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Valorisation

Valorisation

The Valorisation of capital is a concept created by Karl Marx in his critique of political economy. The German original term is "Verwertung von Kapital" or "Kapitalverwertung" but this is difficult to translate, and often wrongly rendered as "realisation of capital", "creation of surplus-value" or "self-expansion of capital".

Definition

Marx introduces the concept in chapter 7 of the first volume of Das Kapital. The capitalist production process, he argues, is both a labor process creating use-values and a value-creation process through which new value is created. However, value creation is not what the capitalist aims at. The capitalist wants his capital to increase. This means that the worker must create more value for the capitalist than he (or she) receives as wage from the capitalist. The worker must create not only new value but surplus value. A value creation process which goes beyond the point at which the worker has just created the equivalent of the value of his own labour power is a valorisation process, not just a value creation process. Valorisation thus specifically describes the increase in the value of capital assets through the application of living, value-forming labour in production. The "problem" of valorisation is: how can labor be applied in production so that capital value grows? How can assets be invested productively, so that they gain value rather than lose it?

The mysteries of capital's growth

When a worker is put to work on a commercial basis, he initially produces a value equal to what it costs to hire him. But once this value has been created, and the work continues, he begins to valorise capital, i.e. increase its value. Marx claims however that this process, whereby capital grows in value through human activity in production, becomes obscured and hidden in the theories of economics. The "fetish" of capital reaches its culmination when it appears that capital grows of its own accord without anybody doing anything. In that case, people are no longer able to perceive or understand the connection between human activity which forms new value, and the increase in the value of their assets. If Kapitalverwertung is translated as "self-expansion of capital", this actually conveys the exact opposite of what Marx intends: after all, the expansion of capital is not automatic, it requires human work to expand it.

Valorisation and management theory

By contrast, in management theory, analysts are extremely aware of value adding activities occurring when factors of production are withdrawn from the market in order to produce new outputs with them. Yet, because perceptions of value growth are based on the relationship between input costs and sales revenue, revealed by accounts, the central role of living labour in conserving, transferring and creating value is still obscured. The official story is that the factors of production all add value to the new output. In a sense this is true, since living labor conserves and transfers value from materials and equipment to the new product. But without the active human subject, no new value is created at all, and capital assets lose value.

Devalorisation

The opposite process is devalorisation ("Entwertung") which refers to the process whereby production capital invested loses part or all of its value, because labor is withdrawn, or because output cannot be sold, or sold at the intended price, or because more modern production techniques devalue older equipment. Typically what happens in a severe economic crisis is that the real cost structure of production is realigned with market prices. In Marx's terms, productivity growth has changed product-values in different sectors, but it is only after quite some time that prices adjust to changed underlying values. In that case, devalorisation may occur quite rapidly: capital assets are suddenly worth less.

Valorisation and the realisation of capital

Valorisation of capital is for Marx not at all the same as the "realisation of capital". Value may be added in the production process, but this additional value may not be realised unless the outputs are sold at a favorable price. At an unfavourable price, output is sold without increasing capital assets. So, new value added in production may be lost to the producer or owner, when the new product is traded. In reality, Marx argues, the valorisation of capital in one enterprise is dependent on the valorisation of many related enterprises, since they all influence each other with respect to costs, values and prices. When all is said, the preservation and increase of capital value is a purely social phenomenon.

Capital

:This article concerns places that serve as centers of government and politics. For alternative meanings see capital (disambiguation) In politics, a capital (also called capital city or political capital — although the latter phrase has an alternative meaning based on an alternative meaning of "capital") is the principal city or town associated with its government. It is almost always the city which physically encompasses the offices and meeting places of the seat of government and fixed by law. The word capital is derived from the Latin caput meaning "head," and the related term capitol refers to the building where government-business is chiefly conducted. Seats of government in major substate jurisdictions are usually called "capitals", but at lower administrative subdivisions, terms such as county town, county seat, or borough seat are also used. As the focal point of power for the country or region, the capital naturally attracts the politically motivated and those whose skills are needed for efficient administration of government such as lawyers, journalists, and public policy researchers. Older capitals have often developed into prime economic, cultural, or intellectual centers as well. Such is certainly the case with Paris and Buenos Aires among national capitals, and Irkutsk or Salt Lake City in their respective state or province. Such concentration may be controversial. The siting of Brasília in Brazil's heartland was done in order to bring progress to the interior of the country, since the old capital, Rio de Janeiro, along with entire Southeastern Brazil was already crowded. The government of South Korea announced in 2004 it would move its capital from Seoul to Yeongi-Gongju — even though the word Seoul itself means "capital" in the Korean language. The convergence of political and economic or cultural power is by no means universal. Traditional capitals may be economically eclipsed by provincial rivals, as occurred with Thebes by Alexandria, Nanjing by Shanghai, or Edinburgh by Glasgow. The decline of a dynasty or culture could mean the extinction of its capital city as well, as occurred with Babylon and Cahokia. And many modern capital cities, such as Abuja and Ottawa, were deliberately fixed outside existing economic areas, and may not have established themselves as new commercial or industrial hubs since.

Multiple capitals

:See also: List of multiple capitals A number of cases exist where states or other entities have multiple capitals. In South Africa, for example, the administrative capital is Pretoria, the legislative capital is Cape Town, and the judicial capital is Bloemfontein, the outcome of the compromise that created the Union of South Africa in 1910. In others, the "effective" and "official" capital may differ for pragmatic reasons, resulting in a situation where a city known as "the capital" is not, in fact, host to the seat of government:
- Yamoussoukro was designated the national capital of Côte d'Ivoire in 1983, but as of 2004 most government offices and embassies were still located in Abidjan
- Sucre is still the constitutional capital of Bolivia, but most of the national government long abandoned that region for La Paz
- Amsterdam is the nominal national capital of the Netherlands even though the Dutch government and supreme court are both located in The Hague. In such cases, the city housing the administrative capital is usually understood to be the "national capital" among outsiders. For instance, Santiago is understood to be the capital of Chile even though its Congress is in Valparaiso.

Capital as symbol

With the rise of modern empires and the nation-state, the capital city has become a symbol for the state and its government, and imbued with political meaning. Unlike medieval capitals, which were declared wherever a monarch held his or her court, the selection, relocation, founding, or capture of a modern capital city is an emotional affair. For example:
- Ruined and almost uninhabited Athens was made capital of newly independent Greece with the romantic notion of reviving the glory of the ancients;
- Peter I of Russia moved his government to Saint Petersburg to give the Russian Empire a western orientation, while Kemal Atatürk did the same by ironically moving east to Ankara, away from Ottoman Istanbul;
- The selection or founding of a "neutral" city, one unencumbered by regional or political identity, represented the unity of a new state with Madrid in Spain, Washington, D.C. in the United States, and Canberra in Australia among others;
- During the American Civil War, tremendous resources were expended to defend Washington, D.C. from Confederate attack even though the small federal government could have been moved relatively easily in the era of railroads and telegraph.
- Berlin has risen from the ashes of World War II (Stunde Null) to become the new/old capital city of the third most prosperous nation in the World, Germany.

The effects of the capital

The capital city is almost always the main target in a war, as capturing it usually guarantees capture of much of the enemy government, and victory for the attacking forces. In the tradition of drama, capital cities are usually associated with high stake final battles, such as in the Lord of the Rings series where the forces of Mordor besiege the Gondorian capital of Minas Tirith; it is assumed if the city falls, Gondor falls with it. In old China, the relatively fragile dynasties could easily be toppled with the fall of their capital. In the Three Kingdoms period, both Shu and Wu fell when their respective capitals of Cheng Du and Jian Ye fell. The Ming were destroyed when the Manchus took their seat of power, and this pattern endlessly repeats itself in Chinese history. In the West, things were vastly different. The Byzantine Empire lasted for nearly 60 years after Crusaders took their capital city of Constantinople. The American revolutionaries lost their capital of Philadelphia, but survived the blow.

Largest national capital cities

Some of the largest cities in the world are not national capitals. The largest national capitals on each continent, by urban/metropolitan area population, are:
- Africa: Cairo (11,146,000)
- Asia: Tokyo (35,237,000)
- Europe: Moscow (13,600,000)
- North America: Mexico City (17,809,471)
- Oceania: Wellington (367,600)
- South America: Buenos Aires (13,349,000)

Lists of capitals

- Lists of national capitals
- by name
- by country (with also the largest city)
- by continent and country
- List of historical national capitals
- List of capitals of subnational entities
- List of multiple capitals
- List of countries that have the name of their capital included in their name
- List of countries whose capital is not their largest city Category:Capitals Category:Political geography als:Hauptstadt ko:수도 ja:首都 ms:Ibu negara simple:Capital (city) th:เมืองหลวง zh-min-nan:Siú-to·

Political economy

Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. It developed in 18th century as the study of the economies of states (also known as polities, hence the word "political" in "political economy"). In contradistinction to the theory of the Physiocrats, in which land was seen as the source of all wealth, political economists proposed the labour theory of value (first introduced by John Locke, developed by Adam Smith and later Karl Marx), according to which labour is the real source of value. Political economists also attracted attention to the accelerating development of technology, whose role in economic and social relationships grew ever more important. In the late 19th century, the term "political economy" was generally superseded by the term economics, which was used by those seeking to place the study of economy on a mathematical and axiomatic basis, rather than studying the structural relationships within production and consumption. (See marginalism, Alfred Marshall) In the present, political economy refers to a variety of different, but related, approaches to studying economic behavior, which range from combining economics with other fields, to using different fundamental assumptions which challenge those of orthodox economics:
- Political economy is most commonly used to refer to interdisciplinary studies that draw on economics, law and political science in order to understand how political institutions and the political environment influence market behavior.
- Within political science, the term refers to modern liberal, realist, marxian, and constructivist theories concerning the relationship between economic and political power among states. This is also of concern to students of economic history and institutional economics.
- "International political economy" (IPE) is an interdisciplinary field comprising a variety of approaches that are concerned with international trade and finance, and state policies that affect international trade, such as monetary and fiscal policy. In the U.S. these approches are associated with the journal International Organization, which became the leading journal of international political economy in the 1970s under the editorship of Robert Keohane; subsequent editors Peter J. Katzenstein and Steven Krasner. They are also associated with the journal The Review of International Political Economy (RIPE), which is edited by both British and U.S. scholars.
- Economists often associate the term with approaches using game theory.
- Others, especially anthropologists, sociologists and geographers, use the term "political economy" to refer to neo-Marxian approaches to development and underdevelopment set forth by Andre Gunder Frank and Immanuel Wallerstein.

History of the term

The term political economy originally meant the study of the conditions under which production was organized in the nation-states of the new-born capitalist system. The term was first used in England in the 18th Century, to replace the earlier approach of the (French) physiocrats. The main exponents of Political Economy are Adam Smith, David Ricardo and Karl Marx. In 1805 Thomas Malthus became Britain's (and possibly the world's) first professor of political economy at the East India Company College at Haileybury in Hertfordshire. By the second half of the 19th century, laissez-faire theorists started to argue that the state should not regulate the market; that politics and markets operated according to different principles; and that political economy should be replaced by two separate disciplines, Political science and Economics, in a move that has been seen, especially by Marxist thinkers, as the beginning of the fragmentation of social science. Around 1870 neoclassical economists such as Alfred Marshall began using the term economics instead of "political economy." Institutions which taught politics and economics jointly, such as Oxford University, did not adopt this terminological preference and appointed the mathematical economist Francis Edgeworth to the Drummond Chair of Political Economy in 1891. The term "liberal" during the 18th and 19th centuries meant the removal of barriers to trade and capitalist economic activity. This included ideas such as reduction of tariffs, standardized systems of weights and measurements, the metric system, central banking and the establishment of a gold standard to facilitate trade. These theories were part of the move to the first age of Globalization based on the theory of comparative advantage put forward by Ricardo. The present-day term "classical liberal" refers to 19th century liberalism. At the same time with the rise of classical liberalism, and in opposition to it, the theories of socialism and communism developed, which stated that unregulated ("laissez-faire") capitalism, the kind of system advocated by the classical liberals, could not correctly allocate resources and products without resulting in unsustainable misery for the vast majority of the people. In the socialist school, the most important thinker was Karl Marx. Marx regarded himself as being in the tradition of Adam Smith, focusing on the labour theory of value, on structures of production and the struggle to control those structures (which he named "class struggle"). Political Economy remained in use for the study of economies seen through the lens of government action, even though many economists also study the effects of government.

The scope of political economy

Political economy is centrally focused on the development of the polity. It pays particular attention to whether the polity is running a surplus or a deficit, since in the view of most political economy, any deficit must be met by selling assets, such as gold or other capital, to other polities - or by some form of borrowing or externalization. Political economy, then, studies the mechanism of human activity in organizing material, and the mechanism of distributing the surplus or deficit that is the result of that activity. Note the difference between this paradigm and that of economics which sees human wants as unlimited, resources as generically scarce, historical context as not particularly important, and income distribution issues as less important than efficiency and growth. While for some there is no difference between the two terms, for others the difference is one of basic method. Economics studies trade-offs through measurable values, whereas political economy focuses on structural relationships. However, there is no generally accepted distinction between these terms, and they are most often used on a case by case basis.

Central concepts of political economy

Political economy studies the means of production, specifically capital, and how this manifests itself in economic activity. Whereas economics focuses on price, and sees production and consumption as "effects" on price, political economy sees economics as a manifestation of underlying reality which is effected by policy and law. The division into "use value" and "exchange value" makes a clear distinction between what would now be called "value" and "price" or "capital value" and "commodity value", in contrast to the denial of intrinsic values separate from prices in, for example, neoclassical economics. In political economy, labour is used to mean human activity which produces change, and capital is the means by which the change from that labour is made greater. The results of labour are commodities which are traded and consumed, which leads to the problem of disposal of the results of consumption. Private exchange occurs in the market, and is based on a legal framework of possession and title, this is also called the private sector. Government exchange occurs through politics, and influences market decisions through policy. The government as a player in the market economy is called the public sector. Political economy in its normative form focuses on the necessities of production, exchange, consumption and disposal, referred to as infrastructure. In its descriptive form it focuses on the classification and detailing of the workings of production, for example as in David Ricardo in On the Principles of Political Economy [http://www.econlib.org/library/Ricardo/ricP.html]. Political economy, because it is concerned with a view of underlying reality, is often required to be multi-disciplinary in its approach. Political economy often talks in terms of "systems" of economy, either Wallerstein's world system or emergent systems, and the free market is often an important subject of discussion.

Production

In political economy, production refers to the use of labour, with the aid of capital, to create a determinate and recognizable thing which has use, or utility (see Utilitarianism). Studying the relationship of production is crucial to political economy, since economics only recognizes general demand, while production is often bottlenecked by specific resources, and political activity is often centered around securing of resources perceived to be creating a bottleneck. Political economy views production as the central activity of an economy, and views the labour available as the ultimate bottleneck for state activity. The polity must supply its needs from its available stock of labour, and thus must have sufficient capital available to allow that labour to be sufficient. Thus the basic equation of political economy may be phrased as: Labour involves not only time in the abstract sense, but the realities of human beings, both as social and economic beings. The basic formula of political economy was described by Adam Smith in his The Wealth of Nations: capital(labour) - investment - consumption = surplus/deficit Capital is the function, into which is put labour. Investment is the amount spent developing the stock of capital, and consumption is the use of utility. A polity which has a surplus is then able to buy assets or capital from abroad, or increase investment or consumption. A polity where investment and consumption taken together are greater than the production will run a deficit, and must borrow or sell assets to make up the difference. The study of production then focuses on how capital interacts with labour, in the broad, rather than narrow sense. This is because labour must, to make use of capital, have the necessary skills and social infrastructure. In Marxian terms, social infrastructure is referred to as consciousness and societies with sufficient social infrastructure to produce what they consume and control their own capital are said to have the "objective" basis for production.

Capital

Capital may be said to be any tool which increases the ability of labour to organize material into usable form. Physical capital refers to tangible objects which, when employed, allow greater production. Intellectual capital refers to concepts, ideas, designs, theories and information which allows an individual to act with greater effectiveness. Physical capital implies an intellectual capital required to use it. Human capital can be described as the readiness of labour to use capital, and includes education, social norms, ethical understanding, networks of relationship and communication, health and general well being. Capital can be for positive production, but, in political economic terms, weapons are also capital. States pursue political economy, in no small degree, to be able to produce the capital of projecting power and force. Often the projection of force is to acquire resources required for production, or the opening of labour to be utilized in production, or to open markets for the results of national production.

Transport

Labour and resources need to be able to get to capital, and commodities need to be moved to where they can be exchanged and consumed. This creates the need for transport - of people, things and information. The need to move labour and resources to within range of capital is seen in the creation of transport grids, such as trains and roads. The need to coordinate production is seen in the creation of communication grids.

Exchange

From the view of political economy, exchange is the process where the producers of commodities or investment exchange with consumers. Each producer is also a consumer, and each consumer is also a producer. The market provides a mechanism for exchange, and money provides a medium of exchange. Consequently, the dynamics of monetary policy are a central focus of much of political economy. The infrastructure of exchange determines the range of market possibilities. Political economy views the long term goal of economic activity as the successive creation of economic rules of order that maximize human comfort and longivity. The market is essential to the division of labor at the heart of political economy. Adam Smith enumerates early in The Wealth of Nations a list of requirements for the functioning of a market, which include stability of exchange and expected rates of profit in various enterprises. The mechanisms of exchange are generally studied through a framework rooted in economics.

