As Marx explains in Capital II, the circulating constant capital – raw and auxiliary materials – is essentially advanced alongside the variable-capital, and so turns over at the same pace. It is this that determines the rate of turnover upon which the annual rate of surplus value, and annual rate of profit is based. But, fixed capital, must also be advanced in its entirety, in order for production to take place. So, as Engels sets out in Capital III, Chapter 4, in calculating the annual rate of profit, the whole current value of fixed capital, i.e. its current reproduction cost, minus wear and tear, must be used, plus the value of the circulating capital advanced for one turnover period, e.g. a week. As Marx describes in Theories of Surplus Value, Chapter 23, the role of depreciation and wear and tear is significant, here, because, as each year passes, the value of the fixed capital stock is, thereby, reduced, by wear and tear, and, on its own, results in a higher rate of profit.
Marx takes the example of a coal producer to illustrate this. He assumes that there is £50 of fixed capital, £50 of variable capital, and £50 of surplus value. The fixed capital loses £5 per year as a result of wear and tear. As an annual rate of profit, this represents 50%.
“In the second year, the fixed capital of the coal producer would amount to 45, variable capital to 50 and surplus-value to 50, that is, the capital advanced would be 95 and the profit would be 50. The rate of profit would have risen, because the value of the fixed capital would have declined by one tenth as a result of wear and tear during the first year. Thus there can be no doubt that in the case of all capitals employing a great deal of fixed capital—provided the scale of production remains unchanged—the rate of profit must rise in proportion as the value of the machinery, the fixed capital, declines annually, because wear and tear has already been taken into account. If the coal producer sells his coal at the same price throughout the ten years, then his rate of profit must be higher in the second year than it was in the first and so forth.”
As Marx says later, this is significant for large firms with lots of fixed capital, because its reduced value, due to wear and tear, over several years, is one means by which these firms can compete with firms that undertake production with newer, more productive fixed capital. It also shows the difference between wear and tear and depreciation. The coal producer got the £5 of wear and tear back in the value of the coal they sell. But, if a new machine is introduced, or the value of the machine falls causing it to be morally depreciated by 50%, they do not get this back. Its not transferred to the value of their output. It constitutes a capital loss. But, now, calculating the rate of profit, it is still this £250 value of the machine that is determinate not the £500 historic cost. When the coal producer replaces the machine, they only need to pay this new value of £250, not the £500 historic cost, and it is only this £250, they need to reproduce in the value of their output. Moreover, at £250, rather than £500 per machine, any amount of surplus value will now by twice as much fixed capital as before. The rate of profit will have risen, as a result of the fall in the value of the fixed capital.
Its impossible to know from the national accounts, the actual amount of circulating constant capital contained in the value of national output, because it is not included. The only figure that can be ascertained is the figure for “intermediate production”, but, as Marx describes, that figure – which is presented in Marx's schemas of reproduction as Department II (c), actually contains not a penny of value of constant capital, but is entirely comprised of the value of Department I labour, divided into Department I v + s. The problem can be simply seen if we look at say the value of a car. Suppose the value of a car is comprised of £10,000 of steel, £5,000 wages, and £20,000 profit = £35,000. The steel, is imported. The GDP data will show only £25,000, the incomes going to UK workers and capitalists, i.e. revenues.
But, a similar thing applies if the steel was produced in the UK. If we look at the £10,000 of steel used, this is equal to the value created by steel workers, and divided into their wages, and the profits of steel producing capitalists. With this £10,000 they could buy a portion of the cars produced, i.e. if 1,000 cars are produced, steel workers and capitalists could buy 350, of them, the other 650 being bought by car workers and capitalists. But, to produce the steel, the steel workers require more than just their labour. They also require steel in the form of equipment, furnaces and so on. But, none of this value of the constant capital consumed in their own production of steel is represented in the value of the constant capital used in car production. It provides a revenue for no one, and so does not appear in the GDP or National Income data. Yes, the steel also requires coal and so on, which produces revenues for coal miners and capitalists, but as Marx describes, the coal production also requires coal to power steam engines, as well as steel for pit props, rails for coal trucks and so on, so that, within Department I, all of the consumed constant capital is mutually reproduced as though it represented just one single capital, reproducing its own consumed constant capital, without it producing revenues for anyone.
