Tuesday, 26 August 2014

Maito and The Rate of Turnover of Capital - Part 1

This is a response to the article by Estoban Maito in the Weekly Worker , discussing the role of the rate of turnover of capital, and its effect on the annual rate of profit. A fuller analysis and critique of his other works in this respect, will require more time than I currently have available.

I welcome the attempt by Maito to calculate an average rate of turnover of capital. For several years now, I have been arguing that estimates of the rate of profit are inadequate, because, for one thing, they do not take into consideration changes in the rate of turnover of capital. For that reason alone, Maito's attention to it is helpful, compared to those who believe the rate of turnover is only a “phoney novelty”. However, there are other reasons why the calculations of the rate of profit are inadequate, and some of those reasons also mean that Maito's attempt to calculate the rate of turnover, based on national income and output data, is fraught with problems. I do not believe it is possible to calculate the rate of turnover by working backwards from this data, and making extrapolations, in the way that Maito does. The only way to estimate the rate of turnover, is to do what Marx and Engels did, which is to work upwards from the firms actually involved in production and circulation, and thereby to determine the actual working period, production time and circulation time of commodities.

Maito makes a fundamental error to begin with, in relation to the circuit of productive-capital. He says,

“Capitalist production consists of a valorisation process (M-M’) through the exploitation of the labour force (M-C...P...-C’-M’).”

But, this is wrong. Marx makes clear in Capital II, that this is only the circuit for newly invested money-capital.

“M ... M' becomes a special form of the industrial capital circuit when newly active capital is first advanced in the form of money and then withdrawn in the same form, either in passing from one branch of industry to another or in retiring industrial capital from a business. This includes the functioning as capital of the surplus-value first advanced in the form of money, and becomes most evident when surplus-value functions in some other business than the one in which it originated. M ... M' may be the first circuit of a certain capital; it may be the last; it may be regarded as the form of the total social capital; it is the form of capital that is newly invested, either as capital recently accumulated in the form of money, or as some old capital which is entirely transformed into money for the purpose of transfer from one branch of industry to another.” (Chapter 2, p 61)

The circuit for already functioning productive-capital is by contrast P...C' – M'.M – C...P. 

“The circuit of productive capital has the general formula P ... C' — M' — C ... P. It signifies the periodical renewal of the functioning of productive capital, hence its reproduction, or its process of production as a process of reproduction aiming at the self-expansion of value; not only production but a periodical reproduction of surplus-value; the function of industrial capital in its productive form, and this function performed not once but periodically repeated, so that the renewal is determined by the starting-point.” (Capital II, Chapter 2, p 65) 

As Marx says in Capital III,

“In the reproduction process of capital, the money-form is but transient – a mere point of transit.” 

This is important for understanding the rate of turnover for capital, because its clear that for Marx, this circuit is not a circuit of money or money-capital, but of capital value, starting from the capital value of the productive-capital itself. The problem of Maito's approach can be seen by taking his circuit above and comparing it with the reality of an already functioning productive-capital. Take the example, I have referred to previously, of a fast food restaurant.

The reality is that such a productive-capital does NOT begin with an amount of money-capital, which it pays out for labour-power and materials. As with all currently functioning productive-capitals, it begins its circuit, as Marx points out above, with a quantity of productive-capital. It already has, at the start of its circuit, fixed capital acquired previously; it has a stock of materials; and it has an existing workforce. The whole point of capital expansion, for this already functioning productive-capital, is not to expand a quantity of money-capital, but to expand the quantity of this existing productive-capital, because that is the means by which it again increases the mass of surplus value, so as to expand once more. The realisation of the increased capital-value, in money form, is, as Marx says above, merely a moment within this circuit, not its terminal objective. The aim of expanding the quantity of money-capital is only the function of money-capital, not productive-capital. As Marx says, it only describes the circuit of capital where money-capital is first invested, or when money-capital is being withdrawn from a particular sector.

As Marx points out, in Capital II, the reason the Physiocrats were in advance of Adam Smith and his followers, in this respect, was precisely because they began their analysis, of the circuit of capital, not with the current year, but with the previous year's harvest, because it was this harvest which made available the productive-capital, already in the possession of productive-capitalists, in the form of seeds, food to cover the variable capital and so on, with which they commence the current year's production. 