Consumption

Consumption is the realization of utility which is the output of production or the enhancement of productivity. This can manifest itself as the consumption of commodities (goods) or as liesure, health, freedom, or longivity. As "goods" are consumed there is a return of material organized by production back to a state of being unusable.

Disposal

Disposal is the least glamorous area of political economics, but in many respects the most vital. People produce waste. Waste, if allowed to accumulate, creates disease and other undesirable effects. Providing the infrastructure of removing that waste, or neutralizing its harmful effects, is a large fraction of the history of urban development. As Fiorello LaGuardia famously remarked "there is no Republican or Democratic way to collect the trash on time". Sewage systems, garbage collection, clean air laws and recycling are all results of the need to dispose of after effects, and take up a significant fraction of the political life of most localities. On the scale of political economy, wastes produced often require more space or expertise than can be managed locally. Green economics and other fields of study that concentrate on externalization of costs focus heavily on the carry capacity of ecological systems and the effect of human activity in them, this includes the effects in human terms of global warming, ecological diversity, soil erosion, water quality, epidemiology and pollution.

Disciplines which relate to political economy

Because political economy is not a unified discipline, there are a variety of studies that use the term which have overlapping subject mater, but radically different viewpoints. Sociology is the study of the effects of involvement in society on individuals as members groups, and how this changes their ability to function. Many sociologists begin from a framework of production determining relationship drawn from Karl Marx. Anthropology often studies political economy by studying the relationship between the world capitalist system and local cultures. Psychology is frequently the fulcrum around which political economy centers, in that it deals with decision making, not as being a black box whose effects are seen only in price decisions, but as being a source of study, and therefore the assumptions in a model of political economy. History since it documents change over time, is often used as a means of arguing in political economy, and often historical works have a framework of political economy which they assume or argue as the basis for the narrative structure. Economics, because it studies activity and price relationships and the effects of scarcity, grew out of political economy. It is often used in political economy to argue policy effects and study the results of actions, and it is often in opposition to political economy, in that many, if not most, practicing economists see political economy as being a hindrance to the operation of economic forces. From the point of view of political economy, economics is a branch of the entire study, and economics has, at its basis, a theory of political economy which should be open to examination. Law since it concerns the creation of policy, or the mediation of policy ends through political acts which have specific individual results, is seen, in political economy, as both political capital and social infrastructure, on one hand - and as the result of the sociology of a society on the other. Ecology is often involved in political economy, because human activity is one of the single largest effects on the environment, and because it is the suitability of the environment for human beings which is one of the central concerns of most human beings. The ecological effects of economic activity on the environment have spurred the creation of a great deal of research studying means of changing the incentives balance of the market economy. This work is particularly controversial in its interaction with economics, since it questions the fundamental econometric assumptions of market economics and their basic validity. See the commons.

General paradigms of political economy

Political economists are divided over the nature of two paradigms: the paradigm of distribution and the paradigm of production. These paradigms may be related, especially at the extremes, but there are a vast number of individuals who hold almost diametrically opposite views on these two paradigms in the same context.

Paradigms of distribution

Societies produce more than isolated individuals, and labour with the aid of capital produces more than labour alone. Societies also generate more waste, and capital makes demands for investment and organization. The first can be referred to as the social surplus and capital surplus respectively, and the second as social costs and capital requirements. One of the most important social costs is war. Indeed the difference between political economy and economics is that, in economics, war is a temporary alteration in price variation, the old joke being that "World War III, should it come, will be noted in two sentences in the Wall Street Journal, with an article inside on its effect on soybean futures." The paradigms of political economy may be classified based on their view of distributing the social costs and benefits, and the capital costs and benefits. Libertarianism: Libertarianism denies that there is any significant difference between capital surplus and social surplus: it claims that all improvements to productivity are capital surplus and belong to the individual. Libertarianism further contends that by paying for inputs, an individual has already paid for the social cost of their activity, and that to avoid disutility, individuals will rationally trade effects of economic activity that are adverse. Libertarians, therefore, generally believe in an absolute standard of value, generally the gold standard. They point to John Locke, Thomas Jefferson, Adam Smith and Ralph Waldo Emerson as antecedents, and argue that they are merely continuing "classical liberalism". In the libertarian framework, since there is no social surplus, any attempt to distribute is unjustified - that is, economics is separate from the political sphere. Libertarianism's main school of thought was the Austrian School of economists, and found expression in laissez-faire economics. Libertarians may be said to be economic and social extreme individualists. Important, or at least widely cited, thinkers in Libertarian thought include Ayn Rand, Friedrich von Hayek, Franz Oppenheimer and Ludwig von Mises. Liberalism: Liberalism believes that capital surplus should accrue to the individual, but that social surplus and cost should be distributed as widely as feasible within the context of maintaining the individuals' expectation to the surplus of their own efforts. Liberals therefore support state intervention in political economy to measure and distribute social costs and benefits. Many thinkers are, therefore, held in common between libertarianism and liberalism - since when the social surplus is perceived of as being low, or in particular areas, liberals believe that there is nothing to distribute. Liberals also agree with Conservatives about the need to protect against the ill effects of social disorganization, even though the manner of doing so differs. Liberalism sees the expansion of individual rights (from the philosophy of Jean-Jacques Rousseau and Thomas Jefferson) as being the entitlement to a certain reasonable standard of life for all members of society. From the pragmatic viewpoint, this is the necessity of human capital sufficient to engage in the full range of production. Liberalism has been proposed by such thinkers as John Dewey, John Rawls, Isaiah Berlin, economists such as John Maynard Keynes and educators such as Mortimer Adler. Conservatism: Conservatism believes that capital surplus accrues to the individual, and that there is little or no social surplus, but that there are significant social costs, which must be distributed across the society. Examples of this include military service, standards of personal morality and charity. Conservative thought became established in English philosophy with the work of Thomas Hobbes, but became a political doctrine with Edmund Burke. Conservatism in the modern period looks to libertarian economic thinkers, but toward the absolute need for social structure enforced by normative institutions such as religion and nationalism. Prominent modern schools of Conservative thought include the work of Leo Strauss in the USA. Socialism: Socialism believes that the ratio of capital surplus to social surplus is very low, that most of the surplus involved in human production is predicated on the producer being a member of society, and therefore argues for social control of the means of production and an egalitarian distribution of wealth, in order to provide benefits to all members of a society. Socialism evolved from critiques of human misery in the late 18th century, such as those of the political philosopher Fourier. In the view of the socialists, the market could never efficiently distribute the social surplus, and private ownership merely substituted one form of tyranny for another (the tyranny of the capitalists replaced the tyranny of feudal lords). In the present day, many social democratic parties believe in some form of socialism which requires that corporations and major public works be guided by political as well as economic factors, for social goals. In addition, most socialists adhere to some form of utilitarian philosophy, which states that the best form of society is the one that produces the best results for the greatest number of its members. Communism: Communism believes that there is no difference between capital surplus and social surplus, which is a view it shares with libertarianism. But, in the reverse of the libertarian viewpoint, it argues that all surplus is socially created. The most prominent communist thinker was Karl Marx, who was the founder of the school of thought known as Marxism. Other important Marxists include Friedrich Engels, Vladimir Lenin and Leon Trotsky.

Paradigms of production

The ability of some individuals to create capital or perform work with a far greater impact on society than others creates the question of the basis on which production should be measured. Individualism: Individualist paradigms state that the single person, with his or her will and his or her own desires, is the basis of production, and that only individual accomplishment and happiness matter. Society is an instrument in so far as it produces individual happiness or utility. In addition, the individualist paradigm relies on the assumption that individual contributions to production are always measurable, so it makes sense to view one individual's contribution as separate from those of others. Communitarianism: Communitarian paradigms state that it is the action of a group, with particular exceptional individuals, which forms the basis of production. Communitarian thinkers work in concepts such as inter-subjectivity and the dynamics of group production. The individual, within a community, is considered to be the basic unit. Collectivism: Collectivist paradigms state that it is impossible to show with any degree of precision what the contribution of each individual is, and all artifacts and accomplishments must therefore be regarded as the result of a group effort. The two issues of production and distribution generally move in this same direction. However, this is far from being always the case. It is entirely possible, for example, to take the stance of an individualist, and then conclude that individuals will be happiest in a communist society.

The market

One of the central conflicts in political economy is, of course, the role and functioning of the market economy in society. It is here where the broad range of paradigmatic assumptions collide, and on particular issues, individuals and groups with widely differing views will find common intellectual and practical political cause. In the political world, the fulcrum is on the ownership of capital surplus and production. In the context of political economy, capitalism takes on a very broad meaning: the focus of the state on the maintaining and creating of capital and the means of its utilization. Many paradigms use the word in a much narrower context to mean private ownership and the self-justifying results of market operation, and deny that any other use of the word is appropriate. However, the vast majority of governing and major opposition parties in the industrialized world see the maintaining of capital capability as an area for legitimate state interest, and therefore maintain that government intervention in the market to prevent its disintegration, and even to promote certain aspects of its advancement is a proper use of state power. Socialism, viewed as a system of political economy, states that the forms of production (on which labour is dependent to sell to) should be maintained, or overseen, by political power, and generally state power, in order to give their benefits to the many rather than the few. This brings socialism into conflict with ideologies in the classical liberal tradition, which believe that production for capital profit is best left in private hands. Communism sees the necessity of social control over all surplus generating activity. Communist parties exist in most industrialized nations, while communist revolutionary movements are more common in less industrialized ones. Within the paradigm of communism there are a host of particular theories. Not all Marxist theories are communist, and not all communists are necessarily Marxist in their orientation.

External links

- [http://cepa.newschool.edu/het/ History of Economic Thought] - This compendium hosted by the New School has collected bios on over 500 economists and introductions to many schools of thought.
- [http://csf.colorado.edu/ipe/ Global Political Economy Net] Mailing lists and other reference material by scholars of "The Global Political Economy"
- [http://www.transhumanist.com/volume4/space.htm Political Economy of Space Development]
- [http://www.shef.ac.uk/uni/academic/N-Q/perc/ New Political Economy Research Center, University of Sheffield].
- [http://www.kluweronline.com/issn/1043-4062/contents Constitutional Political Economy] Most recent issues online.
- [http://www.gmu.edu/jbc/ George Mason University: Buchanan Center for Political Economy]
- [http://www.umass.edu/peri/ Political Economic Research Institute, University of Massachusetts, Amherst] Category:Political economy ko:정치경제학

Surplus value

Surplus value is a concept created by Karl Marx in his critique of political economy, where its ultimate source is claimed to be unpaid surplus labour performed by the worker for the capitalist, serving as a basis for capital accumulation. The German equivalent word "Mehrwert" means simply value-added, but in Marx's value theory, the extra or surplus-value has a specific meaning, namely the amount of the increase in the value of capital upon investment, i.e. the yield regardless of source or form. The problem of explaining the source of surplus value is expressed by Frederick Engels as follows: "Whence comes this surplus-value? It cannot come either from the buyer buying the commodities under their value, or from the seller selling them above their value. For in both cases the gains and the losses of each individual cancel each other, as each individual is in turn buyer and seller. Nor can it come from cheating, for though cheating can enrich one person at the expense of another, it cannot increase the total sum possessed by both, and therefore cannot augment the sum of the values in circulation"." [http://www.marxists.org/archive/marx/works/1877/anti-duhring/ch19.htm] Marx himself regarded the reduction of profit, interest and rent income to surplus-value, and surplus value to surplus labour as one of his greatest theoretical achievements. For Marx, the gigantic increase in wealth and population from the 19th century onwards was mainly due to the competitive striving to obtain maximum surplus-value from the employment of labor, resulting in an equally gigantic increase of productivity and capital resources. To the extent that increasingly the economic surplus is convertible into money and expressed in money, the amassment of wealth is possible on a larger and larger scale (see capital accumulation and surplus product). In the Communist Manifesto, Marx and Engels wrote: "The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of nature's forces to man, machinery, application of chemistry to industry and agriculture, steam navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization or rivers, whole populations conjured out of the ground -- what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?"

Definition of surplus value

Total surplus-value in an economy (Marx refers to the mass or volume of surplus-value) is basically equal to the sum of net distributed and undistributed profit, net interest, net rents, net tax and various net receipts associated with royalties, licensing, leasing, certain honorariums etc. (see also value product). However Marx's own discussion focuses mainly on profit, interest and rent, largely ignoring taxation and royalty-type fees which were proportionally very small components of the national income when he lived. To illustrate, in the Netherlands the government tax take as a fraction of GDP was about 4% in 1850 compared to 39% in 2002. Accurate measures of net tax yield are not easy, because the state both "taketh and giveth away" in a complex series of transfers. Of course, the way generic profit income is grossed and netted in social accounting may differ somewhat from the way an individual business does that (see also Operating surplus).

Five interpretations of surplus value

Surplus-value may be viewed in five ways:
- as a component of the new value product, which Marx himself defines as equal to the sum of labor costs in respect of capitalistically productive labour (variable capital) and surplus-value. In production, he argues, the workers produce a value equal to their wages plus an additional value, the surplus-value. They also transfer part of the value of fixed assets and materials to the new product, equal to economic depreciation (consumption of fixed capital) and intermediate goods used up (constant capital inputs). Labor costs and surplus-value are the monetary valuations of what Marx calls the necessary product and the surplus product, or paid labour and unpaid labour.
- Surplus-value can also be viewed as a flow of net income appropriated by the owners of capital in virtue of asset ownership, comprising both distributed personal income and undistributed business income. In the whole economy, this will include both income directly from production and property income.
- Surplus-value can be viewed as the source of society's accumulation fund or investment fund; part of it is re-invested, but part is appropriated as personal income, and used for consumptive purposes by the owners of capital assets (see capital accumulation); in exceptional circumstances, part of it may also be hoarded in some way). In this context, surplus value can also be measured as the increase in the value of the stock of capital assets through an accounting period, prior to distribution.
- Surplus-value can be viewed as a social relation of production, or as the monetary valuation of surplus-labour - a sort of "index" of the balance of power between social classes or nations in the process of the division of the social product.
- Surplus-value can, in a developed capitalist economy, be viewed also as an indicator of the level of social productivity that has been reached by a population.

Five measures of the rate of surplus value

According to Marx's theory of exploitation, living labour at an adequate level of productivity is able to create and conserve more value than it costs the employer to buy; which is exactly the economic reason why the employer buys it, i.e. to preserve and augment the value of the capital at his command. Thus, the surplus-labour is unpaid labour appropriated by employers in the form of work-time and outputs, on the basis that employers own and supply the means of production worked with. The commercial function of labour is only to conserve their value, add value to them, and transfer value. According to Marx's labor theory of value, human labor is the only source of net new economic value, but is also indispensable for the conservation and transfer of economic value (maintenance and redistribution of capital assets). Asset revaluations according to this theory only redistribute claims to product-value which has already been created previously. The rate of surplus-value in production is defined by Marx as the volume of surplus-value produced by the workforce divided by the variable capital (or labour-costs) expended to produce it (the ratio S/V). This is very roughly equivalent to the profits/wages ratio, though there is debate in Marxian economics about what exact profit and wage measures should be used. After all, total labour costs often involve far more than wage payments, and profits can be "grossed" and ""netted" in different ways. Alternative measures Marx cites are:
- surplus value divided by the value of labour-power,
- surplus labour divided by necessary labour
- [the value of] unpaid labour divided by [the value of] paid labour, expressible in hours worked or money units
- the surplus product divided by necessary product. (see Das Kapital, vol. 1, chapter 28). The five measures of the rate of surplus value mentioned do not all refer to the same thing exactly (see further rate of exploitation and surplus product). However, the basic meaning of the rate of surplus value is always the rate of exploitation of living labour-capacity, i.e. the net yield obtained from the employment of living labour. Marx usually assumed in his models that the rate of surplus-value would be the same in all industries, different rates being equalised to a general norm in an open market for capital and labour. In reality, this is probably not the case, i.e. the rates may vary. Some authors have interpreted this "rate of exploitation" as a purely economic or commercial concept (in the sense of "labor utilisation", the use of a resource) while others see it primarily as a moral or political concept referring to the domination of a social class which commands labour in virtue of ownership of capital assets.

Complicating factors in assessing surplus value

Complicating factors in assessing surplus-value are:
- state intermediation, where profit and wage income is taxed on the one side, and supplemented on the other with subsidies and grants of various kinds;
- employee and employer contributions to social security and health schemes (wage costs and total labour costs may not be equal);
- price inflation applying to wage goods, profit and capital goods;
- creative accounting and tax avoidance or evasion techniques which misrepresent how much value has really been created.
- income obtained from what Marx called "fictitious capital" or what now are often called "bubble" phenomena.
- unsold inventories of net outputs which contain surplus-value. These phenomena often make it difficult to calculate what the real net wage income is, and what the real net profit income is; there may be a very significant difference between gross income and disposable income. In modern society, the complexity of transactions can often seem almost inpenetrable or opaque. People may become less concerned with issues of exploitation, rather their concern may just simply be with defending their entitlement to a secure real net income ("take home pay") from the work they do, or from any other source. How the exchange between capital and labour happens to be viewed, depends greatly on the balance of power between employers and employees, and on the ability for all parties to the exchange to make gains from the trade in human labor. People would not usually trade unless they made a positive gain by it, but obviously the gains could be very unequally distributed among different parties to the trade. The more real net income capitalists and workers lose, the more concerned they become about fair exchange and exploitation.

