Marxists on the capitalist crisis: 4. Simon Mohun - An era of rampant inequality
Simon Mohun has done extensive research on the development of productive and unproductive labour (in the Marxist sense, i.e. labour which does or does not produce surplus value), especially in the USA. He is a professor of economics at Queen Mary University of London.
It’s important to put the present difficulties into some sort of historical context. The early 1970s marked the end of what is often called the "Golden Age" of capitalism, the era of post-World-War-2 expansion. From the end of that expansion (usually dated from 1973) we had a period of five to seven years of class struggle which was a stalemate.
In that sense, there was the possibility of a substantial shift to the left. The rate of profit was collapsing, and matters were getting increasingly difficult for capital; labour was quite well organised, and was resisting moves by capital to resolve the crisis in a direction favourable to capital.
But it didn’t happen - instead there was a substantial shift to the right, from about 1979-80. It was symbolised by Paul Volcker's raising of US interest rates in 1979; the election of Reagan in 1980, and his attack on the air traffic controllers' union; by the election of Thatcher in Britain in 1979 (and her subsequent labour market "reforms"); and by Mitterrand being forced into a policy U-turn in the early 1980s. All round the metropolitan capitalist world, there was a major shift in the balance of forces towards capital and away from labour. Since about 1982, the rate of profit has recovered.
This is still the era we are living in. Symbolised by the terms "globalisation", and "financialisation", it is an era of the dominance of pro-market ideologies on a world scale. Capital is very mobile; trade unions are very weak; and there is a convergence of policies by the major political parties. There have been huge increases in pay at the top of the distribution, while in the US for example for about 83% of employees real wages per hour were stagnant from about 1978 to 1997. The working class has taken a hammering in almost all metropolitan countries in the last 20 or 25 years in terms of labour organisation, income, and so on.
So it’s a bit hard to speak of "crisis". This is a word of course almost devoid of meaning, because of its over-use on the left. But clearly something is currently going on! The issue is how to understand it. It is not a problem of rising wages squeezing profits. It is not a problem of technical progress somehow driving down the rate of profit. It is not a problem to do with the exhaustion of profitable lines of business. It is not a problem of capital running out of exploitable inputs. So in classical Marxist terms, the traditional explanations don’t work. All we are left with is something a bit vague to do with the "anarchy of the market".
There are some interesting parallels between the present situation and the late 1920s, to do with consumer debt, buying on margin [borrowing to buy stocks and bonds and hoping to make money on rises or falls in price], and a credit crisis spreading into the rest of the economy. It’s worth remembering that a cyclical downturn (recession) was transformed into the Great Depression by the three waves of US banking collapses after 1930, and that is just not going to happen today. The current Chair of the Fed. (the US central bank) is Bernanke, who, as an academic economist, made his reputation in the study of the Great Depression. Bernanke, the Fed and the US Treasury are not going to allow those bank failures to happen today, even if they have to (in effect) nationalise all the bad debt. The failure of Bear Stearns in the US was contained, and the markets correctly took that as a signal that no matter what the pain, the financial system will not be allowed to implode. Similarly in the UK: Northern Rock was effectively nationalised, and the Bank of England currently stands ready to allow the banks to swap their unmarketable mortgage debt for marketable government debt (even if not quite at 1 to 1) for up to 3 years. And similarly in Europe.
In sum, the activities of the major central banks are going to ensure that the system does not run out of liquidity. The quid pro quo of course will be a much more interventionist approach by financial authorities in the USA and around the world to regulating finance and investment banks. It is clear that the way in which that housing debt was securitised [bundled into pieces of paper giving titles to income, and traded on financial markets] is going to be much more heavily regulated in future. There will be a lot of pain in financial houses in the City and on Wall Street, but I think most people will say "serve them right"; and the interesting question for the future is the extent to which the financial institutions will be made to bear responsibility for the mayhem they have created.
Do we have a problem of liquidity, or is it a problem of solvency? [I.e. is it a crisis of people and firms not being able to get hard cash in time to cover the payments they have to make, or of them not having enough assets, liquid or illiquid, to cover their liabilities?] The central banks are determined to make sure a crisis of liquidity is resolved, by just pumping liquidity into the market, but will allow any institution that turns out to be insolvent to go bust. We'll have to see if that works. There are clearly risks, but my guess is that the underlying economy is stronger than a lot of the doom-sayers in the press claim. So there will be some pain, particularly in the financial sector, and all the signs are that there will be a recession in the "real" economy, although probably not a very severe or long-lasting one.
I could be wrong. It's quite possible that the banks are still hiding things, and there are nasty surprises still in store. At present, because the banks are reluctant to lend to each other, the [high] interest rates that the banks are charging have become "decoupled" from [lower] official interest rates. Financial markets will be volatile for some time, until all the bad debt is out in the open. When markets correct, they generally overshoot, so that bubbles and then crashes in the prices of assets are not uncommon. The US housing bubble has been pricked, and the UK’s housing bubble (more severe relatively than in the US) looks like it’s following suit. Obviously as housing prices fall, some will suffer, and undoubtedly pain in consumer credit markets will spread to firms' production and investment plans. Nevertheless, the crisis does not look that dramatically severe to me.
I think there are three things we should be particularly concerned about.
First, the growth in inequality.
In the USA - I haven't explored this for other countries, because the data is much harder to get hold of - the rise in the rate of profit [profits as a rate of return on assets] has not been reflected in an equivalent rise in the profit share [profits as a percentage of total income]. The rate of profit would have risen higher, with a rise in the profit share too, were it not that a lot of what might be called profit income was diverted into the pockets of the already wealthy. The share of productive labour [in the Marxist sense, i.e. of labour producing surplus value] in total labour in the USA remained roughly constant in the last two decades of the 20th century. The share of unproductive wages has dramatically increased, and that is largely driven by increased pay in legal services, finance, insurance and real estate, and business services. This increased pay is not because proportionally more hours have been worked, but because such unproductive labour has been paid a great deal more.
