Date: 	Fri, 30 Aug 1996 01:40:11 -0400
From: jinigo-AT-inscri.org.ar (Juan Inigo)
Subject: Re: profit rate/Shortall


1) Shortall's inversions

Rakesh Bhandari writes:

>Here is Shortall from *The Incomplete Marx*:
>
>"The money capitalist who lent the original sum to  buy the machine will
>not accept any protestations to the effect that because the replacement
>value of the machine has halved so must the interest payments she receives
>be halved. She will demand that the interest payments originally contracted
>are paid in full.  The interest charges attributed to the machine will
>therefore remain based on its *old historical value* regardless of any
>subsequent change in its new replacement value. It will be a charge
>maintained within the depreciation charge of that fixed capital.

Interest is not a "charge" that has to be "attributed to the machine" or
"maintained within the depreciation" of fixed capital. Interest is the
share in surplus-value the owners of bearing-interest capital can claim for
themselves as co-owners of the advanced capital that, in the hands of the
industrial capitalist, directly extracts that surplus-value.

In turn, "depreciation" actually corresponds to the part of the value of
the constant capital materialized in the instruments of production that
gradually reappears in the value of the product as the use-value of the
instruments is partially consumed in each circuit of production. In other
words, it corresponds to the portion of fixed capital that completes its
turnover in a given time. Interest has no way of getting into it.

Pushed by mainstream vulgar economy, that starts by putting aside capital's
circuit to conceal the evidence that profits have nowhere to arise from but
through the changes in capital's forms themselves, accounting practice
forces the definition of its categories to the limit compatible with its
basic aim: to properly reflect the valorization circuit of an actual
industrial capital in its annual unity.

How accounting practice suffers from this contradiction between its
positive specific aim and the ideological need to achieve this aim while
presenting mainstream vulgar economy as its true foundation, is immediately
visible when it degrades the turnover of fixed capital to a _depreciation_,
or to a non less external determination as the apparent repayment of a
debt, an _amortization_.

And Shortall starts by falling to these appearances.

>"But what is true in the case where interest is paid to another capitalist
>for money borrowed to buy fixed capital is also true when the industrial
>capitalist advances here own money capital and consequently retains both
>profit and interest.  In both cases capitals will seek to *preserve their
>own historic values as far as competition will allow*.

Let alone the projection of "what is true" only in Shortall's appearances,
what determines values, and hence the value of existing capital, is not
what capitalist "will seek to" nor what "competition will allow." It is the
other way round. Capitalists will seek to personify with their actions the
determinations of capital accumulation and, therefore, their _will_ is but
a human concrete form taken by value in its realization. Perhaps Shortall
wrote his "Incomplete Marx" after reading an incomplete edition of
"Capital", that started by lacking the section on the fetishism of
commodities and its secret thereof.

Likewise, competition is the necessary concrete form in which the general
regulation of social life (that is, the general social relation whose
specificity arises from the value-form of commodities) developed into the
formation of the average rate of profit, realizes itself. Therefore,
competition does not establish limits to the realization of the
determinations of value. It _is_ the concrete realization of these
determinations in action. But vulgar economy needs to turn competition into
an abstraction, either by presenting it as the true determinant of capital
accumulation, or by abstracting from it as the necessary concrete form it
is.

>"What is more, capitals can do this because the value of capital that
>remains fixed as productive capital does not enter circulation to be
>*validated* as such. Instead its value as capital can only be *imputed*
>from the profit attributable to it from that part of its value that does
>not circulate in any one period in the form of depreciation charges
>included in the value of the commmodities it helps to produce. Of course
>intra-industry competion will tend to depress depreciation charges and
>hence the imputed value of fixed capital. But only to a small degree. If
>capital were unable to sustain the imputed value of their fixed capital, no
>one would risk investing in any industrial capital which had any
>significant proportion of fixed capital, since if they did they would face
>the prospect of the devaluation of their capital far outweighing any
>prospective profit.  With all the capital in a particular branch of
>industry in more or less the same boat, the formation of the market value
>will tend to imput the industry's average historic value of fixed capital.

The question does not start from the way the turnover of fixed capital is
currently registered, but the way prices are determined in the real world.
The accounting criteria are impotent to change the determination of the
prices of production as the synthesis of the autonomous regulation of the
economic process. It is not that accounting criteria determine market
prices, but that markets have taught accountants their criteria through
everyday practice, and only then accountants have transformed their
experience into a conceptual structure.