Origin of the forms of surplus-value in trade

Surplus-value is not a fixed category but a dialectical, developing one, because the forms in which new value is created and appropriated, and the way the burdens of productive work are shifted between strata of the population, change over time. There is obviously a big difference between simple commodity producers exchanging agricultural surpluses in a village market, and "fast money" in today's global money markets. Historically, Marx argues, surplus-value originated outside production in the first commercial forms of exchange - usury, merchant, rentier and bank capital and their associated lending operations. Thus, the first forms of surplus-value include (leaving aside extortion and robbery etc.) profits from simple commodity production, merchants' profit from "buying cheap and selling dear" or unequal exchange, certain types of rent imposed on production, and interest on loans extended by financiers, bankers and usurers. In Europe, "share" certificates of the joint-stock type date from the 16th century. In ancient and feudal society, the ability to appropriate surplus-value from trade in commodities and capital was usually strongly regulated, and limited by the state and religious authorities; a universal market where almost everything could be bought and sold freely using money did not exist. Originally, as Marx explicitly notes, commercial trade emerged at the boundaries of economic communities based on a non-capitalist mode of production, and it is only when commerce begins to dominate and regulate the bulk of production itself, that it becomes clearer that the ultimate source, or substance, of all surplus-value is really surplus-labour. The processes whereby capitalist commerce conquers direct control of production are however very lengthy and complicated ones; all kinds of socio-economic obstacles ("market rigidities") must be cleared away, and new institutions created, before all the necessary factors of production can be freely bought and sold as inputs and outputs. A good example of that is modern China.

Appropriation of surplus-value from production

Both in Das Kapital and in preparatory manuscripts such as the Grundrisse and Results of the immediate process of production, Marx shows how commerce by stages transforms a non-capitalist production process into a capitalist production process, integrating it fully into markets, so that all inputs and outputs become marketed goods or services. When that process is complete, the whole of production has become simultaneously a labor process creating use-values and a valorisation process creating new value, and more specifically a surplus-value appropriated as net income (see also capital accumulation). In fact, Marx argues that the whole purpose of production in this situation becomes the growth of capital, i.e. that production of output becomes conditional on capital accumulation. If production becomes unprofitable, capital will be withdrawn from production sooner or later. This means, systemically, that the main driving force of capitalism becomes the quest to maximise the appropriation of surplus-value augmenting the stock of capital. The overriding motive behind efforts to economise resources and labor is to obtain the maximum possible increase in income and capital assets ("business growth"), and provide a steady or growing return on investment.

Absolute and relative surplus value

According to Marx, absolute surplus value is obtained by increasing the amount of time worked per worker in an accounting period. Marx talks mainly about the length of the working day or week, but in modern times the concern is about the number of hours worked per year. In many parts of the world, as productivity rose, the working classes forced a reduction in the workweek, from 60 hours to 50, 40 or 35 hours; but casualisation and flexibilisation of working hours also permits higher paid workers to work less (a fact of concern to statesmen who worry about international competitiveness, i.e. if we don't work harder our country will lose business). Relative surplus value is obtained mainly by
- reducing wages — this can only go to a certain point, because if wages fall bellow the ability of workers to purchase their means of subsistence, they will be unable to reproduce themselves and the capitalists will not be able to find sufficient labor power.
- reducing the cost of wage-goods by various means, so that wage increases can be curbed.
- increasing the productivity and intensity of labour generally, through mechanisation and rationalisation, yielding a bigger output per hour worked. The attempt to extract more and more surplus-value from labor on the one side, and on the other side the resistance to this exploitation, are according to Marx at the core of the conflict between social classes, which is sometimes muted or hidden, but at other times erupts in open class warfare and class struggle. Marxists will often spout rhetoric about class struggle, but in reality there is a big difference between class conflict and class struggle. A class conflict may exist and fester for a long time, without classes being able and willing to organise any mass struggle actively. Employers may provoke a strategic fight in order to demolish workers' militancy in a critical area; or, mass revolts of workers are sparked off by moral outrage about some event, or because conditions have become intolerable. No easy generalisations are possible, especially because the moods, feelings and inclination to act of social classes can change very rapidly; bursts of mass action can take most people by surprise.

Production versus realisation of surplus-value

Marx distinguished sharply between value and price, in part because of the sharp distinction he draws between the production of surplus-value and the realisation of profit income. Output may be produced containing surplus-value (valorisation), but selling that output (realisation) is not at all an automatic process. Until payment from sales is received, it is uncertain how much of the surplus-value produced will actually be realised as profit from sales. So, the magnitude of profit realised in the form of money and the magnitude of surplus-value produced in the form of products may differ greatly, depending on what happens to market prices and the vagaries of supply and demand fluctuations. This insight forms the basis of Marx's theory of market value, prices of production and the tendency of the rate of profit of different enterprises to be equalised by competition. In his published and unpublished manuscripts, Marx went into great detail to examine many different factors which could affect the production and realisation of surplus-value. He regarded this as crucial for the purpose of understanding the dynamics and dimensions of capitalist competition, not just business competition but also competition between capitalists and workers and among workers themselves. But his analysis did not go much beyond specifying some of the overall outcomes of the process. His main conclusion though is that employers will aim to maximise the productivity of labour and economise on the use of labour, to reduce their unit-costs and maximise their net returns from sales at current market prices; at a given ruling market price for an output, every reduction of costs and every increase in productivity and sales turnover will increase profit income for that output. The main method is mechanisation, which raises the fixed capital outlay in investment. In turn, this causes the unit-values of commodities to decline over time, and a decline of the average rate of profit in the sphere of production occurs, culminating in a crisis of capital accumulation, in which a sharp reduction in productive investments combines with mass unemployment, followed by an intensive rationalisation process of take-overs, mergers, fusions, and restructuring aiming to restore profitability.

The significance of the mass of surplus value

Most Marxist discussions focus on the rate of surplus value, but for businessmen, the growth of the mass of surplus-value, or the profit volume produced (denoted here as P) is just as important, or even more important. The growth of P depends on the growth of the volume of output in an accounting period, and the volume of sales turnover. We can illustrate the point with a simplified example. If:
- K = total capital invested
- P = total net profit volume realised
- r = the rate of profit (i.e. P/K), and assuming (perhaps unrealistically) that a sum equal to P is reinvested (with or without the aid of credit) with zero price inflation, we can construct a series of annual business results, starting off with K= 1 million and r = 10% where the profit rate declines by a constant 0.1% per annum:
- year 1: K = 1,000,000; P = 100,000; r = 10%
- year 2: K = 1,100,000; P = 108,900; r = 9.9%
- year 3: K = 1,208,900; P = 118,472; r = 9.8% We see here that within two years at least, an 18.5% increase in annual profit volume has occurred, even although the rate of profit decreased by 0.2%. In other words, there's nearly one-fifth more income to disburse to the owners of the capital, although the rate of return fell slightly. What this simplistic example really implies is that, provided market sales keep growing and business expands, a slight fall in the profit rate on capital may not be a point of concern. After all, capital assets have grown, but more importantly, the total volume of revenue that can be distributed has grown. However, if the total profit volume created in a capitalist economy stops growing, this becomes a real problem (as highlighted by Henryk Grossman). Because in that case, profitability must fall across the board, and business income is reduced everywhere. In some Marxist crisis theories (e.g. by Grossmann and Paul Mattick), the root cause of economic crisis is precisely that the growth of profit volume is eclipsed by the decline of the profit rate in production, the result being that the total profit volume that can be distributed stagnates or falls. The overall implication is that market expansion is critical for the total volume of surplus-value that can be distributed as profit. Total business income can increase, even although the profit rate on capital invested falls.

Surplus value and taxation

In general, business leaders and investors are hostile to any attempts to encroach on total profit volume, especially those of government taxation. The lower taxes are, other things being equal, the bigger the mass of profit that can be distributed as income to private investors. It was tax revolts that originally were a powerful stimulus motivating the bourgeoisie to wrest state power from the feudal aristocracy at the beginning of the capitalist era. In reality, of course, a substantial portion of tax money is also redistributed to private enterprise in the form of government contracts and subsidies. If that had not been the case, the tax take would never have been permitted to rise to a quarter or a third of gross product. Capitalists may therefore be in conflict among themselves about taxes, since what is a cost to some, is a source of profit to others. Marx never analysed all this in detail; but the concept of surplus value will apply mainly to taxes on gross income (personal and business income) and the trade in products & services. Estate duty for example rarely contains a surplus value component, although profit could be earnt in the transfer of the estate. Generally, Marx seems to have regarded taxation imposts as a "form" which disguised real product values. Apparently following this view, Ernest Mandel in his 1960 Marxist treatise refers to (indirect) taxes as "arbitrary additions to commodity prices". But this is something of a misnomer, and disregards that taxes become part of the normal cost-structure of production. In his later treatise on late capitalism, Mandel astonishingly hardly mentions the significance of taxation at all, a very serious omission from the point of view of the real world of modern capitalism.

Surplus value and the circuits of capital

Generally, Marx focused in Das Kapital on the new surplus-value generated by production, and the distribution of this surplus value. In this way, he aimed to reveal the "origin of the wealth of nations" given a capitalist mode of production. However, in any real economy, a distinction must be drawn between the primary circuit of capital, and the secondary circuits. To some extent, national accounts also do this. The primary circuit refers to the incomes and products generated and distributed from productive activity (reflected by GDP). The secondary circuits refer to trade, transfers and transactions occurring outside that sphere, which can also generate incomes, and these incomes may also involve the realisation of a surplus-value or profit. It is true that Marx argues no net additions to value can be created through acts of exchange, economic value being an attribute of labour-products (previous or newly created) only. Nevertheless trading activity outside the sphere of production can obviously also yield a surplus-value which represents a transfer of value from one person, country or institution to another. A very simple example would be if somebody sold a second-hand asset at a profit. This transaction is not recorded in gross product measures (after all, it isn't new production), nevertheless a surplus-value is obtained from it. Another example would be capital gains from property sales. Marx occasionally refers to this kind of profit as profit upon alienation, alienation being used here in the juridical, not sociological sense. By implication, if we just focused on surplus-value newly created in production, we would underestimate total surplus-values realised as income in a country. This becomes obvious if we compare census estimates of income & expenditure with GDP data. This is another reason why surplus-value produced and surplus-value realised are two different things, although this point is largely ignored in the economics literature. But it becomes highly important when the real growth of production stagnates, and a growing portion of capital shifts out of the sphere of production in search of surplus-value from other deals. Nowadays the volume of world trade grows significantly faster than GDP, suggesting to Marxian economists such as Samir Amin that surplus-value realised from commercial trade (representing to a large extent a transfer of value by intermediaries between producers and consumers) grows faster than surplus-value realised directly from production. Thus, if we took the final price of a good (the cost to the final consumer) and analysed the cost structure of that good, we might find that, over a period of time, the direct producers get less income and intermediaries between producers and consumers (traders) get more income from it. That is, control over the access to a good, asset or resource as such may increasingly become a very important factor in realising a surplus-value. In the worst case, this amounts to parasitism or extortion.

Measurement of surplus value

The first attempt to measure the rate of surplus-value in money-units was by Marx himself in chapter 9 of Das Kapital, using factory data of a spinning mill supplied by Friedrich Engels (though Marx credits "a Manchester spinner"). Both in published and unpublished manuscripts, Marx examines variables affecting the rate and mass of surplus-value in detail. Some otherwise intelligent Marxist thinkers like Geoffrey Pilling and Ira Gerstein have argued that surplus value "cannot be measured", but that was demonstrably not the view of Marx and Engels themselves. The real question was how accurately it could be measured, and this depended on the publicly available data. We can develop statistical indicators of trends, without mistakenly conflating data with the real thing they represent, or postulating "perfect measurements or perfect data" in the empiricist manner. If theory is not disciplined by valid data, it becomes metaphysical, rather than being scientific. Since the pioneering studies by Marxian economists like Eugen Varga, Charles Bettelheim, Joseph Gillmann, Edward Wolff and Shane Mage, there have been numerous attempts by Marxian economists to measure the trend in surplus-value statistically using national accounts data. The most convincing modern attempt is probably that of Professors Anwar Shaikh & Ahmet Tonak. Usually this type of research involves reworking the components of the official measures of gross output and capital outlays to approximate Marxian categories, in order to estimate empirically the trends in the ratios thought important in the Marxian explanation of capital accumulation and economic growth: the rate of surplus-value, the organic composition of capital, the rate of profit, the rate of increase in the capital stock, and the rate of reinvestment of realised surplus-value in production. The Marxian mathematicians Emmanuel Farjoun and Moshé Machover argue that "even if the rate of surplus value has changed by 10-20% over a hundred years, the real problem [to explain] is why it has changed so little" (quoted from The Laws of Chaos; A Probabilistic Approach to Political Economy (1983), p. 192). The answer to that question must, in part, be sought in artifacts (statistical distortion effects) of data collection procedures. Mathematical extrapolations are ultimately based on the data available, but that data itself may be fragmentary and not the "complete picture". Experienced financial analysts are, however, liable to shake their heads at these kinds of Marxian empirical estimates from official data. As regards total profit volume, statisticians use survey data, administrative records, and tax data to estimate it, consistent with a standard definition of gross product and capital transactions. But this may include or exclude items at variance with real business practice. Some types of transactions are disregarded, while imputations are made for other transactions. Almost always tax data is the main source of generic profit estimates, but tax data typically understate true profitability. Or, if the rate of profit is measured as a ratio between the total profit component in value added and fixed capital, what is ignored is that capital assets include more than fixed assets, and that profit income includes more than the value added component. So to assess profit volume or profitability, really the problem has to be looked at using a variety of different measures and a variety of difference sources (national accounts data, tax data, direct surveys, company reports and circumstantial evidence). As against that, it can also be shown statistically that most time series of different profit measures from different sources will show the same historical trends (see e.g. the research by Dumenil & Levy).

Different concepts of surplus

In neo-Marxist thought, Paul A. Baran for example substitutes the concept of "economic surplus" for Marx's surplus value. In a joint work, Paul Baran and Paul Sweezy define the economic surplus as "the difference between what a society produces and the costs of producing it" (Monopoly Capitalism, New York 1966, p. 9). Piero Sraffa also refers to a "physical surplus" with a similar meaning, calculated according to the relationship between prices of physical inputs and outputs. In these theories, surplus product and surplus value are equated, while value and price are identical, but the distribution of the surplus tends to be separated theoretically from its production; whereas Marx insists that the distribution of wealth is governed by the social conditions in which it is produced, especially by property relations giving entitlement to products, incomes and assets (see also relations of production). In Capital Vol. 3, Marx insists strongly that "the specific economic form, in which unpaid surplus labour is pumped out of direct producers, determines the relationship of rulers and ruled, as it grows directly out of production itself and, in turn, reacts upon it as a determining element. Upon this, however, is founded the entire formation of the economic community which grows up out of the production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship of the owners of the conditions of production to the direct producers -- a relation always naturally corresponding to a definite stage of he methods of labour and thereby its social productivity -- which reveals the innermost secret, the hidden basis of the entire social structure, and with it the political form of the relation of sovereignty and dependence, in short, the corresponding specific form of the state. This does not prevent the same economic basis -- the same from the standpoint of its main conditions -- due to innumerable different, empirical circumstances, natural environment, racial relations, external historical influence, etc. from showing infinite variations and gradations in appearance, which can be ascertained only by analysis of the empirically given circumstances." (see also relations of production). This is a substantive - if abstract - thesis about the basic social relations involved in giving and getting, taking and receiving in human society, and their consequences for the way work and wealth is shared out. It suggests a starting point for an inquiry into the problem of social order and social change. But obviously it is only a starting point, not the whole story, which would include all the "variations and gradations".

Criticism of Marx's concept

Some economic historians argue that Marx did not discover the concept of surplus-value, because other political economists (e.g. Karl Rodbertus-Jagetzow) had already discovered it first. There is some truth in this, but as against that, Marx only claimed that he had theoretically refined and systematised existing notions of added value, removing inconsistencies and apologistic theories (he himself claimed little originality, and normally carefully documented "who said it first"; he was among the first economic thinkers to use an extensive apparatus of footnotes). His theoretical presentation is far superior though to that of his contemporaries, as economic historians acknowledge. A substantive, foundational criticism of Marx's concept of the surplus product and surplus-value was made by Harry W. Pearson in the 1950s in his essay, "The economy has no surplus". Another modern, more sophisticated critique of the concept is by Helen Boss (see references). An alternative criticism is by Steve Keen, who argues that the economy does have a surplus, but that it can arise from numerous different sources. Specifically, he claims that "mathematics and Marx's philosophy confirm that surplus value - and hence profit - can be generated from any input to production" (Debunking Economics, p. 298). Thus Marx's view that economic value is a human attribution or comparison, and that only human labour can conserve, transfer and create value is rejected.

The moral and power dimension of surplus value

A typical textbook-type example of an alternative interpretation to Marx's is provided by Lester Thurow. "In a capitalistic society", he argues in an Concise Encyclopedia of Economics article, "profits - and losses - hold center stage." But what, he asks, explains profits? There are five reasons for profit, according to Thurow:
- capitalists are willing to delay their own personal gratification, and profit is their reward.
- some profits are a return to those who take risks.
- some profits are a return to organizational ability, enterprise, and entrepreneurial energy
- some profits are economic rents - a firm that has a monopoly in producing some product or service can set a price higher than would be set in a competitive market and, thus, earn higher than normal returns.
- some profits are due to market imperfections - they arise when goods are traded above their competitive equilibrium price. The problem here is that Thurow doesn't really provide an objective explanation of profits so much as a moral justification for profits, i.e. as a legitimate entitlement or claim, in return for the supply of capital. He adds that "Attempts have been made to organize productive societies without the profit motive (...) [but] since the industrial revolution... there have been essentially no successful economies that have not taken advantage of the profit motive." The problem here is again a moral judgement, dependent on what you mean by success. Some societies using the profit motive were ruined; profit is no guarantee of success, although you can say that it has powerfully stimulated economic growth. Thurow goes on to note that "When it comes to actually measuring profits, some difficult accounting issues arise." Why? Because after deduction of costs from gross income, "It is hard to say exactly how much must be reinvested to maintain the size of the capital stock". Ultimately, Thurow implies, the tax department is the arbiter of the profit volume, because it determines depreciation allowances and other costs which capitalists may annually deduct in calculating taxable gross income. This is obviously a theory very different from Marx's. In Thurow's theory, the aim of business is to maintain the capital stock. In Marx's theory, competition, desire and market fluctuations create the striving and pressure to increase the capital stock; the whole aim of capitalist production is capital accumulation, i.e. business growth maximising net income. Marx argues there is no evidence that the profit accruing to capitalist owners is quantitatively connected to the "productive contribution" of the capital they own. In practice, within the capitalist firm, no procedure exists for measuring such a "productive contribution" and for distributing the residual income accordingly. In Thurow's theory, profit is mainly just "something that happens" when costs are deducted from sales, or else a justly deserved income. For Marx, increasing profits is, at least in the longer term, the "bottom line" of business behaviour: the quest for obtaining extra surplus-value, and the incomes obtained from it, are what guides capitalist development (in modern language, "creating maximum shareholder value"). That quest, Marx notes, always involves a power relationship between different social classes and nations, inasmuch as attempts are made to force other people to pay for costs as much as possible, while maximising one's own entitlement or claims to income from economic activity. The clash of economic interests that invariably results, implies that the battle for surplus value will always involve an irreducible moral dimension; the whole process rests on complex system of negotiations, dealing and bargaining in which reasons for claims to wealth are asserted, usually within a legal framework. That was the main reason why the real sources of surplus-value were shrouded or obscured by ideology, and why Marx thought that political economy merited a critique. Quite simply, economics proved unable to theorise capitalism as a social system, at least not without moral biases intruding in the very definition of its conceptual distinctions. Hence, even the most simple economic concepts were often riddled with contradictions. But market trade could function fine, even if the theory of markets was false; all that was required was an agreed and legally enforcable accounting system.

References

- [http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ Theories of Surplus-Value (1863)]
- [http://www.marxists.org/archive/marx/works/1865/value-price-profit/index.htm Value, Price and Profit (1865)]
- [http://www.marxists.org/archive/marx/works/1867-c1/index.htm Capital, Volume 1], [http://www.marxists.org/archive/marx/works/1885-c2/index.htm Volume 2], [http://www.marxists.org/archive/marx/works/1894-c3/index.htm Volume 3] [http://www.marxists.org/archive/marx/works/1894-c3/supp.htm#intro]
- Anwar Shaikh & Ahmet Tonak, Measuring the Wealth of Nations
- Anwar Shaikh papers: http://homepage.newschool.edu/%7eAShaikh/
- Shane Mage, The Law of the Falling Tendency of the Rate of Profit; Its Place in the Marxian Theoretical System and Relevance to the US Economy. Phd Thesis, Columbia University, 1963.
- Fred Moseley papers: http://home.mtholyoke.edu/~fmoseley/fred.html
- Gerard Dumenil & Dominique Levy papers: http://www.jourdan.ens.fr/~levy/
- Steve Keen, Debunking Economics; The Naked Emperor of the Social Sciences. London: Zed Press, 2004. http://www.debunking-economics.com/
- Ernest Mandel, Marxist Economic Theory, Vol. 1.
- Harry W. Pearson, "The economy has no surplus" in "Trade and market in the early empires. Economies in history and theory", edited by Karl Polanyi, Conrad M. Arensberg and Harry W. Pearson (New York/London: The Free Press: Collier-Macmillan, 1957).
- Paul A. Baran, The Political Economy of Growth.
- Piero Sraffa, Production of Commodities by means of commodities.
- Michal Kalecki, "The Determinants of Profits", in Selected Essays on the Dynamics of the Capitalist Economy 1933-1970.
- John B. Davis (ed), The economic surplus in advanced economies. Aldershot, Hants, England/Brookfield, Vt., USA : Elgar, 1992.
- Anders Danielson, The economic surplus : theory, measurement, applications. Westport, Connecticut: Praeger, 1994.
- Helen Boss, Theories of surplus and transfer : parasites and producers in economic thought. Boston: Hyman, 1990. Category:Marxism Category:Marxist theory ja:剰余価値

Surplus value

Definition of surplus value

Five interpretations of surplus value

Five measures of the rate of surplus value

Complicating factors in assessing surplus value

Origin of the forms of surplus-value in trade

Appropriation of surplus-value from production

Absolute and relative surplus value

Production versus realisation of surplus-value

The significance of the mass of surplus value

Surplus value and taxation

Surplus value and the circuits of capital

Measurement of surplus value

Different concepts of surplus

Criticism of Marx's concept

The moral and power dimension of surplus value

References

Commercial

Commercial may mean refer to:
- as a noun: a form of advertising, as in a television commercial
- as an adjective: referring to commerce or for-profit activities or trade (compare with non-profit organization)
- commercial a form of land use
- a breed of cattle, Commercial cattle
- list of television commercials
- infomercial
- Commercial broadcasting is the practice of broadcasting for profit.

Management

:Manager redirects to here. For use in sports, see coach (sport). :Enterprise management redirects to here. For use in computer networks, see Network management or Systems management "Management" (from Old French ménagement "the art of conducting, directing", from Latin manu agere "to lead by the hand") characterises the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). Early twentieth-century management writer Mary Parker Follett defined management as "the art of getting things done through people." One can also think of management functionally, as the action of measuring a quantity on a regular basis and of adjusting some initial plan, and as the actions taken to reach one's intended goal. This applies even in situations where planning does not take place. From this perspective, there are five management functions: Planning, Organizing, Leading, Co-ordinating and Controlling. Management is also called "Business Administration", and schools that teach management are usually called "Business Schools". The term "management" may also be used to describe the slate of managers of an organization, for example of a corporation. A governing body is a term used to describe a group formed to manage an organization, such as a sports league.

Historical development

Some writers trace the development of management thought back to Sumerian traders and ancient Egyptian pyramid builders. Slave-owners through the centuries faced the problems of exploiting/motivating a dependent but sometimes recalcitrant workforce, but many pre-industrial enterprises, given their small scale, did not feel compelled to face the issues of management systematically. But innovations such as the spread of Hindu-Arabic numerals (5th to 15th centuries) and the codification of double-entry book-keeping (1494) provided tools for management assessment, planning and control.

19th century

Modern management as a discipline began as an off-shoot of economics in the 19th century. Classical economists such as Adam Smith and John Stuart Mill provided a theoretical background to resource allocation, production, and pricing issues. About the same time, innovators like Eli Whitney, James Watt, and Matthew Boulton developed technical production elements such as standardization, quality control procedures, cost accounting, interchangeability of parts, and work planning. By the middle of the 19th century, Robert Owen, Henry Poor, and M. Laughlin and others introduced the human element with theories of worker training, motivation, organizational structure and span of control. Compare the analyses of Karl Marx and of Friedrich Engels. By the late 19th century, marginal economists Alfred Marshall and Leon Walras and others introduced a new layer of complexity to the theoretical underpinings of management. Joseph Wharton offered the first tertiary-level course in management in 1881.

20th century

By about 1900 we find managers trying to place their theories on a thoroughly scientific basis. Examples include Henry Towne's Science of management in the 1890s, Frederick Winslow Taylor's Scientific management (1911), Frank and Lillian Gilbreth's Applied motion study (1917), and Henry L. Gantt's charts (1910s). J. Duncan wrote the first college management text book in 1911. The first comprehensive theories of management appeared around 1920. People like Henri Fayol and Alexander Church described the various branches of management and their inter-relationships. In the early 20th century, people like Ordwat Tead, Walter Scott and J. Mooney applied the principles of psychology to management, while other writers, such as Elton Mayo, Mary Parker Follett, Chester Barnard, Max Weber, Rensis Likert, and Chris Argyris approached the phenomenon of management from a sociological perspective. Peter Drucker wrote one of the earliest books on applied management: Concept of the Corporation (published in 1946). It resulted from Alfred Sloan (chairman of General Motors until 1956) commissioning a study of the organisation. Drucker has gone on to write 32 books, many in the same vein. H. Dodge, Ronald Fisher, and Thorton C. Fry introduced statistical techniques into management. In the 1940s, Patrick Blackett combined these statistical theories with microeconomic theory and gave birth to the science of operations research. Operations research, sometimes known as "management science", attempts to take a scientific approach to solving management problems, particularly in the areas of logistics and operations. Some of the more recent developments include the theory of constraints, Management by objectives, reengineering, and various information technology driven theories such as agile software development. As the general recognition of managers as a class solidified during the 20th century and gave perceived practitioners of management a certain amount of prestige, so the way opened for popularised systems of management ideas to peddle their wares. In this context many management fads may have had more to do with pop psychology than with scientific management theory. Towards the end of the 20th century, business management came to consist of six separate branches, namely:
- Human resource management
- Operations management or production management
- Strategic management
- Marketing management
- Financial management
- Information Technology management

21st century

In the 21st century we find it increasingly difficult to subdivide management into functional categories in this way. More and more processes simultaneously involve several categories. Instead, we tend to think in terms of the various processes, tasks, and objects subject to management. A list of some of the areas of management can be found later in this article. It is also the case that many of the assumptions made by management have been under attack from business ethics, critical management studies, and anti-corporate activism. One consequence is that workplace democracy has become both more common, and more advocated, in some places distributing all management functions among the workers, each of whom takes on a portion of the work. However, these models predate any current political issue, and may be more natural than command hierarchy. All management is to some degree democratic in that there must be majority support of workers for the management in the long term, or they leave to find other work, or go on strike. Hence management is becoming less about command-and-control, and more about facilitation and support of collaborative activity, utilizing principles such as those of human interaction management to deal with the complexities of human interaction.

Nature of the work

In for-profit work, the primary function of management is satisfy a range of stakeholders. This typically involves making a profit (for the shareholders), creating valued products at a reasonable cost (for customers), and providing rewarding employment opportunities (for employees). In nonprofit work it is also important to keep the faith of donors. In most models of management, shareholders vote for the board of directors, and that board then hires senior management. Some organizations are experimenting with other methods of selecting or reviewing managers senior managers (such as employee voting models) but this is very rare. In the public sector of countries constituted as representative democracies, politicians are elected to public office. They hire many managers and administrators, and in some countries like the United States a great many people lose jobs during a regime change. 2500 people serve "at the pleasure of the President" including all the top US government executives. Public, private and voluntary sectors place different demands on managers, but all must retain the faith of those who select them (if they wish to retain their jobs), retain the faith of those people that fund the organization, and retain the faith of those who work for the organization. If they fail to convince employees that they are better off staying than leaving, the organization will be forced into a downward spiral of hiring, training, firing, and recruiting. Management also has a responsibility to innovate and improve the functioning of the organization. In all but the smallest organizations, achieving these objectives involves a division of management labour. People specialize in a limited range of functions so as to more quickly gain competence and expertice. Even in employee managed workplaces such as a Wobbly Shop, where managers are elected, or where latitude of action is sharply restricted by collective bargaining or unions, managers still take on roughly the same functions and job descriptions as in a more traditional command hierarchy. Chief executive officer (CEO) - The CEO is ultimately responsible for the success or failure of the business. He or she provides overall strategic direction for the firm, often with the assistance of a team of vice presidents. Strategic management decisions like what products to market, what market segments to target, what functions to outsource, what business model to employ, and what geographical areas to operate in are the responsibility of the CEO. The CEO is accountable to the board of directors. Typically a CEO will delegate many responsibilities to one or more executive vice presidents. In small firms, the owner, president, or chief executive officer typically assume many roles and responsibilities. Vice president, Marketing - An executive vice president of marketing might direct overall marketing strategies, advertising, promotions, sales, product management, pricing, and public relations policies. The direct reports of the EVP oversee advertising and promotion. In a small firm, they may serve as a liaison between the firm and the advertising or promotion agency to which many advertising or promotional functions are contracted out. In larger firms, advertising managers oversee in-house account, creative, and media services departments. Marketing managers - Marketing managers develop the firm's detailed marketing plans and procedures. With the help of subordinates, including product development managers and market research managers, they determine the demand for products and services offered by the firm and its competitors. In addition, they identify potential markets—for example, business firms, wholesalers, retailers, government, or the general public. Marketing managers develop pricing strategy with an eye towards maximizing the firm's share of the market and its profits while ensuring that the customers are satisfied. In collaboration with sales, product development, and other managers, they monitor trends that indicate the need for new products and services and oversee product development. Marketing managers work with advertising and promotion managers to promote the firm's products and services and to attract potential users. Promotions managers - Promotions managers supervise sales promotion specialists. They direct promotion programs that combine advertising with purchase incentives to increase sales. In an effort to establish closer contact with purchasers—dealers, distributors, or consumers—promotion programs may involve direct mail, telemarketing, television or radio advertising, catalogs, exhibits, inserts in newspapers, Internet advertisements or Web sites, instore displays or product endorsements, and special events. Purchase incentives may include discounts, samples, gifts, rebates, coupons, sweepstakes, and contests. Public relations managers - Public relations managers supervise public relations specialists. These managers direct publicity programs to a targeted public. They often specialize in a specific area, such as crisis management or in a specific industry, such as healthcare. They use every available communication medium in their effort to maintain the support of the specific group upon whom their organizations success depends, such as consumers, stockholders, or the general public. For example, public relations managers may clarify or justify the firms point of view on health or environmental issues to community or special interest groups. They also evaluate advertising and promotion programs for compatibility with public relations efforts and serve as the eyes and ears of top management. They observe social, economic, and political trends that might ultimately affect the firm and make recommendations to enhance the firm's image based on those trends. They may also may confer with labor relations managers to produce internal company communications—such as newsletters about employee-management relations—and with financial managers to produce company reports. They assist company executives in drafting speeches, arranging interviews, and maintaining other forms of public contact; oversee company archives; and respond to information requests. In addition, some handle special events such as sponsorship of races, parties introducing new products, or other activities the firm supports in order to gain public attention through the press without advertising directly. Sales managers - Sales managers direct the firm's sales program. They assign sales territories, set goals, and establish training programs for the sales representatives. Managers advise the sales representatives on ways to improve their sales performance. In large, multiproduct firms, they oversee regional and local sales managers and their subordinates. Sales managers maintain contact with dealers and distributors. They analyze sales statistics gathered by their staffs to determine sales potential and inventory requirements and monitor the preferences of customers. Such information is vital to develop products and maximize profits. Account executive - The account executive manages the account services department, assesses the need for advertising, and, in advertising agencies, maintains the accounts of clients. Creative director - The creative services department develops the subject matter and presentation of advertising. The creative director oversees the copy chief, art director, and associated staff. Media director - The media director oversees planning groups that select the communication media—for example, radio, television, newspapers, magazines, Internet, or outdoor signs—to disseminate the advertising.

Areas of management

- Administrative management
- Association management
- Change management
- Communication management
- Constraint management
- Cost management
- Crisis management
- Customer relationship management
- Earned value management
- Enterprise management
- Facility management
- Human interaction management
- Integration management
- Knowledge management
- Land management
- Logistics management
- Marketing management
- Operations management
- Pain management
- Perception management
- Procurement management
- Program management
- Project management
- Process management
- Product management
- Quality management
- Resource management
- Risk management
- Skills management
- Spend management
- Stress management
- Supply chain management
- Systems management
- Talent management
- Time management

Value added

Value added refers to the additional value created at a particular stage of production or through image and marketing. In modern neoclassical economics, especially in macroeconomics, it refers to the contribution of the factors of production, i.e., land, labor, and capital goods, to raising the value of a product and corresponds to the incomes received by the owners of these factors. The factors of production provide "services" which raise the unit price of a product (X) relative to the cost per unit of raw materials and intermediate goods used up in the production of X. For example, making apples into apple juice increases the value or price beyond that of the unprocessed apples. Organic produce has more value or price than produce that is not produced organically. In this case, value is added because the identity of the product is preserved--it is not simply an apple, it is an organic apple. Another example of value added in this way is fair-trade coffee. There can also be a value added to a product when the market for the product increases, giving the producer an added value for the product due to the greater demand. Renewable energy produced on farmland is another source of added value, such as converting manure to methane for fuel.

Method of calculation

Economists use the value-added method as a way to avoid double-counting, i.e., the counting of the same input twice. The sum of the value added in each of the different stages of production equals the value of the final product, the product that drops out of the production process and is thus not incorporated in some new product. Final products include consumer goods and fixed capital equipment. A numerical example further explains this concept below.

Example calculation

To understand the concept of value added, take the example of three simple stages of production: # 1000 Yen of miso soup is produced by a chef using pots, pans, and a stove, converting 500 Yen tofu and other ingredients. The chef and his or her tools are the "factors of production," while the tofu (and the other ingredients, ignored here) are the intermediate goods used up and converted into part of the soup. # The tofu used was converted using 200 Yen of soy beans. The soy beans are the raw material used up and converted into the tofu. # The soy beans were grown and harvested during the year. Assume, for simplicity, that the 200 Yen measures the value added in that sector. These beans are thus assumed to be simply results of the services of the factors of production. If we simply add up the results of the three stages, we get a total of 1700 Yen. But this counts the tofu twice, first by itself and then as part of the miso soup. The soy beans are counted three times, in all three stages. This is double counting. On the other hand, we can get an accurate estimate of the final product by using the value-added method: # The value added in the first process is 1000 Yen (the soup) minus 500 Yen (the tofu), equalling 500 Yen. # the value-added in the second process is 500 Yen (the tofu) minus 200 Yen (the soy beans), equalling 300 Yen. # the value added in the third process is, by assumption, 200 Yen. The sum of these three is 1000 Yen, which is the same as the value of the final product, the miso soup.

