ANALYSIS OF Q2 CORPORATE PROFITS IN THE USA (including a real time proxy rate of profit).

profits USA Q2 2019 pdf


working paper Q2 2019 corporate profits (spreadsheet)

TABLE 1.14 QUARTERLY UP TO Q2 2019 (spreadsheet)

In the sub-section titled “A correction” it was recognised that the rate of turnover influences the rate of exploitation but not vice versa. That is correct. But a more precise formulation is required as to how this influence works. A structural change in the rate of turnover, as we have seen in the USA and which is demonstrated in Graph 5, where circulating capital is no longer declining relative to fixed, affects the annual rate of exploitation by increasing the employment of labour power and the rate at which profits are realised. This explains the curious phenomena where employment has increased despite the fall in the rate of profit and to which fall it has contributed.

Due to pressures of union work I rushed this article and thus did not deal correctly with the inter-relation of turnover and exploitation. It was wrong of me to say that a rise in the period of circulation from 50 to 60 days would necessarily affect the rate of exploitation, it wont. That would assume profits are made in the circulation process rather than the production period. For the correct way to deal with this issue please read the comments at the end of this article. I apologise for the confusion caused.

10 Responses to ANALYSIS OF Q2 CORPORATE PROFITS IN THE USA (including a real time proxy rate of profit).

  1. vasilis says:

    excuse me, but rate of exploitation and rate of s. value: aren’t they they same thing (sur v./var cap.)?

    • Very good question. Due to my union work I rushed the above posting leading to a loss of clarity. So here is a crisp answer. Strictly speaking the rate of exploitation is synonymous with the division of the working day into its paid and unpaid parts when considering only productive labour. Hence if the average working day turns out to be 8 hours and it is divided into 4 hours paid and 4 hours unpaid, the rate of exploitation would be 100%. (4/4) If nothing changes over the course of a calendar year, the rate of exploitation also remains at 100%. But what if turnover slows down over the course of the year. Will the rate of exploitation remain at 100% when measured by the national accounts rather than the working day? The answer is no, it will fall below 100%. What will happen is that there will be an unintended build up in stocks or inventories. This build up represents labour produced but not sold, therefore surplus value blocked from being converted into profits. Accordingly while annual wages will remain the same, profits will fall. As annual profits divided by annual wages is the usual metric used by many Marxists to measure the rate of exploitation, this fall in profits will depress the rate of exploitation.

      Now turning to your question, is there a distinction between the rate of exploitation and the rate of surplus value? There is a large distinction. The size of this distinction will depend on the rate of turnover. The higher the rate of turnover the greater the divergence. So an annual rate of turnover of 4 will lead to a 4 fold difference and a rate of turnover of 5 will lead to a 5 fold difference. The reason for this is that Marx’s concept of the rate of surplus value is not the same as the rate of exploitation. For, Marx the rate of surplus value is profit divided by variable capital and not annual wages. Variable capital differs from annual wages by the number of turnovers. Assume a turnover rate of 4 and an annual wage bill of $4 billion. In this case variable capital will reduce to $1 billion because that is all employers needs to pay their workers until their labour is turned back into cash when it is sold. A rate of turnover of 4 assumes this happens 4 times a year or every 91 days. So the employer need enough capital to pay wages for only 91 days not 365 days. If we were to assume that annual profits were $4 billion too, then the annual rate of exploitation would be 100% but the rate of surplus value would be 400%.

      The real importance behind the rate of surplus value is the issue of turnover. If the employer invests in, say, new delivery vehicles which increases the rate of turnover to 5 a year, but leaves the rate of exploitation unchanged as well as the number of productive workers, then the rate of exploitation would remain 100% but the rate of surplus value will rise to 500%. It is now the case that the employer requires less variable capital because they have to cover wages for only 73 days rather than 91 days.

      You will find loads of real life examples and explanations on this site in case this explanation still leaves you unconvinced.

