Just came to mind - who said that net profit in manufacturing doesn't include rent of some shape or form? In fact, under monopolistic competition framework, it kind of is. It wouldn't exist unless there was, well, monopolistic rent. This marries phisiocrats with neoclassical economic theory nicely.
In Marx, the human being -- and therefore all possible forms of human society -- is always a natural being. That means humans must always be treated as a species like any other from the biological point of view, but particularly human in its social point of view. It is literally the human species (homo sapiens).
Labor is thus treated as a specifically human trait. A human uses its labor power in order to transform natural (objective) matter into something. This something must always be something humanly useful, which makes it a social phenomenon opposite to just physical labor, which any species and, indeed, anything that generates any amount of joules (which, in physics, is called "work", not labor).
With labor applied, a human transforms nature into something useful for itself as a species. (remember, in Biology, everything is at a species level; there is no such thing as an individual that acts completely for itself). The key word here is "transforms": humans do not create nature, but only transforms it into something else. Humans do not create anything in the strict, STEM meaning of the word; they do not literally create space-time and particles and energy, but only transform, at a loss, those basic elements of Planet Earth that were already there since before humanity even existed.
Applying this philosophic concept to societal formations and History was an easy task for Marx, who had a Masters and a Ph.D. in Logic. Well, since humans do not really create anything, then what we consider "growth", "surplus" or "wealth" must necessarily be a social concept, a subjective concept from the human point of view. Since humans are only a single species, it is patent it act as a species, which means it can only exist in, let alone prosper, in very specific and objective natural conditions -- its habitat, in biologic terms. "Wealth", "growth" etc. etc. must thus be the state where the homo sapiens expand its habitat in all meanings of the term.
So, how does that apply to capitalism specifically? In book I of Das Kapital, Marx talks about simple and amplified reproduction. Simple reproduction is the intuitive process where one system consumes everything it receives in order to reproduce itself identically; amplified reproduction is when it reproduces itself at a larger scale than before. How do we consolidate amplified reproduction with the obvious and undeniable fact humans do not create anything?
Here the dialectical method shows its elegance and scientific precision: Marx demonstrated logically (which is a proof beyond the scientific) that, objectively, amplified reproduction is simple reproduction, but simple reproduction <B>beyond a certain point</B>. A capitalist, before he starts to profit, must first maintain what he had in the state before. Capitalism must first maintain everything it already had before amplifying what it already had. Before valorizing, capital must revalorize. One cannot dream about earning his millionth USD before earning his 999,999th USD.
Either way, the only tool humans have to do both processes (which are actually just one process) is through labor, because labor is the only mediation possible between humans (homo sapiens) and the natural objective world (nature). After all the homo sapiens is still only a species.
From the macro case we can easily infer the micro case. The difference between value and surplus value is the simple extension of labor beyond a certain point (the point before being the previous state); the capitalist may simply extend the journey of the worker or make it more intense (transform more matter and energy from the natural objective world per unit of time) or both. The principle is exactly the same.
«Kuznets thought that transportation services should be considered an intermediate good and not included in value added. This was not accepted even if Kuznets’ logic was impeccable»
Not quite: a good definition of GDP is "final output of production gross of depreciation", so transportation engaged in for its own sake, not as part of production, is final output. So if I take the train to commute to work that's not final output, but if I take the train to visit a friend that's final output.
«we have decided that transportation to and from workplace should be counted as value added»
The decision is ideological indeed: GDP (and not even GDP per person) has become an ideological totem, so it gets redefined for propaganda purposes; for example almost all finance is not final output, but a cost of production, as it is not something that anybody would purchase for its own sake, so it ought to be *subtracted* from the GDP index, but since the cost of finance is the income of a very powerful lobby, it is counted as part of the GDP index.
GDP intended as a list of physical quantities of final outputs was designed to estimate the production capacity of a country's economy for the purpose of total war.
In total war the economy becomes a command economy and war planners don't care about prices but about how much physical outputs they can get; a command economy is viewed not as a market where commodities are bought and sold, the traditional "marginalist" view, but as a factory where inputs produce final output, gross of depreciation, because total wars are not supposed to last long enough that depreciation matters, and if takes to ignore depreciation, that is to do asset stripping, to win a total war, that's what needs doing.
I appreciate this post but I have a rather different view that perhaps out blogger may find useful:
* In pre-industrial times "fertility" was an important, and even all-important, concept.
* Only "nature" is "fertile": from one see a whole cob with a hundred seeds is grown.
* Therefore only "agriculture" (which means "nature") has a net output for the physiocrats: the physical output is bigger than the physical input. That's what they mean by "rent".
* Conversely manufacturing turns a lot of physical inputs into much smaller physical outputs: to make a shovel or a car takes a much greater weight of fuel, minerals, etc. than that embodied in the shovel or a car.
* What manufacturing does is to turn a big amount of low "value" inputs into a much smaller amount of high "value" outputs.
* From our modern perspective both agriculture and manufacturing create plusvalue, but agriculture by creating more quantity, manufacturing by creating higher utility.
* The problem is that while quantity is objective, utility is rather subjective.
As to GDP the reference to Doyle's booklet is disappointing, because that booklet repeats a number of misconceptions about GDP, in particular the very damaging confusion between GDP, a vector of physical quantities (from tons of steel to hours of movies watched), and the class of GDP *indexes*, constructed by multiplying the GDP vector with one of many possible vectors of prices.
It is damaging because it leads to confusing GDP with GDI: GDP comes from viewing the economy as a production system (inputs and outputs), GDI from viewing it as a trading system (purchases and sales), which is a lot fuzzier and far more ideological.
The difficulty with GDP, properly intended, is that simply collecting it as a list of physical quantities is useful but not very useful, and turning it into an estimate of net income involves doing what is known technically as "cost accounting" which is very difficult in the cases of multi-period and multi-project (joint production) cost accounting, and any significant economy has large amounts of both.
Note: a lot of political economy investigations involve accounting and in particular cost accounting and the difficult conceptual problems they involve, but many "Economists" simply handwave all that away.
«GDP, a vector of physical quantities (from tons of steel to hours of movies watched), and the class of GDP *indexes*, constructed by multiplying the GDP vector with one of many possible vectors of prices. It is damaging because it leads to confusing GDP with GDI: GDP comes from viewing the economy as a production system (inputs and outputs), GDI from viewing it as a trading system (purchases and sales)»
More precisely:
* GDP comes from viewing the political economy as a giant factory complex, that delivers to customers "final output", which is actual commodities, goods or services, measured in physical quantities, whether for final civilian or military consumption (plus IIRC net stock accumulation).
* The GDP index and GDI come from viewing the political economy as a giant set of market where trades are made as recorded in orders and invoices, and GDI is the total of sales invoiced (including exports) to final customers, and the GDP index is the total of purchase orders (excluding imports) from final customers (net stock changes don't work well in this view). Multiplying the list of commodities purchased by their prices is what appears on purchase orders indeed, and the GDP index is the total amount of final purchase orders, as GDI is the total value of sales invoiced.
Note: there are other views possible of the political economy, for example and very usefully H. Minsky's as a set of interlocking balance sheets (which is at the base of M. Pettis "volatility machine" arguments).
Interesting discussion. All this seems to be directly or indirectly based on labour theory of vàlue. With a útility value theory, productivity males more sense.
Just came to mind - who said that net profit in manufacturing doesn't include rent of some shape or form? In fact, under monopolistic competition framework, it kind of is. It wouldn't exist unless there was, well, monopolistic rent. This marries phisiocrats with neoclassical economic theory nicely.
In Marx, the human being -- and therefore all possible forms of human society -- is always a natural being. That means humans must always be treated as a species like any other from the biological point of view, but particularly human in its social point of view. It is literally the human species (homo sapiens).
Labor is thus treated as a specifically human trait. A human uses its labor power in order to transform natural (objective) matter into something. This something must always be something humanly useful, which makes it a social phenomenon opposite to just physical labor, which any species and, indeed, anything that generates any amount of joules (which, in physics, is called "work", not labor).
With labor applied, a human transforms nature into something useful for itself as a species. (remember, in Biology, everything is at a species level; there is no such thing as an individual that acts completely for itself). The key word here is "transforms": humans do not create nature, but only transforms it into something else. Humans do not create anything in the strict, STEM meaning of the word; they do not literally create space-time and particles and energy, but only transform, at a loss, those basic elements of Planet Earth that were already there since before humanity even existed.
Applying this philosophic concept to societal formations and History was an easy task for Marx, who had a Masters and a Ph.D. in Logic. Well, since humans do not really create anything, then what we consider "growth", "surplus" or "wealth" must necessarily be a social concept, a subjective concept from the human point of view. Since humans are only a single species, it is patent it act as a species, which means it can only exist in, let alone prosper, in very specific and objective natural conditions -- its habitat, in biologic terms. "Wealth", "growth" etc. etc. must thus be the state where the homo sapiens expand its habitat in all meanings of the term.
So, how does that apply to capitalism specifically? In book I of Das Kapital, Marx talks about simple and amplified reproduction. Simple reproduction is the intuitive process where one system consumes everything it receives in order to reproduce itself identically; amplified reproduction is when it reproduces itself at a larger scale than before. How do we consolidate amplified reproduction with the obvious and undeniable fact humans do not create anything?
Here the dialectical method shows its elegance and scientific precision: Marx demonstrated logically (which is a proof beyond the scientific) that, objectively, amplified reproduction is simple reproduction, but simple reproduction <B>beyond a certain point</B>. A capitalist, before he starts to profit, must first maintain what he had in the state before. Capitalism must first maintain everything it already had before amplifying what it already had. Before valorizing, capital must revalorize. One cannot dream about earning his millionth USD before earning his 999,999th USD.
Either way, the only tool humans have to do both processes (which are actually just one process) is through labor, because labor is the only mediation possible between humans (homo sapiens) and the natural objective world (nature). After all the homo sapiens is still only a species.
