[OPE] paper

I think it is a good paper, because, as I already pointed out many years ago
on OPE-L, the productive sector is not the only source of profit; making
money from production is merely one form of accumulating capital. The
"fundamental Marxian theorem" is a fundamental error.

"For Marx, then, profit is the unpaid part of the flow of net output that is
created de novo in the sphere of production through the exploitation of
workers." (p. 5)

This is simply not true, as acknowledged later on in the paper. For Marx,
the ultimate source of profit is newly produced surplus-value, and it is
this surplus value which is "the unpaid part of the flow of net output". But
this does not deny that there is a buoyant trade in already existing assets
generating profit.

"To recap, for classical political economy, profit is a fresh flow of value;
for Marx, moreover, profit is a fresh flow that is generated in production
through the exploitation of
workers. However, for both classical economists and Marx, there is also
'profit upon alienation or expropriation' resulting from zero-sum
transactions that relate to existing
flows of value." (p. 8)

This is more correct, but it is not clear what the "existing flows of value"
are. There exists simply no scientific evidence or proof at all, that
profitable transactions pertaining to already existing assets, whether
physical assets such as real estate or financial assets, constitute a
zero-sum game, such that the gains of some exactly cancel out the losses of
others in aggregate. After all, assets can be continuously devalued and
revalued.

Presumably, the Marxist theoreticians want to postulate that this zero-sum
trade-off exists, so that total values equal total prices. But this is,
again, a simple error.

*Marx adopts the simplifying assumption that the value of new output (not
all assets) equals the sum of production prices, but he acknowledges it is
only a simplifying assumption, given that goods are continuously sold above
or below their value, even just because there are continual productivity
differentials, but also because there exists no competitive force that could
exactly cancel out price-value deviations - such a tidy accounting sum would
assume a very perfect competition which simply does not exist other than in
the models of economists.

*Value in Marx's economic sense is lodged only in products, labour power and
production capital (means of production). Hence his distinctions between
real capital and money capital, and between money capital and fictitious
capital. The value of financial assets is only their value in money terms;
that value rises or falls according to their yield, not their production
cost.

*As I have pointed out numerous times on OPE-L, GDP does not describe "the
whole economy" as economists say, but only the factor incomes and
expenditures associated with economic activity defined as production. A
fraction of profit from asset sales as well as capital gains are therefore
not included in GDP; they are property incomes not related to production.
These property incomes have typically been ignored in Marxist analysis, even
although national accounts distinguish between the "primary circuit" of
incomes from production and the secondary circuits.

*I have also pointed out, that the reproduction models of Marxist economists
are faulty, because they simply ignore that more and more assets are created
which are not inputs or outputs of production, and these assets can also
attract profit, whether from resale or rents and the like.

*I have illustrated with the empirical example of the US economy something
which almost all Marxists have hitherto ignored, namely that the capital
directly tied up in the private productive sector is only a minor part of
the total social capital (perhaps a fifth or a sixth of the total asset
value, or if not just physical assets but also financial assets are
included, perhaps one-eighth).

The weak part of the paper by Costas is that, whereas it does distinguish
between profits from production and profits which arise in the circulation
of goods and assets,

(a) it does not distinguish sufficiently or theoretically between different
types of circuits of trade involved.
(b) it does not show how the two sources of profit are organisationally
related, particularly in a services economy.
(c) In addition, it makes almost no mention of taxes, even although tax is a
major fraction of surplus value and total gross profit.

In modern business we can witness a intricate maze of companies, which can
be owned by the same parent company, which buy and sell products, assets and
services from each other, nationally and internationally. The producing
enterprise may sell an output for e.g. $100 to an affiliated company which
resells it at $150 to another company which again resells it at $200. This
gives rise to the problem of what, then, the "true value" of the output is
supposed to be.

In the GDP calculation, standardized valuations of producer's input and
output prices are used, but the identity of total producer's output prices
with final consumption expenditure plus gross capital formation is achieved
only by means of accounting definitions. In the real world, such an identity
does not exist. We can prove that easily when we compare final income and
expenditure as measured by the Census, with final expenditure in the account
of gross product. The two do not match up.

So anyway the Marxist interpretation of the economy is, as I have argued
many times, deficient, because it focuses only on production capital, which
is only a minor part in the total circuit of capital in advanced capitalist
economies.

Jurriaan

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Received on Sun Jan 9 15:27:48 2011