Inequality of income has increased dramatically in the US, and especially at the top end of the income distribution. The same is true of the UK. These inequalities have corrosive effects on society. fortunately, some of this is (ever so slowly) coming to be recognised (witness the fuss Labour backbenchers are currently making over the abolition of the 10p income tax band - the same MPs who cheered the reduction of the standard rate from 22p to 20p at the same time).
Second, there are major changes taking place in the structure of the world economy, consequent upon the rise of China, and to a lesser extent India and Brazil (and perhaps Russia if we confine attention to energy markets). The US economy remains the most powerful economy in the world, and one of the most resilient economies in the world; and it will remain that way for some time to come. But relatively speaking, the US economy is in decline. The dollar is not as powerful as it was in international markets. The euro is looking like a much stronger currency. Increasingly, those who run the treasury departments of central banks, particularly in the Far East, are looking very hard at their dollar portfolios, and asking whether they are a sensible long-run home for their assets. The dollar is significantly weaker as a world currency than it used to be. But this a slow process. A catastrophic slide of the dollar does not seem likely to me. It is always possible, but it would be so disruptive and so much against every individual country's short-term interest, that it is unlikely to happen.
But there are other effects that look more difficult. One is energy and its continuing price rises. The other is food in world markets and its price rises. These prices seem to be being driven by demand (especially in East and South Asia) at the same time as there are supply difficulties. These price rises are potentially calamitous for the world’s poor, and it remains to be seen whether the supply situation will improve. They are also more generally inflationary. In the USA, for the Fed, more inflation might not be such a bad thing; it could bring down real house prices with a smaller fall in nominal prices. That's one reason why the Fed is more relaxed about inflation: it sees it as a way of easing some of the price adjustments that would otherwise be more painful.
Third, Marxists have not done very well in understanding the huge change in the balance of power within capital, which is often summed up in terms like financialisation. Since the early 1980s the resurgence of capital has also been a rise of finance, and that is to do with globalisation and the new facilities to shift large amounts of money around electronically. However, it would not be quite right to talk of this as a successful struggle of finance capital versus industrial capital. They are much more intertwined than that picture would suggest. There's been a celebration of markets, of money-making, of individualism, of greed, and so on, which is associated with a significant change in the way in which capital presents itself.
But the nature of capital has changed, with finance becoming much more preponderant. And the way in which this has happened is not through the extraction of income for financial interests via interest rates. Of course that still exists. But finance capital now mainly works through the extraction of very large fees for providing consultancy advice in mergers and acquisitions. I think theory is behind the game in this regard. And it is for this reason that the theoretical parameters of the current situation (the "crisis") are not well understood, which is where we began.
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Several Disagreements
I agree with much of what Simon writes here except:
1. Productive and unproductive labour. Marx's distinction is Labour that exchanges with Capital rather than with Revenue. Labour employed in Legal Services, Finance etc. usually exchanges with Capital just as much as does that of a car worker. It is true that Capital employed as Money Capital or merchants capital does not itself "produce" surplus value it shares in the surplus value produced by productive Capital. But it is only allowed to share that surplus value because its greater economy allows productive Capital to realise a greater profit than it would be able to do were it to have to fulfil those functions itself. Marx's definition of necessary labour is that which is required for the full circuit of Capital to take place not just that portion of the circuit required for production. The labour of lawyers, accountants etc. employed by say a motor car manufacturer is just as much necesary labour as the assembly line worker, in determining the exchange Value of the product this labour has to be taken into consideraion too. Marx even allowed for a proportion of the Capitalist time to be considered necessary labour. It makes no sense then to treat this labour differently because it is outsourced to a specialist segment of Capital. There is of course a discussion to be had about the extent to which these portions of Capital develop their own dynamic, how they can exert their own economic muscle as agsint productive Capital e.g. the extent to which monopolist retailers like TESCO or Wal-Mart can use their pwoer to eat into the surplus value of suppliers so as to reduce their profits to below average. But to conceptualise things in terms of these sections - now a very significant aspect of Capitalist production as unproductive it seems to me is likely to lead to error. The main area of real unproductive labour in the Marxist sense is the vast increase in labour employed by the State. In most developed capitalist economies despite the myth of neo-liberalism the state has grown considerably. IN most the central state is one of if not the largest single employer, and in every metropolitan area the local state is again usually by some measure the largest single employer, followed closely by huge amounts of unproductive labour employed (in the UK) in the NHS.
2. It seems to me the evidence is that the UK will NOT go into recession. That is the view of the IMF too. The UK does far more trade with Europe than the US, and Europe is continuing to grow strongly, especially Europe's main economy Germany. Even the US looks likely to only dip briefly into recession if at all.
3. UK housing has been in a bubble on some measures greater than the US as a result of lending policies, but it looks likely that any fall in prices will be muted because demand outstrips supply as a result of new household formation, and a rising population caused by rising immigration by young East Europeans. The previous crash came with the onset of a fairly significant recession, but that is not on the cards this time, the housing market is rarely the assassin of the economy.
4. The US economy is the LARGEST economy in the world, but large does not necessarily mean strong. Looked at in terms of productivity, real growth rates, extent of indebtedness it is in fact very weak. But even weak giants can use their weight.