      I would like to clarify one additional point. We have seen in the early part of this explanation that changes to the rate of turnover, expressed as a change in stock levels, can yield an annual rate of exploitation at variance with the division of the working day. But what about changes to turnover associated with altered rates of exploitation. Since 2014 there has been a significant slowdown in turnover. This has also been accompanied by a reversal in the organic composition of capital as more living labour is employed relative to fixed capital. It appears that the fall in the rate of profit has forced employers to increase output by sucking in low paid overworked labour. More workers, poorly paid has reduced turnover just as it has reduced productivity. This means that the rate of exploitation has fallen measured by the division of the working day. But also, because turnover has fallen, this has also altered the rate of surplus value. In this case we have a parallel fall in both the rate of exploitation and surplus value, but one where the deviation between the two rates has narrowed. For example if the rate of turnover has fallen to 3.5 then the rate of surplus value will be only 3.5 times that of the rate of exploitation. Now, mark, in this example the rate of surplus value will have fallen relatively more sharply than the rate of exploitation because the multiplier effect of turnover is reduced.

      If you have more questions let me know.

      • vasilis says:

        A) i understand what you say. But actually Marx calls as “ANNUAL s.value rate” what you call “s. value rate”. And HIS “ANNUAL s. value rate” is NOT just the total S.V. of the year divided my the “Var. capital” but the total S.V. of the year divided by the “PREPAID variable capital”. It’s not the same thing as your terminology, so you should clarify (Capital, Vol.II, Part II, Chapt 16). In the same chapter Marx clarifies that the s.v. rates for different turnovers are THE SAME, contrary to a ricardian illusion that used to consider that more value is added with faster turnovers. The s.v. rates are different ONLY IF the difference in turnovers effects a difference in the Var. Capital of an identical period, e.g. if higher turnover means more workers at productive work to achieve it. (The ANNUAL s.v. rates are of course different in any case) In other words, when one says “variable capital” one should not mean “prepaid variable capital” in general. And s.v. rate is in fact the same as the exploit. rate -and different than ANNUAL s.v. rate.
        After all, the capitalist will have to pay 4$ billion for wages in a year and that IS the variable capital annually used. While 1$ billion is the annual PREPAID variable capital. It does affect how much an initial capital must be to start a business but NOT how much is wasted (from the capitalist point of view) on wages and NOT how much value is actually added during the PRODUCTION. Delivery lorries do not change the value added, they just change the speed value is realized.

        It seems to be only semantics though. Better to clear things out with definitions in the beginning of an article or of the… entire site. You can’t always remember what Marx exactly said and most importantly not everybody has to know.

        B) a different question, of more essence. About the difference between Gross Value Added (4,6% rise) and Revenue Growth (1,9%). Why does the difference/discrepancy imply an overestimation of GV Added, as you suggest? It could just be a consequence of a rise in inventories, which means Gross Value is indeed added (wages spent, constant capital spent etc), but it is not realized, products not sold yet, therefore no revenue yet.

        C) many economists, marxists or not, claim that it is impossible to estimate non-financial profits of a corporation. I think Rasmus thinks so too. I understand it is hard, though i don’t accept it’s impossible. Where did you get your data on this?
        Finally,, when you say Non-Financial Profits for Total Corporate in Graph 2, I suppose you mean the non-fin profits of both financial (e.g. banks) and non-financial corporation. What kind of non-financial profits for financial corporations have? Do you mean their non-financial subsidiaries? But these subsidiaries must then be non-financial. I understand financial profits of non-financial corps (e.g. GMotors had 40% financial profits, according to an estimation in 2000s) but I don’t understand the opposite.

      • I should have added you are correct to draw the distinction between value added and value realised. Faster turnover does not produce extra value itself. It affects the rate of surplus value only in terms of the denominator, in this case variably capital. I have never departed from this view.

