Re: Estimating the surplus\Doug's question\Fred's comments

[Jurriaan Bendien <bendien@xxxxxxxxxxxx>]

  I suspect that the measurement of profit rates is a very, very inexact
> exercise, because the denominator cannot be measured.

I believe this is a mistake. Of course it can be measured, but not very
accurately. But only an empiricist believes in "perfect data". The rest of
us understand more about the limitations of accounting and survey methods,
and thus regard the data only as an indicator of a trend referring to how a
relationship evolves over time.

Invested capital
> requires some means of calculating depreciation rates.  The government
does
> this calculation by means of rules of thumb based on the permanent
inventory
> method.

Well you can do it in two ways - you can total up book values for fixed
assets year by year, or establish a benchmark figure and extrapolate asset
values on the basis of the perpetual inventory method. This method involves
adding on the value of net additions to fixed assets year by year, using a
capital expenditure price index which adjusts asset values for price
inflation, and using depreciation rate assumptions for different types of
assets. The problem is really that the data collected or compiled involves
adding up asset values calculated variously according to historic cost,
current replacement cost, and current market value, i.e. the valuation is
not homogenous at base level and the owner may not even know exactly what
the asset is worth. Indeed, the fluctuations in replacement costs and market
values directly affect the rate of disposal of fixed assets, and the value
of the assets is co-determined by the yield on those assets. Nevertheless it
is possible to get some indicators of the trend (see the appendix to
Glyn/Sutcliffe/Harrison, Capitalism Since World War 2). The OECD site has
discussion papers on what the estimation problems in the area of fixed
capital stocks are, and these are also discussed in T.P. Hill, Profits and
rates of Return, an OECD publication). Another problem less often mentioned
is simply the statistical coverage of fixed assets in surveys.
>
> Over a short period of time, problems with this method of calculation will
not
> cause too much difficulty as long as the business cycle does not move too
> rapidly, but measurement over decades is exceedingly questionable.

That is probably true; both because of changes in the price structure of
capital costs, and changes in real or imputed depreciation.
>
> The data can give you a rough idea about what's happening, but not with
the
> exactitude that we pretend in journal articles.

I agree.

> Jim's mention of Reich's article is interesting.  I suspect that a rising
> amount of unproductive labor can be an effect as well as a cause of a
falling
> rate of profit.  I'm thinking of periods when capital cannot make much
profit
> from direct production, and thus reverts to more financial manipulation in
lieu
> of production.

That is correct. According to Marx, an economic crisis or period of economic
stagnation is the way by which the law of value asserts itself, i.e. it is
the way in which viable economic proportions in the cost structure of
production are restored - inputs and outputs are devalued or revalued by
market failure. Basically this takes the observable form of restructuring,
asset stripping, reorganisation and rationalisation, and in turn, this is
accomplished through corporate mergers and takeovers (what Marx calls the
centralisation of capital). One of the financial advantages of this
restructuring is that budgets can be changed so that costs and incomes can
be ascribed to different entities than previously, and by that process, you
can show a net profit purely through making institutional changes, without
changing production technique at all. Meantime growing unemployment
depresses labour costs. But growing unemployment also means that ordinary
consumers can buy fewer consumer durables and perishables. Consequently,
production shifts increasingly to luxury consumption and armaments
production because only the wealthy have the additional buying power that
sustains output growth. If the growth rate of the total volume of profit
declines, then the only way to increase profits may be to take profits from
another sector. The data suggest that average rates of profit realised on
equity in the financial, real estate, trade and insurance sector are on
average higher now than in real production. Many different factors are
involved, including state policy (including manipulating real interest rates
and tax regimes), the concentration of capital, better credit facilities,
the shifts in the international division of labour, unequal exchange, the
OCC and productivity of labour in primary and secondary sectors, risk
factors, the relative turnover-times of capital, improved transport and
communication technology, and so on. As I said in a previous mail, social
accounts do not operate a consistent distinction between new and conserved
value, because they cannot define the source of value beyond noting a net
income gain in the accounts. That means the real distinction between
production and circulation is largely hidden to economists (and Marxist
fundamentalists), who narrowly focus on fixed investment, production and
GDP. But this does not really capture what is really going on, namely that
much more profit can be made through intermediaries between producers and
consumers. This means the emphasis shifts to the ability to exchange, hustle
and negotiate "deals", and that negotiation skills are at a premium. In
turn, this promotes a view of state economic policy which emphasise merely
the expansion of the market as its only goal. Some of this discussion was
covered by Ernest Mandel in the chapter "Expansion of the services sector"
in his book Late Capitalism, but unfortunately he operates with a rather
"Smithian" concept of productive labour, as Elmar Alvater notes. He also
does not link the expansion of the services sector to the phenomena of
imperialism and the imperialist division of labour internationally. It is
characteristic of services that their costs are determined by real or
imputed skill levels and specialist abilities, but this qualified labour
power is more susceptible to scarcity and monopolisation factors or market
closures (what Bourdieu calls "cultural capital"). Thus, the costs of
producing qualified labour may be much lower than the actual income earnt by
that qualified labour, and in addition qualified labour is often better able
to negotiate higher wages because of its indispensability. The growth of
service labour creates a new valuation problem in establishing the value of
labour power, precisely because the definition of specialist labour power is
that it is scarce.

J.