5. The dollar has already fallen significantly - it has lost half its value against the Euro from its high point. Despite continual intervention by the Bank of japan and Bank of China the dolar has fallen against both the Yen and the Yuan. Despite the managed peg it has fallen by 10 per cent against the RMB since the peg was relaxed. The dollar is no more protected against falling or being repalced by the Euro than was the pound in similar circumstances when it was replaced by the dollar. In some respects the interests of the world economy might demand it - a large part of the rise in oil prices has been caused by the sinking dollar, which promotes even greater speculation. Oil priced in Euros would still rise in price because its running out, but a stable currency would provide some stability in the oil market.
6.Food prices. This requires a separate blog, BUT rising food prices are stimulating icnreased supply. Food has been very cheap - witness programmes this last week about how much of it we just throw away. Large swathes of Britain let alone Europe have been left uncultivated over the last decade or so. There are vast swathes of cultivable land in developing economies on marginal land - and some on land that is potentially very fertile if sufficient Capital is invested in it, if access is provided etc. Land in the US was only opened up in its most fertile areas slowly as access to it became possible. As the African Lion economies begin to develop such infrastructural work - for example the roads and railways being constructed in the Congo by China, in return for access to Copper and other metals - will make investment in such land profitable. Although, in the short term the world's poor may suffer, the increased demand for food and rising prices is likely to bring in new supply, and new opportuhnities for the employment of wage labour.
Arthur Bough
Does this make sense?
It seems to me that this bit doesn't make sense either;
"In the USA - I haven't explored this for other countries, because the data is much harder to get hold of - the rise in the rate of profit [profits as a rate of return on assets] has not been reflected in an equivalent rise in the profit share [profits as a percentage of total income]. The rate of profit would have risen higher, with a rise in the profit share too, were it not that a lot of what might be called profit income was diverted into the pockets of the already wealthy."
This seems a strange distinction. Certainly profits have been diverted into the pockets of the very wealthy, but that hardly reduces the mass of profits as a percentage of total income now does it? Executive remuneration is as much part of profits as are returns on shares, interest, rents etc.
In fact profits as a share of total income (provided all profits are included, i.e. rents, foreign, financial, executive remuneration, etc.) have been restored to their levels of the "long boom".
I agree as well that it seems a pretty pointless distinction between productive and unproductive labour as well, given that all unproductive labour has be paid for by productive labour, what matters is the overall figures - and they all show a massive increase in the rate and mass of profit, notwithstanding the alleged growth of "unproductive" labour.
No There Are Significant and Important Differences
Bill,
1. The Rate of profit has certainly risen to historic levels, as I have written elsewhere taken globally it is probably the highest it has ever been, and changes in the structure of capitalism are tending to reverse Marx's Tendency for the rate of Profit to Fall to a Tendency for it to Rise. But it is a fact that as a share of total income in the US profits have been declining. There are several explanations for this. One of the obvious explanations is the extent and growth of Government expenditure, and taxation to cover that expenditure. That expenditure acts as a drain on profits, and the recipients are either wage workers who exchange their Labour against revenue, or else are recipients of Transfer payments i.e. these are recipients of income outside the sphere of Capital circulation. There are other explanations to do with the extent to which production takes place outside the US, and the payments to overseas owners of Capital, alongside the payment now of considerable sums in interest payments to overseas owners of US debt. Indeed one sign of the weakness of the US economy is the fact that many economists have talked about the level of US debt being very near a tipping point whereby the amounts of interest payments on foreign debt becomes too high for the US economy to cover through economic growth. The vast lending to the US by foreign investors has enabled US consumers to continue spending by transforming assets into revenue streams. These revenue streams find their equivalent when they are spent as income. Hence income can remain high, but the mass of profit even with high profit rates need not then rise proportionately. It is yet again a symptom of the inherent weakness opf the US economy.
2. The productive/unproductive distinction is one that has always caused problems. Adam Smith had several definitions, so really does Marx who largely followed him. Smith certainly rails against politicians, lawyers, and clergy as unproductive elements leaching off society, but then those elements were attached to the Landlord class which was the enemy of the bouregoisie whose ideologist Smith was. Ricardo makes similar statements for similar reasons. But Marx's definition ultimately it seems to me is clear, reasonable and objective whether you take it from the Grundrisse, Capital or Theories of Surplus Value. Ultimately, Capitalists are interested in realised profit not potential profit. Whatever may be true in any other form of society Marx says under Capitalism the Labour employed in ensuring that the product is sold, and thereby the Surplus value contained in it is realised, is just as necessary as the labour used to actually produce the product. It is this fact of Labour being necessary, and exchanging with Capital which makes it productive in Marx's terms.
From the perspective of a rational socialist society we may well view many activities as unneccessary labour, but we do not live in a socialist society, but a capitalist society it is only within the criteria specific to Capitalism then that we can make that assessment. For example, a socilaist society may well view large amounts spent on advertising as unneccessary,b ut within the context of Capitalism such expenditure is clearly deemed necessary - or else the Capitalists would not spend money on it - in order to realise surplus value. There are questions that could be asked as I said above as to whether even within the illogicalities of Capitalism certain activities, certain expenditures of Labour Power are actually necessary labour. However, Marx is pragmatic or perhaps purely objective here. Marx says that what constitutes necessary labour cannot be determined in advance. Only when the commodity comes to market is necessary labour truly determined. If more Labour than was necessary has been expended then the producer will be punished by being paid less than the individual value of the commodity i.e. only the necessary part will find an equivalent. If they spent too much on advertising then the labour time in excess will not be covered in the Exchange Value of the product, they will learn and reduce that expenditure of Labour power.
