The Real Movement

Communism is free time and nothing else!

Tag: heterodox economics

Prices, Profit and the Sraffian “One-Commodity” Corn Model

A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour; required both for its exploitation generally, and for making the consumed labour-time suffice as the labour-time necessary for the production of the commodities, so that it does not exceed the average social labour-time required for the production of the commodities. Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit. At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. (Karl Marx, Capital, Volume 3, Chapter 15)

The problem of prices and profit and of the relation between the two, which has bedeviled the simpleton economist for two hundred years, has reared its ugly head again in a series of posts amounting to a food fight among bourgeois silverqueensimpletons. The question raised in the exchanges, which I have previously covered here, involves the question of the source of profits in the capitalist mode of production and the interrelation between profit and prices.

At stake is far more than is apparent in the obscure criticism raised by heterodox economists against the mainstream neoclassical school that the neoclassical school wants to determine profit by the marginal productivity of capital, and then calculate the quantity of capital in part by asking how profitable it is to own the capital goods. If prices and profit are dependent on each other in this way it calls into question the historical trajectory of the mode of production itself.

Read the rest of this entry »

“Karl Marx was right, but it doesn’t really matter.”

I have been reading this short piece by Matthew Yglesias “Where do profits come from? The obscure feud that tears left-of-center economics apart”. As the title states, the crux of the discussion is the failure of neoclassical economics to offer a credible alternative to Marx, who asserted that labor is the source of both wages and profit. The inability of the bourgeois simpletons to offer a credible alternative to Marx’s explanation results in a rather bizarre set of assumptions:

“Heterodox economists argue that it is circular to say that the profits accruing to the owners of capital are determined by the marginal productivity of capital, and then to calculate the quantity of capital in part by asking how profitable it is to own the capital goods.”

takethebigbagLabor theory says that profits are simply that portion of value created in excess of the value of the wages of the workers, while mainstream economics holds profits result from the marginal productivity of capital.

It should be clear that mainstream economics has already conceded this point to labor theory: labor is the source of all profit. No matter how this argument is obscured in all the gibberish of neoclassical economics, it has been demonstrated both theoretically and practically that there is only one source for both wages and profit: the labor of the worker.

As Yglesias points out:

Mainstream economists went through a few iterations of attempting to refute this objection before essentially concluding that it was correct. This is, indeed, one of the reasons why people on the heterodox side often seem to be embittered. The mainstream concedes the point, but tends to deny its significance.

Read the rest of this entry »

Marx proven wrong by Progressives and Liberals once again (Part 3)

3. Finance capital and the disconnection of profits from production

To return to Paul Krugman’s question in which he asks:

“So what’s really different about America in the 21st century?”

He gives the following answer:

“The most significant answer, I’d suggest, is the growing importance of monopoly rents: profits that don’t represent returns on investment, but instead reflect the value of market dominance.”

childrenofauschwitzThe term ‘monopoly rents’ employed here is a poor choice, since it makes it appear as if ‘rents’ are obtained when a company acquires a monopoly position in some area of production. The profits generated by the monopoly are said to be similar to the rent a class of landowners might obtained on land. The landowners do not produce the land, nor do they necessarily do anything to improve it or exploit it, they simply collect rent on the employment of the land by others owing to their title to it. The term ‘monopoly rent’ when applied to capital is a misleading or, at best, an ambiguous analogy. At worst, it proposes that profits can be created by selling commodities above their values, which is nonsense.

Read the rest of this entry »

Marx proven wrong by Progressives and Liberals once again (Part 2)

2. Why Michael Hudson’s rejection of Marx put him on very dangerous ground

merchantaWhile having decided Marx screwed up in his analysis of the relation between industrial capital and finance capital, Hudson offers no real explanation of his own for where so-called ‘rentier capitalism’ comes from. Historically speaking, finance capital just appears on the scene and rises up to confront and dominate industrial capital sometime between the end of World War II and the time of his book in 1998 – roughly 50 years or so. I want to suggest this lack of a definite and clear argument for the emergence of finance capital is a dangerous and unacceptable defect in Hudson’s analysis.

Read the rest of this entry »

Marx proven wrong by Progressives and Liberals once again

1. How to create 2014 talking points in four easy to follow steps

File this under, “Marx Proven Wrong By Progressives and Liberals Once Again”.

The question this time is the relation between industrial capital and finance capital. According to DSWright (whoever the fuck she/he is) Michael Hudson, a heterodox economist,

“has long claimed that Marx’s contention that ultimately industrial capitalism would triumph over finance capitalism was wrong.”

In fact, according to DSWright, bankers now dominate the economy and subject productive employment to the “rent-seeking” priorities of finance capital. Says Hudson, in 1998,

“Whereas the old industrial capitalism sought profits, the new finance capitalism seeks capital gains mainly in the form of higher land prices and prices for other rent-yielding assets.”

hudsonIndustrial capital, in other words, only engages in healthy, wholesome profit-making, while finance capital seeks debt slavery and constantly rising physical and financial asset prices.

DSWright is happy to report Hudson’s correction of Marx has now been adopted into the arguments both of Joseph Stiglitz and of Paul Krugman. According to Stiglitz much of what goes on in the financial sector is unhealthy, vile rent seeking, not healthy, wholesome profit-making. Paul Krugman has recently declared America in the 21st century is now seeing “the growing importance of monopoly rents: profits that don’t represent returns on investment”. Krugman argues these monopoly rentiers with their market dominance actually may be prolonging the depression. The unprecedented duration of this depression is, “no puzzle here if rising profits reflect rents, not returns on investment.”

Read the rest of this entry »