Friday, 25 March 2016

US GDP and The Rate of Profit

A lot of heat and column inches has been generated, particularly in recent years over the question of the rate of profit.  I have pointed out in the past that a lot of the debate has been rather pointless, because the data that was being used for the various claims was itself inadequate from the perspective of determining a Marxist rate of profit.  That was so for several reasons.

Firstly, the figures for the value of output are those for GDP.  But, Marx explains at length, in Capital III, and in Theories of Surplus Value, that this figure for GDP, is, in fact, only a figure for the value of society's consumption fund, which is equal to the value of national income/expenditure.  National Income is the figure for the sum of all revenues - wages, profit, interest and rent - which in turn is equal to the new value created by labour during the year, which is equal to v + s, variable capital, plus surplus value.  But, the total value of output, i.e. gross national output as opposed to gross national income/expenditure is equal not to v + s, but to c + v +s.  That is not just to this new value produced during the year, equal to incomes and expenditure, but also to the constant capital consumed in the production of constant capital, and which must be replaced, on a like for like basis, out of current production, and which, therefore, forms no part whatsoever of the value of consumption, because it is entirely an exchange of capital with capital, and not with revenue.

The delusion that gross national output is the same as gross national product/income/expenditure flows from what Marx calls Adam Smith's absurd concept that the value of a commodity, and so of society's commodity-product, can be resolved purely into incomes.  That concept lies at the basis of all orthodox bourgeois economic theory.  One of the first things that economic students are taught is that the value of output is equal to the revenues obtained as wages, profits, rent and interest.  That idea is also the basis of the marginal theory of value.  Yet, as Marx observes, this notion is clearly absurd.

If we take a shop that sells bread, the shop owner buys the bread from a baker, for say £100.  The shop owner sells the bread for say £120.  But, its quite clear that this £120 cannot form the income of the shop owner, all of which they spend to fund their consumption.  If they did, they would not have the £100 required to buy bread from the baker tomorrow, to sell in their shop, and so would go out of business.  The income of the shop owner is only £20.  The value of the bread they sell, quite clearly does not resolve itself purely into their income of £20, because the largest part of it, consists not of any such income, but of the constant capital of the shop owner, in the shape of the bread, which they must repeatedly set aside from the proceeds of their sale, so as to be able to reproduce it in kind.

Adam Smith, tried to get round this by claiming that the constant capital, here the bread, itself resolved itself purely into these revenues, but, as Marx shows, this is equally absurd, and simply shifts us from pillar to post, because each of these elements of the constant capital, what would be termed the "intermediate production", are themselves comprised not just of revenues, i.e. newly created value, but also of constant capital.

If we worked our way back from the shop owner, through the baker, to the miller, and beyond to the farmer who produces the grain, which is turned into flour, which is then turned into bread, we find that, for example, the farmer produces 100 tons of grain, with a value of £100.  But, again, the farmer cannot sell all of this grain, and obtain this £100 of value.  Of this 100 tons of grain, the farmer may require 50 tons, as seed, so that they can produce grain next year.  The value of the farmer's output is £100, comprised of £50 of constant capital (seed), and £50 of new value created by the farmer's labour.  But, the farmer can only sell £50 of this output, replacing the £50 of constant capital, on a like for like basis, directly from output, an exchange of capital with capital.

It is only the £50 of new value the farmer creates, which forms their income, and which they can consume.  Similarly, the farmer sells £50 of grain to the miller, who adds an amount of new value to it, by their labour, say £25, so that the flour they sell to the baker has a value of £75.  But, it is only the £25 of new value they create, which forms their income, and which they can consume, because they must use the other £50, to once more buy grain from the farmer.  In the same way, the baker adds £25 of new value to the flour, by their labour, in turning it into bread.  But, for the same reason, it is only this £25 of new value that they can consume as revenue.  Finally, the shop owner buys the bread for £100, and sells it for £120, taking £20 of income, and it is only this £20, which they can consume.

Of the total consumption fund of £120, represented by the bread, and which is the equivalent of GDP, therefore, the shopkeeper consumes £20, the baker £25, the miller £25, and the farmer £50, but the total value of output here is not £120, equal to this consumption fund, made up of the total of all the added value of this intermediate production, but is equal to £170, because an additional £50 of grain was produced, which never went into circulation, and never formed either an income for anyone, or formed part of consumption.  It simply went to reproduce itself out of current production.

By taking the value of output as GDP, which is only the value of the consumption fund, of the new value created by labour during the year, a false picture is thereby given of the actual value of output, and consequently of changes within it.  By using these figures, therefore, as the basis for determining the value of profits, and comparing this to the other elements of GDP, what is thereby being calculated is not a figure for a Marxian rate of profit, but only of a Marxian rate of surplus value, a comparison of the amount of surplus value produced (and allocated as profit, rent and interest) relative to variable capital.

The second reason that the calculation of the rate of profit, based on this data, is wrong, is that it does not take into consideration changes in the rate of turnover of capital, and consequently in the annual rate of profit.  Even were it to provide an estimate of the rate of profit rather than just the rate of surplus value, it would only be an estimate of the rate of profit based on the laid out capital rather than the advanced capital.  In other words it would be an estimate of the profit margin, p/k, not the annual rate of profit, which is the basis of the average or general rate of profit.  As it is, it is not ven an estimate of the annual rate of surplus value.

On top of that is the problem of taking data collated on the basis of bourgeois categories, and trying to fit them into Marxian categories.  The best and most reliable data provided is that produced by the US Bureau of Economic Affairs, but the further problem with trying to calculate a Marxian rate of profit, using this data, has also been highlighted.

A recent analysis, by CNBC, showed the BEA's data to be seriously flawed.  The CNBC analysis showed that the US GDP figures, for each quarter, had a margin of error of 1.3% points.  That is a huge potential discrepancy.  In other words, if the GDP growth figure came in, for any particular quarter, as being 2%, the actual figure could be as much as 3.3%, or as little as 0.7%!  Growth could be almost doubled on the one hand, or more than halved on the other.

That is on top of the usual short-term revisions of the data, which occur in the months following the initial release.  For example, the initial figure for US fourth quarter GDP was announced as 1%, but has now been revised up to 1.4%, itself a 40% increase on the original estimate of growth for the quarter.  If the data provided by the most reliable sources in the globe is out by these kinds of amounts, and the real situation is only discernible several years after the event, how unreliable is the data provided for other economies, and how pointless, therefore, the attempts to determine Marxian rates of profit based upon them, even besides the other problems with that data, as described above.

As CNBC's Steve Liesman pointed out, the Federal Reserve, when there is a conflict of data between what jobs numbers are implying, and what the GDP data suggests, always take the jobs data, because the number of actual new jobs created, and increase in employment is more objectively and accurately determined.  On that basis, for several years now,  the US has been producing more than twice as many jobs, each month, than are required to achieve full employment.  That seems inconsistent with the published data on GDP growth, and this new research by CNBC probably explains why.  In that case, we will probably see, in later years, that the US economy has been growing much more strongly than the published data suggests, and that it may already have started to become overheated.  In that case, the Federal Reserve may be already behind the curve, and will find itself having to raise official interest rates, sharply, to curb a problem of inflation.

No comments: