# “The US rate of profit 1964–2017 and the turnover of fixed and circulating capital.” by William Jefferies. A CRITIQUE

April 19, 2022 9 Comments

errata: the figure of -24 on page 6 should read -26

I would like to summarize the discussion had with Jefferies on Facebook. The only event that could account for the phenomena found by Jefferies is a tsunami of transferred value from countries like China now integrated into the world economy by globalisation. Such a flood of transferred value would raise revenue but not capital in the USA thereby reducing the capital to output ratio. However, paradoxically this is ruled out by the rate of turnover provided by Jefferies himself because under-priced inputs from abroad would reduce the volume of bills payable while fully-priced outputs in the USA would increase the volume of bills receivable. As deducting bills payable from bills receivable forms working capital that would have led to an increase in working capital not the reduction found by Jefferies. Thus we are no closer to understanding why Dr Jefferies found a spike in turnover and profitability at this time and whether it is valid at all.

HOLA-SALUDOS,… EN HORA BUENA,…POR SUS TRABAJOS LITERARIOS, ANALITICOS,…ETC,…¡¡. ¡¡ Miren, a bote pronto ¡¡ : la altísima composición de capital, por o debido a la ingeniería robótika-digitalización total del proceso social mundial de producción, circulación, distribución,…del proceso y de las relaciones económicas — interplanetarias –¡¡,…da como resultado, pocas ganancias,…la tendencia es a ser menor aún,…dado, que se sigue estimulando inclusive por las instituciones estatales mundiales — 200 estados –¡¡,…además de gastos ingentes en armamentismos, seguridades estatales del capital imperialista financiero principalmente,…¡¡¡. ¿¿ robotización cuasi al cienxcien,… ??¡¡ entonces de donde saldrá la plusvalía, si todo es robotizado,…etc,…¡¡???…. miren,…en estas ultimas fechas el capitalismo mundial lo catalogo como capitalismo imperialista mafioso de zaqueo social humanidad joint-venture privado-publico/institucional,…¡¡¡. — hace ya décadas, que planteamos estas ideas y entre otras entidades se las mandamos a m.r.i. -maoístas internacionales ¡¡;… al pcr.usa/revcom.us, cuyo líder es bob avakian,..etc,…etc,…de más entidades y editados estas ideas en lukyrh.blogspot.com,…etc,…¡¡¡¡.– todo esto unido a los conceptos y teorías del “lastre proletario popular,…” .y hoy en día la tesis de : “salvajismo kaos kaotikus holokausto total,…” — busquen miles de cuevas para intentar sobrevivir ar menos un millón de personas,…¡¡???¡¡¡– perplejidad inaudita y real,….como la lluvia en el mar,…¡¡¡.,… por Luciano mm.-lukymá.– de la Ciudad de Málaga-spain,…a 8 de mayo/22,… Alboranences– 29006– EURAKA.–¡¡.

Hi my friend , can you explain me how the formula GO/GVA + (GO-GVA)/GVA is derived for the intermediate sales? I mean you attribute it to one Rosetta Stone, but I try to understand the inner interpretation of the formula. I mean, is it an approximation of a kind? It is like adding the ratio and the increase of GO (total sales) from GVA (final sales), which the final may be approximately 50% for many countries.

Good Morning Stavros,

The best single article to read which explains the origin of and the purpose of the formula is on this link: https://theplanningmotive.com/2019/05/25/a-brief-explanation-of-the-turnover-formula/ The formula is derived from Marx’s observation in Volume 2, namely that contained in the value of the final sale is all the value contributed by previous inputs plus the value expended on the final sale itself. Thus it follows, that the sales value of all the sales minus the value of the final sales must yield the value of intermediate sales. Accordingly what the formula quantifies is the probable number of sales by means of the ratio between the value of total sales (Gross Output) versus the value of that single final sale (Gross Value Added).

Every industry has a unique intermediate to final sale ratio which provides an insight into the structure of that industry and which yields the specific amount of circulating capital found there. Take the car industry. Over the years it has been restructured enormously. What was produced in-house is now outsourced. In many ways, besides the engine, these car companies have become assemblers rather than car producers. Thus the value of inputs has gone up resulting in the amount of value expended in assembling (the final sale) has gone down. Thus we see over time that the number of turnovers increases by nearly 50% which in turn using the formula for circulating capital means that the average amount of circulating capital is diminished which is the correct result given the reduced activity in the car companies themselves. The formula for circulating capital is: gross output minus net surplus which yields the ‘cost of gross output’ divided by turnover yields circulating capital. Because turnover is the denominator the higher the turnover the bigger the denominator, the lower will be the element of circulating capital.

