[OPE] "Surplus" (for Paul Cockshott)

In Marxist and Sraffian ideology, the surplus product from capitalist
production is regarded as being produced first, and then distributed
according to the financial claims which there are on that surplus product.

The concept of "factor incomes" also gives credence to this idea, since it
posits a circular flow between the factor costs of production and the factor
incomes generated by it. This approach has some analytical use for the
purpose of estimating the value of what is produced, since, as I explained
before, we simply do not know what that value is, except by inferring it
from revenues and expenditures thought to be directly associated with
production.

But it is an analytical abstraction, and not the reality, since (1) the
structure of financial claims on products, based on ownership title,
pre-exists any production, and in part exists completely independently from
it, (2) in part because total social capital vastly exceeds the capital tied
up in production, giving rise to income and claims which have nothing to do
with production.

The "ideological move" is then to confuse the analytical abstraction with
the real process, a fallacy highlighted e.g. by Alfred Korzybski.

As Marx says, capitalist production is the "unity of the production process
and the circulation process", neither can take place without the other. A
financial institution can buy a production unit, it can buy products for
resale, and it can buy claims to products and physical assets in order to
trade in them. Not only does this generate new financial claims quite
independently of anything being tangibly produced, but it also means that
part of the surplus-value generated by production is only realized by a
financial institution, and perhaps would not even exist, if the financial
institution was not there.

If we then examine the real cost structure implicated in the final price of
products (if you like, the "economic production price"), we most often find
that the physical production cost is only the minor portion of the final
cost, and circulation/distribution costs are the major portion. Some of
those distribution and circulation expenses are absolutely necessary "faux
frais of production" - the product could not reach the point of consumption
without them - but some costs exist purely because of ownership rights,
intermediate financial "services" or tax imposts.

The theoretical question is then, well, what is the "value" of the product
in that case? Is it something like the producer's output price (cost price +
producer's gross profit)? Or is it the final price (cost price + producers'
gross profit + incomes from circulating and distributing it, i.e. the
intermediation costs)? A range of production prices and values can be
calculated for different stages of the process, since the product itself
transits from producer to consumer usually only via resale to distributors,
and is subject to various other costs including tax, rents, interest and
insurance. Surplus-value refers to the generic profit made from newly
produced products, but the analytical problem is that this generic profit
turns out to have, in part, nothing to do with production whatsoever - it is
effectively a capital gain.

The theoretical assumption in the gross product account of the national
accounts is, that if all outputs of all institutional units are valued in a
standard way at producer's prices, then if we add up all those output prices
and subtract the total price of throughput used up at producer's prices,
then the intermediation costs incurred between the point of production and
the point of final sale will be implicitly included in the total (because
those costs must be part of the income of institutional units), and that,
consequently, the final price of total net output will be obtained (it's
just that some institutional units obtain income, or incur expenditure,
without anything being recognizably "produced", requiring positive or
negative imputations for a "service" cost). In other words, if we added up
up the "producer's prices" of final goods and services, we will get the
"final consumer price". This assumption was never examined or challenged by
any Marxist economist as far as I know.

The application of the principle of standard valuation may in practice
become somewhat tenuous (if the standard valuation deviates strongly from
the real prices charged, or if it is not clear that an institutional unit
"produces" anything), but it may become particularly tenuous, if, for
example, a pair of slippers is bought in China for $4, is worth $6 on
delivery in San Diego, and retails for $30 in US stores, because in fact the
intermediation costs (the total mark-up) may then far exceed the physical
costs of getting the product to the consumer, and reflect a surplus-profit
or economic rent. Indeed, this is precisely the reason why outlets
increasingly try to "cut out the middlemen", try to buy directly from the
producer, or indeed buy up the producer and thus fully control the
production chain. In that way, they may actually be able to reduce their
costs, increase sales through a lower final price, and increase their own
profit. That is the characteristic of much modern-day "restructuring".
Obviously if real wages do not rise but even fall, then ordinary consumer
demand does not rise, and then you can make more profit only if you sell
more, at a lower price. It is no accident that Wall-Mart grew so large.

In that case, "value-added" however begins to appear out of nowhere, simply
out of the transfer of ownership. This is not a small matter if you look at
the figures. For example, the commodity imports (not capital imports) into
the US according to BEA consist primarily of goods ($2.1 trillion in 2008),
added to this is $405 billion of services in 2008 (mainly unspecified "other
private services", travel & transport fares, and royalty or license fees).
The total value of imports is equal to about 17% of US GDP, or about
one-sixth, and equal to about 4% of measured world GDP valued in US dollars,
or equal to the GDP of Great Britain. So every year, the US imports a value
of goods and services equal to the GDP of Britain. Out of the value of
imported goods, 37% is industrial supplies (intermediate goods), 21% capital
goods, 20% motor vehicles, and 23% consumer goods. What is the "final
price" of all these goods in the US, however?

We simply don't know, but the discrepancy between import price and final
price is likely to run into the hundreds of billions of dollars. The
"services" supplied by US multinationals in respect of cross-border
transactions are valued at half a trillion dollars. I have mentioned before
how there is about $1 trillion of tax-recognized capital gains realised in
the US economy per year, but in fact these capital gains partly feed into
the existing cost structures for products. What is the effect? Well, it must
either be a net addition to final prices, or a redistribution of generic
profit to financial institutions. If we then examine the profits of
financial institutions included in US GDP, it amounts to 26.5% of all
profit. But that is not their true profit, in particular because this amount
is calculated in line with a specific concept of net interest and it
conceptually excludes capital gains. If however making capital gains become
a major business of financial institutions, then all told most probably the
real net income from financial trade is more than double its GDP component.

Jurriaan

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Received on Sun Nov 8 11:47:04 2009