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From: owner-ope-l@galaxy.csuchico.edu on behalf of Duncan K. Foley
Sent: Friday, February 06, 1998 10:54 PM
To: ope-l@galaxy.csuchico.edu
Subject: Re: [OPE-L] Historical, real and current costs (2)
Duncan writes:
"From my point of view, the difficulty with Alan's stock definition is that it
will not in general lead to the quantitative equivalence of gross profit and
unpaid living labor time. In other words, if you divide the money measure of
gross profit over the year by Alan's definition of the monetary expression of
labor time [MELT], you will get a number of labor hours that is not equal to
the unpaid labor time over the year."
Strictly speaking, I think Duncan's point is technically correct, *given* his
definition of "profit." What he calls profit, however, includes purely
*nominal* differences between revenues and costs. I think Marx's theory
posits the equality between unpaid labor and *real* profit rather than nominal
profit.
By means of a few simple numerical examples, I want to show that it is the
temporalist ("stock") definition of the MELT, not the simultaneist ("flow"?)
definition, that leads to the equality of unpaid labor and real profit.
Moreover, I want to show that the simultaneist MELT implies that (a) unpaid
(surplus-) labor can be positive although "profit" (according to the
simultaneist definition) is negative, and (b) when real wages *rise*, the
amount of surplus-labor that workers perform can *rise* instead of fall.
These last two issues are discussed in my paper "Simultaneous Valuation and
the Exploitation Theory of Profit are Incompatible," which I posted to this
list last month. Since these issues are pertinent to Duncan's claim, however,
I'll take the liberty of offering some examples now.
First, however, I want to clarify some terms for non-initiates -- others can
skip to the next section.
TERMINOLOGY
===========
What Duncan calls Alan's "stock definition" is what I'll call the temporalist
interpretation. It is an instantaneous measure of the relationship between
value expressed in money and value expressed in labor-time, a measure of that
relationship at a particular "point" in time. For instance, in Alan's
example, the MELT on 1 January 1997 is the ratio on 1 January 1997 between the
money-price of the stock of all commodities in circulation at that time, and
the labour-time value of the stock of all commodities in circulation at that
time.
The alternative "flow definition" (?) is what I'll call the simultaneist
interpretation. It measures the relationship between value expressed in money
and value expressed in labor-time over some "interval" of time. For instance,
the MELT on 1 January 1997 is the ratio between the money-value-added of the
period 1 January 1997 to 1 January 1998 , and the current labour of that
period.
A further distinction concerns the valuation of materials (and fixed capital
depreciation, but I'll ignore that for expository simplicity). According to
the temporalist interpretation, they are valued at their cost (in money and in
labor-time terms) when they enter production, while the simultaneist
interpretation holds that they are valued at their end-of-period "replacement
cost." Note that this difference gives rise to two different interpretations
of "profit," and of "total price" and "total value."
The temporalist interpretation of the MELT is held by proponents of the
temporal single-system (TSS) interpretation of Marx's value theory. The
simultaneist interpretation is held by proponents of the "New Interpretation"
(or "Solution") and, if I'm not mistaken, by all proponents of the
simultaneous single-system interpretations (Chai-on, Bruce, Antonio, Fred, and
others).
EXAMPLE #1: DEFLATION
======================
This first example will show that, even if there's a positive net product of
every use-value, and even if productivity is not changing, the simultaneist
MELT does not deal correctly with inflation and deflation. It yields incorrect
conclusions because it overlooks changes in prices between the beginning and
the end of a period.
DATA:
(1) A capitalist economy that produces a single good, corn. In *both* of two
successive years, 1996 and 1997, we have the following input-output relations:
900 bu. corn + 200 hrs. of living labor --> 1000 bu. corn
In each year, the 900 bu. of seed-corn are planted on Jan. 1, and the living
labor is applied from Jan. 1 through Dec. 30, at which time the 1000 bu. of
corn output emerges. The output is *sold* on Dec. 31.