To assess unproductive Labour in terms of what we as socialists view as unnecessary, wasteful or whatever from a socialist perspective is to fall into subjectivism. It is not part of marx's method which views each type of mode of production as historically specific.
Arthur Bough
Angola
Just to emphasise the point I made above about Africa's Lion economies Angola has now become the largest supplier of oil to China according to a CNBC report today, overtaking Saudi Arabia. That is on the back of bilateral agreements on trade and development similar to those signed by China with a number of developing African economies whereby China provides Capital for infrastructural developments in return for raw materials. As well as roads, railways and other infrastructure China is providing in Congo and other countries a large number of schools, hospitals and Universities, as well as training local people in engineering and other skills. Many Chinese workers spend months in these countries in order to earn high wages, but it was interesting in a recent BBC documentary about the Congo that most of these Chinese workers talked about their work and activities not in terms of their own individual interest, but of a duty as workers in from a socilaist country to assist the development of workers in developing countries. Yet another sign of the contradictions that Stalinist states represent, and the difference in their foreign activities and those of imperialist powers, which in the past pillaged these nations without building anything positive.
Arthur Bough
profits as a share of income haven't been declining
Well I don't agree with you that profits as a share of national income have been declining in the USA. You can see for yourself here;
http://bea.gov/bea/dn/nipaweb/TableView.asp#Mid
2007 Q4 showed a marginal decline but nothing very significant. And this is without considering the effect of executive remuneration, rents etc.
Government expenditure doesn't necessarily act as a drain on profits as increasingly it is productive i.e. exchanged against capital, this is true even more in the USA than in the UK, but is becoming very widespread here with ongoing privatisation etc.
Marx was clear on productive vs unproductive, I just don't see the point of this distinction when working out profit rates, as we are dealing with aggregates for the whole economy. Any value expended in the unproductive sector, therefore comes from the productive one and doesn't effect the aggregate as a whole.
BTW my own estimates of the rate of profit, show that profit rates are around where they were towards the tail end of the long boom - i.e. not at their very highest levels. These estimates compare very well with Moseley's.
Time Periods
1. On Profit Share it depends on the time period. I am not, and I don't think Simon was talking about over the recent short term. Most economists recognise that over the last 20 years or so profit as a share of National Income has been falling in the US, DESPITE both falling real wages, AND a RISE in the rate of profit. This can only be understood in the terms I have outlined above. What we see is workers being screwed during that period both more intensively and extensively. Productivity rates rose, but during that period US workers working time also increased - its estimated the average US workers now works two weeks MORE per year than they did in the 1970's!!! Actually, we see a similar thing in the UK with the change of retirement age up to 67. I don't think anyone challlenges that a greater volume of Surplus Value is created in this process, but for Marxists Profit and Surplus Value are separate categories for an important reason. It DOES matter to whom, and for what purposes that Surplus Value is distributed, as Interest, Rent, Taxes and Profit, because it is only that portion which re-enters the Circulation of Capital as profit that takes part in the process of Accummulation - clearly Rents, and Interest CAN re-enter the circulation IF their recipients invest or lend their revenue to Capitalists, but their payments are payments of revenue, they are spent unproductively as revenue unless they are invested productively i.e. their recipients act as capitalists not rentiers. By the same token a portion of Profit received by Capitalists is spent unproductively, but it is Profit, which is by and large the source of NEW productive Capital. But, it is clear that during this period large amounts of real unproductive labour has been employed, and paid for out of revenue thereby removing potential Capital from re-entering circulation. Although, socialists attack bouregois governments during this period the fact is that one of the largest area of Public Expenditure during the Thatcher and Reagan eras was the payment of Welfare benefits due to the high levels of unemployment caused - deliberately - by their policies as a means of weakening organised Labour. One of the fastest growing areas of employment is the provision of Personal Services i.e. the rich employing their own cleaners, nannies, and other domestic servatns, again a diversion of potential Capital into Revenue.
2. I have given an explanation of why this rise in unproductive Labour arises here - Capital Consumes Itself and related blogs. Briefly it comes down to this. Marx in the grundrisse sets out the basis by which Exchange Value achieves its full form under Capitalism. He sets out why only the exchange of Wage labour against Capital can produce Surplus Value - whereas Slave Labour CANNOT, anyomre than the employment of animal labour or machinery. It is to do with the fact that ONLY wage Labour participates in the calculation of exchange Value through the role of the worker as consumer. The Slave, animal or machine DOES NOT purchase goods so does not take part in the process of determing Exchange Values. BUT, by that token Marx says, exchanges between slaveholders do not result in the creation or relaisationof Surplus Value. Such societies though do produce a Social Surplus. What then is its nature. It is a surplus of USE VALUES. By the same token he says exchanges between Capitalists do not produce Surplus Value, and neither do exchanges between workers. WHY? A workers in exchanging directly his output with another worker exchanges his product (say 10 hrs labour) with the other workers (10 hours Labour). All of this labour is Labour both workers have paid for i.e. they have expended their own Labour during that period, so no surplus can be involved here - apart from unequal exchange, swindling etc. But, a Capitalist sells the same product to the worker at that same exchange Value, yet the Capitalist has only paid for PART of that total labour time, he has received some free from the wage worker, a surplus value. This is not the case where Capitalists Exchange with Capitalists anymore than slaveholders with slaveholders. The formation of the Exchange value of the product takes place wholly within the realms of the Capitalists as a class - as with the slaveholders. Workers do not buy these goods, and do not bid up thier value to the full amount of labour expended. For Capitalists as a class the Value is not the average labour required for production of these goods, but the average labour they have to PAY FOR, just as it was for the slaveholder.