National Accounts

In national accounts such as the United Nations System of National Accounts (UNSNA) or the NIPA's, gross value added is obtained by deducting intermediate consumption from gross output. Thus gross value added is equal to net output. Net value added is obtained by deducting consumption of fixed capital (or depreciation charges) from gross value added. Net value added therefore equals gross wages, pre-tax profits net of depreciation, and indirect taxes less subsidies.

Marxian interpretation

Karl Marx's concept of the value product is similar to the national accounting concept of net national product, or net value added. It is equal to the sum of labor-compensation (variable capital) and surplus-value (pre-tax profit income). The argument is that the labour force produces a new value equivalent to its own wage-cost, plus a surplus-value. Neoclassical economics regards the incomes constituting added value as the reward for services rendered. In his critique of political economy Marx saw them as results of production under conditions of capitalist exploitation. A difference between Marxian theory and conventional national accounts concerns the interpretation of the distinction between new value created, transfers of value and conserved value, and of the definition of "production". For example, Marxian theory regards the "imputed rental value of owner-occupied housing" which is included in GDP as a fictitious entry; if the housing is owner-occupied, this housing cannot also yield income from its market-based rental value at the same time. In the 1993 manual of the United Nations System of National Accounts (UNSNA), the concept of "imputed rental value of owner occupied housing" is explained as follows: "6.89. Heads of household who own the dwellings which the households occupy are formally treated as owners of unincorporated enterprises that produce housing services consumed by those same households. As well-organized markets for rented housing exist in most countries, the output of own-account housing services can be valued using the prices of the same kinds of services sold on the market in line with the general valuation rules adopted for goods or services produced on own account. In other words, the output of the housing services produced by owner-occupiers is valued at the estimated rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhood amenities, etc. as well as the size and quality of the dwelling itself. The same figure is recorded under household final consumption expenditures." Marxian economists object to this accounting procedure on the ground that the monetary imputation made refers to a flow of income which does not exist. It does not exist, because most home owners do not rent out their homes if they are living in them. Of course, it is possible that (1) some owner-occupiers may rent part of their house to tenants or that (2) informal prostitution occurs within households, but even so, no argument has yet been given that this income constitutes part of the value of production or of value-added, rather than being a transfer of revenue. If, for example, it is argued that "the moon is made of green cheese" then this statement might be true in a poetic sense, but in fact the moon is not made of green cheese. Similarly, if house X is really owned and occupied by person Y, Y cannot be said to rent out X, except within some theoretical re-interpretation. At most one might be able to prove, that X has a mortgage, and pays interest to a financial institution on the loan. The issue has some significance in modern times because of the large capital gains made in the housing sector. Thus, the argument is made that, although capital gains should not be taxed, house owners should nevertheless be taxed on the basis of an imputed market-based rental value of their homes. This could then possibly influence home owners to put more money in corporate stocks, as an alternative investment, adding to the buoyancy of capital markets.

References

Edgar Z. Palmer, The meaning and measurement of the national income, and of other social accounting aggregates. M. Yanovsky, Anatomy of Social Accounting Systems. Anwar Shaikh & Ahmet Ertugrul Tonak, Measuring the Wealth of Nations. CUP.

Factors of production

Factors of production are resources used in the production of goods and services in economics. Classical economics distinguishes between three factors:
- Land or natural resources - naturally-occurring goods such as soil and minerals that are used in the creation of products. The payment for land is rent.
- Labor - human effort used in production which also includes technical and marketing expertise. The payment for labor is a wage.
- Capital goods - human-made goods (or means of production) which are used in the production of other goods. These include machinery, tools and buildings. In a general sense, the payment for capital is called interest. These were codified originally in the analyses of Adam Smith, 1776, David Ricardo, 1817, and the later contributions of Karl Marx and John Stuart Mill as part of one of the first coherent theories of production in political economy. Marx refers in Das Kapital to the three factors of production as the "holy trinity" of political economy. In the classical analysis, working capital was generally viewed as being a stock of physical items such as tools, buildings and machinery. This view was explicitly rejected by Marx. Modern economics has become increasingly uncertain about how to define and theorise capital (see capital controversy). With the emergence of the knowledge economy, more modern analysis often distinguishes this physical capital from other forms of capital such as "human capital" (economics jargon for education or training). Also, some economists mention enterprise, entrepreneurship, individual capital or just "leadership" as a fourth factor. However, this seems to be a form of labor or "human capital." When differentiated, the payment for this factor of production is called profit. This is when entrepreneurs think of ideas, organise the other three factors of production, and take risks with their own money and the financial capital of others. In a market economy, entrepreneurs combine land, labor, and capital to make a profit. In a planned economy, central planners decide how land, labor, and capital should be used to provide for maximum benefit for all citizens. The classical theory, further developed, remains useful to the present day as a basis of microeconomics. Some more means that deal with factors of production are as follows:
- Entrepreneurs are people who organize other productive resources to make goods and services. The economists regard entrepreneurs as a specialist form of labor input. The success and/or failure of a business often depends on the quality of entrepreneurship.
- Capital has many meanings including the finance raised to operate a business. Normally though, capital means investment in goods that can produce other goods in the future. It can also be referred to as machines, roads, factories, schools, and office buildings in which humans produced in order to produce other goods and services. Investment is important if the economy is to achieve economic growth in the future.
- Human Capital is the quality of labor resources which can be improved through investments, education, and training.
- Fixed Capital this includes machinery, work plants, equipment, new technology, factories, buildings, and goods that are designed to increase the productive potential of the economy for future years.
- Working Capital this includes the stocks of finished and semi-finished goods that we be economically consumed in the near future or will be made into a finished consumer good in the near future.

Developments and Alternative views

Classical view as the base of microeconomic theory

Although it did not deal substantially with complex issues of a sophisticated modern economy, the classical theory remains useful to the present day as the basis of microeconomics, however many distinctions one cares to make or macro-theory or political economy one chooses to apply to trade them off or set their valuations in society at large. Land has become natural capital, imitative aspects of Labor have become instructional capital, creative or inspirational aspects or "Enterprise" have become individual capital (in some analyses), and social capital has become increasingly important. The classical relationship of financial capital and infrastructural capital is still recognized as central, but there is a wider debate on means of production and various means of protection, or "property rights", to secure their reliable use. When disputes arise regarding these fine distinctions, most economists will fall back to the three classical factors. While no major theory has yet substantially altered the foundation assumptions of either "left" (Marxist) or "right" (neoclassical) theory, Georgism is one syncretic system of thought incorporating both a nominally socialist moral basis (everyone has an equal right of access to nature) while strictly maintaining a solid "libertarian" philosophy on the absolute right of private ownership of the products of all human labor.

Value added

Method of calculation

Example calculation

National Accounts

Marxian interpretation

References

Capital accumulation

Most generally, the accumulation of capital refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. In economics, accounting and Marxian economics, capital accumulation is often equated with investment, especially in real capital goods. But Capital accumulation can refer to either real investment in tangible means of production, or financial investment in paper assets, or investment in non-productive physical assets such as residential real estate, or "human capital accumulation," i.e., new education and training increasing the skills of the (potential) labour force. Non-financial capital accumulation is an essential factor for economic growth, since additional investment is essential to enlarge the scale of production and increase employment opportunities. In modern macroeconomics and econometrics the term capital formation is often used in preference to "accumulation", though UNCTAD refers nowadays to "accumulation".

Harrod-Domar model

In macroeconomics, following the Harrod-Domar model, the savings ratio (

s

) and the capital coefficient (

k

) are regarded as critical factors for accumulation and growth, assuming that all saving is used to finance fixed investment. The rate of growth of the real stock of fixed capital (

K

) is: :

=    =

where

Y

is the real national income. If the capital-output ratio or capital coefficient (

k=

) is constant, the rate of growth of

Y

is equal to the rate of growth of

K

. This is determined by

s

(the ratio of net fixed investment or saving to

Y

) and

k

. A country might for example save and invest 12% of its national income, and then if the capital coefficient is 4:1 (i.e. $4 billion must be invested to increase the national income by 1 billion) the rate of growth of the national income might be 3% annually. However, as Keynesian economics points out, savings do not automatically mean investment (as liquid funds may be hoarded for example). Assuming that the turnover of total production capital invested remains constant, the proportion of total investment which just maintains the stock of total capital, rather than enlarging it, will typically increase as the total stock increases. The growth rate of incomes and net new investments must then also increase, in order to accelerate the growth of the capital stock. Simply put, the bigger capital grows, the more capital it takes to keep it growing and the more markets must expand.

Psychology, sociology and ethics of capital accumulation

There have been numerous psychological and sociological studies of the motivations of investment behaviour by individuals. Most of these suggest that the propensity to accumulate capital is associated with qualities such as an intelligent understanding of property ownership, a positive attitude towards money, the ability to seize a money-making opportunity, and a desire to acquire more wealth. These are not innate or genetic qualities, but learnt through social experience. However, even if a strong motivation for enrichment exists, the business climate, local culture or social instability may prevent this motivation from being realised. Hernando de Soto for example argues that the reason why poor countries are poor is mainly because of the absence of a legal-cultural infrastructure of "asset management" and of formalised and enforced private property rights. However the most popular argument in this respect remains the vicious cycle of poverty: the poor are poor because they are poor. Critics of this argument object it is an uninformative tautology. Greed and desire can play a very important role in capital accumulation, but are not a necessary requirement. Indeed according to Max Weber's study of capitalism and the Protestant ethic, frugality, sobriety and saving were among the key values of the rising bourgeoisie in the age of the Reformation. Some economic historians (e.g. David Landes) refer to national psychology and argue that some nations or cultures (e.g. Europe) are inherently better equipped for capital accumulation, due to cultural habits, customs and values. Other economic historians (e.g. Paul A. Baran) have argued that psychological factors explain very little, because a nation which previously had a low level of accumulation can suddenly "take off". In that case, the causes must be sought in the prevailing social relations. Controversies about the ethics of accumulation have occurred ever since commercial trade began. If informal and formal prostitution is regarded as the oldest profession, the first ethical debate about accumulation must have occurred tens of thousands of years ago at the very least. The problem is that trade or market forces do not create any particular morality of their own, beyond the requirement to meet contractual obligations that settle transactions. Some forms of trade may be accepted, others rejected, but there exists no general moral principle for this which can be derived from the trade itself. A good contemporary illustration of this problem is the gigantic increase in total reported crime and the grey economy or shadow economy after the deregulation of world markets from the 1980s, and the marketisation of the USSR and China. But ancient philosophers and theologians already knew about the problem, which is why they were intensely preoccupied with the politics of the “rule of law” and its enforcement. The main ethical questions concern which routes to wealth are morally justifiable, and what entitles individuals and groups to appropriate amounts of wealth, in particular wealth which they have not themselves created. The medieval economists invented theories of a just price and the moral debate surfaces again these days e.g. in the controversies about fair trade, imperialism and Islamic banking. Neo-liberal theory emphasises that a "good" person is one who creates new wealth, while socialist theory says a "good" person shares the wealth. The most popular moral theories are similar to that of John Rawls. Karl Marx illustrated his analysis with sarcastic comments about “Christian accumulation”; some forms of accumulation were believed to be compatible with Jesus Christ, while other were not; some forms of accumulation were forgiven by God afterwards, others were not. Martin Luther for example raged against usury and extortion. For another example, the famous christian hymn Amazing Grace was written by the captain of a slave ship. Marxism-Leninism is hostile to private property and market activity. It must be kept in mind that the "private property" that Marx refers to is the ownership of the means of production by a generally small elite of wealthy entrepreneurs, a type of oligarchy also in command of the bourgeois state, and not any aspect of personal property per se such as homes, cars, or other assets of personal use. Ideological enemies of Marxism have made much of this confusion, creating fears in the general population that communism is about sharing everything, down to the last towel, toothbrush, and even wives. In fact the original doctrine of Christ is far more radical in its demand for the sharing of property and wealth redistribution than Marx. But because capital accumulation does not presuppose any particular or specific "moral system", accumulation can also continue regardless of any particular morality advocated by popes, presidents, queens, journalists, pop stars, business tycoons or anybody else. All that is required is (1) the ability to own assets and trade in them and (2) sufficient income beyond subsistence to be able to afford accumulation.

Marxian concept of capital accumulation

In Karl Marx's critique of political economy, capital accumulation refers to the chrematistic operation whereby a sum of money is transformed into a larger sum of money (capitalism is this money-making activity, although Marx often equates capitalism with the capitalist mode of production). Here, capital is defined essentially as economic or commercial asset value in search of additional value or surplus-value. This requires property relations which enable objects of value to be appropriated and owned. According to Marx, capital accumulation has a double origin, namely in trade and in expropriation, both of a legal or illegal kind. The reason is that a stock of capital can be increased through a process of exchange or "trading up" but also through directly taking an asset or resource from someone else, without compensation. David Harvey calls this accumulation by dispossession. Marx does not discuss gifts and grants as a source of capital accumulation, nor does he analyze taxation in detail. Nowadays the tax take is so large (i.e. 25-40% of GDP) that some authors refer to state capitalism. The continuation and progress of capital accumulation depends on the removal of obstacles to the expansion of trade, and this has historically often been a violent process. As markets expand, more and more new opportunities develop for accumulating capital, because more and more types of goods and services can be traded in. But capital accumulation may also confront resistance, when people refuse to sell, or refuse to buy (for example a strike by investors or workers, or consumer resistance). What spurs accumulation is competition; in business, if you don't go forward, you go backward, and unless the law prevents it, the strong will exploit the weak. In general, Marx's critique of capital accumulation is that the human chase after wealth and self-enrichment leads to inhuman consequences. The enrichment of some is at the expense of the immiseration of others, and competition becomes brutal. The basis of it all is the exploitation of the labour effort of others. When the "economic cake" expands, this may be obscured because all can gain from trade. But when the "economic cake" shrinks, then capital accumulation can only occur by taking income or assets from other people, other social classes, or other nations. The point is that to exist, capital must always grow, and to ensure that it will grow, people are prepared to do almost anything.

The rate and measurement of accumulation

In Marxian economics, the rate of accumulation is defined as (1) the value of the real net increase in the stock of capital in an accounting period, (2) the proportion of realised surplus-value or profit-income which is reinvested, rather than consumed. This rate can be expressed by means of various ratios between the original capital outlay, the realised turnover, surplus-value or profit and reinvestments (see e.g. the writings of the economist Michal Kalecki). Other things being equal, the greater the amount of profit-income that is disbursed as personal earnings and used for consumptive purposes, the lower the savings rate and the lower the rate of accumulation is likely to be. However, earnings spent on consumption can also stimulate market demand and higher investment. This is the cause of endless controversies in economic theory about "how much to spend, and how much to save". In a boom period of capitalism, the growth of investments is cumulative, i.e. one investment leads to another, leading to a constantly expanding market, an expanding labor force, and an increase in the standard of living for the majority of the people. In a stagnating, decadent capitalism, the accumulation process is increasingly oriented towards investment on military and security forces, real estate, financial speculation, and luxury consumption. In that case, income from value-adding production will decline in favour of interest, rent and tax income, with as a corollary an increase in the level of permanent unemployment. As a rule, the larger the total sum of capital invested, the higher the return on investment will be. The more capital one owns, the more capital one can also borrow and reinvest at a higher rate of profit or interest. The inverse is also true, and this is one factor in the widening gap between the rich and the poor. Ernest Mandel emphasized that the rhythm of capital accumulation and growth depended critically on (1) the division of a society's social product between "necessary product" and "surplus product", and (2) the division of the surplus product between investment and consumption. In turn, this allocation pattern reflected the outcome of competition among capitalists, competition between capitalists and workers, and competition between workers. The pattern of capital accumulation can therefore never be simply explained by commercial factors, it also involved social factors and power relationships. Accumulation can be measured as the monetary value of investments, or as the change in the value of assets owned. Using company balance sheets, tax data and direct surveys as a basis, government statisticians estimate total investments and assets for the purpose of national accounts and national balance of payments statistics. Usually the Reserve Banks and the Treasury provide interpretations and analysis of this data. Standard indicators include Gross fixed capital formation, fixed capital, household asset wealth, and foreign direct investment. Organisations such as the International Monetary Fund, UNCTAD, the World Bank Group, the OECD, and the Bank for International Settlements used national investment data to estimate world trends. The Bureau of Economic analysis, Eurostat and the Japan Statistical Office provide data on the USA, Europe and Japan respectively. Other useful sources of investment information are business magazines such as Fortune, Forbes, The Economist, Business Weekly etc. as well as various corporate "watchdog" organisations and NGO publications. A reputable scientific journal is the Review of Income & Wealth. In the case of the USA, the "Analytical Perspectives" document (an annex to the yearly budget) provides useful wealth and capital estimates applying to the whole country.