But, also, in reality, in a modern capitalist economy, the workers are paid, maybe, a week, or even a month in arrears, whilst the materials themselves will usually be bought with commercial credit, from suppliers. So, no money-capital is actually advanced, for this circulating capital, ahead of the production and circulation process. However, as Marx points out in Capital II, this is irrelevant, because the rate of turnover is calculated not on the basis of money paid out for wages or materials, but on the actual capital-value of the productive-capital, determined by its current reproduction cost, advanced to the reproduction process. A concern for the payment of wages, or for other inputs risks making the same mistake that was made by Adam Smith and others, criticised by Marx. That is to confuse the periodicity of these money payments for the turnover period of the advanced productive-capital itself. As Marx points out, wages are not capital. They are merely a money price for the value of labour-power, in its phenomenal form. Workers may be paid weekly in arrears for the labour-power they sell, but their labour is advanced to the production process on a completely independent basis from that. As capital value, it may turn over only in a year, or by contrast may turn over several times a day, depending upon the nature of the commodities being produced and sold.

Forward To Part 2


Esteban Maito said...

Thanks for taking time reading my work. However, I mostly disagree with you. I will write here some things referred to all parts you wrote.
1- I´m the first person to assert the broad and rough character of my turnover estimates. But it´s important to make them on the same base (for the four countries US, Netherlands, Japan and Chile). You committed a basic error about my estimates. You said that I didn´t consider C but I´ve done (both circulating and swear and tear). You said that my estimates are wrong because services doesn´t use inventories in a similar level of for instance manufacturing. But my estimates PRECISELY consider that, for the simple reason that they take total inventories (including the little ones of services) in the denominator and total costs (circulating C and V consumed plus swear and tear OF ALL INDUSTRIES INCLUDING SERVICES). So, the growing C and V of services in last decades due to better profitability conditions increased the numerator and as they don´t do it in the same level on the denominator, the basic account is that (Turnover = TOTAL COSTS / INVENTORIES) turnover speed increased with the increasing contribution of services. All this is included in my estimates so your point is meaningless. Equally meaningless your “point” about TV´s microprocessors and transistors.
2- Your conclusion, that I´m underestimating turnover, may be right at some point but, related to United Kingdom, my intention was precisely to show the increasing irrelevance of circulating capital related to fixed capital, not even show any “real” estimation. Your point does reinforce mine´s.
3- I have no idea what is the source of some data you use but please be more careful. It´s not serious to say that pharmaceutical industry has 2 million workers in the UK. There are 80.000.
4- Turnover on agriculture. Come on, you are saying that because in last decades soya allows two annual crops there is NO limits imposed by nature to production time in agriculture and so in its turnover? Similar point on mining. You talk as the new technologies were used in the same rich quarries of 1800´s but what that technologies allow is production in poorer quarries. Mining in present days is mostly open-cast with low-grade ore. Low grade ore which implies less ore per rock removed. But it seems that you are denying natural limits to production time in these industries, and land differential rent which emerges.
5- You talk about Engels and 8,5 turnovers of the most advanced spinning. However, this is NOT about individual and interested “examples” but the total social production. So, in those times, for instance, many processes takes months like wood products (drying, etc) or chemical treatment to textiles for colouring, etc. Leaving aside agriculture production, huge inventories and circulation time etc. But your example is extreme because as I said this is about the total social production and not the most advanced one. You would have to know it. This said, I repeat, I was not trying to estimate a “real” turnover speed but state some trend. The conclusion is the same if there were 10 turnovers in 1855 and 250 in 2008. The increasing irrelevance of circulating capital as capital advanced. That was the idea, but now you talk about my “estimation” and not about your constant mislead about fixed capital relevance. It´s also funny because you tried to use some example on your blog using GDP per capita and being more conservative that my estimates which I have to tell are the higher ones. Other authors, for recent decades, estimates even lower turnover speeds for the US. Finally, I have no particular interest in assert that turnover was for sure 1,5 in 1855, that wasn´t the nature of that exercise.

Esteban Maito said...