Marx sets this out clearly in the Grundrisse, yet he does not seem to take on board the importance of this aspect of his theory, in fact he seems to forget about it later on. He proceeds as though the Labour employed in Department 1 (Capital Goods) produces Surplus Value. But in terms of his theory set out above IT CANNOT, for the simple reason that the products of Department 1 are exchanged only with Capitalists. In fact this is true in part with Department III - Luxury Goods - bought only by Capitalists. Of course, in practice Capital in Department I and III shares in the Surplus Value, and expects to make the average Rate of Profit, but this is no different than the fact that Merchant and Money Capital expect to share in this Surplus Value too. But, for Marx's theory to hold Surplus Value can only be PRODUCED in Department II i.e. where commoditis are produced to be exchanged with wages. If that falls Marx's argument in relation to the nature of wage labour falls, and we are left with slave labour being capable of producing Surplus Value. which would mean that animals and machines and other factors of production can too. In short we are left with a theory of Value based on the contribution of factor inputs, or in short the Marginal Productivity theory of Value.
BUT, if as Marx says, and we know to be the case, CAPITAL increases its share in total output relative to Labour, then increasingly exchanges are NOT exchanges of Department II goods against wages, but are exchanges between Capitalists either the exchange of Capital productively for Capital Goods, or else the expenditure of Surplus Value unproductively as revenue by Capitalists in the consumption of luxury Goods. What follows then is that this greater mass of exchanges are exchanges where no Surplus Value is produced - though through which it may be realised. But if these products continue to grow what is their nature. Marx says that exchange Value only reaches its full maturity udner Capitalism, because of the embodiment within it of Surplus Value. Increasingly, what then is produced is a surplus of USE VALUES not exchange Values. Just as with slave societies where the production of such surplus USE VALUES manifested itself in the erection of Pyramids and temples, so Capitalism creates its own similar edifices,and manifests these surplus use values in the creation of huge armies, and weapons systems, it leads to conspicuous consumption of surplus USE VALUES exchanged between Capitalists as USE Values rather than exchange Values in a way that would have been unthinkable in the early stages of Capitalism where every last drop of Surplus Value is used up for productive investment.
3. For this reason your comment in respect of Government Expenditure being productive is clearly wrong. Government expenditure is potential productive Capital that has been diverted from that purpose to be used as Revenue. The fact that it exchanges with Capital cannot make this revenue Productive, anymore than Capital exchanging with Capital is productive. What makes capital productive i.e. of Surplus Value, is that its ultimate form as USE Value exchanges with wages, what makes Wage labour productive - of Surplus Value - is that its use value form Labour Power Exchanges with Productive Capital, i.e. we have the necessary duality of exchange within the process.
Arthur Bough
profit share
Yes time period is everything. Over the last two decades there has been a very marked increase in profit share as a part of national income i.e. it coincided with the new upward long wave from around 1990 onwards. TBH this isn't really disputable when looking at the figures. (Tho that doesn't stop people disputing it.)
There has been a decline in non-financial manufacturing profit share, but this is more than made up for by financial profits, which now account for around 40% of all profits, up from around 15% in 1970. Robert Brenner, and I think probably Simon Mohun, leaves financial profits out of his calculation of the rate of profit, he also leaves our corporate remuneration, even tho that too has doubled as a proportion of national income, and foreign profits which has also around doubled.
Unsurprisingly, therefore, he finds that the rate of profit hasn't really risen, but that's because he has excluded most profits from his calculation.
Actually I know why unproductive labour exists, Marx explains that it declines as capitalism subordinates more and more services to exchange. It could be considered a remnant of pre-capitalist modes of production.
Of course this isn't absolute, as post war there were genuine unproductive public services. But following the defeats of the working class in the 1970s/80s and the collapse of the workers states these services are being subordinated to capital.
BTW if you think surplus value can only produced in department 2 you're wrong.
Military expenditure on weapons is productive as it is exchanged against capital. Albeit paid for by a tax from the collective capitalist to the individual one, just as private hospitals are and private services paid for by public money, provided they are exchanged against capital.
Your juxtaposition of exchange values to use values doesn't make any sense either (notwithstanding the shouty capitals), as exchange value must be embodied in a use value or no one will buy it.
Brief Reply
Bill,
This has to brief for now, I'll maybe edit it later when I have time.
1. I have seen the figures for profit share given by bouregois economists too which show a falling share with rising rate of profit. I'm sure they do not exclude financial profits because ofr bouregois economists profit is profit. I'll look out the details.
2. I realise that Exchange Value must be embodied in a Use value, but a Use Value does not have to be an exchange value. As Marx sets out exchange Value only comes into its own under Capitalism, but previous modes of production produced, and they produced surpluses, but these surpluses were surpluses of use values not exchange values. Socialist society will produce surpluses, but again they will be surpluses of Use values not exchange values. My point is that increasingly Capital is producing surpluses of Use Values alongside surpluses of exchange values. This is because surpluses are being produced outside Department II, and it is only within Department II that Surplus value can be produced for the reasons I have given. The fact that exchange takes palce does not mean that what is being Exchanged is Exchange Values. Slave societies exchanged use values, which contained no Surplus Value. A Capitalist who hires the sevices of a cleaner for their home takes part in an Exchange as does the cleaner, but this is an Exchange of Use Values - Money for Cleaning - it is not productive of Surplus Value, and not therefore productive Labour. It is not an exchange of Wage labour with productive Capital. The expansion of this type of Exchange shows the extent to which there is a growth of economic activity taking place outside the Circuit of Capital, again a reason why rates of profit can rise, but the share of profit decline in total economic activity.