The origin of capital accumulation in trade

In the simplest circuit of commercial trade, a sum of money

M

is loaned and returned with interest as the larger sum

M'

. Or, as a variation,

M

is traded for another currency, which rises in value. In counter-trade (a form of barter in which money may be used only to value goods and services), a commodity

C

exchanges for another commodity

C'

, which may also result in a larger sum of value. Marx calls the additional value surplus-value. In a slightly more complex trading circuit, a sum of money

M

buys a commodity

C

which upon sale yields a larger sum of money

M'

, which can be reinvested. Alternatively, the circuit

C-M-C'

could substitute for

M-C-M'

but in this case the enlarged value consists of commodities rather than of money. These circuits are basic to merchant trade. In the more developed trading circuit of capitalism, however,

M

buys inputs

C

(means of production and labour-power) which through new production creates outputs

C'

and upon sale yield a larger sum of money

M'

. In this case, we are no longer dealing with merchant capitalism, but with capitalist industry (the capitalist mode of production: all or most of the inputs and outputs of production are available as marketed commodities, and the costs & benefits of total production are rationally calculated in price terms. In modern capitalism, the circuits of finance, commerce and production have become exceedingly complex, often lack transparency and may involve multilateral exchanges or a lot of fictitious capital. The daily trading volume in the world's foreign exchange markets was estimated at $1.88 trillion in 2004, as against $590 billion in 1989 (current dollars) (Der Spiegel, special edition 4/2005, p. 107). By comparison, the New York Stock Exchange daily volume is said to be around $25 billion a day, and the global futures markets are said to trade about $35 billion worth of contracts a day. Speculative trading makes up the bulk of the daily trading volumes. Most rich people do not want to bother with the financial management of most of their wealth, and know little about it. Investment specialists make their money from investing the money of the rich using their superior market knowledge, contacts, networks and commercial skills.

The circuit of capital accumulation from production

Strictly speaking, capital has accumulated only when realised profit income has been reinvested in capital assets. But the process of capital accumulation in production has, as suggested in the first volume of Marx's Das Kapital, at least 7 distinct but linked moments:
- The initial investment of capital (which could be borrowed capital) in means of production and labor-power.
- The command over surplus-labour and its appropriation.
- The valorisation of capital through production.
- The appropriation of the new output produced by employees, containing the added value.
- The realisation of surplus-value through output sales.
- The appropriation of realised surplus-value as (profit) income after deduction of costs.
- The reinvestment of profit income in production. All of these moments do not refer simply to an "economic" or commercial process. Rather, they assume the existence of legal, social, cultural and economic power conditions, without which creation, distribution and circulation of the new wealth could not occur. This becomes especially clear when the attempt is made to create a market where none exists, or where people refuse to trade. In fact Marx suggests that the original or primitive accumulation of capital occurs through violence, plunder, slavery, robbery, extortion and theft. He argues that the capitalist mode of production requires that people must be forced to work in value-adding production for someone else, and for this purpose, they must be cut off from sources of income other than selling their labor-power.

Simple and expanded reproduction

In volume 2 of Das Kapital, Marx continues the story and shows that, with the aid of bank credit, capital in search of growth can more or less smoothly mutate from one form to another, alternately taking the form of money capital (liquid deposits, securities, etc.), commodity capital (tradeable products, real estate etc.), or production capital (means of production and labor-power). His discussion of the simple and expanded reproduction of the conditions of production offers a more sophisticated model of the parameters of the accumulation process as a whole. At simple reproduction, a sufficient amount is produced to sustain society at the given living standard; the stock of capital stays constant. At expanded reproduction, more product-value is produced than is necessary to sustain society at a given living standard (a surplus product; the additional product-value is available for investments which enlarge the scale and variety of production. Yet there is no economic law according to which capital is necessarily re-invested in the expansion of production; that depends on anticipated profitability, market expectations and perceptions of investment risk. All that Marx proves is that in capitalism production of output is conditional on capital accumulation, i.e. at least in the longer term, if production is not profitable, it will close down. Ernest Mandel introduced the additional concept of contracted economic reproduction, i.e. reduced accumulation where business operating at a loss outnumbers growing business, or economic reproduction on a decreasing scale, for example due to wars, natural disasters or devalorisation. Balanced economic growth requires that different factors in the accumulation process expand in appropriate proportions. But markets themselves cannot spontaneously create that balance, in fact what drives business activity is precisely the imbalances between supply and demand: inequality is the motor of growth. This partly explains why the global pattern of economic growth is very uneven and unequal, even although markets have existed almost everwhere for a very long time. It also explains government regulation of market trade and protectionism.

Different forms of capital accumulation

Essentially, in capitalism the production of output depends on the accumulation of capital. The propensity to invest in production therefore depends a lot on expectations of profitability and sales volume, and on perceptions of market risk. If production stops being profitable, or if sales drop sharply, or if there is social instability, capital will exit more and more from the sphere of production. Or if it cannot or does not, rationalisation investments will be undertaken, to amalgamate unprofitable enterprises into profitable units. As a corollary, capital accumulation may be the accumulation of production capital (industrial assets), or the accumulation of money capital (financial assets), or the accumulation of commodity capital (products, real estate etc. which can be traded). But irrespective of whether the additional capital value (or surplus-value happens to take the form of profit, interest, rent, or some kind of tax impost or royalty income, what drives the accumulation process is the perpetual search for more surplus-value, for added value as such. This requires a constant supply of a labor force which can conserve and add value to inputs and capital assets, and thus create a higher value. Normally, the socio-economic compulsion to work for a living in capitalist society is legally enforced and regulated by the state, for example through workfare and strict conditions for receiving an unemployment benefit. Although capital accumulation does not necessarily require production, ultimately the basis for it is value-adding production which makes net additions to the stock of wealth. Capital can accumulate by shifting the ownership of assets from one place to another, but ultimately the total stock of assets must increase. Other things being equal, if production fails to grow sufficiently, the level of debt will increase, ultimately causing a breakdown of the accumulation process when debtors cannot pay creditors. Capital accumulation does not necessarily require trade either, although capital presupposes trade, and the ability to exchange goods for money. The reason is that wealth can be amassed through illegal or legalised expropriation (robbery, plunder, theft, piracy, slavery, embezzlement, fraud and so on). However, a continuous and cumulative accumulation process always presupposes that capital ownership is secure. Consequently, military and police forces have typically been necessary for capital accumulation on a larger scale, to protect property. In medieval society, typically the bourgeoisie could not protect its capital assets permanently from attacks, which meant that the accumulation process was interrupted, and remained limited in scope. Today however, capitalists can own billions of dollars worth of assets which are well-protected against crime (see the annual Merrill-Lynch survey of the world's wealthy). With the aid of private banking it is easier to obscure or hide the wealth that one owns.

Capital accumulation as social relation

"Accumulation of capital" sometimes also refers in Marxist writings to the reproduction of capitalist social relations (institutions) on a larger scale over time, i.e., the expansion of the size of the proletariat and of the wealth owned by the bourgeoisie. This interpretation emphasizes that capital ownership, predicated on command over labor, is a social relation: the growth of capital implies the growth of the working class (a "law of accumulation"). In the first volume of Das Kapital Marx had illustrated this idea with reference to Edward Gibbon Wakefield's theory of colonisation: "...Wakefield discovered that in the Colonies, property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if there be wanting the correlative — the wage-worker, the other man who is compelled to sell himself of his own free-will. He discovered that capital is not a thing, but a social relation between persons, established by the instrumentality of things. Mr. Peel, he moans, took with him from England to Swan River, West Australia, means of subsistence and of production to the amount of £50,000. Mr. Peel had the foresight to bring with him, besides, 3,000 persons of the working-class, men, women, and children. Once arrived at his destination, “Mr. Peel was left without a servant to make his bed or fetch him water from the river.” Unhappy Mr. Peel, who provided for everything except the export of English modes of production to Swan River!" http://www.marxists.org/archive/marx/works/1867-c1/ch33.htm In the third volume of Das Kapital, Marx refers to the "fetishism of capital" reaching its highest point with interest-bearing capital, because now capital seems to grow of its own accord without anybody doing anything. In this case, "The relations of capital assume their most externalised and most fetish-like form in interest-bearing capital. We have here

M - M'

, money creating more money, self-expanding value, without the process that effectuates these two extremes. In merchant's capital,

M - C - M'

, there is at least the general form of the capitalistic movement, although it confines itself solely to the sphere of circulation, so that profit appears merely as profit derived from alienation; but it is at least seen to be the product of a social relation, not the product of a mere thing. (...) This is obliterated in

M - M'

, the form of interest-bearing capital. (...) The thing (money, commodity, value) is now capital even as a mere thing, and capital appears as a mere thing. The result of the entire process of reproduction appears as a property inherent in the thing itself. It depends on the owner of the money, i.e., of the commodity in its continually exchangeable form, whether he wants to spend it as money or loan it out as capital. In interest-bearing capital, therefore, this automatic fetish, self-expanding value, money generating money, are brought out in their pure state and in this form it no longer bears the birth-marks of its origin. The social relation is consummated in the relation of a thing, of money, to itself. Instead of the actual transformation of money into capital, we see here only form without content." http://www.marxists.org/archive/marx/works/1894-c3/ch24.htm

Regime of accumulation

Both the Regulation School of French Marxist economists, inspired by the original writings of Michel Aglietta and developed by Robert Boyer, as well as the American social structure of accumulation school founded by the economists Samuel Bowles and David Gordon have emphasized that the processes of capital accumulation occur within a social regime of accumulation. In other words, a specific political and socio-economic environment is required that enables sustained investment and economic growth. This environment is created partly by state policy, but partly by also by technological innovations, changes in popular culture, commercial developments, the media, and so on. An example of such a regime often cited here is that of Fordism, named after the enterprise of Henry Ford. As the pattern of accumulation changes, the regime of accumulation also changes. Similar ideas also surface in institutional economics. The main insight here is that market trade cannot flourish without regulation by a legal system plus the enforcement of basic moral conduct and private property by the state. But the regime of accumulation responds to the total experience of living in capitalist society, not just market trade.

Environmental criticism of capital accumulation

The environmental criticism of capital accumulation focuses on four main ideas. Firstly, there is the problem of externalities. This means that privately owned industry incurs costs, including environmental and health costs, which are not charged or priced. This happens for example when effluents are discharged on land, water or in the air, which can cause pollution or despoilation of terrains. In recognition of this, environmental taxes are sometimes imposed. Secondly, commercial activities which may be rational from the point of view of a private enterprise may not be rational from the point of view of society as a whole, or from the point of view of the biosphere, especially when they involve the destruction of natural habitats of flora and fauna, pollution and entropy. Because a natural resource happens to be a freely available good (for example fish in the open sea), it may be plundered for profit. Or, a lot of energy may be wasted producing and transporting a good to the consumer, to which business people are indifferent because they do not pay for it. Or, the disturbance of subsistence economics by commerce may cause overpopulation. Thirdly, goods and services may be produced for profit in ways which are directly or indirectly harmful to human life, either because of the nature of the use-value involved, or because of the techniques used to produce them, or because they encourage consumer habits with harmful effects. Finally, business ethics may often not be reconcilable with human ethics or environmental ethics. This means for example that the imputation of a price to an environmental cost, or imposing an environment tax may be insufficient as a policy, because some things which have value simply have no price. Nowadays environmental concerns are an essential part of so-called socially responsible business and corporate governance. However, opinion is divided about whether a capitalist market economy can be ecologically sustainable. Some argue that the experience of environmental destruction in the Soviet Union and China proves that state socialism or command economy is ecologically worse than capitalism. Others argue that the ultimate result of capital accumulation must be the destruction of the biosphere, unless drastic steps are taken to control pollution, population growth, and consumerism, and that the examples of the former Soviet Union and China are not exculpatory of Western capitalism since these nations were, in essence, copying within severe economic and strategic constraints, the production and consumerist models of the West, especially those found in the United States. They had simply bought into a false model of the good life. In the 1970s, many environmentalists argued for a policy of "zero economic growth" in "affluent" Western societies. However, when a long recession began in that decade, halving economic growth rates, most people became more concerned about mass unemployment. Thus, the proponents of zero growth lost popularity. Nowadays, the popular concept is sustainable economic development or growth. But interpretations of what that means can differ wildly. One difficulty is that predictions of future resource scarcity are usually based on extrapolation from the past, "assuming present trends will continue", but they may not. Today [2005] many serious environmentalists consider capitalism, or the "market system" as it is usually called, incapable of complying with the basic requisites of a sustainable and respectful habitation of planet earth. A major problem, inherent in corporate dynamics, and amply represented in its executive sociology, is the constant compulsion to expand production without limits of any kind, disregarding the irrefutable fact that it is irrational to seek infinite expansion in a finite world. In this particular regard, critics point to the corporate penchant to plan in short-term cycles, and with a purview that is only concerned with the fortunes of a single firm or business entity, thereby ignoring the cumulative effect brought to bear on the biosphere by the entire commercial production system.

Capital accumulation and risk

Most capital accumulation involves risk, because capital is committed to an investment without perfect certainty about future earnings. A capital asset could gain value, but it could also lose value in the future. Owners of capital (investors) therefore typically diversify their investment portfolio, and try to minimise the risks involved in investments by every possible means. In the course of two centuries of capital accumulation based on industrialisation the intensive economising and exploitation of human labour, and technological innovation,
- the value of the assets that are invested in has become very large
- the markets traded in extend around the globe
- the deregulation of markets has increased the level of market uncertainty
- the volume of speculative capital has grown enormously
- the banking industry dominates the ownership of capital assets. This has led to an enormous expansion of the insurance industry and of the profession of risk management. As a corollary, this powerfully stimulates the construction of mathematical models which aim to assess how probable it is that particular "risky events" will occur. Some sociologists such as Frank Furedi claim that an exaggerated and unhealthy preoccupation or anxiety about risks has infiltrated the whole of modern society. Speculation is justified as follows: "The roles of speculators in a market economy are to absorb risk and to add liquidity to the marketplace by risking their own capital for the chance of monetary reward."

Capital accumulation and military wars

Capitalist competition for profits, markets and spheres of influence, pushed to an extreme, culminates in military wars. In that sense, the theatre of war expresses the frontline of the accumulation process. Military wars typically cause the destruction of capital assets. But at the same time wars have been a powerful stimulus for the accumulation of capital and market expansion outside the theatre of war. Often this has induced laws against war profiteering. War destruction can be illustrated by looking at World War 2. Industrial war damage was heaviest in Japan, where 1/4 of factory buildings and 1/3 of plant & equipment were destroyed; 1/7 of electric power-generating capacity was destroyed and 6/7 of oil refining capacity. The merchant fleet lost 80% of the ships. In Germany in 1944, when air attacks were heaviest, 6.5% of machine tools were damaged or destroyed, but around 90% were repaired. About 10% of steel production capacity was lost. Germany's total war damage was estimated at about 17.5% of the pre-war total capital stock by value, i.e. about 1/6. In the Berlin area alone, there were 8 million refugees lacking basic necessities. In 1945, less than 10% of the railways were still operating. 2395 rail bridges were destroyed and a total of 7500 bridges, 10,000 locomotives and more than 100,000 goods wagons were destroyed. Less than 40% of the remaining locomotives were operational. However, by the first quarter of 1946 European rail traffic regained its prewar operational level. At the end of the year, 90% of Germany's railway lines were operating again. In retrospect, the rapidity of social reconstruction appears astonishing. Initially, in May 1945, Harry S. Truman's directive had been that no steps would be taken towards economic rehabilitation of Germany. In fact, the industry plan of 1946 prohibited production in excess of half of the 1938 level; the iron and steel industry was allowed to produce only less than a third of pre-war output. In 1946, 2% of Germany's physical capital stock (plant & equipment) was also dismantled and confiscated, about a quarter of it going to the USSR. By 1947, industrial production in Germany was at 1/3 of the 1938 level, and industrial investment at about 1/2 the 1938 level. The first big strike wave in the Ruhr occurred in early 1947 - it was about food rations and housing, but soon there were demands for nationalisation. The US Governor (Newman) however stated at the time that he had to power to break strikes by withholding food rations. The clear message was: "either back to work, or you starve". By 1951, German industrial production had overtaken the prewar level. The Marshall Aid dollars were important, but, after the currency reform and the establishment of a new political system, much more important was the commitment of the USA to rebuilding German capitalism, rather than keeping Germany in a weak position. Average real wages remained low, lower even than in 1938, until the early 1950s, while profitability was unusually high. So the total investment fund, aided by credits, was also high, resulting in a high rate of accumulation. This was called the German Economic Miracle or "Wirtschaftswunder"(Source: Armstrong, Glyn & Harrison 1984). In modern times, it has often been possible to rebuild physical capital assets destroyed in wars completely within the space of about 10 years, except in cases of severe pollution by chemical warfare or other kinds of irrepairable devastation. However, damage to human capital has been much more devastating, in terms of fatalities (in the case of world war 2, about 55 million deaths), permanent physical disability, enduring ethnic hostility and psychological injuries which have effects for at least several generations.