From the macro case we can easily infer the micro case. The difference between value and surplus value is the simple extension of labor beyond a certain point (the point before being the previous state); the capitalist may simply extend the journey of the worker or make it more intense (transform more matter and energy from the natural objective world per unit of time) or both. The principle is exactly the same.
«Kuznets thought that transportation services should be considered an intermediate good and not included in value added. This was not accepted even if Kuznets’ logic was impeccable»
Not quite: a good definition of GDP is "final output of production gross of depreciation", so transportation engaged in for its own sake, not as part of production, is final output. So if I take the train to commute to work that's not final output, but if I take the train to visit a friend that's final output.
«we have decided that transportation to and from workplace should be counted as value added»
The decision is ideological indeed: GDP (and not even GDP per person) has become an ideological totem, so it gets redefined for propaganda purposes; for example almost all finance is not final output, but a cost of production, as it is not something that anybody would purchase for its own sake, so it ought to be *subtracted* from the GDP index, but since the cost of finance is the income of a very powerful lobby, it is counted as part of the GDP index.
GDP intended as a list of physical quantities of final outputs was designed to estimate the production capacity of a country's economy for the purpose of total war.
In total war the economy becomes a command economy and war planners don't care about prices but about how much physical outputs they can get; a command economy is viewed not as a market where commodities are bought and sold, the traditional "marginalist" view, but as a factory where inputs produce final output, gross of depreciation, because total wars are not supposed to last long enough that depreciation matters, and if takes to ignore depreciation, that is to do asset stripping, to win a total war, that's what needs doing.
I appreciate this post but I have a rather different view that perhaps out blogger may find useful:
* In pre-industrial times "fertility" was an important, and even all-important, concept.
* Only "nature" is "fertile": from one see a whole cob with a hundred seeds is grown.
* Therefore only "agriculture" (which means "nature") has a net output for the physiocrats: the physical output is bigger than the physical input. That's what they mean by "rent".
* Conversely manufacturing turns a lot of physical inputs into much smaller physical outputs: to make a shovel or a car takes a much greater weight of fuel, minerals, etc. than that embodied in the shovel or a car.
* What manufacturing does is to turn a big amount of low "value" inputs into a much smaller amount of high "value" outputs.
* From our modern perspective both agriculture and manufacturing create plusvalue, but agriculture by creating more quantity, manufacturing by creating higher utility.
* The problem is that while quantity is objective, utility is rather subjective.
As to GDP the reference to Doyle's booklet is disappointing, because that booklet repeats a number of misconceptions about GDP, in particular the very damaging confusion between GDP, a vector of physical quantities (from tons of steel to hours of movies watched), and the class of GDP *indexes*, constructed by multiplying the GDP vector with one of many possible vectors of prices.
It is damaging because it leads to confusing GDP with GDI: GDP comes from viewing the economy as a production system (inputs and outputs), GDI from viewing it as a trading system (purchases and sales), which is a lot fuzzier and far more ideological.
The difficulty with GDP, properly intended, is that simply collecting it as a list of physical quantities is useful but not very useful, and turning it into an estimate of net income involves doing what is known technically as "cost accounting" which is very difficult in the cases of multi-period and multi-project (joint production) cost accounting, and any significant economy has large amounts of both.
Note: a lot of political economy investigations involve accounting and in particular cost accounting and the difficult conceptual problems they involve, but many "Economists" simply handwave all that away.
«GDP, a vector of physical quantities (from tons of steel to hours of movies watched), and the class of GDP *indexes*, constructed by multiplying the GDP vector with one of many possible vectors of prices. It is damaging because it leads to confusing GDP with GDI: GDP comes from viewing the economy as a production system (inputs and outputs), GDI from viewing it as a trading system (purchases and sales)»
More precisely:
* GDP comes from viewing the political economy as a giant factory complex, that delivers to customers "final output", which is actual commodities, goods or services, measured in physical quantities, whether for final civilian or military consumption (plus IIRC net stock accumulation).
* The GDP index and GDI come from viewing the political economy as a giant set of market where trades are made as recorded in orders and invoices, and GDI is the total of sales invoiced (including exports) to final customers, and the GDP index is the total of purchase orders (excluding imports) from final customers (net stock changes don't work well in this view). Multiplying the list of commodities purchased by their prices is what appears on purchase orders indeed, and the GDP index is the total amount of final purchase orders, as GDI is the total value of sales invoiced.
Note: there are other views possible of the political economy, for example and very usefully H. Minsky's as a set of interlocking balance sheets (which is at the base of M. Pettis "volatility machine" arguments).
«a big amount of low "value" inputs into a much smaller amount of high "value" outputs.»
To be sure, here by "value" I mean "ofelimity"/"use-value" rather than "labor-value".
Georgism seems to get many of these dynamics right—even reducing commuting by increasing city density.
Interesting discussion. All this seems to be directly or indirectly based on labour theory of vàlue. With a útility value theory, productivity males more sense.