3.You are right that a Private hospital, a private swimming pool represents Productive Capital, and the labour which Exchanges with this Capital is Productive labour, whereas that is not true for an NHS hospital or a Local Authority pool. But whatever the propaganda the fact is that the extent of actual Public expenditure has increased, the number of workers employed by the state has increased, and so on. This is not Wage labour exchanging with Capital. The argument about weapons expenditure and the permanent Arms economy goes back a long way. I think the argument is very bad marxist economics on many levels. Military expenditure is NOT productive. The argument that it is relies more on keynesian theory than Marxist theory. But, I will perhaps come ack to that when I have more time.
4. I have set out in my blog linked to above why Surplus Value can only be produced in Department II if Marx's theory is to hold in relation to wage labour. If you want to say why that is wrong feel free to do so, and I will respond. One of the simplest proofs is the situation considered by Marx where all production is effected by machines without workers. In such a situation as Marx sets out there would be no Surplus Value. Why because there would be no exchange of Capital with wage Labour. That exchange has to have a dual nature not just the exchange of Labour Power for wages, but the exchange also of wages for wage goods. There could be no Surplus Value because Capitalists would simply exchange their output for the output of other capitalists Capital exchanging with capital just as Capital in Department II exchanges with Capital from Department I. Capitalists would produce a surplus i.e. outputs would exceed inputs, but this surplus would not be a surplus exchange value, but a surplus use value. Rapidly fulfilling their everyday needs they would quickly expand the range of use values produced particularly of luxury use values. In a sense this would be a socialism of capitalists.
A Graph showing the share of Corporate profits in US Natibnal Income can be found here. The graph shows in fact on a long term trend that the share of profits has been falling in fact since the end of WWII. Notable periodicity can also be found in the chart. Taking the high in 1979 the share of profits even in 2003 was still below this level. There has been a marked increase in the share of profits in the last 5 years, and this is consistent with the commencement of anew Kondartiev Long Wave upswing as wages remain low with a relatively high reserve of labour, muted militancy keeping wage levels down, and high productivity growth arising from the innovation cycle.
A Table showing the falling share of Corporate Profits since 1979 quarter by quarter is available here
Arthur Bough
graphs
The graph you produce confirms that profits as a proportion of national income have risen very sharply, particularly since 2003 to above even their Long Boom peaks. And so has executive remuneration.
You can see the same thing here;
http://research.stlouisfed.org/publications/net/page21.pdf
You're wrong that surplus value cannot be produced in Department 2 see here;
http://www.marxists.org/archive/marx/works/1885-c2/ch20_01.htm#2
"II. Production of Articles of Consumption:
Capital . . . . . . . . . . . 2,000c + 500v = 2,500
Commodity-Product . . 2,000c + 500v + 500s = 3,000,
existing in articles of consumption."
Cleaning can be productive of surplus value if it is exchanged for capital. The activity does not matter, its relationship to capital does. If the cleaner is employed by a cleaning firm, this is productive activity.
Military expenditure on arms is productive if it is exchanged for capital. Military expenditure on soldiers wages is unproductive because it is not. This explains why capitalists prefer high tech armies with lots of arms and not too many soldiers.
(The Kidron argument is different, he said it was unproductive but necessary to absorb surplus production - wrong from every angle - in other words.)
Paradoxically mercenaries of course are exchanged for capital and are therefore productive, this also explains their widespread use in Iraq - amongst other reasons, the trouble is they're unreliable and the state needs to control its armed forces.
Still Missing My Point
Bill,
You are still missing my point/s.
1. If you look at the graph provided you need to take the trend line not look at just the highs and lows. That shows a steady fall in share until the last few years. Yes, in the last five years that trend is broken - which I would expect as a new Long Wave upturn occurs - but my point was that despite a rising rate of Profit - again as you would expect - during the period of the Long Wave downturn Profit share fell.
2. I know that Marx in his schema of Reproduction makes the assumption of Surplus value created in both Departments. My point was that in doing so he appears to forget the argument he made earlier, particularly in the Grundrisse about how Exchange Value is formed i.e. that it is the Exchange Value determined ONLY by those that participate in the Exchange, hence slave labour cannot be productive of Surplus Value because slaves do not take part in the process of Exchange, they do not buy goods. Workers do not buy Capital goods, and do not therefore participate in the process of forming the exchange Value of these goods. Thier Exchange Value can only be what those that do participate i.e. Capitalists determine it to be, and precisely because Capitalists can obtain these goods by purchasing Labour Power for themselves they can thereby acquire the product which composes the Dept I Capitalists Surplus Value for free themselves. So they will not be prepared to pay for this surplus product unneccessarily, just as a slaveowner will not pay for the suplus labour of someone elses slave when they could employ their own slave likewise to produce that product for just the cost of the slaves maintenance. It is only because workers do not own Capital that they cannot act in this way, and must pay the full cost of the commodity including the value of the surplus Labour time. But it is only the products of Department II that workers buy.
3. I know that cleaning can be productive labour if it exchanges with Capital. I made the same point myself in relation to Dave Broder's piece on Northern Rock and the City. This is not the point. The question in relation to military spending is does the labour employed their exchange with Capital or with revenue. It exchanges with Revenue i.e. Surplus Value that has been drained from the productive circuit of Capital in the form of taxes rather than reinvested. Nor do the Use values produced by workers at the end of that process re-enter the sphere of the circulation of Capital. In short Surplus Value produced by Productive Capital is drained from the circuit of Capital never to return to it. It is, thereby unproductive, it has no way back in to self-expand. Your formulation that military expenditure is productive if it exchanges with Capital makes no sense. Marx's only definition of productive activity is the exchange of Labour with Capital, not the Exchange of Revenue with Capital. The only extent to which Marx talks about the exchange of revenue with Capital in this context is the Exchange of the workers revenue i.e. wages with the product of Capital i.e. use values in the form of wage goods. But at the point of exchange these Use Values cease being Capital and become just use Values. It is the necessary dual of the exchange of Labour with Productive capital in the process of producing those same use values.
