries and companies like GM, Ford, Chrysler etc. rather than having migrated to new, high, value, high profit industries such as in alternative energy, bio-technology, and so on. The Capitalist State is now trying to drive this process, and using the recent crisis as the basis to forcibly restructure Capital in these old industries, and to direct it towards the new industries – a similar process occurred in Britain in the early 1960's, as part of Wilson's “White Heat of Technology”, the establishment of the Industrial Reorganisation Corporation, and so on.”

See:A Tale Of Contradictions

In addition, I have argued that the nature of Monopoly Capitalism in the US, has meant that huge Corporations like GM were able to continue to operate throughout the period of the Long Wave decline by living off their Balance Sheets, without restructuring into new dynamic, high value, high-profit areas. Where companies such as GM and GE did diversify, it was instead into Financial Services. In fact, for a long time GM was making losses on its car production that were only offset by the profits it was making through its Financial Services operations. But, the fact that the US has not adequately restructured into these new high value areas is not the same thing as saying that it has not restructured in that direction at all.

I believe that what Kliman's analysis of Capital Accumulation misses, and he is not alone in this, is precisely the changed nature of Capitalist production and consumption. The most valuable company in the world is Apple. It is also a very profitable company. Yet, Apple, like many of the other such high-tech, high value companies has relatively little in the way of Constant Capital to be accumulated. Like all such companies it is characterised not by large amounts of Constant Capital, but by relatively large investments in highly skilled. Complex, and highly paid Labour. In fact, most of the actual production of Apple Products occurs not in the US, but in China, and other low cost economies, and is undertaken by other companies. Moreover, as I have pointed out elsewhere, the nature of this production means that the countervailing tendencies of the Law of the Tendency of the Rate of Profit To Fall are put into overdrive.

On page 16 discussing the LTFRP, Kliman says,

“Assume that the rate of surplus value (rate of exploitation) is constant, and that physical output and physical capital grow at the same rate. These are fairly reasonable assumptions.”

But, they are not. Marx specifically says that a rise in the organic composition of capital due to an increase in its technical composition i.e. using more efficient means that allow more material to be processed with the same amount of labour, must at the same time raise the rate of exploitation, because the same rise in productivity cheapens wage goods – even if indirectly through the cheapening of Constant Capital consumed in their production – which reduces the Value of Labour Power and increases Relative Surplus Value. He writes,

“In relation to employed labour-power the development of the productivity again reveals itself in two ways: First, in the increase of surplus-labour, i.e. , the reduction of the necessary labour-time required for the reproduction of labour-power. (Increase in the Rate of Surplus Value – Boffy)Secondly, in the decrease of the quantity of labour-power (the number of labourers) generally employed to set in motion a given capital (Rising OCC – Boffy).

The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself.”

Capital Vol III Chapter 15

Marx in setting out the limits to the countervailing tendencies says, however, that there is a limit to the extent that this rise in productivity/rate of exploitation can offset the fall in the rate of profit. He says, even if workers could live on just 1 hour's labour-time, and work for 24, the 23 hours of Surplus labour-time would be less than 24 workers each providing just 1 hour of Surplus labour-time. However, what this does not account for, is that although there can be only 24 hours of concrete labour-time per worker during the day, Value is measured in Abstract Labour-time. There is effectively no limit to the number of Abstract Labour Hours in a day. One hour of Concrete Labour-time from David Beckham, for example, works out as around 1000 hours of Abstract Labour-time, judged in the way that Marx sets out, on the basis of how the market Values the product of 1 hour of Beckham's Labour. So, to reverse Marx's point one such worker even being paid the equivalent of 500 hours of Abstract Labour Time per day, could still contribute 500 hours per day of Surplus Value! The nature of the new types of productive activity – including the rise of the Leisure and Entertainment Industries which has many such suppliers of high value complex Labour as Beckham – is characterised by the high numbers of such workers, and the potential, therefore, for a high and rising rate of profit, together with a relatively low accumulation of fixed and constant Capital.

That indeed, could be why we have seen high rates of profit in companies like Apple, Microsoft and so on, together with the accumulation of large cash hoards by these same companies.

Back To Part 1

Forward to Part 3