Thursday, 19 March 2015

US Retail Sales and False Profits - Part 9

Land has no value, because it is not the product of labour. However, land is a commodity. It is bought and sold on the market, and, so has a market price. Marx sets out how this price is determined by two things – the level of rent, and the rate of interest. Suppose, the rent on a particular acre of land is £1,000 p.a. This is an income received by the landowner. But, under capitalism, especially as urban capitalists begin to buy land, in order to obtain such incomes, it appears to them, as no different to the interest they obtain, on the money-capital they loan out. Like any other capitalist, they will seek to utilise this money-capital so as to maximise their return upon it. It makes no difference to such a money-lending capitalist, therefore, whether they use their money-capital to buy land, upon which they obtain rent, or whether they use it to buy government bonds upon which they obtain interest, or to buy shares upon which they obtain dividends.

If the interest they can obtain from buying government bonds is then greater than what they can receive in rent, they will sell land, and buy government bonds. The price of land will fall, as selling increases, and the price of bonds will rise, as demand for them rises. Suppose then that the average rate of interest is 5%, a money-capitalist who considers whether to buy land or bonds, or shares will then look at the £1,000 of rent that can be earned, and will capitalise it. That is, they will consider this £1,000 as equivalent to an amount of interest on a sum of loanable money-capital. To obtain £1,000 of interest, at 5%, you would need to have a capital sum of £20,000, and so the acre of land is valued at £20,000.

But, Marx then shows that capital then applies this logic to all other factors of production. A worker who is paid £1,000 in wages per year, can then be considered to have a human capital of £20,000. The value of commodities then becomes a summation of all these values, and in the form of the marginal productivity theory, the price of each of these factors of production, i.e. the revenue it receives, becomes equal to the value it contributes.

“Landed property, capital and wage-labour are thus transformed from sources of revenue — in the sense that capital attracts to the capitalist, in the form of profit, a portion of the surplus-value extracted by him from labour, that monopoly in land attracts for the landlord another portion in the form of rent; and that labour grants the labourer the remaining portion of value in the form of wages — from sources by means of which one portion of value is transformed into the form of profit, another into the form of rent, and a third into the form of wages — into actual sources from which these value portions and respective portions of the product in which they exist, or for which they are exchangeable, arise themselves, and from which, therefore, in the final analysis, the value of the product itself arises.”

(Capital III, Chapter 48)

Instead of the value of commodities, then being a consequence of the labour-time required for their production, it becomes simply a consequence of the value contributed by these separate factors of production. If the value of land increases, therefore, whilst the rate of interest remains constant, this must be reflected in a rise in rents. In that case, the value of commodities produced on the land must rise, because it must be increased by the amount of this additional rent, which forms part of its cost of production. Similarly, the interest paid to the money-lending capitalist is also a cost of production, and if it rises, this must reflect a higher value contributed by capital.

In short, the value of the commodity, and consequently of society's commodity-capital, is then equal to the sum total of the values of the labour, land and capital used in its production.  The values of these factors of production, are themselves considered by orthodox economics as being independently determined from the value created by labour, and consequently of the value of commodities. Similarly, as the value of the society's commodity-capital rises or falls determined by the sum total of the values of these factors of production, so the distribution of that value as revenues is determined, and each factor receives as revenue an amount equal to the value it has contributed, because each factor is employed up to that limit where its price (wages, interest, rent) is equal to the marginal revenue product it contributes.

As Marx says, what this demonstrates once again, is the way that reality is inverted in the phenomenal form which all of these things assume. It is no longer the value of commodities, which determines the limits to how this value can be divided amongst these different factors, but vice versa, the value of these separate factors, which determines the value of the commodity. If I have a piece of string that is a metre long, I can cut it into any number of different portions of varying lengths, but their total length can never be more than a metre.

But, with this view of the way the value of commodities is determined, and of the nature of profit, as simply a percentage uplift on the cost of production, just as interest is a percentage return on an amount of money-capital lent, it is clear why bourgeois economists, and financial pundits see a fall in prices, as synonymous with a fall in profits causing a sell off in stock markets. If the price of commodities is nothing more than a summation of the values of the factors of production used in their production, then a fall in prices must reflect a fall in those values.

If profit is only a percentage sum added on to the cost of production, then if the price of the commodity falls, the amount of profit must fall too. If the price of a commodity is made up £100 cost of production, plus 10% profit = £110, then if the price falls to £99, this must reflect a cost of production that is now £90, plus 10% profit = £9. Although, the rate of profit here remains constant, the mass of profit has fallen by 10%, from £10, to £9, and it is this rise or fall in the mass of profits that the money-capitalists are most concerned with, in determining whether the money they have laid out to buy shares, will bring them the returns on that speculation they require.

It should be pointed out that this is, in fact, quite different, once again, to the actual situation in relation to the real productive-capital. In reality, the profit is not simply a percentage additional sum added to the cost price, but is determined by the surplus value produced. A fall in the cost-price of commodities, stemming from a fall in the price of constant capital, does not reduce the profit made, because it is only the labour-power that produces surplus value.  A fall in the cost price stemming from a fall in wages, actually causes the surplus value to rise, because the new value created by labour is not affected, whilst the portion of that new value handed back to workers declines, whilst the portion retained by capital increases.  As Marx sets out, in Capital III, Chapter 6, although a fall in commodity prices, which includes those that comprise the productive-capital, does not increase the amount of surplus value, it does raise the rate of profit, because the existing surplus value, now represents a bigger proportion of the advanced capital. This demonstrates once again, not just how reality is inverted, but how events in the real economy can be reflected in their opposite in the financial markets.

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