New developments in capital accumulation

New trends in capital accumulation include:
- financialisation (the extraordinarily strong growth of the global financial markets. This is trade in financial claims to current and future income. As a corollary, the proportion of national income which consists of interest income and rentier income increases.
- Modern information technology makes it possible to engage in very complex investment projects and shift funds extremely quickly from one placement to another in space and time. This increases the rotation speed of capital and raises the profit rate, but can also increase potential financial risks.
- the growing controversies about intellectual property rights and the protection (or security) of ideas which can make money for the owner. Increasingly, the basic conditions necessary for a good, service or idea to become a tradeable commodity are theoretically defined.
- ongoing privatisation of assets which were previously under public ownership. The IMF estimates suggest that in two decades since 1985 more than $2 trillion US dollars (in 2005 values) worth of state assets were privatised globally. Typically, these assets also rise sharply in value within a few years, because they involve enterprises occupying monopoly positions (e.g. utilities) which thus provide guaranteed profits. If profits dry up in the private sector, capitalists plunder public assets paid for by all citizens, with the argument that if they run them, supply will be more efficient.
- The enormous increase in capital gains from rising property values in the richer countries, especially in the housing market. US tax data for fiscal 2000 showed that realised capital gains in the USA peaked at an estimated $644.3 billion worth of income while US GDP in 2000 was at US$9,817.0 billion, in other words realised capital gains assessed for tax purposes were equal to 6.5% of GDP at that point (total capital gains would be larger). Yet GDP, being a measure of value added in production, does not even include this "hidden" personal and business income.
- A growing proportion of global capital assets which is not productively invested (overcapitalisation), together with an increase in the amount of consumer debt and liabilities. Some observers see the cause as being an increase in the gap between rich and poor, which causes only sluggish demand growth. "Debt management" has become a distinct and profitable business.
- The crisis of numerous pension funds providing a large amount of investment capital, which are alleged to be badly managed.
- An international "competition of currency values" strongly influenced by speculative capital, which has a big effect on the pattern of international trade. The magnitudes involved can be gauged e.g. from the currency conversion ratios used to establish purchasing power parity. For example, India's GDP valued at "ppp" becomes five times larger. This tends to stimulate counter-trade.
- The acceleration of the concentration and centralisation of capital internationally in very large corporations. The Fortune Magazine "Global 500" largest corporations in 2004 employed more people than the whole workforce of Germany. The after-tax profit volume of the Fortune Global 500 was said to be $731 billion, the combined asset value was $60.8 trillion, gross income (revenues) $14.8 trillion, and stockholders equity $6.8 trillion. For comparison, world GDP in 2004 was valued at $40.9 trillion (World Bank).
- The Merrill lynch/CapGemini World Wealth Report 2005 covering High Net Worth Individuals (HNWI) claims the fortunes of the world's millionaires and billionaires grew strongly in 2004, increasing by 8.2% to US$30.8 trillion in one year. Driven by North America & Asia–Pacific, this represents "the highest growth of HNWI wealth in more than three years".
- Dollarisation - more US currency now circulates outside the US than inside it, and some countries such as Ecuador have adopted the US dollar as national currency. "Dollar hegemony" is maintained by large Asian, Arab and European investments in the United States.
- the tendency for corporate investment to orient towards activities which secure good short-term returns for shareholders. This is called "value-based management". Most corporate executive officers (CEO's) cite profitability as their prime concern.
- an increasing preoccupation with the conditions for extending credit, and with all sorts of risk factors. World markets are increasingly sensitive to events and disturbances which might cause social instability or panics.
- the declining overall significance of business start-ups, in the sense of enterprises creating new products and services, rather than being just tax-shelters or secondary employment (whether this is a permanent trend remains to be seen).
- the growth of criminal (or illegal) accumulation as measured by crime reports, including business crime and corruption such as fraud, embezzlement, money laundering, insider trading and theft, but also prostitution, forced labour, slavery, war plunder etc. National Geographic has reported there are about 27 million slaves in the world. ILO estimates of forced labor are a little over a dozen million. There are possibly 70 million people involved globally in prostitution of one form or another. But there are many more, employed or unemployed, in "intermediate" positions. Traditional sociological categories may not describe their situation accurately, but a growing "underclass" (which may not be an accurate label) is a policy concern for many governments.
- the most ignored aspect is the changing structure of the global workforce in its totality, specifically the number employed by specific employment status and by income, in different sectors. But just as Marx's Law of Accumulation predicted, the working class has grown enormously within 2 centuries. Deon Filmer estimated that 2,474 million people participated in the global non-domestic labour force in the mid-1990s. Of these around a fifth, 379 million people, worked in industry, 800 million in services, and 1,074 million in agriculture. The majority of workers in industry and services were wage & salary earners - 58 percent of the industrial workforce and 65 percent of the services workforce. But a big portion were self-employed or involved in family labour. Filmer suggests the total of employees worldwide in the 1990s was about 880 million, compared with around a billion working on own account on the land (mainly peasants), and some 480 million working on own account in industry and services.

A few references to works of theory

- Karl Marx, Das Kapital Vol. 1, Part 7 and Vol. 2, Part 3.
- Rosa Luxemburg, The Accumulation of Capital.
- Joan Robinson, Essays in the Theory of Economic Growth.
- Henryk Grossman, The Law of Accumulation and Collapse of the Capitalist System.
- Paul A. Baran, The Political Economy of Growth.
- Ernest Mandel, Marxist Economic Theory.
- Samir Amin, Accumulation on a world scale.
- Seymour Melman, Profits without production.
- Michel Aglietta, A Theory of Capitalist Regulation.
- Andre Gunder Frank, World accumulation, 1492 - 1789. New York 1978
- Harry Rothman, Murderous providence; A study of pollution in industrial societies.
- Vaclav Smil, Ch

Constant capital

Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and variable refers to an aspect of the economic role of factors of production in creating a new value. Constant capital includes the outlay of money on (1) fixed assets, i.e. plant, machinery, land and buildings, (2) raw materials and ancillary operating expenses (including services purchased), and (3) certain faux frais of production (incidental expenses). The concept of constant vs. variable capital contrasts with that of fixed vs. circulating capital (used not only by Marx but by David Ricardo and other classical economists). The latter distinction corresponds to the very common distinction in economics, between fixed inputs (and costs) and variable inputs (and costs). It distinguishes inputs from the point of view of their user (the capitalist), in terms of the degree of flexibility that the user has in using them. On the other hand, constant capital refers to the non-human inputs into production, while variable capital refers to the human input (the hiring of labor power to do labor).

Measurement

Constant capital can be measured as a stock magnitude, i.e., the total value of means of production in use at a specific point in time. It can also be measured as a flow magnitude, i.e., the total value of raw materials and fixed means of production used up in an accounting period. Which measure is used depends on the purposes and assumptions of one's analysis, for example whether one is interested in the unit-costs of output or in the rate of return on capital invested. The flow value divided by the stock value provides a measure of the number of rotations of the stock (the speed of turnover or turnover time) in an accounting period. It is strongly related to the actual depreciation rate of fixed capital. Alternatively, the stock value divided by the flow value is what Marx called the "turnover time." The faster the turnover of constant capital (i.e., the shorter the turnover time), other things being equal, the higher the rate of profit.

Why "constant"?

Marx calls the constant part of the capital outlay "constant" because according to his labour theory of value, constant capital inputs - once purchased, withdrawn from the market and used to create new products - do not by themselves add new value to output, or increase in value in the production process. Instead, the value of equipment and materials being used in production is conserved and transferred to the new product by living labor. It is true that the ruling market prices for constant capital inputs could change after they have been bought for use in production, but normally this cannot affect those inputs (having been withdrawn from the market for use in production), only the market valuation of the outputs created from those inputs.

Variable capital

Constant capital contrasts with variable capital, v, the cost incurred in hiring labor-power. Marx argues that only living labour creates new value. The higher value of output, compared to input costs, is (other things being equal) attributable to the exploitation of living labor-power only. Variable capital is "variable" because its value changes (varies) within the production process. Although most commentaries on Marx do not acknowledge this, these changes could be both positive or negative. A misapplication of labour, or the devaluation of types of labour activity by the market can mean the loss of part of the capital invested, or all of it. However, Marx does generally assume that labour will accomplish the valorisation of capital.

Criticism

Critics of Marxian value theory object that this attribution of the source of value-added to labour only is arbitrary and political, not scientific. In various ingenious thought experiments, cases are presented in which constant capital appears as the only possible source of the variability of an entrepreneur's capital. Examples would be devaluations or revaluations of types of assets in response to changing demand conditions, which are influenced by price inflation. In national accounts and business accounts, for example, the change in the value of inventories held is adjusted for changes in their current market prices, affecting the profit calculation. Steve Keen also argues for example that "Essentially, Marx reached the result that the means of production cannot generate surplus value by confusing depreciation, or the loss of value by a machine, with value creation" (Debunking Economics; The Naked Emperor of the Social Sciences, 2004, p. 294). His argument is, that a machine can add a value to new output in excess of the value of economic depreciation charged.

Marxist response

According to some Marxists, this type of objection cuts to the heart of the main dispute between Marx and mainstream economic theory -- their different conceptions of value. For Marx's critics, value, if it exists at all, is a technical feature of economic calculus or is simply another word for the price of a product. For Marx, however, economic value is a social attribution, which expresses a social relation between people specific to certain historical conditions. Inanimate objects can only feature in value relations as tokens of prior human effort, since they are not social beings. Thus, it is not the machine with which new outputs are produced which adds value to those outputs, but the people operating the machine who conserve its value and operate the transfer of part of its value to the new outputs.

Value and price

Other Marxian economists note that, at any time, most of the stock of objects of value in a society has no actual market price, because those objects are not being traded (i.e. they are withdrawn from the market); they are either being used in production or consumption activities, or else stored for later use. This can be easily verified by striking a ratio between gross product and the estimated total asset wealth of a country in money units. In other words, this stock of owned objects has, at best, an ideal price which is estimated or hypothesized (the price it might have, if it was traded in the market). Nobody however will say that because this stock of objects has no actual market price, that it has no value; everybody knows that its exchange value could be expressed in money, within a certain range of probable prices; they may also know approximately that a quantity of one good is "worth" a certain quantity of another good. This simple insight may help to clarify Marx's concept of value, because it shows that beyond prices there are also economic value relations referring to the changing relationships between objects of value which have no specific, defined or actual market price, and to the social outcome of the interactions between a myriad of prices. In turn, these value relations between objects reflect social relations between people.

The fetish of capital

The fact that the productive force of labour appears within capitalism as the productive force of capital was for Marx an example of reification of the relations of production or of commodity fetishism. In other words, property (a "thing") is given human powers and characteristics which it does not truly have. The fetish of capital is broken as soon as all human labour is withdrawn; then it becomes clear that the constant part of capital produces nothing and declines in value, ultimately leaving nothing but a situation similar to a ghost town. Critics object however that without the supply of means of production, labour also can produce nothing. That is, separated from means of production, workers are also nothing. This however raises the question of why and how workers come to be separated from the means of production which they have themselves created. For Marx at least, the answer to this question is not "technical" but purely social, i.e. a matter of property relations which provides capital and its owners with a social power over people. But ownership by itself creates no net addition to new value produced, other than, perhaps, profit from speculation which redistributes existing asset values and claims to them.

Different capital compositions

The ratio, c/v is one measure of the organic composition of capital. As noted above, the distinction between constant and variable capital overlaps with the distinction between fixed capital and circulating capital. Constant capital has both fixed and circulating components: for example, the fixed constant capital would include a factory and the machinery in it, while the circulating constant capital would include the raw matericals used and the intermediate inputs produced by the factory. Variable capital is almost exclusively a component of circulating capital. However, the salaries of some "overhead" employees (who have long-term security from being fired or laid off) are in effect, fixed elements of variable capital.

Labor theory of value

The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented or commodity-producing society: the theory equates the "value" of an exchangeable good or service (i.e., a commodity) with the amount of labor required to produce it. The fundamental argument is that prices are determined by costs of production and all costs are labor costs in the final analysis. The dominant view sees this as a theory of price determination in competitive markets, a substitute for the neoclassical theory of price determination. But to others, it is a tool for understanding the social relations of production, more of a historical and institutional theory than a price theory. Adam Smith, David Ricardo, and Karl Marx are most often associated with this theory. However, elements of the theory are older, going back to John Locke.

The theory’s development

In his Second Treatise on Government,[http://libertyonline.hypermall.com/Locke/second/second-frame.html] the philosopher John Locke asked by what right an individual can claim to own one part of the world, when, according to the Bible, God gave the world to all humanity in common. He answered that persons own themselves and therefore their own labor. When a person works, that labor enters into the object. Thus, the object becomes the property of that person. Locke argued in support of individual property rights as "natural rights". Locke argued that a landowner's property was "his" because he had worked for it. Locke held that this relation between labor and ownership pertained only to property that was unowned before such labor took place. Benjamin Franklin in his 1729 essay entitled "A Modest Enquiry into the Nature and Necessity of a Paper Currency" advanced a version of the labor theory of value. Later British political economy focused on issues of price theory. Adam Smith distinguished between "nominal value" (the amount of money one would exchange for a given commodity) and "real value" (the amount of labor required to produce an object). Making matters confusing, he also used a "labor commanded" definition of value, referring to the real value of a product as the amount of labor that could be purchased by selling it. That these two different kinds of labor-value (labor embodied and labor commanded) seldom correspond gave rise to the so-called transformation problem discussed below. David Ricardo stressed the role of the first kind of labor value, the amount of labor "embodied" in a commodity, developing what might be called a "labor theory of price": the amount of labor embodied in a commodity determines its equilibrium price. This theory of price determination by costs is a predecessor of the modern theory that equilibrium prices are determined solely by production costs associated with "[http://cepa.newschool.edu/het/schools/neoric.htm neo-Ricardianism]". The "Ricardian socialists" — Charles Hall, Thomas Hodgskin, John Gray, and John Francis Bray[http://cepa.newschool.edu/het/schools/utopia.htm#hall] — applied Ricardo's theory to develop theories of exploitation which were similar in some ways to that later developed by Marx. Marx returned to Locke's issues of the origins and legitimacy of property rights. He used the LTV to support a very different political argument than Locke's, clarifying the Ricardian socialists' contributions: in his view, landowners are exploitative because only labor adds value to the product. His LTV holds that, in aggregate, the price of the product equals the sum of the value of the capital goods (means of production) used up in production and the value added by direct labor. In this theory, property owners can only make a profit by paying workers less than the value their labour adds to the finished product. Workers work for a part of each day adding the value required to cover their wages, while the remainder of their labour is performed for the enrichment of the capitalist. It is important to note that Marx did not deny the role of supply and demand influencing price. In Value, Price and Profit (1865) he wrote: ::It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say, with their values as determined by the respective quantities of labour required for their production. Very early on, the Austrian school, led by Eugen von Böhm-Bawerk, argued against the whole tradition of the LTV (see below). Much of Western economics followed this lead — and that of Jevons, Menger, and Walras — in the 1870s to discard the LTV as a theory of price determination in favour of neoclassical models based on supply and demand. In the end, the neoclassical "theory of value" (general equilibrium theory) is identical to the theory of price. Corresponding to this shift is one from Marx's emphasis on the inner workings of the societal process of production to an emphasis on individual exchange and markets (and on methodological individualism.) 19th century American individualist anarchists based their economics on the labor theory of value, with their particular interpretation of it being called "Cost the limit of price." They, as well as contemporary individualist anarchists in that tradition, hold that it is unethical to charge a higher price for a commodity than the amount of labor required to produce it. Hence, they propose that trade should be facilitated by using notes backed by labor.

The theory explained

Marxian political economy uses the concept of "socially necessary abstract labor-time" to modify the Ricardian LTV. To some, this modification is profound enough to support the claim that Marx's theory is not, after all, a labor theory of price of the Ricardian sort, but a new type of value theory. This aspect of value as a social process, unexamined by Marx's predecessors in classical political economy, cannot be reduced to magnitudes. The phrase "socially necessary", far from being an arbitrary adjunct to the theory (as charged by Robert Nozick), expresses that societal perspective, radically distinct from neoclassical economics. Whereas the latter starts with the individual's perspective and exchange, Marx starts with the perspective of society as a whole. "Social production" involves a complicated and interconnected division of labor of a wide variety of people who depend on each other for their survival and prosperity. Individual labors are contributions to the whole. "Abstract" labor refers to a characteristic of commodity-producing labor that is shared by all different kinds of heterogeneous (concrete) types of labor. That is, the concept abstracts from the particular characteristics of all of the labor and is akin to average labor. Socially necessary abstract labor is measured in hours of application of labor-power but can only be realized in exchange: only labor which produces a commodity that is a use-value to someone else (which they can afford and are willing to buy) counts as socially necessary.

Some definitions

Marx's LTV holds that the labor needed to produce a commodity includes both labor directly expended on production of the commodity and labor expended on the production of means of production used up in its production. For example, if twenty workers are used for a year to produce means of production used by twenty workers in the next year to produce a consumer good, the good embodies the labor of forty workers. (This example assumes that technology is unchanged between the two years.) However, a lazy or inept worker (who spends more time producing an item) does not produce more value than an industrious one. Rather, the first worker's time produces less because the value depends on what is socially necessary. That is, the value of a product is determined more by societal standards than by individual conditions.