6- In the years of Henry Ford too one car per minute come out :
“Ford was producing cars at a record-breaking rate. In the early days of Model T production, completing one vehicle required 12 hours. By 1914, vehicles rolled out of the Highland Park Plant at the rate of one every 93 minutes. In 1920, Ford turned out one car every minute, and one out of every two automobiles in the world was a Model T. At one point, the pace picked up to one Ford being manufactured every 24 seconds!” (http://www.econedlink.org/lessons/index.php?lid=676&type=student)
But again you are mixing the things in such way to say that as Ford “produced” one car in 93 minutes and in Toyota at the present one car came out every minute the production time has reduced 93 times. Don´t you see the difference? But there in that quote they say that one Ford was manufactured every 24 seconds. So productivity in your curious way of measure as number of cars moving out from a door has felt more than a half from 24 seconds to 60 seconds.
“That is a reduction in the production time, an increase in the rate of turnover, for this part of the circuit, of 93 times compared to the 1920's. “
Cars coming out from a door per x seconds have NOTHING to do with their value, the social necessary labor time required for their production, or the production time. A car may take one year to get manufactured but if FORD put thousand lines (unified in a final line) for each car in such way that one car would came out every minute you would say that each car take one minute to get manufactured. By the way, you should know that assembly car industries actually measure the time required per vehicle (as hours per vehicle –HPV- with the simple division Hours worked / Vehicles assembled) and in US is about 16-20 hours per vehicle in 2006-2007. Not one minute. What kind of production process adds one minute of value in a vehicle? One worker putting a “Sold” label maybe.
7- In a very similar way, you confuse the things in your restaurant example. Here, there are USE VALUES COMING OUT FROM THE KITCHEN. You get the weird idea that circulating capital turnover 3500 times a week because the restaurant serves 3500 orders per week!!! Let´s take aside the fact that, as I mentioned too, workers really advance their first wage. As I said too this doesn´t matter in a total turnover time which exceeds the month (if they get paid monthly). Let´s assume that restaurant pay to suppliers and workers monthly. You talk about quantities when this is about capital advanced and valorization.
This is a spaghetti restaurant. You paid monthly 14.000 to the spaghetti supplier and 14.000 to workers for 14.000 monthly orders. When you sell one order just 1/14.000 of your circulating constant capital completes its circuit, but you said that all the circulating constant capital complete it. The total circulating constant capital completes it EXACTLY in a month. Just in a month the 14.000 paid are FULLY recovered. It doesn´t deny that during that month the capitalist recovers portions of those 14.000 with each order, each day, and may use it for any other thing. The circulation is about changes in the form or shape of capital and exchanges in the market not about use values coming out (not even about transportation per se). And if the capitalist starts paying suppliers weekly his turnover speed would increase from four weeks to one week. And that´s the secret of OUTSOURCING in present days, but for your consideration turnover speed is near infinite since ever because you confuse absolutely the matter with the speed at which use values came out from a manufacture o kitchen door.

This said, in my country for example, services like electricity, water, gas are paid BIMONTHLY so circulating capital used for those services completes its turnover in two months, not with each glass of water. And that is for example one point you can put in the balance of your “services” miracle argument and your infinite annual turnovers of circulating capital.

Esteban Maito said...

8- Finally, I´m working on rates of profits on fixed capital in manufacturing and services industries (with the EUKLEMS database) and the spread between manufacturing and services has been reducing during the last decades, and services are falling to a similar level of manufacturing in UK.

Best, Esteban.

Boffy said...


Thank you for your responses.

1. My point was not that you do not consider C, I realise that you look at intermediate goods etc. My point is that the data on this in the national accounts itself does not provide the correct figure for C. That is for the reason Marx sets out in Capital II, in discussing this and Adam Smith's Trinity Formula.

The intermediate goods are really the equivalent of the revenue component of Department I. That is Department I (v + s). As Marx demonstrates what the national income figures miss is all of that output that is not part of the total social exchange of capital with revenue, but which is merely an exchange of capital with capital. National Income figures by definition only provide the data that has been received as Income, whereas output also includes constant capital produced in previous years.

2. The point about inventories is that if there has been a signiicant change in the composition of the total social capital, which there has, measuring inventories is misleading, because you are comparing apples with oranges. In the past, when manufacturing dominated, inventories would comprise a significant amount, if manufacturing still dominated examining how inventories have changed might give an estimation, though I'm not convinced for the other reasons, but it would have to be done at an industry by industry level, not a global level. If the industries today are markedly different in composition, how does comparing the value of inventories at a global level in time t have any significance at time t+1. Its like comparing how many times the ball was handled in a game of football with how many times it was handled in a game of ruby, to determine whether the number of "handballs" had increased.

The point about the change in the composition of current production of TV's etc. remains valid for that same reason.

The source of the data on employment in the UK pharmaceutical industr was taken from here. It should more accurately have been described as employment in Chemicals, Pharmaceuticals and Bioscience. But, as you an see from that data provided by the Office of National Statistics, this sector accounts for 6% of UK manufacturing jobs. You are right, I made a mistake in extrapolating that figure in relation to total employment rather than just manufacturing jobs. Nevertheless, the substantive point remains that the nature of employment and production has changed significantly, even as regards manufacturing, let alone the shift to service industry.

3. I didn't say there were No natural limits to turnover in agriculture, only that they are not fixed, as Marx himself demonstrates in Capital, in setting out how science was changing that via the use of crop rotation, the development of new breeds of livestock and so on. If you are able to grow three crops in a year rather than 1 as was the case in Brazil, that represents a reduction of the production time to a third of its previous level.

