Profit and Reproduction
Paul says,
“There is no reason to abolish markets by diktat, as long as you abolish the basic power imbalances that the term 'free market' disguises.” (p 279)
Absolutely, but to abolish those power imbalances requires that the property question is first asked and answered. History shows that markets cannot be abolished by diktat. The Stalinist states showed that on a systemic scale, but the history of Prohibition in the US, in the 1920's, and of the so called War on Drugs, shows that, where attempts are made to ban markets, the result is only to encourage the development of large black markets, and the encouragement of all of the criminality, corruption, inefficiency and social misery that goes with it.
The statement,
“profit derives from entrepreneurship not rent.” (p 279), is either confused and unclear, or simply wrong. Having earlier set out his account of the Labour Theory of Value, Paul knows that surplus value is surplus labour, and that this realised surplus value initially takes the form of profit, before being divided into rent, interest and profit of enterprise. Paul's understanding of the Labour Theory of Value is confused, and he also appears confused about the nature of financial profits. Maybe that is what leads him to this confused statement. What Paul should have said is that profit derives ultimately from surplus value, which is produced by labour. For each individual capital, profit derives from the ownership of capital, and its entitlement to share in the total surplus value of society proportionate to the size of the capital, on the basis of average profits, and prices of production.
But, perhaps what Paul was trying to say is that firms should not make profits on the basis of monopoly pricing, or the ability to restrict supply, with the use of patents etc. That appears to be what he actually means, as he sets out in the subsequent paragraph. Paul does not examine as closely as he he might the actual costs of research and development, for example, of new drugs, and the requirement to recover these costs by those that incur them, in conditions where free riders may simply harness the results of that research and development.
He says,
“People who are driven only by material reward would go on creating and innovating – because the market would still reward entrepreneurship and genius.” (p 279)
But, its not a question of being driven by material reward, but of recovering the costs incurred, the capital consumed. If a pharmaceutical company employs 1,000 workers for five years, researching a new drug, this cost might be £500 million in wages, which actually means £500 million of wage goods/value taken out of the economy. The material costs and production wage costs might actually be insignificant, say £10 million a year, to produce a million units of the drug. If the drug is expected to have a lifespan of 10 years, then the company requires a price of £60 per unit, to recover its costs. However, a free rider will only have costs of £10 million a year, so they could recover their costs at a unit price of £10.
If such a situation persisted, the first company would go bust, and the general result would be that firms, including worker-owned cooperatives would not expend capital on such research and development. However, there is another aspect of this, which, given the underlying theme of Paul's argument, based on the power of info-tech, I am surprised he has not gone into here. Increasingly, even in the realm of research and development, Artificial Intelligence is replacing mental labour. As AI becomes increasingly powerful and sophisticated, and with the ability to access big data, it will be able to develop new drugs, gene therapies, and so on, in a fraction of the time currently required by chemists, and other scientists. Even where it takes many months or years to achieve that the AI, unlike a human being, only requires the cost of the computer, and its power supply, during that period.
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