Filleting Nick Rogers Latest Argument - Part 1

Over the last few months, I have debated, both here and in the pages of the Weekly Worker, with Nick Rogers, over the Temporal Single System Interpretation (TSSI), and his version of it. In his latest response - in the Weekly Worker – Nick accuses me of putting forward a red herring in my argument. Its appropriate then, that in response, I should pick the bones out of his latest offering. I have already forwarded a letter to the WW setting out a response to Nick's misunderstanding of the Law Of Value, and indeed of the concepts of Value and Exchange Value, which should appear next week. However, there is so much wrong with Nick's argument, in relation to the TSSI, that it can only be adequately dealt with at more length than is possible in a letter.

Nick says,

“Arthur appears to confuse the effect of an appreciation of capital values on the rates of profit of individual capitalists with its effect on the aggregate rate of profit. My point has always been - and Arthur himself says the same thing - that one capitalist’s capital gain is another’s capital loss. In measures of aggregate profits (historical cost and current replacement cost alike) such gains and losses will cancel out each other.”

This is to invert the reality of the debate so far! It is Nick who has defended the idea that the strength of the TSSI is that it deals with the rate of profit of “real” Capitalists, based on the money they have laid out, not me. My argument has been, from day one, that such an approach is subjectivist. My approach, as with that of Marx in Capital, is to argue that the Rate of Profit is most correctly measured against the actual value of the Capital employed in the production of that Profit. The actual value of the Capital, as Marx states repeatedly throughout Capital, is, as with every other commodity, not determined by what was paid for it at some time in the past, but what the labour-time required for its reproduction is currently.

For example, Marx says,

“If the price of raw material, for instance of cotton, rises, then the price of cotton goods — both semi-finished goods like yarn and finished goods like cotton fabrics — manufactured while cotton was cheaper, rises also. So does the value of the unprocessed cotton held in stock, and of the cotton in the process of manufacture. The latter because it comes to represent more labour-time in retrospect and thus adds more than its original value to the product which it enters, and more than the capitalist paid for it.”

Capital III, Chapter 6

One of the fundamental aspects of the TSSI's argument, and of Nick's own arguments previously based upon it, is that the conventional Marxist calculation of the Rate of Profit, based on this current replacement cost, is wrong because the real calculation should be based not on this replacement cost, but on what “real” capitalists actually paid for it. For example, a Capitalist buys Constant Capital (let us say 100 kilos of cotton), which costs him £1,000. He employs 10 workers (Variable Capital) which costs him £1,000 to spin it. These workers work half of the day for themselves (Necessary Labour), and the other half for the Capitalist (Surplus Labour), thereby producing a Surplus Value of £1,000. This can be represented as follows:

(1) C 1000 + V 1000 + S 1000 = E (Exchange Value) 3000.

This gives a Rate of Profit of S/C+V = 1000/2000 = 50%.

Now, suppose the labour-time required to produce the cotton doubles. Marx describes this situation in Capital in the quote above. He says quite clearly that all cotton, including that already produced, and held in stock then doubles in value. In his calculations of the Rate of Profit in Volume III of Capital, Marx again then clearly uses this new value of the Constant Capital, as the basis for calculating the Rate of Profit.

He says,

“Since the rate of profit is s/C, or s/(c + v), it is evident that every thing causing a variation in the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even if s and v, and their mutual relation, remain unaltered. Now, raw materials are one of the principal components of constant capital. Even in industries which consume no actual raw materials, these enter the picture as auxiliary materials or components of machinery, etc., and their price fluctuations thus accordingly influence the rate of profit. Should the price of raw material fall by an amount = d, then s/C, or s/(c + v) becomes s/(C - d), or s/((c - d) + v). Thus, the rate of profit rises. Conversely, if the price of raw material rises, then s/C, or s/(c + v), becomes s/(C + d), or s/((c + d) + v), and the rate of profit falls. Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material.”

(loc.cit)

So, with the new higher value of cotton we have,

(2 ) C 2000 + V 1000 + S 1000 = E 4000.

A poor cotton harvest raises the cost of Cotton as
Constant Capital.  More Capital has to be laid out
to buy the same quantity.  The same amount of
labour power is employed to process it, with
the same proprtion of the day required to cover the
Value of Labour Power.  So the amount of Surplus Value
remains the same, but the Rate of Profit falls, because
 more Capital has to be laid out to buy the cotton.