(2) In each year, wages total $396. They accrue between Jan. 1 and Dec. 30.
Note that technology, the scale of production, and the wage rate (both in
money and physical terms) are the same in both years.
(3) The price of corn is:
(a) $4/bu. from Jan. 1, 1996 through Dec. 30, 1997, inclusive.
(b) $3.92/bu. on Dec. 31, 1997 (the price drops by 2%).
RESULTS:
(1) The simultaneist MELT of 1996 is [4*(1000-900)]/200 = $2/hr.
(2) Using the simultaneist MELT, the $396 in wages of 1996 represent
$396/[$2/hr.] = 198 hrs. of labor.
(3) Hence, simultaneist surplus-labor in 1996 is 200 hrs. - 198 hrs. = 2 hrs.
So far, so good. Yet
(4) The simultaneist MELT of 1997 is [3.92*(1000-900)]/200 = $1.96/hr.
(5) Using the simultaneist MELT, the $396 in wages of 1997 represent
$396/[$1.96/hr.] = 202.04 hrs. of labor.
(6) Hence, simultaneist surplus-labor in 1997 is 200 hrs. - 202.04 hrs. =
-2.04 hrs.
The simultaneist interpretation therefore implies that workers have exploited
the capitalists during 1997. What makes them exploit the capitalists,
moreover, is not any change in the length or intensity of work, nor any change
in real wages. What makes them exploit the capitalists is merely the drop in
the price level.
If the price of corn had dropped to $2 instead of to $3.92, "profit" would
have equaled -$196 and simultaneist surplus-labor would have equaled -196 hrs.
Something is clearly wrong. It is wrong even according to simultaneist
reasoning, since the $396 in wage costs in *both* years permitted the workers
to buy the same amount of corn, $396/($4/bu.) = 99 bu. Hence, the physical
surplus of corn in *both* years is 1000 - 900 - 99 = 1 bu.
On the other hand, we see that Duncan's statement is, technically speaking,
correct. "Profit" in 1996 is 4*1000 - 4*900 - 396 = $4, the monetary
expression of the 2 hrs. of surplus-labor of 1996 (2 hrs.*[$2/hr.] = $4). And
"profit" measured according to end-of-year replacement costs in 1997 is
3.92*1000 - 3.92*900 - 396 = -$4, which is the monetary expression of what is
construed as the -2.04 hrs. of surplus-labor of 1997 (-2.04 hrs.*[$1.96/hr.] =
-$4).
I suggest, however, that it is only *nominal* profit that is negative in 1997.
*Real* profit is positive. What I mean by "real profit" is profit after
adjustment for changes in the MELT, i.e., changes in the relationship between
the $ and the labor-hour.
One way of performing the adjustment is to "discount" sales revenue by 1+i,
where i is the inflation rate of the MELT during 1997. In the present
example, i = (1.96 - 2)/2 = -.02. "Undiscounted" revenue of 1997 is
$3.92*1000 = $3920, so discounted revenue is $3920/(1+[-.02]) = $4000. To
find real profit, we also need to use actual outlays for seed-corn, not
replacement costs. Then
real profit = $4000 - $4*900 - $396 = $4.
I would contend that the actual amount of surplus-labor, in 1997 as in 1996,
is 2 hrs. Hence, the real profit of $4 is the monetary expression of
surplus-labor according to the *original* MELT (2 hrs.*[$2/hr.] = $4).
The calculation can also be performed in "reverse": use the actual sales
revenue and adjust seed-corn and wage costs that accrued under the original
MELT. To adjust them, one multiplies them by 1+i, and the result is what they
would have cost under the new MELT. One gets
real profit = $3920 - (1+[-.02])*($4*900 + $396) = $3.92.
This is the monetary expression of surplus-labor according to the *new* MELT
(2hrs.*[$1.96/hr.] = $3.92).
These latter two calculations are the temporalist calculations. When
proponents of the TSS interpretation of Marx's value theory say that profit is
the monetary expression of surplus-labor in his theory, we mean real profit in
the above sense.