3. On mecenaries yes I agree, BUT the argument you make in relation to the state is applicable in another sphere. Take Private Medicine. Labour employed in a private hospital is productive, in an NHS hospital it is not. In terms of actual provision of health - at least for a large number of health problems - private hospitals tend to be more efficent, and provide a better standard of provision e.g. there have been no instances of MRSA etc. in Private hospitals. However, the provision of health care is not just about this front line provision. IN the US for instance the cost of administering private health is about 10 times that of the socialised healthcare sector, because vast armies of bureaucrats are required to process insurance claims etc. For that reason important sections of US Capital are clamouring for some form of universal socialised provision similar to Europe, because these costs affect the Value of labour Power in the US, making it even more uncompetitive in a globalised labour amrket.
Arthur Bough
UK First Quarter Flash GDP
has just been announced. It showed growth of 0.4% Quarter on Quarter, and 2.5% growth Year on Year. Service sector output showed growth of 0.6% Quarter on Quarter, and 3% Year on Year. In other words you would need a pretty powerful telescope to see any signs in this data of the recession, which the AWL World Economy document claimed the UK was already in!!! At the same time inlfation data for Japan has been released showing that after nearly two decades of deflation prices are rising there by 1.25% per year causing a sharp fall in the price of JGB's. This comes after strong growth of around 12% in China, which is also now experiencing rapidly rising inflation caused by its peg to the rapidly falling dollar, and thereby importing inflation to the Chinese economy.
In short all the signs that the strong growth of the Spring Phase of the Long Wave remains in tact, despite the small cyclical downturn that has arisen on the back of the worst financial crisis since the 1930's, a fact in itself which demonstrates just how powerful the upturn in the real world economy is.
Arthur Bough
Not missing your points
I don't miss you points. I don't agree with your points.
You concede that in the last five years then national income has risen to its average of the long boom. As we're talking about the economy now and not as it was five years ago, this confirms my point.
You seem to be terribly confused about the origin of surplus value. Exchange value is not created in the act of exchange but simply realised in it. Therefore exchange value can be created in both departments I and II. (Why not assume for the sake of argument that Marx knew what he was talking about in Volume II?)
You don't understand the distinction between revenue and capital. Revenue does not exchange with capital, that's why its revenue. If revenue exchanges with capital it ceases to be revenue and becomes capital.
Military expenditure on arms is productive as the collective capitalist i.e. the state, buys arms off arms manufacturers - in other words taxes are exchanged for commodities, the private seller of the arms, realises the value embodied within them by selling them to the state, in exactly the same way is if the purchaser and seller were two private capitalists.
The fact that the product of this exchange is not used productively makes no differenceas, as whether labour is productive or unproductive does not depend on the use of the product but on its relationship to capital, i.e. whether or not it is exchanged.
Oh and your idea that private medicine is better than nationalised medicine is also wrong. (And in fact plain ridiculous.)
Actually, you do
miss my points, as well as disagree, but let me deal with your points.
1. The original discussion was about the fact that the share of profits in National Income has been falling for the last 20 years. I said above that time periods were important, and again reiterated that I was talking about that longer time period during which the Rate of profit was rising - as you would expect during that period of the Long Wave downturn. I am happy to agree that profit share has been rising sharply over the last 5 years.
2. No I am not at all confused about the origin of Surplus Value, and I did not say that it was created by the act of exchange. It arises in the sphere of production. What I was talking about was Exchange Value itself. Marx is quite clear in the Grundrisse abouit Exchange Value as I have quoted in my blogs linked to above. Most Marxists take Exchange Value as being based on the average socially necessary labour time required for production. So did I until recently. Although, I have read Capital and Theories of Surplus value many times I had never noticed the problem until I began to write a review of Theories of value, and reassessed those works alongside what Marx writes in the grundrisse. In fact his theory is far more complex than just this average socially necessary labour. What in fact he says is that Exchange value is based on the value that those doing the exchanging place on it, which in turn is based on what they have to give up. In other words marx's theory of exchange and exchange value is as much dependent upon class and social relations as is his theory of Surplus Value. Most marxists miss what Marx says here about Exchange Value, so it is not that I do not accept that he knew what he was talking about, but that what he says has been misinterpreted. There is a conflict with the way he presents things in Capital in terms of the schema of reproduction, but I think it is about presentation, and I beleive I have elsewhere squared the circle of how he presents matters.
The analysis he gives is simple. In slave society products that are Exchanged are exchanged by slave holders - let us leave out of consideration indpendent peasant producers. Suppose there are two slave owners. If we look at the first slave owner they have a slave that works 10 hours per day. Five hours of this time they work producing their own subsistence. Let us say 2.5 hours are spent producing subsistence for the slave owner. There remains a product of the remaining 2.5 hours, which can be exchanged. But what is this product is it a surplus value? No it is not, it merely a surplus use value. Why? Because if we take the total product of the slave during the 10 hours we ask what would slaveholder B, be prepared to pay for this total product? If we proceed as though what we are dealing with is exchange Values based on socially necessary labour time, then provided the slave works at the average level the Exchange Value is 10 hours. But slave holder B looks at this product and says what would it cost me to produce this produuct using the labour of my slave. The answer is that it would cost him only 5 hours labour, that is the labour required to produce the labour power of the slave, who then works for 10 hours. In short the surplus labour performed has no exchange value. This is why Marx says that exchange value can only take its true form udner Capitalism where free wage workers enter the market palce not just as sellers of labour power, but also as consumers. The slave Marx says has no more function economically in creating value in such situations than does the pack animal, or the machine that is they are only capable of transferring the value of their own production into the final product, they are not capable of creating new Exchange Value, and they are not so capable precisely ebcause they do not take part in Exchange. But Surplus Value is actually an abbreviation for Surplus Exchange Value. Without exchange value adopting its complete form the surplus product produced by the slave cannot assume the form of Surplus exchange value, it remains a surplus use value.