As Marx points out, the new higher value of the cotton is now passed on to the end product, raising its Value to 4000. But, it is only Labour which creates Surplus Value, and as the Labour-power employed has not changed, and neither has the rate of its exploitation, the amount of Variable Capital and of Surplus Value remain constant. However, the consequence is now to reduce the Rate of Profit, because it is calculated on a higher total amount of Capital laid out. It is now 1000/3000 = 33.3%. It is not a change in the amount of profit that changes the Rate of Profit, as Nick seems to think, but precisely the change in the Value of the Constant Capital, a change which Nick does not believe has occurred, because he bases his valuation of the Constant Capital not on its current value, but on what the Capitalist paid for it at some point in the past!

When you think about it, and from Marx’s standpoint of being concerned about how Capital expands, by the the reinvestment of Surplus Value, this makes sense. The Rate of Profit, calculated in this way is also equal to the maximum rate by which this Capital can expand, given the new cost of the Capital it has to buy to continue production.

However, Nick disagrees with Marx’s approach. Nick argues that the real Rate of Profit that this Capitalist makes is not 33.3%, but remains 50%, because this particular Capitalist only paid £1,000 for the cotton they have used. Nick also argues that the value of the cotton transferred to the final product is also still only £1,000, which again contradicts a fundamental aspect of the Labour Theory of Value, which is that the Exchange Value of Commodities is determined by the labour-time currently required for their production.

On this latter point, Nick was also contradicted by Andrew Kliman, in the interview Nick did with him. Andrew agreed with me that the current value of the cotton is transferred to the final product. On this point, Nick's only response now is, “I intend to spend time working through this issue”. In other words, he is unable to sustain his argument.

Having set out the basic terms of the argument, on this point, let me now turn to Nick's statement above. We can now pick the bones from it. The first obvious thing to say is that on the basis of Nick's argument, as opposed to that put forward by Andrew Kliman, there could be no Capital Gain for the individual Capitalist. According to Nick the value of the Constant Capital (the cotton) has not changed! It remains what the Capitalist paid for it, not what its current replacement cost is. The individual Capitalist could only obtain a Capital Gain, if the Value of this cotton has changed from the £1,000 he paid for it, to £2,000, its current replacement cost. But, Nick denies that any such change in its value has occurred!

Let me now turn to the question of the profit, and the Capital employed to produce it. Once again, it is Nick who is confused on this matter. Nick is absolutely right that were the individual Capitalist to be able to realise a Capital Gain, by selling the cotton to some other Capitalist, rather than engaging in production themselves, this would not add one jot of additional Surplus Value. Capital Gains can only be realised in the sphere of Distribution out of the Surplus Value created elsewhere in the realm of Production. (Actually, this is not strictly true, it could be realised as a consequence of new capital being mobilised via Primary Accumulation i.e. money hoards could be turned into Capital.)

Nick confuses changes at
the surface with changes in
the underlying reality.

But, in determining the Rate of Profit, Nick once more seems to forget that the Rate as opposed to the amount of profit, is not just determined by the amount of Surplus Value created, but also by its relation to the Value of the Capital laid out to produce it! In Nick's world, the Value of Capital is determined by what was paid for it at some time in the past. This also determines how much Value is passed on to the end product also.   On that basis, then, of course, if neither the amount of profit created, nor the value of the Capital laid out are deemed to have changed, then there can be no change in the Rate of Profit. But, the whole point is that the Value of the Constant Capital HAS changed! Of course, no one can deny Nick the right to determine the Rate of Profit on that basis if he chooses to do so. He is free to choose whatever method he likes. The point is whether this method tells you anything useful, and whether it is consistent with Marx’s method. The answer to both these questions is no.



Historic Cost implies a factor contributions theory
of Value more akin to that of the
 Neo-Austrian School than Marx's Labour Theory
of Value. 

As I've demonstrated above, Marx argues that the Value of Constant Capital, as with any other commodity is determined by the labour-time currently required for its reproduction. There are good reasons as set out above for using this method, because it means that it provides a useful basis for calculating the maximum rate of Capital Accumulation (if we set aside the potential for using Credit, or for new primary Capital Accumulation). But, as I've set out elsewhere in my posts here and in the Weekly Worker, the other consequences of using historic cost is to undermine the Labour Theory of Value itself, because it introduces a factor contributions theory of value by implication, even though this is no doubt, not the intention of its proponents.