Your point about mining seems to be an assertion of Malthusian and Ricardian theories of rent as against those of Marx. Marx demonstrates in his critique of Ricardo's theory of rent, in Capital III, and TOSV, precisely why its possible to move from lower fertility soil to higher fertility soil. Its not true that mining is today done in worse mines.

The new mines and quarries established in Central Asia, are extremely fertile, new mines producing large amounts of gold, copper and other minerals with high yields, and at low cost.

Boffy said...

Engels estimate of a rate of turnover of 8.5 in 1871 is not exceptional. It was not of a particularly more productive textile producer than any other, and as the textile industry was by far the largest industry in Britain at that time, it did constitute the dominant component of the total social capital, so its rate of turnover acted like a proxy for the average rate of turnover of all industry.

2.As for things like chemical dyeing and so on, as Engels himself demonstrates in Capital III, Chapter 4, the turnover time in those industries was being slashed, as new chemical processes were introduced that reduced production times by 90%!!!

3. You say,

"Cars coming out from a door per x seconds have NOTHING to do with their value, the social necessary labor time required for their production, or the production time."

But, I had never said anything suggesting that it did. The example of the time required to produce a Model T in the 1920's compared to produce a Toyota today was simply an illustration of the increase in productivity, and reduction in time working period.

You say,

"What kind of production process adds one minute of value in a vehicle? One worker putting a “Sold” label maybe."

Which is a strange argument. The minute of production time is a minute expended not by one worker, but by thousands simultaneously, which is how the figure of 16-20 man hours per vehicle is established.

You say,

"Let´s take aside the fact that, as I mentioned too, workers really advance their first wage. As I said too this doesn´t matter in a total turnover time which exceeds the month (if they get paid monthly). Let´s assume that restaurant pay to suppliers and workers monthly. You talk about quantities when this is about capital advanced and valorization."

But, that is the mistake that Marx says was made by Adam Smith and others, which is to confuse the frequency of payments with the time required for the turnover of the advanced capital.

"When you sell one order just 1/14.000 of your circulating constant capital completes its circuit, but you said that all the circulating constant capital complete it."

No I didn't. I said that the ADVANCED circulating capital had completed its circuit, and it had. As Marx makes clear, the advanced circulating capital, is only that which is physically advanced to the production process so as to ensure continuous production. On your basis, if the restaurant had bought ten years circulating capital, and then required ten years for them all to be sued up, its turnover period would be ten years!!!

Boffy said...

"This said, in my country for example, services like electricity, water, gas are paid BIMONTHLY so circulating capital used for those services completes its turnover in two months, not with each glass of water."

Except, of course, that this is not true, because millions of people, even with bi monthly payments, will pay their bills every day. In other words, person 1's bi monthly payment may be on Day 1 of the the two month period, and so on until person 60's payment is on the last day of such a period. So, the company is seeing its product realised each day in receipts.

I look forward to reading your articles on the rate of profit on fixed capital for European service industries, but without taking into consideration changes in the value of the circulating capital, and without accurate figures for the real rate of turnover, I remain sceptical.

The basic fact that you and others whoa argue that the rate of profit has been falling over the last few decades have to answer is quite simply this - where did all the masses of extra capital come from?

For Marxists, capital is accumulated surplus value. In the last 30 years, productive-capital has been accumulated at a phenomenal rate. China has gone from a poor peasant economy in 1982, to being the largest economy in PPP terms. It is growing by the equivalent of an additional Greek economy every 3 months. But, it is not alone. Masses of productive-capital was accumulated in the other Asian Tigers, it has been accumulated in Latin America, and other BRIC economies. The latest area is developing sub-saharan Africa.

But, in addition, large entirely new industries in technology etc. have developed from nothing during that period. Yet, despite this massive accumulation of productive-capital, alongside it, we have seen the amassing of astronomical money hoards, of realised profits that sit as sovereign wealth funds in surplus countries, and on the Balance Sheets of global corporations, amounting to trillions of dollars.

In fact, despite the massive accumulation of productive-capital during that period, the amassing of this potential money-capital has been so great that it has forced down global interest rates - as Marx describes the price of money-capital determined solely on the basis of supply and demand for it - to levels not seen in 300 years!

So, the question you have to answer if you believe the rate of profit was falling during all that time is, where did all this capital come from?

Boffy said...

Just on the point about a Ford coming off a production line every 24 seconds, the fact is that Model T's were being produced at 20 different factories around the world - http://en.wikipedia.org/wiki/Ford_Model_T.

I think its silly to pretend that there has not been a huge rise in productivity in the motor industry, and, therefore, a huge reduction in the production time per car sicne the 1920's.