I hope this helps explain the formula which is indeed the Rosetta Stone because without it we cannot distill variable capital nor circulating capital. It is why Marxists from the 1970s swept circulating capital under the carpet because they did not think it was possible to calculate.

There are more articles on my site dealing with turnover. If you search ‘turnover formula’ they should come up. Let me know if you have any more questions.

Kind regards.

Hi Brian, thank you for your prompt reply. Now, I understood everything. This is a unique contribution to the final computation of marxian rate of profit. You see I am from Greece. If we apply to the denominator only the fixed capital I am not really sure that the results will be close to the true values. This is valid in general economy of USA if you take the average. Τhere total circulating capital will be a relatively small percentage of fixed capital. In my country, I doubt this is valid.

Concerning the formula of turnover: This simple hypothesis that each intermediate sale adds the same fraction of value on the average, for me, it is the same as the hypothesis that on the long term there is an equilibrium of the average of rate of profit. And yes it is very simple and concise that’s why it is brilliant.

ps. I only disagree with you about one thing: rate of return (or yields curve) is close to your formula. Rate of return is a function of marxian rate of profit and the first marxist that showed this is Paul Lafargue in his french pamphlet about stock exchange. The others that include only fixed capital on the denominator are in general far away even from yield curve. I saw that you compare rate of profit with the inverse of P/E ratio. Have you tried with Shiller P/E ratio? Maybe the correlation is even better.

Thank you again. Be sure that you enlighten a lot of us with your work on economics.

Thanks for your commendation. I have tested the formula against the data in a number of countries which provide both inventory and settlement periods and the difference at most is 7%. China provides the best data as you must have noticed, because given their knowledge of Das Kapital turnover plays an important role in their national data. Yes the rate of return and the rate of profit will mimic each other but that is only because they share the same numerator, namely profit. However, the rate of profit will differ in magnitude and in terms of the degree of movement from the rate of return because circulating capital is more volatile than fixed capital over the course of the business cycle. We need to distinguish between the rate of profit based on c + v (constant capital and variable) capital and that between fixed and circulating. v is a much smaller fraction of c because c incorporates inventories which forms part of circulating capital. Also bear in mind two things, as workers get more productive inputs increase thus increasing circulating capital. Also outsourcing has grown since the 1980s say catering, cleaning, bookkeeping, payrolls and so on. These now form inputs while at the same time reducing variable capital because outsourcing reduces in-house employment and therefore variable capital. Which is why variable capital can fall to under 10% of total capital whereas circulating capital is around 25%. All in all, the rate of profit based on fixed and circulating capital is the most accurate.

My biggest sadness is that the formula for turnover and circulating capital has not been adopted by Academic Marxists despite the support given to it by Michael Roberts who has also not fully embraced it opting to use rate of return data instead.

To tell you the truth my friend I don’t really care about academics, even if myself have a phd in computers engineering. I fully understand the concept.

I am an simple employee and try to understand what is happening and of course explain it to my friends, comrades and colleagues.

So, we are many out there (from different countries) searching for the truth. And I am not the only greek. I am preparing an article for your formula (for my blog diethni-info.blogspot.com) and of course many of your findings.

It will be in greek.

So I am telling again you enlighten many people out there. Keep your work and please care less about academics. Meanwhile, in case you haven’t seen this article is right on the FED’s notes. You may find it interesting: https://www.federalreserve.gov/econres/notes/feds-notes/the-coming-long-run-slowdown-in-corporate-profit-growth-and-stock-returns-20220906.html

Thanks for spreading the formula and it’s insights

the guy at the end tries to guess what will happen when the lending rate goes up. He is missing a point. The rate of profit. But as a bourgeoisie historian he searches for P/E Ratio for supplement.

I would also like to point you towards my programme. Have you read it? It embodies all the lessons provided by the failure of the USSR. In many ways I consider this to be the most important document on my site. As the crisis of capitalism deepens as will ever more rapidly over the next two years workers will be looking for a communist alternative. I believe this programme explains what that alternative could be. I would like to hear your comments and if you agree with it spread it. https://theplanningmotive.com/latest-version-21st-century-draft-programme/