But, as I set out in a recent letter to the WW on these points - here – the historic cost method of calculating the rate of profit produces spurious results that would cause a misallocation of Capital. Let me give another example of this. Suppose I am a capitalist Landlord. I bought a house 20 years ago that cost £50,000. The average rental income is 5%, so I rent the house out at £2,500 a year. However, today the market price of the house is £250,000. Would I continue to calculate my “Rate of Profit” i.e. my rental income as a proportion of the capital used to produce it, based upon the £50,000 historic cost, or on the current replacement value of £250,000? Its only necessary to ask this question, to realise the answer. Any Capitalist worth their sort, would base their calculation on the current value, not the historic cost.

A society of hunter-gatherers that has to devote more
social labour-time to producing tools and weapons
 (means of production) i.e. the Value of those tools
 and weapons rises, will either have to devote less time
to actual hunting and gathering (which may lead to a reduction
in their population), or else will have to work more hours in total.
  The same is true for a commodity producing society.  As Marx says in his
Letter to Kugelmann, the Law of Value operates across all Modes
of Production as a Law of Nature.  Only its form is changed.

Nor can Nick escape the logic of this argument by claiming that things are different at the level of “Capital in General”, as opposed to the level of “Many Capitals”. I have followed Marx in providing examples based on “Many Capitals”, but Marx is quite clear, as he points out in arguing against Adam Smith's “Trinity Formula”, that the production function facing the individual Capital i.e. C + V + S = E, applies equally to Capital in General. So, the example given above in relation to a single capital can simply be applied to Capital in General. In other words, if we take a period of one year, for example, we might have a situation where at the beginning of the year the total national Capital is comprised of C £1 Trillion + V £1 Trillion + S £1 Trillion = E £3 Trillion. But, similarly, if the labour-time required to produce the £1 Trillion of Constant Capital rises, even just for some of it, then the Value of that Constant Capital will rise. Let us say it doubles, in that case we will have C £2 Trillion + V £1 Trillion + S £1 Trillion = E £4 Trillion. If £1 = 1 hour of social labour time, then its clear that this society will have to have worked 1 trillion more hours to ensure that the necessary quantity of Constant Capital is produced. This is fully consistent with the Law of Value as it applies to the distribution of social labour across all modes of production. It is also consistent with this same Law of Value, that the distribution of this social labour-time is determined by the need to expend this labour-time on the production of this Constant Capital, and on reproducing the Labour-power, which leaves the amount of social labour-time expended for the purpose of producing means of consumption (V) and surplus value (S) unchanged! In the same way the overall Rate of Profit for this economy will have fallen from 50% to 33.3%.

Mass production techniques massively devalued
constant capital, making it possible to buy more means
production, and employ more labour-power absolutely,
even whilst the amount of labour-power fell relative to
total capital employed.

The conclusion from this is quite clear and consistent with the analysis above at the level of “Many Capitals”, which is that the fall in productivity which raises the Value of the Constant Capital, makes necessary an increased proportion of society's available labour-time being devoted to the reproduction of that Constant Capital. This is manifest in the fact that this society is now less able to expand at its previous rate, even though its total volume of profit remains unchanged.

It is absolutely true that at the level of “Many Capitals”, the changes in the Value of this Constant Capital, may result in some Capitalists realising a Capital Gain, whilst others will in consequence make equal Capital Losses but this does not at all change the amount of profit created, nor does it change the fact that the Value of the Capital employed has changed, demonstrated by the fact that more social labour-time is required to reproduce it. It is, in fact, that very fact, which results in the fall in the Rate of Profit.

By the same token, it is a fall in the Value of Capital, which results in a higher Rate of Profit, which can then be a stimulus for increased accumulation of Capital, thereby promoting economic growth.

It is odd, in fact, that Nick seeks to defend the TSSI, and yet rejects the argument above, because a basic argument put forward by proponents of the TSSI, and by Nick himself is that accumulation in the US did not increase substantially because the Rate of Profit had not risen, and the reason given for this is that Capital in the US had not been adequately depreciated!

Forward To Part 2