“Exploitation”

Marx used his LTV to derive his theory of "exploitation" under capitalism. He assumed that all commodities sell at prices equal to values (with both measured in the same units). In his era, this "equal exchange" represented a standard of fair exchange: an hour of labor could be used to purchase the product of an hour of labor. In effect, he asked, "under equal exchange, how is it that a capitalist can sell commodity X at price P and make a profit?" If a boss hires labor at value and then sells the commodity at value, where does profit come from? Unlike Ricardo or the Ricardian socialists, Marx distinguished between labor-power and labor. "Labor-power" is the ability of workers to work, given their muscles and brains. "Labor" is the actual activity of producing use values (goods and services) and value. In his examples, Marx assumed that the value of labor-power (v) was constant, determined by prevailing socioeconomic conditions. (In his time, this was seen as "subsistence.") The profit or surplus-value can arise if workers do more labor (L) than is necessary to pay the cost of hiring their labor-power. Marx's numerical examples in volume I of Das Kapital never "prove" that capitalism always involves exploitation, i.e., that L always exceeds v. Instead, this relationship involves class struggle over the length of the working day, the intensity of labor, the use of machinery, etc. The existence of exploitation reflects the capitalists' victory (so far) in the struggle. Instead, the "proof" that capitalism typically involves exploitation comes from his institutional and historical analysis of capitalism as a whole. One way to get L > v is to use force against the workers. But unlike other systems (such as feudalism or slavery), under capitalism the direct use of force to get workers to produce a surplus is the exception rather than the rule. To Marx, under capitalism workers are free to quit their jobs, while they are rarely beaten. To explain the normality of L > v, Marx instead pointed to capitalism's institutional framework, in which a small minority (the capitalists) monopolize the means of production, in which the workers cannot survive except by working for capitalists, and in which the state preserves this inequality of power. In this explanation, the normal role of force is structural, part of the usual workings of the system: the reserve army of unemployed workers continually threatens employed workers, pushing them to work hard to produce for the capitalists.

Böhm-Bawerk’s critique

The Austrian economist Eugen von Böhm-Bawerk argued against both the Ricardian labor theory of price and Marx's theory of exploitation. On the former, he contended that return on capital arises from the roundabout nature of production. A steel ladder, for example, will be produced and brought to market only if the demand supports the digging of iron ore, the smelting of steel, the machines that press that steel into ladder shape, the machines that make and help maintain those machines, etc. Advocates of the labor theory will point out that every step in that process, however roundabout, involves labor. But Böhm-Bawerk said that what they missed was the process itself, the roundaboutness, which necessarily involves the passage of time. Roundabout processes, Böhm-Bawerk maintained, lead to a price that pays for more than labor value, even the labor value of all the process involved added together statically, and given any empirical standard for the latter. This makes it unnecessary to postulate exploitation in order to understand the return on capital. Marx might respond that this did not contradict his understanding of prices, in which sectors of the economy which have higher "capital intensity" (greater roundaboutness) have higher prices (see below). The difference, it seems, between Marx and Böhm-Bawerk concerns perspective: for Böhm-Bawerk, roundaboutness explains entrepreneurial profits on the microeconomic level, whereas for Marx, a society-wide institutional explanation is needed. To him, roundaboutness explains only those profits of the more capital-intensive operations relative to less capital-intensive ones. Furthermore, in Böhm-Bawerk's development of a positive theory of interest he said that workers trade in their share of the end price for the more certain and soon wages paid by the entrepreneur. In other words, he claimed that profits compensated the entrepreneur for the willingness to bear risk and to wait to receive income. Critics of Böhm-Bawerk's theory argue that workers are often exposed to risks such as injury on the job, a more profound kind of risk than the merely financial risk that the entrepreneur takes. A capitalist entrepreneur also has a greater ability to diversify (to minimize risk) than does the laborer because the latter has only one main asset, i.e., labor-power. Further, when the entrepreneurs' risk-taking does not pay off, this cost can be shifted to workers as wage cuts and/or layoffs. The existence of the "reserve army of the unemployed" means that even if they are aware of these risks, they often have little choice but to take them. In the Marxian view, this argument means that entrepreneurs have no right to compensation for bearing entrepreneurial risk. Böhm-Bawerk and other Austrian economists replied to such critics by claiming that they played upon the ambiguities of the term "risk," that specifically financial risk must be isolated in order to understand the production process. Furthermore, the fact that capital markets lead to the control and minimization of financial risk is a valuable development in itself — an argument for, not against, the overall social efficacy of capitalism. Some critics take another tack, observing that not all risk-taking seems worth rewarding: for example, the invention and promotion of "crack" cocaine or e-mail spam were clearly a matter of risk-taking entrepreneurship, yet both seem to have more social costs than benefits. This is the problem of external costs, a form of market failure which (if serious enough) encourages people to seek non-market solutions.

The transformation problem

The most common interpretation of the LTV is as a theory of price determination, which makes Marx's theory roughly correspond to that of Ricardo. In this view, a commodity's price derives neither from its utility to the consumer (Marx's "use value") nor from supply and demand but from the labor that society has expended on its production. Early in volume III of Capital, Marx presents an analysis of the relationship between values and prices. Most read this as describing how prices can be calculated from given values. The problems with Marx's "solution" to this mathematical problem have spawned a long debate concerning the "transformation problem." This problem of finding (or rejecting) mathematical formulae linking individual prices to individual values is central to the dominant interpretation of the Marxian LTV. Even as "a simple theory of price" in which prices are directly determined by values, Marx's LTV does not deny the role of demand. Not only must each commodity have a use-value to its buyer, but demand and short-term supply determine its "market price" (p). Following the classical-school perspective, Marx saw each p as tending toward the "price of production" (Smith's "natural price") due to market forces. Prices of production (p
- ) are long-term average prices, seen as totally determined by costs. It was thus only in the long run that Marx denied the role of demand in determining relative prices (under competitive markets, with no land-rent). A simple example shows that on the micro level, the p
- cannot be proportional to values, even when pure competition prevails. Even before Marx presented his numerical examples exploring price/value relationships, David Ricardo had presented a numerical example of this fact. 1. Again measure values and prices in the same units, labor hours. Thus, the value/price contrast corresponds to Smith's distinction between labor-embodied values and labor-commanded values and Marx's distinction between "values" and "exchange values." 2. Assume that each p initially equals value so that for any given commodity, total profits are proportional to unpaid labor-time (surplus-value, S), total wages are proportional to paid labor-time (W), and the total amount of money invested by the capitalist is proportional to the value of the capital invested (K). This is the "simple labor theory of price" referred to above. 3. Suppose the ratio of unpaid labor-time to paid labor-time is the same for all commodities. This assumption reflects the tendency (when workers are not slaves or serfs and labor-power markets are competitive) for workers to move away from sectors with more exploitation, toward those with less. Thus, the rate of exploitation tends toward equality between sectors. This ratio is measured here by s = S/W (unpaid labor-time/paid labor-time). 4. But there is no reason why technical conditions of production will be the same for all commodities. Different proportions of labor and means of production are used in distinct production processes and for different commodities. To Marx, the "organic composition of capital" or OCC differs between sectors. For any commodity, measure this as k = K/W, the ratio of the total amount invested in "capital" to the total amount spent on paid labor. K includes raw materials and fixed capital purchased before a production process starts. An industry with high OCC is capital-intensive, i.e., is relatively roundabout. 5. If products were traded according to labor-values, different rates of profit will be received on the capital invested in different industries. The rate of profit, r, equals the total amount of profit divided by the capital advanced, or S/K. This implies that the profit rate equals :::r = (S/W)/(K/W) = s/k If s is the same for all commodities, while k varies, r differs between commodities. 6. This situation makes no sense in the real world of capitalism, even as conceived by Marx, in which firms and sectors are competing with each other, with capitalists seeking profits everywhere. Competition among industries should remove differences in profit rates. When able to do so, capitalists earning low r move their capital out of their industries, reducing supply and raising p there. They enter high-r sectors, raising supply and reducing p there. 7. Thus, market prices tend toward being equal to the p
- which are proportional to long-term average costs and r is equalized between sectors. Since, according to the equation above, it is high k – or a high degree of roundaboutness – that depresses the rate of profit, the mobility of capital raises p in the high-k sectors, assuring capitalists a r equal to that of low k sectors. To Marx, this represents a redistribution of value and surplus-value between sectors. This means that the commodities produced in high-k sectors command more labor than it took to produce them. This is Marx's take on the issue of capital intensity that Böhm-Bawerk stressed (see above). This in turn implies that the p cannot equal values. In the long run, they equal p
- , but these latter differ from values — because they reflect profit-rate equalization. That is, the simple labor theory of price cannot be true while "equal exchange" is not the norm. The above consequence of varying capital intensity has been central to critiques of Marx's LTV. Some see this as its reductio ad absurdum. However, Ricardo himself employed a "93 percent labor theory of value," believing that most of the time labor-values were a good guide for guessing relative prices and (after correcting for inflation) the progress of prices over time. In general, the above shows that the simple "labor theory of price" cannot work exactly (100 percent) unless
- the organic composition of capital (k) is the same in each industry;
- there is no capital invested (k = 0, as in Smith's [http://www.online-literature.com/adam_smith/wealth_nations/6/ "early and rude state of society"]);
- the rate of surplus-value (s) equals zero (as in Marx's hypothetical "simple commodity production");
- differences in the rate of surplus-value between sectors are perfectly correlated with those of the organic composition; or
- there is no tendency for the rate of profit to equalize between sectors, so there is no tendency for prices to move away from proportionality to values (again as in Marx's simple commodity production). Even if one or more of the conditions above applies, price/value deviations will arise if monopolies exist or if land has been appropriated as private property, so that land-rent income is received (beyond "normal" profits). In either of these cases, demand plays a role in determining long-term prices. More complex labor theories of price (more complex mathematical relationships between values and prices of production) have been proposed — but then most, if not all, of them have been criticized severely and rejected. In 1969, Amit Bhaduri pointed out that the "transformation" problem of finding a mathematical relationship between individual prices and individual values has intractable difficulties that are mathematically identical to those seen in the famous "Cambridge" critique of Robert Solow's aggregate production function. Whereas the problem with Solow's model is aggregation from micro- to macroeconomics, one interpretation is that the problem with Marx's theory is disaggregation: in Capital, Marx starts from the whole of capitalism (values) and moves to the parts (prices). In neither case can one level of analysis be explained by the other by a mathematical relationship except under unrealistic assumptions. Instead, Marx might say that there is a dialectical connection between the two levels (whole and parts).

An alternative interpretation

Although the above interpretation dominates most discussions, there are other views. In fact, one accepts the transformation problem's demonstration that individual prices typically deviate from individual values as its starting point. In this alternative view, Marx rejected the centrality of price theory in modern economics – without denying a role for supply and demand. In some ways, he returned to Locke's questions about the nature and origin of property rights and the origins of unequal ownership of property under capitalism. That is, in this view, Marx was not interested in developing a labor theory of price as much as a labor theory of social relations. Marx argued that price phenomena (markets, competition, supply and demand) create illusions that obscure the underlying social relations of a capitalist society. He called this distortion of appearances "commodity fetishism". If there were some easy-to-understand mathematical relationship between prices and values, then property income would clearly correspond to unpaid labor and the class nature of capitalism would be obvious to almost everyone. To Marx, such clarity would undermine capitalism's legitimacy. Commodity fetishism thus helps maintain social stability. To Marx, social relations are best understood in terms of value: who works and who doesn't? And how do incomes received correspond to labor done? These questions can apply just as easily to non-capitalist societies as to capitalist ones: in volume III, ch. 47, of Capital, Marx suggests that the : "specific economic form in which unpaid surplus-labor is pumped out of direct producers" is the basis for the "entire formation of the economic community," revealing "the innermost secret, the hidden basis of the entire social structure ... the political form of the relation of sovereignty and dependence ... [and] the specific form of the state." These questions form a transhistorical theory of different types of society (e.g., capitalism, feudalism, slavery, and the old U.S.S.R.). However, it is only in a commodity-producing society that these questions are stated in terms of values. In this view, the LTV, as used in Capital, is a method for understanding the nature of social relationships for capitalism as a whole: the examples of workers producing value that Marx presents in volume I are microcosms representing the totality of society instead of being microeconomic analyses. They present the shared characteristics of a large number of different relationships between capitalists and workers. In this view, the contrast between labor-values and prices is just as important as their unity or connection. Values correspond to the abstract labor-time socially necessary to produce commodities (the contributions by workers to commodity-producing society), while prices are set by supply, demand, and market institutions. However, on the macro level, there is a clear relationship between price and value. All commodities are produced by labor (using means of production and technology); the commodity-producing segment of society is nothing but a community of producers working for each other through a complex division of labor mediated by markets. Thus, the total value of the product (the total amount of labor done) corresponds to the total price of the product (such as that measured by Gross Domestic Product). That is, labor embodied equals labor commanded (production equals demand) on the macro level. In addition, the total surplus-value that workers produce limits total property income (profits, interest, and rent) that all of the individual capitalists together can receive. That is, to Marx, all property income — income received due to property ownership rather than from one's labor — is the result of exploitation. Thus, there is redistribution of property income within the capitalist class: given the state of class relations and thus the amount of surplus-value produced, a capitalist who receives a high profit rate will be benefiting partly at the expense of capitalists who receive low profit rates. In this interpretation, markets and prices redistribute surplus-value between capitalists so some can command more labor than is embodied in the commodities they have had produced. Others can command less labor than is embodied in their commodities. But in the end, the total amount embodied is equal to the total amount commanded. The contrast between the "macro" level of values and the "micro" level of prices corresponds to the contradiction that Friedrich Engels posited under capitalism, between the socialized production of wealth and the individual appropriation of it. Although society as a whole organizes production and exploitation, individuals are able to claim and use the individual results of this process. Engels saw this contradiction as resulting in class conflict and crises. Even accepting this alternative understanding of Marx's LTV, a serious criticism remains: now that Marx has explained the nature of capitalist exploitation, why do we need the LTV? Why can't we explain exploitation in other terms, as say John Roemer does in his 1982 General Theory of Exploitation and Class (ISBN 0-67434-440-5)? Others argue that Roemer's neoclassical general equilibrium approach hides more than it reveals and is based on dubious assumptions. The debate continues.

External links and references

- [http://www.marxists.org/archive/marx/works/1867-c1/ch01.htm#S3 Labor Theory of Value]
- [http://www.econlib.org/library/Enc/Marxism.html Marxism] The Labor Theory of Value
- [http://www.marxists.org/ The Marxists Internet Archive]
- [http://www.marxists.org/archive/marx/works/1867-c1/ Capital], Volume One
- [http://www.econlib.org/library/YPDBooks/Marx/mrxCpAtoc.html Capital], Complete in Three volumes. Frederick Engels, editor, 1867-1894. Definitive Kerr Edition, in English, as re-issued 1906-1909.

Capital

- [http://www.marxists.org/archive/marx/works/1867-c1/ch01.htm#S3 Marx's discussion of the form of value in Capital]
- [http://www.marxists.org/subject/economy/authors/bohm/ Karl Marx and the Close of His System] Classic criticism of Marxist economic theory by Eugen von Böhm-Bawerk
- [http://www.marxists.org/subject/economy/rubin/ch12.htm I.I.Rubin's accessible commentary on Marx's form and content of value]
- [http://www.marxists.org/archive/marx/works/1847/wage-labour/index.htm Wage Labour and Capital]
- [http://www.dreamscape.com/rvien/Economics/Essays/LTV-FAQ.html Robert Vienneau's LTV FAQ]
- [http://bellarmine.lmu.edu/~jdevine/notes/shortLaw-of-Value.html Jim Devine's alternative view of Marx's LTV]
- [http://www.econlib.org/library/BohmBawerk/bbCI.html A critical explanation of LTV] by Eugen von Böhm-Bawerk
- Bhaduri, Amit. 1969. "On the Significance of Recent Controversies on Capital Theory: A Marxian View." Economic Journal. 79(315) September: 532-9.

Opposing Theory

Marginalism Category:Labor Category:Economic theories Category:Marxist theory

Нина Симон

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Юнис Катлин Уеймън, по-известна като Нина Симон, е американска певица и пианистка. Тя е известна и с текстовете, които пише. Музиката й обикновено е причислявана към джаза, но на нея не й харесва това определение, така че за нейното творчество може да се каже още, че съдържа елементи на блус, ритъм енд блус и соул. Симон е родена на 21 февруари 1933 г. в Трайон, Северна Каролина, в семейство с осем деца. Нина Симон умира в съня си на 21 април 2003 г.

Хитове

- Ain't got no, I got life
- My baby just cares for me
- Mr. Bojangles
- Four Women
- I loves you Porgy
- Mississippi Goddam'

Външни препратки

- [http://ninasimone.com/welcome.html Официален сайт на Нина Симон]
- [http://news.bbc.co.uk/1/hi/entertainment/2965225.stm Кратка биография от BBC, публикувана след смъртта й]
- [http://store.artistdirect.com/music/artist/card/0,,493470,00.html Artist direct] — възможност да се слушат откъси от песни на Нина Симон. Категория:Певци

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Šola za častnike

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ŠČ

Nadrejena enota/organizacija

Center vojaški

Poveljniško-štabna šola SV
Poveljniško-štabna šola Slovenske vojske (PŠŠ) je vojaško-šolska ustanova, ki skrbi za izobraževanje častnikov, ki zasedajo poveljniške in štabne položaje v Slovenski vojski; šola je v sestavi centra vojaških šol SV.

Zgodovina

1. februarja je

Šola za častnike vojnih enot SV
Šola za častnike vojnih enot Slovenske vojske (ŠČVE) je vojaško-šolska ustanova Slovenske vojske, ki skrbi za izobraževanje častniškega kadra vojnih vojaških enot SV; šola je delovala v sklopu vojaška ustanova na področju izobraževanja in usposabljanje Slovenske vojske.

Moto Centra

Modro uporabi moč.

Zgodovina

1. januarja 1999 je center postal del Slovenske vojske, ko je prešel iz

ŠČVE
Šola za častnike vojnih enot Slovenske vojske (ŠČVE) je vojaško-šolska ustanova Slovenske vojske, ki skrbi za izobraževanje častniškega kadra vojnih vojaških enot SV; šola je delovala v sklopu vojaško-šolska ustanova Slovenske vojske, ki skrbi za jezikovno izobraževanje pripadnikov Slovenske vojske; šola deluje v okviru CVŠ in je nastanjena v