So let us face the determinations of capital valorization that arise from
changes in value, and how they are reflected, not in the fantastic worlds
economists build to hide the real determinations, but in the concrete world
of business. In this concrete world, capitalists require from accountants
the most accurate reflection of the process of accumulation to properly
personify it with their actions.

a) Changes in the prices of advanced capital

        1) Due to changes in its conditions of production or circulation

All variations in the conditions of production and circulation manifest
themselves in the circuit of industrial capitals in course. A part of, or
the whole capital involved in a process of production and circulation has
been advanced, but has not closed its circuit yet, when the original
conditions in which the advancement took place cease to exist. Now, inputs
in which circulating or fixed capital have been advanced experiment changes
in their prices because (starting from the general necessity of constantly
increasing labor's productivity) the conditions of production or
circulation from where their new specimens flow out change. And those
changes become immediately visible in the price these new specimens get in
the market vis-a-vis the price originally paid for the ones currently in
use.

        2) Due to moral ware

Still, the prices of the elements that form the already advanced fixed
capital change along time for a further specific reason. To accumulate
itself, capital needs to constantly increase the productivity of the labor
it puts into action. A new technology able to sustain an increased
productivity becomes economically viable when the commodities produced with
it can reach the market at a price of production lower than the one
prevailing up to then. When this happens, the capitals materialized in the
instruments able to support the formerly normal (but now insufficient)
productivity lose their capacity for valorizing themselves as aliquot parts
of total social capital.

It does not matter whether or not the new instruments themselves are
cheaper than the existing ones. In fact, often not even such comparison can
be established, given the physical differences that characterize the old
and the new generation of instruments. It only matters that the price of
the common commodity produced by them is now ruled by the new conditions of
production, and these determine a fall in that price.

Whichever their cost, the old instruments do not embody their own original
carrying value any more. To go on acting as ordinary industrial capitals,
they have to devalue themselves until reaching the point in which the newly
imposed price of production (that corresponds to the technically superior
instruments) becomes the price of production of their own product. That is,
it has to devalue itself until reaching the point in which it can stand on
a par with the capital embodied in the superior instrument as an aliquot
part of total social capital. Although the old instruments have not
suffered the least physical ware because they have been technically
surpassed, their obsolescence impairs their capacity for acting as an
embodiment of capital. They have suffered a moral wear.


b) Effect on total social capital

Value is the autonomous general ruler of production and consumption in
commodity-producing society. As such, it is determined by the productivity
of the labor needed to _reproduce_ the commodities at the time they reach
the market, whichever the productivity of the labor that actually produced
them.

The general rate of profit is the specific developed form taken by value as
the autonomous general ruler of production and consumption in capitalist
society. As such, no historical costs enter its determination, but only
present-day costs of reproduction do. Hence, any variation in the
conditions of production or circulation occurred during a turnover circuit
enters social capital accounting as changing the history itself of that
circuit.

In other words, from total social capital's point of view, changes in its
value caused by variations in the conditions of production within its
circuits produce by themselves no gains or losses that have to be accounted
for. These changes are alien to the determinants of total social capital's
capacity to valorize itself.

c) Effect on individual industrial capitals and its accounting

The general annual rate of profit takes shape in the concrete annual rates
of profit of individual industrial capitals. The simple determination of
value by the conditions in which the produced commodities can be
reproduced, manifests itself here through a twofold mediation.

In the first place, though the reproduction prices are immediately taken
into account facing any fall in value, the need to preserve the capacity of
individual capitals for facing their debts, introduces a specific criterion
concerning the rises in the reproduction value. Individual capitals can
only record these rises in occasion of realizing their commodities at their
corresponding higher values. This concrete form taken by the general annual
rate of profit is reflected in accounting practice through the principle of
"cost or market, whichever is the lowest," complemented by the principle of
"business in action," that excludes any liquidation criterion. Last year,
the criterion of "impairment" has been standardized in the USA as the
proper reflection of the moral ware of fixed capital, pushed by the
acceleration of technical change.

In the second place, contrary to social capital, individual capitals do
gain or lose from the changes in their value. As a concrete private mass of
value, they have entered their turnover with a given amount, and come out
>from it with a different one, let aside their normal valorization as
aliquot parts of total social capital. Instead of rewriting their history,
individual capitals need to reflect their changes in value in the profit
line of their balance sheets, as soon as those changes take place.

All these determinations of value, profit and accounting come down in
Shortall to the inverted:

> If
>capital were unable to sustain the imputed value of their fixed capital, no
>one would risk investing in any industrial capital which had any
>significant proportion of fixed capital ...

Shortall shows here the ordinary conjunction of ignorance about concrete
real forms (that no accountant ignores, in this case) and pedantry, with
which vulgar economy enjoys appealing to _common sense_ to present as
obvious what has to be explained through a complex development to discover
the inverted nature of the immediate appearances.

(The analysis presented in this post is based on my "A Model to Measure the
Profitability of Specific Industrial Capitals by Computing their Turnover
Circuits," CICP, 1996).

Juan Inigo
jinigo-AT-inscri.org.ar



     --- from list marxism-AT-lists.village.virginia.edu ---