      • I would like to deal with this in stages if I may. You are correct to say that Marx used the term “simple rate of surplus value” to denote a single turnover. He used the term “annual rate of surplus” value to denote multiple turnovers, that unless the annual rate of turnover was 1, it could not coincide with the simple rate of turnover. What Marx refers to as the simple rate of turnover I refer to as the rate of exploitation to distinguish it. I think there is a bit of confusion dating back to Volume 1 where Marx uses the formulation s/v = surplus labour/necessary labour. This is correct, but only for the simple rate of surplus value. In volume 3 this distinction is emphasised…”the formula p’ = sv/C is strictly correct only for a single turnover of the variable capital, while for the annual rate of turnover s’ has to be replaced by s’n the annual rate of turnover, n standing for the number of turnovers…(Volume 3, Chapter 3, page 142 penguin edition.) Let us add the original figures to the formula but ignore constant capital. Simple rate of surplus value =sv/vc = $1/$1 = 100% and annual rate of surplus value $1×4/$1 = 400%. The importance lies in this. What you call the pre-paid variable capital is the $1 billon of variable capital. The $4 billion is not. That is annual compensation and all it denotes is that the $1 billion of variable capital has changed hands four times per year between worker and capitalist. I always believe in rendering Marx practical. Any change in turnover will either reduce or increase variable capital everything else being equal, and it will therefore alter the annual rate of profit. On the other hand it may not change annual wages if the same number of workers are employed and their wages are unchanged.. I agree with you on the question of terminology. However I believe I have used the categories correctly with the exception of the recent hiccup.

        (B) As you know I have specialised on gross output and net value added. It strikes me as odd that gross output (i.e. total sales for manufacturing, wholesale and retail) show grow that is much slower than the growth in value of the final sales. I don’t think inventory is relevant. I am just putting down a marker that it is likely the BEA will downgrade corporate profits in later releases.

        (C) I am taking the BEA’s figures as read. I believe the financial arms of manufacturing corporations are registered as financial entitities, governed by similar legislation to banks and are taken as financial profits in the SNA. Financial Corporations belong to the sector denoted: “Finance, insurance, real estate, rental, and leasing” in the National Accounts, Finance of course includes the banking sector. To give the BEA credit, it does try to strip out capital and price appreciation from the national accounts. Hence the value added by the finance sector will be arrived at by deducting expenses from net income. Whether they can separate out fictitious streams from transferred value streams completely, such as interest on corporate loans, I cannot say.

  2. Cameron says:

    Thanks for another informative post.

    I sense a change in your sentiment. In your previous posts you would refer to “Crash of 2019” but in this post, after the report of the rise in profits in Q2, your tone has changed to this:
    “A growing theme on Wall Street is the “Japanification” of the world economy … This is in fact the better scenario, because it assumes a steady subsiding of the world economy and the avoidance of a crash because of pre-emptive central government measures as well as a truce being declared in the trade war.”.
    Crash Vs steady subsiding. What truce in trade war? Tariffs went into effect today as planned. What pre-emptive government measure? Are you referring to central bank? If so, that’s nothing new.

    BTW, I posted a comment a couple of weeks ago. Neither saw the post nor your reply.

    Thank you,


    • Hi Cameron,
      I still hold to the view that there will be a Crash this year. The most vulnerable time is October or December. This said, the manner in which interest rates collapsed in August, was broader and deeper than I anticipated. But it produces the worst of capital gains, capital gains disassociated from future income streams. Hence the expression of ticking time bombs. Thus if it defers the crash it will only do so by precipitating a larger crash because their is more explosives. The discussion on Japinification around Wall Street is being carried out by the Bears who see this as the best long term outcome. So the next few months will determine if I am right. You are correct to point out that the trade war ratcheted up this weekend, so any investor with pre-knowledge of the tweet, and who shorted the market, would have made another killing. Really, there are diamonds lurking in that there swamp. With regard to your earlier comment, I have checked the comment page on this site and it is not there. Could you resend it here please and I will provide a prompt reply.