In a future post, I will set out how Marx's schemas of reproduction might be used to provide a rough calculation of what the actual figure for consumed constant capital might be, and so what the actual figure for national output, as against GDP might be. Using that figure, and an estimate of the rate of turnover of circulating capital to get a figure for the advanced capital, a rough estimate of the annual rate of profit can be calculated. What is clear, is that, because economies are now 80% based upon service industry rather than manufacturing industry, this rate of profit is bound to rise over time, because a smaller and smaller value of total output consists of the reproduction of processed materials, which, as Marx describes in Capital III, and Theories of Surplus Value, Chapter 23, is the basis of the law of the tendency for the rate of profit to fall. For, now, however, a calculation of the consumed constant capital is not required for this exposition, and, indeed, we can, as Marx does, in Capital I, set it to zero, in order to better understand this more significant question of the amount and rate of surplus value, for the question at hand.
If we take this point, set out by Marx in Capital III, Chapter 49, of the need to reproduce the capital, not in value terms, but in physical terms, so as to ensure reproduction, on at least the same scale, and we set constant capital to zero, then we can focus on the physical reproduction of the variable-capital, i.e. the wage goods consumed by workers. As Marx sets out, the source of surplus value is the fact that workers, by engaging in useful labour, be it in the production of physical commodities or services, create new value. Note that this useful labour that creates new value is not the same as productive labour, which is only that which produces surplus value, and exchanges with capital. As Marx describes, a prostitute who sells services to clients, be they workers or capitalists, creates new value by their labour, and the client pays them the equivalent of this value, but they pay it out of their revenue (wages, profit) not as an exchange with capital, so that the labour produces no surplus value, and is then not productive labour. The amount of new value is equal to the amount of average, abstract labour undertaken. Its immediate measure, as value, is given by a quantity of such labour, measured in hours. We saw that, prior to the lockouts, it amounted to approximately 1 billion hours per week, or 50 billion per year. The exchange value of this output, measured in Pounds, i.e. the quantity of pounds that it would exchange for, is given by the figure for GDP, which was £2.2 trillion. Deducting the labour that might be necessary, but not value creating, we obtained a figure of around £55, for the value created by an hour of average labour.
Surplus value is simply the consequence of the fact that the new value created by labour is greater than the value of the necessary labour required to reproduce the worker. As both Marx and Engels describe, in Capital, Anti-Duhring, and elsewhere, this is why class societies cannot arise until labour productivity reaches at least that minimum level at which the product of labour exceeds the necessary labour required for the labourer's reproduction. If a slave does not produce more in a day than is required to keep the slave alive, there is no point in slavery! To put it another way, in line with Marx's comment in Capital III, Chapter 49, if a farmer employs labourers, to whom he pays, as wages 1000 kilos of grain, then setting aside the grain required to reproduce his seed (constant capital), the labourers must produce more than 1000 kilos of grain by their labour. Otherwise, the farmer obtains no surplus product, no surplus value, and so no profit.
However, its possible that, in some given year, there may be a crop failure, and the actual production of grain falls drastically. Suppose, the labourers normally produce 2000 kilos of corn, and again ignoring the seed, then the farmer obtains a surplus product of 1000 kilos of grain. Now assume that the workers expend 1000 hours in this production. That is they create 1000 hours of new value. That is the value of the grain produced. Each kilo of grain has a value of 0.5 hours of labour. The value of the labour-power, is then 500 hours of labour, creating 500 hours of surplus value, appropriated by the farmer. If, then the crop failure reduces output to 500 kilos, the labourers have still undertaken the same 1000 hours of labour, creating the same 1000 hours of new value, but it is now represented in just 500 kilos rather than 2000 kilos. The value of each kilo of grain, therefore, is quadrupled. For social reproduction to occur, and Marx assumes that capitalism is an on going system, and does not simply stop at the end of each year, then the farmer must still provide the workers with the required 1000 kilos of grain, even though his output is only 500 kilos. He must suck up, what now amounts to a loss, the production of negative surplus value, even though, the workers have continued to produce 1000 hours of positive new value. He must provide 2000 hours of value for wages, even though the value of his output is only 1000 hours.
To put it in money terms, if 1 hour of labour creates £1 of value, the workers, by their labour, continue to produce £1,000 of new value, but the crop failure means that labour productivity has collapsed, causing the unit value of grain to rise fourfold. That means that the value of labour-power/wages also rises fourfold (assuming that the labourers only consume grain), so that instead of paying the labourers £500 in wages, they must now be paid £2,000. And, provided the capitalist – or some other who takes over their farm – can access the required capital, they will, indeed, suck up this 50% loss, and provide the additional £1,000, because, otherwise, they will have to reduce the scale of their operation. As Marx describes, because each capital is driven by competition to continually expand the scale of their production, so as to become more competitive, and to gain market share, they will not reduce the scale of their operations. Indeed, for firms that have huge amounts of fixed capital stock, any such reduction is not practicable, because it would mean that fixed capital not being used to the full, losing the benefit of its efficiency. With any given technical composition of capital, the firm is forced to, at least, employ the required number of workers, and to process the same quantity of materials.