EXAMPLE #2: POSITIVE SURPLUS-LABOR BUT NEGATIVE "PROFIT"
=========================================================
Assume a two-sector capitalist economy, with the following input-output
relations:
100 lbs. of wheat + 1 hr. of living labor --> 101 lb. of wheat
4 lbs. of wheat + 1 hr. of living labor --> 1 box of bread
Note that the economy is "productive" -- the Hawkins-Simon conditions are
satisfied (less than 1 unit of each good is used, directly and indirectly, to
produce 1 unit of it).
Assume also that the unit price of each good is $1 (we'd get the same results
with numeraire prices).
Finally, wages are zero.
Hence, measured in either numeraire, "profit" is negative:
"profit" = $1*101 + $1*1 - $1*100 - $1*4 = -$2.
However, surplus-labor is positive, 2 hrs.
The problem, of course, is that when the aggregate price of the net product is
negative, the simultaneist MELT is also negative. In this case it equals
-$2/2 hrs. = -$1/hr. Each hour of labor is expressed monetarily as -$1.
Equivalently, the monetary value added (?) by each hour of labor is -$1. We
can also conclude that the $101 received by the wheat producers represents
-101 labor-hours, and the $1 received by the bread producers represents -1
labor-hour. I have difficulty understanding how these are meaningful results.
These problems do not arise under the temporalist interpretation of the MELT.
No actual temporal computations can be done without knowing the MELT at the
start of the period as well as prices at the start of the production period.
So, for purposes of illustration, I'll assume that input prices equal output
prices and that the MELT at the start of the period is $1/hr.
Hence, constant capital outlays were $1*100 + $1*4 = $104. They represented
$104/[$1/hr.] = 104 labor-hours. 2 labor-hours were added. The total value
of output in labor-time terms is thus 104 + 2 = 106 hrs. The total price of
output is $1*101 + $1*1 = $102. Hence, the end-of-period MELT is $102/106
hrs. This is not a negative number.
The rate of inflation of the MELT, using the procedure outlined in the above
example, is i = -4/106. Hence, 1+i = 102/106. By the former discounting
method, we have
real profit = $102/(102/106) - $100 - $4 = $2
which is the monetary expression of the 2 hrs. of surplus-labor according to
the original MELT of $1/hr.
By the latter discounting method, we have
real profit = $102 - (102/106)*($100 + $4) = (102/106)*$2
which is the monetary expression of the 2 hrs. of surplus-labor according to
the new MELT of $102/106 hrs.
EXAMPLE #3: SURPLUS-LABOR *RISES* AS WAGE RATE RISES
=====================================================
Let's retain all of the assumptions of example #2, except that wages are now
positive.
We saw above that
(a) simultaneist "profit" is -$2
(b) the simultaneist MELT is -$1/hr.
(c) living labor is 2 hrs.
Now, let's imagine that the total wages paid in the economy equal $W > 0.
This wage bill represents $W/(-$1/hr.) = -W hrs. of labor. (For instance, if
$W = $20, then the wage bill represents 20 labor-hours.) This is variable
capital, measured in labor-hours.
Surplus-labor is living labor minus variable capital measured in labor-time:
SL = 2 hrs. - (-W hrs.) = 2+W hrs.
d(SL)/d(W) > 0. Surplus-labor *increases* with increases in the wage rate.
For instance, if wages were zero, surplus-labor would equal 2 hrs. If wages
were $20, surplus-labor would equal 22 hrs. If wages were $40, surplus-labor
would equal 42 hrs., etc.
Clearly, this situation arises because the simultaneist MELT is negative. It
cannot arise under the temporalist interpretation of the MELT because, as I
discuss in my paper, the latter MELT cannot be negative under any plausible
conditions.
I'd be very interested in the responses of Duncan and other advocates of the
simultaneist MELT, as well as other listmembers, to these three issues.
Andrew Kliman