    • Cameron has commented on the growing liquidity crisis in the US. THIS IS MY LATEST REPLY. Last week the bond market went into reverse. A sure bet that rates would continue to fall fell over. Interest rates for the key 10 year US reversed from 1.42% to 1.75 then to 1.79% This has caused tens of billions of losses to the speculators and presumably to the banks that allowed them to leverage their bets. Equivalent to a crash on the stock exchange. This did spill over to the stock market provoking a quant quake, because those speculators had to offload momentum shares, most probably used as collateral. This was followed by liquidity draining from the market. This exacerbated the dollar shortage caused by the burgeoning budget deficit and the surge in new bond issuance. The overnight borrowing rate shot up to 10% forcing the New York Fed to inject $75 billion into the markets which was oversubscribed. Interest rates thus remained elevated just as the FED reduced its rate. The word in the market was that the FED had lost control of the money markets. Then Fedex brought out its outlook saying effectively the world economy was on its knees. It shares plunged 14%. The discussion in the markets then moved on. The view hardened that the only way out was for the FED to relaunch a new round of quantitative easing to pump liquidity into the markets. This was not denied by the FED chairman after the conclusion of the rate setting meeting today. Worse, Friday is witching hour when derivative trades have to be settled. Shades of 2008!!!!

  3. sage says:

    Excuse my practical dumbness, but could you explain what is a rate of turnover? I can not get my head around it by googling alone, but I have seen that it is an important concept in a lot of marxist analysis of the current economic situation. A quick explanation would be very appreciated. Also, thank you for your great and informative work!

    • The capitalist social relation consists of two exchanges. The first is the purchase where money goes out and the second is the sale where money comes back in. During the first exchange, the capitalist purchases the factors of production including the hiring of labour power. So things like materials, components, power etc. By uniting the factors of production, the capitalist manages to set production in motion which results in a stock of new products ready for sale. The second exchange occurs when these now commodities are sold. The capitalist makes a profit if more money comes in than goes out. This is made possible because workers are not paid for all the labour they produce.

      M to M’ is called the circuit of capital. It is measured from the time money is paid out to the time money is received, so from the moment the first exchange is concluded to the moment the second exchange is concluded. In terms of the formula put forward by Marx, it reads M,C,,,P,,,C’.M’ Let us assume that the period of production and circulation to be 91 days, then the annual rate of turnover would be 4 (365/91) The reason we use the rate of turnover is that rates of profit are measured on an annual basis, The calendar year tends to be the measuring stick, allowing sectors which have different turnover periods to be rendered commensurate.

      Finally let me use an example as to its importance. Mrs Smith is a cook. When she works for McDonalds she is productive because of the two exchanges. McDonalds purchases the factors of production and sells the resulting hamburgers. Mrs Smith is productive because she produces profits for McDonalds. Occasionally, she works in kitchen providing school dinners. Now there is only one exchange. The school buys the factors of production including her labour power, but the output of the cooks is not sold because the school children are fed for free. The capitalist producing profit relation no longer exists. Money goes out but no new money comes in. Here Mrs Smith is no longer productive of profits. Finally in the evening Mrs Smith cooks for her family. Now there are no exchanges at all. While she buys ingredients at the supermarket, her labour power is not bought. She should, but does not receive a wage. The absence of any exchanges reduces her work to domestic labour. Now it could be the case, that Mrs Smith produces similar burgers at McDonalds, the school and at home but her engagement with society is different. In the first case her labour power is bought and her labour sold, in the second her labour power is bought but her labour is not sold and in the third case neither her labour power nor her labour is bought or sold. In the first case, Mrs Smith produces profits, in the second she produces a loss because her wages are paid out of tax, and that tax is not repaid, and finally in the third case she produces entirely free labour. Only in the first case is their a circuit of capital, because McDonalds capital expenditure is replaced by even more capital or what is the same thing, the original capital plus the new profit.

      I hope this answers your question.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: