This posting is a courtesy to those commenting on turnover and circulating capital in a recent post on Michael Roberts blog.

On the spreadsheet, which is vast, all calculations for the graphs are coloured. to help the reader navigate it.

Addendum. In my haste to post this article I forgot an important point which I have described before and verified with data. The rate of return for low composition industries (so called labour intensive) tends to be higher than the rate for high composition industries (so called capital intensive). This differential has been used to confirm the assumption that the rise in the composition of capital will tend to depress the rate because of the weight of fixed capital. Not so. The ratio of circulating capital to fixed capital tends to be higher in low composition industries and lower in high composition industries. So, when we add back circulating capital it tends to lower the rate of profit in low composition capitals compared to high ones, and to elevate the rate in high composition capitals compared to low ones. Therefore, this contrasting effect tends to align the actual rate of profit between low and high composition industries confirming Marx’s observation of the equalization of the rate of profit. Until the advent of circulating capital, it was held that profit rates diverged not converged. Yet one more reason to stick to the rate of profit based on fixed and circulating capital.



  2. luisgac says:

    Thanks Brian for this post. I have been a reader of this blog for a short time so I did not know your position regarding the measurement of the rate of profit. I also don’t know much about the debate of the 70’s because it wasn’t born yet.
    I have to agree with you on the essentials: 1) constant-circulating capital and variable capital cannot be dispensed with to calculate the rate of profit as long as we have the raw data in the national accounts to carry out the “conversion”; 2) the distinction you make between rate of profit and rate of return is important in the study of the cycle because it would allow you to more accurately determine turning points or changes in the trend line.
    Regarding this last point, it is not the same to say that the “neoliberal recovery” phase ended (in terms of profitability) in 1997 as in 2006.
    However, some doubts still persist. I am going to mention only one so as not to lengthen the comment too much. In some part you point out that RoR and RoP have similar trends because they share a numerator. But if you convert wages to variable capital, the numerator cannot remain unchanged, since the wages of the unproductive sector are paid with surplus value. Therefore the numerator has to grow. In other words: the difference between wage mass and variable capital should increase the annual mass of surplus value if we want to reach the rate of profit generated by productive capital…
    Finally, I want to point out that another paragraph that you placed at the end of the document caught my attention. Because just recently I had read a document by P. Cockshott that points out that profit rates do not tend to converge. The coefficient of variation of the rate of surplus value is less than the coefficient of variation of the rate of profit, always according to Cockshott. From which it follows that the tendency to equalize the rate of surplus value prevails over the tendency to equalize the rate of profit, or the mobility of labor over the mobility of capital. For this reason, market prices would fluctuate closer to value-prices than to production prices, as Cockshott deduces from the input-output tables. You should go back to Cockshott’s text and see how he calculates the rates of profit and surplus value.

    • Hi Luis,

      Cockshott has some valuable insights. Test his theory. You have the KLEMS spreadsheet I attached. It contains all the data you need to determine the rate of surplus value in a way Cockshott could not because he has no access to turnover. Take the manufacturing sector. Look for the capital-intensive industries, say car production and look for labour-intensive industries such as food or apparel. All you need is gross output, gross value added, compensation and the net surplus which you can calculate by downloading depreciation and deducting it and compensation from gross value added as I did. Once you have done that let me know the results.

      With regard to unproductive labour do read Part 4 Commercial Capital in Volume 3. Marx and Engels are adamant that the wages of unproductive labour in the spheres of production and commerce are paid out of variable capital. Thus, the effect of unproductive labour is baked into the rate of profit. All that needs to be said is that the rise of unproductive labour is a factor behind the tendency for the rate of profit to fall. The problem lies elsewhere. With the rise in inequality there has been a rise in the household sector, the non-profit sector and the professional sector as the rich assemble more servants both personal and professional. Here duplication abounds. For example, if the capitalist pays their gardener a wage originally derived from the profit of their business, both the wage and profit are counted, thus duplication. That is one of the reasons one should not use economy wide statistics to determine profitability because economy wide compensation is a nonsense.

      Hope this helps.

      • luisgac says:

        Yes, it helps a lot!
        I need to clear up a possible misunderstanding. In the last line of my previous comment I put “You should go back to Cockshott’s text…” when in fact I should have put “I should…”
        I think it was clear from the context that I was talking about myself, but it could lead to confusion. Keep in mind that English is not my native language and I can make mistakes from time to time.
        Then yes. First I’m going to find out how Cockshott calculates his rates, and then I’m going to compare his data with yours.
        With regard to variable capital there is an accounting problem and another conceptual one.
        Indeed: if we want to integrate the negative effect of unproductive capital in the rate of profit, it is the same to increase the denominator (“productive work is paid with variable capital”) as it is to subtract some surplus value from the numerator. But we would not be discriminating between productive and unproductive work. That is important, because we cannot determine whether the rate of profit falls before or after the participation of the unproductive sector.
        Furthermore, the fact that unproductive labor is paid for with surplus value cannot be denied, since it does not generate a value equivalent to the advanced variable capital: the unproductive sector can only realize the value generated by the productive sector. In the case of the majority of workers in the capitalist public sector, it is clear that said workforce is remunerated with tax revenues that are clearly a deduction of surplus value (it does not matter whether the taxes are direct or indirect). Does this mean that unproductive workers participate in exploitation? Of course not.
        Unproductive is not the same as unnecessary. Much of the unproductive labor is absolutely necessary for productive workers to generate more and more surplus value for capital. If we look at the working class as a whole, it is made up of both productive and unproductive (but necessary) workers, and then it makes sense to add the payment of the unproductive labor force (except in cases like company managers, etc., etc. ,) in the variable capital equation. But I think it is also necessary to discriminate between productive and unproductive capital when analyzing the general trend of the rate of profit.

      • Agreed whole sections of unproductive workers are necessary for the metabolism of capitalism. I divide them into functional and personal unproductive labour with the latter including supervisors/managers as well as the servants of the capitalist class which includes professionals like accountants and lawyers.

        When Marx analysed unproductive labour in production and commerce, they were part of the capitalist social relation characterised by a purchase on one side and a sale at the other, or, M.C…P…C.M. However, there are also workers made unproductive because the end C.M. is missing. Take Mrs Smith. In the morning she works for a burger chain flipping burgers. Her burgers are sold, and the owners receive cash which includes their profit from her labour. The M.C..P..C.M is complete. Later she goes to work in the kitchen of her local non-profit and free to use hospital. Once again, she flips burgers but whereas there is the purchase, she is paid for her labour power as well as the butchers for providing the meat etc, her burgers are not sold. Her employer is therefore not paid for her labour hence she is unproductive of profit. Finally, at the end of the day she goes home to prepare the evening meal which as you guessed is based on burgers. But whereas there were two exchanges at the burger bar, a purchase and sale, and one exchange in the hospital, the purchase, with domestic labour there are no exchanges at all. Domestic labour is not only unproductive, but it is completely private as well. It therefore acts as a subsidy reducing the value of labour power.

        Mrs Smith’s physical labour is identical in each of the three workplaces, but what differs is the social context. Taking all this into account the total expenditure of physical labour time in society exceeds that measured by GDP which measures only the part where exchange value is produced, ie, where there is a purchase preceding production followed by a sale thereafter.

        In other words, GDP measures only the production of commodities, i.e., the productive (of profits) form of labour. This as it should be because essentially the System of National Accounts is based on Marx’s Volume 2 developed by two Soviet emigres steeped in his methodology, Kutznets and Leontief. It is in Volume 2 where the first input-output tables are found as well as the method of using the value of final sales to prepare GDP. It is one of history’s ironies that the least read of Marx’s three volumes, volume 2, has had the most profound impact on capitalist society.

      • luisgac says:

        I agree, of course. However, I think your answer doesn’t have much to do with my comment.
        Undoubtedly, Marx’s theory of productive and unproductive labor is complex. He distinguishes what is productive in general social terms from what is productive under a specifically capitalist mode of production: to be considered productive, labor has to produce profits for capital, it is not enough to produce use values.
        Marx also distinguishes between the circulation process of capital (linked to the realization or change of form from merchandise to money) and the production process that extends into the sphere of circulation: the transportation of merchandise and replacement work is productive, since the product is not finished until it is located at its point of sale.
        Services are also productive if their provision is organized in a specifically capitalist way. The only difference here is that what is bought and sold is the “production process itself”, that is, there is no separation between the production process and the product. (There is no separation in time but today, thanks to technology, there can be a separation in space in the specifically capitalist provision of services).
        All this makes it extremely difficult to separate between hours of productive and unproductive labor.
        In any case, as I said on the MR blog, I believe that the final rate of profit that Marx raises in the fifth section of Book Three is more in line with the average rate of profit that regulates capitalist accumulation, insofar as it considers participation of the unproductive sector. Of course, it would also be necessary to incorporate the circulating capital as you say.

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