I suggest you read the Grundrisse again, because without this concept Marx's theory of Value collapses. It is for these reasons that marx stresses the degreee to which Exchange value, and Capital as Exchange value is extended to the degree that wage labour increases in the economy. But, this argument must then be extended into the nature of the product and value produced in Departments I and II (and III with some amendment). If (and it is according to Marx in the Grundrisse) Exchange Value is the average Labour Time that has to be expended by those taking part in the process of exchange then for the same reason that slave labour has to be excluded from that calculation in slave production (i.e. the slave does not act as a consumer) equally wage labour has to be excluded from that calculation in respect of Capital Goods, precisely because they are bought exclusively by Capitalists, and not by workers. It is the exchange Value placed on them by Capitalists which is determinant. But, the Capitalist here is placed in the same position as was the slave owner previously. Suppose a Capitalist in Dept 1 produces a machine through the labour of a worker who works 10 hours per day. Of this 5 hours is required for their own susbsistence. They produce a surplus product in the remaining 5 hours. But our Capitalist from Dept II like the slaveowner before him asks how much could I obtain this amchine for? The answer is for just 5 hours labour time i.e. the labour time required for the subsistence of the worker that produces the machine. There is no reason whatsoever why the Capitalist from Department II should cough up the profit for Capitalist 1. Capitalist II would have to cough up the equivalent of 10 hours labour time to buy the machine, but can acquire it for just 5 by employing Capitalist 1's worker directly himself!
As with the case with the slave labour I do not, and nor does Marx doubt that what is produced is a surplus product, but technically it is a surplus product that does not have exchange Value, it is a Surplus Use Value. If we follow this through, and assume that Capitalist 2 obtains the machine at this value i.e. 5 hours then something interesting happens. This machine enters his own production,and let us assume it is fully used up. For the sake of simplicity assume no other Capital is involved in this production Constant or Variable. The worker employed by Capitalist 1 now comes to buy this product. They ask how much labour time they would have to give up to produce it. The answer is of course, 10 hours, not 5. Capitalist 2 is able then to sell half of this product to the worker, and the other half to Capitalist 1, and in the process obtain a profit of 5. The workers Labour ultimately produces a Surplus value, but only when the product of tnat Labour ceases to be in the realm of Department 1, and begins life in Department II, and only is realisable when the worker enters the process of exchange, and exchanges his wages for the end use value. In practivce the averaging of the Rate of profit would ensure that the total Surplus value was shared between both capitalists.
But as Marx points out even this can disappear where Capitalist integrate the production process through acquisition as i set out in my blog. If Capitalist 2 simply employed the worker to produce the machine directly, then he obtains a competitive advantage over other Capitalist who pay a higher price for the amchine because they pay not just for the labour, but for the profits of capitalist 1. Consequently, other Capitalists would seek to gain the same advantage,and competition would dissolve the Surplus value to theoretically to zero. The labour for producing the machine would be Necessary Labour, but would not be productive of Surplus Value. That is not unuusual Marx in the Grundrisse and in Capital gives examples of a number of forms of necessary labour that do not produce Surplus value.
3. Your position on arms expenditure is totally confused. First you say say revnue does not exchange with Capital, then you say if it does exchange with Capital it becomes Capital!!!! Look, Smith and Wesson produce Guns. It is a productive activity. The Capital employed self expands as a result of the exchange with the wage labour it employs to make the guns. It begins with a certain quantity of Constant Capital in the form of machinery, building and raw materials, and a certain amount of Variable capital. The Constant Capital transfers its Exchange value to the final product. The workers produce a new value embodied in the guns greater than their wages, and thus a surplus value, which is realised when the guns are sold. But this is a separate issue from military spending. Money spent by consumers -be they workers or Capitalists is exchange value created within the sphere of Capital circulation, and returned by them to it. But military spending by government is not of that nature, precisely because it is money Taken out of the sphere of Capital circulation as taxes. It is a reduction of the realised Surplus Value that the Capitalist would otherwise have been able to reinvest, and would thereby have become Capital, and able to self-expand. But, the taxes spent by Government are NOT Capital, but revenue, just as wages, dividents or rents spent in consumption are Revenue. And because it is revenue and not Capital it is not self expanding it is not productive, but consumptive expenditure.
Your argument is Keynesian not Marxist because in simply looking at this Government expenditure you ignore the question of what fund this expenditure was drawn from. Suppose capital has an average Rate of profit of 10%. Let us say the Government takes £1 billion in taxes from Capitalist to use as arms expenditure. Had it not done so that 1 billion would have been invested as capital, and would have expanded to become Capital of 1.1 billion. But, because the Government withdraws this Capital it cannot be invested, and cannot self expand. The best the Government can do is to put the £1 billion back into circulation as Revenue in buying arms, but in so doing no self expansion takes palce we are left with 1 billion of circulation, not the 1.1 billion that would otherwise have been the case. This 1 billion in being spent cannot magically become 1.1 billion, it can only exchange against Capital of an equivalent Value - i.e. a total of 1 billion in Constant and Variable Capital, and Surplus value.