Assume that the farmer, decided to halve the workforce. They would then have to set aside only 500 kilos of grain as wages. But, then this workforce would only produce half the output, and assuming no further crop failure, it would produce only half the previous surplus product, and surplus value, i.e. 500 kilos/£500. In fact, the situation would be worse than that, not just because any fixed capital, such as ploughs, tractors and so on would not be fully utilised, and so would depreciate, but also, because the reduced scale of production would mean that the economies of scale, gains from division of labour and so on would be reduced. In fact, many producers do have to look through such such short-term variations on a year to year basis, and make their plans on a calculation of longer-term averages that even out such fluctuations. Futures markets were developed for that purpose.
So, what does this have to do with the economic consequences of the government imposed lockouts and lock down? Well, they represent the same thing as such a crop failure, but worse. With the crop failure, the workers continued to produce 1000 hours of new value, but now represented in a quarter of the physical output. The negative surplus value arose because the drop in productivity meant that the new value created, was now less than the value of necessary labour. But, with the lockouts and lock downs, the government actually reduced the amount of labour being undertaken, so that the amount of new value itself created also fell, by around 20%. If we put the state in the position of the farmer, it would be as though he not only obtained a smaller amount of physical output, but that the total value of that output itself was reduced, because of the forced reduction in labour.
Both less new value, and less physical product was created, meaning a double whammy, as it then had to try to maintain incomes. It did that by resorting to the delusions of the past of people like John Law and the Pereire Brothers, who thought that money is something that you can simply create by printing more of it. Of course, all the printing is doing is printing more money tokens, not creating more money, which itself requires the creation of additional new value in the economy, the money being merely the equivalent form of that value. As the amount of new value created was being contracted, not increased, the amount of money, as its equivalent form, was also, thereby, decreased. Printing more money tokens, then, simply devalued those tokens by an even greater extent, and, as it handed these additional money tokens to consumers as furlough payments, and so on, the inevitable consequence was to create an inflation of consumer prices, the beginnings of which are now beginning to be seen, as all this liquidity washes out into the economy.
If we take the lockouts, if they had, in fact, been what they claimed, so that no labour was undertaken at all, so as to protect individuals from any possibility of contagion, then GDP would have fallen by 100% to zero. As Marx sets out in describing The Law of Value, in his letter to Kugelmann,
“Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish.”
In Theories of Surplus Value, Marx also describes why such a society would not perish immediately. That is that, like a farmer, a society can eat its seed corn. In other words, a farmer who uses 100 kilos of grain as seed, can, at the end of the year, decide not to replace this seed from their output. They could decide to eat this 100 kilos, or to sell it, along with all of the rest of their output, and then consume what they buy with the proceeds. But, if they do so, they would cease being a farmer or a capitalist. They would have no capital to produce in the following year. They would have converted capital to revenue, in order to consume it.
A society that stopped producing, would have its own capital that it could consume in the same way. Most of this capital, however, does not take the form of consumable products. It consists of buildings, land, machines and so on. The society can always continue to consume by selling off its land to foreigners, exporting its items of fixed capital, selling factories and office blocks to foreign companies, selling its patents, brands and other such things. Indeed, in the days of the Gold Standard, countries made up the differences in what they produced and exported, as against what they imported, by a transfer of capital in the form of gold reserves. Nowadays it takes the form of transfers of currencies, and borrowing. Either way, when a country exports its capital in this way, in order to continue or expand its unproductive consumption, the result is that it reduces its own capacity for future production, and capital expansion.
If there had actually been a lockout of all labour, then the new value created would have been zero, rather than £2.2 trillion or even £1.8 trillion, reflecting a 20% reduction. But, the state would have to ensure that workers survived, because capital requires workers for when it does begin production again. Even assuming that the capitalists, landlords etc. were expected to live off their savings, the state would still have had to provide the £500 billion of wage goods required for the reproduction of labour-power. But, with new value at zero, and so also surplus value at zero, the £500 billion of wages would mean, not just a significant tie-up of variable-capital for the national capital, but an actual huge negative surplus value, of £500 billion. The state would have to provide this by converting capital to revenue, thereby, diminishing the national capital, and so drastically undermining its future productive capacity and capacity for producing surplus value, and so capital accumulation.
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