The formation of Marx's general rate of profit: the trend towards international production prices

[Jurriaan Bendien <bendien@xxxxxxxxxxxx>]

The new International Financial Reporting Standards provide an interesting
illustration of the formation of an international general rate of profit
based on international production prices. The USA, EU and Japan (which
together represent over half of the value of world GDP) are now negotiating
new accounting rules for the distribution of surplus-value which would end
the big differences in the rules between countries.

The current situation which features different systems actually costs
business a lot of money - for example, it makes it more difficult for
investors and corporations to make international profitability comparisons
between enterprises in the same sector. In addition, the taxman wants better
information on financial deals and property income of corporations. If
taxation is a third or so of gross profits, obviously this plays an
important role in new accounting rules. There are a few problems which still
have to be ironed out, but there is forward momentum.

While the pseudo-Marxists reject Marx's theory of production price, the
reality is that corporate executives constantly have to confront it, because
they constantly have to bridge that critical interval in time between costs
incurred and sales realised (the process of the turnover of capital,
something which, as we know, requires an increasing volume of credit), but
the point is, in this mysterious process, an increasing amount of money just
happens to change hands that has nothing directly to do with production, but
with property income and financial deals involving fringe benefits, loans,
options, shares, bonds, derivatives, future contracts, hedging schemes,
imputed goodwill capital, and all sorts of things.

In neoclassical economics, the significance of this interval (i.e. real
production by the working class) disappears, through the magnificent
division of economics into micro-economics, macro-economics and management
theory, so that the social relations of production do not exist; all we have
is enterprise economics, management philosophy and then a share-out of the
national income used to estimate the social product according to the
Keynesian income-product identities. The International Accounting Standards
Board however agrees mainly with Marx, who had a single system of categories
without the micro-macro split, as against those "Marxists" who are still
terribly worried about the inability to obtain price-value and rp/S
identities in a system of simultaneous equations (which misinterprets Marx's
own intention anyhow).

The IASB want fuller disclosure of financial income as distinct from
production income, and a valuation of corporate assets which fairly reflects
their current value in the market. This puts more pressure on executives in
certain respects, in that the organisation must be built more and more
around the critical profit volume and profit rate figures. It's the return
to the share-holder, i.e. realised surplus-value, that is increasingly the
fulcrum of corporate strategy. More output must be sold that is produced by
workers working at greater intensity and long hours at a lower unit labour
cost.

Thus, IFRS requires greater disclosure of transactions at "fair value",
defined as current market value or replacement cost rather than acquisition
costs, recognising that an increasing component of corporate profit income
is actually due to trading in investment property and financial assets
(capital gains of sorts) where changes in value occur which are not
attributable to actual production values, and entries treated as "costs" are
really "revenue".

Some of the main changes include: more detailed disclosure in accounting for
financial instruments and investments at current market value, preference
shares, derivatives (options, interest rate swaps, forward contracts),
currency hedging, and convertible loans (split between debt and equity);
more rigorous accounting for pension costs;  share, bond and share option
schemes are treated as a cost to be charged in all cases; in consolidations,
merger accounting is no longer allowed; goodwill and intellectual asset
accounting (impairment charges against profits only, no amortisation using
indefinite asset lives); more explicit accounting for investment properties
at cost less depreciation; capitalisation of developments costs (no option
to expense immediately); and changes in deferred tax (provisions on
revaluations, no discounting).

Europe intends to make IFRS compulsory in 2005. The USA is modifying its own
rules, to make them consistent with IFRS, although, in many respects, IFRS
seems to be actually inspired more by the US model. The Japanese government
however at the moment seems not to want to proceed further than giving the
Japanese enterprises a choice to use the new international reporting
standard instead of the existing one. Keisuke Takeguuchi of the Daiwa
Institute of Research said that a situation could now emerge where, in
Japan, two different bookkeeping standards could exist side by side, the
IFRS and the local standard. Keidanren thinks however that Japan has already
done enough to improve the system, and that existing accounting rules are
comparatively better. Not entirely surprising, given the peculiarities of
economic difficulties in Japan.

Specifically, Japanese employers don't like the requirement to report
financial balances at current market value, and the stricter rules for
pension obligations in the new system. Yet Japanese enterprises which would
adhere to local rules, run the risk of being excluded from overseas
financial markets. After a trial in 2004, the EU for example intends to
accept only the IFRS standard for the 7000 listed corporations as from 2005.
Enterprises which don't conform will most likely not get access to the
European obligations and stockmarkets. The IFRS is consistent with the tax
base harmonisation strategy across the EU, a necessary step on the way to
its equalisation of the rate of taxation, a project which is currently
boggling many German public servants.

Jurriaan