Profit, where does it come from?

[dogukan]

note: I have not studied economics, I'm not well equipped in this area. But so far, from what I have seen the Marxists analyze is pretty good.

I DO NOT WANT THIS TO BECOME THE TYPICAL SOCIALISM-CAPITALISM ARGUEMENT WITH EXAMPLES FROM WARSAW PACT COUNTRIES
This is simply an analyze of economy, the way Marx saw it. And based his worker society theory on.

What also suprises me is how his "theory of profit " is never argued around. I even asked my friends who are studying economics, and they don't know about that either.

1. It is often said these days (especially by economists) that Marx’s theory is “dead” or
“obsolete”. It is argued in this paper that this assertion is blatantly false. The dominant
purpose of capitalist production is profit, and therefore the explanation of profit should be
the main goal of a theory of capitalism.

*First of all, tell me what you think about where profit in the capitalist society comes from.

Since my english is not strong enough to make a theorotical explanation of this with fancy terms, I'll quote from an artical I just read.

here is the article btw
http://www.nodo50.org/cubasigloXXI/c...ey_10abr03.pdf
by Fred Moseley

also a wiki article regarding the same issue
http://en.wikipedia.org/wiki/Theory_...alue#Criticism

So, where does profit come from? According to Marx, the answer obviously is workers.

Marx’s theory, by striking contrast, provides a logically robust theory of profit with very
impressive explanatory power. Marx’s theory of profit is of course that profit is produced
by the surplus labor of workers. That is, it only takes a part of the working day for workers
to produce value equal to their wages (the “necessary labor” portion of the working day). In
the remainder of the working day, the value produced by workers becomes the profit of
capitalists. Therefore, Marx’s theory concludes that the profit of capitalists is the result of
the exploitation of workers, because the value produced by workers is greater than the
wages they are paid.

I think this part is very striking, and will also make you understand socialism better. The surplus created by workers, the profit, goes to capitalists in a free market society. Thus creating the rich.
What socialism is, very basically, THIS PROFIT created by workers, going to a place that will return it to the people. Marx is not against the creation of surplus by exploitation of workers. What he and many socialists argue is, this extra created returning to society as social services.

Marx says, a capitalist CAN NOT PROFIT, if he pays the workers, what they deserve. (since it is the worker who creates the value)
(there is even a formula for calculating the exploitation ratio)


This parts opens up a new, more philosophical question which I can not explain strongly in English.
How can we measure value? This takes us into dialectical materialism.
*According to Marx, value is created by the time, a worker spends creating a material. The longer the time spent on a material, the more valueable it gets.
If a watch, was created in 10 days by an artisan, it's value in the market will be measured on that 10 days. When factories came into play, the same watches were produces in, lets say 5 hours. Which causes all the watches(same type) in the market to be valued from 5 hours, thus making the work artisan put into it obsolete.
I think this explains the transformation from artisans to industrial society pretty well.

The other thing, which gives the value is, the useability of the material.

----------

Anyways, Marx's theory supports itself from history with solid things that are still issues today. The conflict between the workers and their bosses.

5. It follows from this theory that capitalist is inherently and unavoidably an unjust and
exploitative economic system. Capitalism cannot exist without profit, and profit cannot
exist without the exploitation of workers. No amount of reforms within capitalism can alter
this basic fundamental truth. If we want a just and equitable economic system without
exploitation, then Marx’s theory suggests that we must change the economic system from
capitalism to socialism.
6. Marx’s theory of profit has considerable explanatory power (see Moseley 1995 for a
comprehensive appraisal of the explanatory power of Marx’s theory). One important
conclusion that follows form Marx’s theory of profit is an inherent conflict over the length
of the working day. Since the amount of profit is determined by the amount of surplus
labor, capitalists will continually attempt to increase the length of the working day in order
to increase surplus labor, or will resist attempts of workers to reduce the length of the
working day. Thus a conflict over the length of the working day is inevitable in capitalism.
This conclusion is obviously supported by the empirical evidence of actual conflict over the
length of the working day throughout the history of capitalism.
7. A conflict over the working day cannot be deduced from the neoclassical marginal
productivity theory of interest. According to this theory, interest depends on the marginal
productivity of capital and does not depend in any way on the length of the working day.
8. Furthermore, according to the neoclassical theory of the supply of labor, the working day
is determined by the workers own preferences; i.e. workers choose by themselves the
length of their working day! Thus, according to this theory, there should be no conflict
between capitalists and workers over the length of the working day. This theory simply
does not fit the facts of a persistent conflict over the working day, whereas Marx’s theory
of profit provides a clear and coherent explanation of this pervasive conflict.
9. A related conclusion of Marx's theory of profit is the inherent conflict over the intensity
of labor effort. This prediction also follows directly from Marx's surplus labor theory of
profit, in the same way as the conflict over the length of the working day just discussed. An
increase in the intensity of labor is an alternative way, besides an increase of the working
day, of increasing the total labor and thus of increasing the surplus labor (an “intensive”
increase of labor rather than an “extensive” increase). This conclusion is also strongly
supported by the empirical evidence of the pervasive, ever—present conflict over the
intensity of labor within capitalist workplaces, as every worker knows.

well, if this one gets enough attention, I'll created a thread about job losses, and why capitalism is sentenced go through a depression.(Depressions are the bottomlines, at this point, Marx expected the workers to overthrow their bosses and establish socialism=revolution) BUT, it is also a time, where capitalism can RENEW itself and come out strong. For a while until the next depression.
See: Economy untill the great depression
Later war
Right after war when everything collapsed, capitalism lived its golden age 1940-70 with a constant fall in profits...the baloon exploded just recently.

[Vizsla]

Profit comes from the uneven distribution of information and specialisms within society.
IF I'm really good at making widgets and demand for them is high, then I stand to make high profits out of them.
Alternatively I might know where to buy high quality widgets cheaply and know where I can sell them for high prices.
Profit is a function of civilization.
Our lives are so complex none of us can know enough to be able to fulfill all of our needs.
My plumber can make a profit because he has knowledge and skills I don't.
This is what I am payiong for and this is where his profit comes from.
If he could not make a profit he would not be able to provide his sevices.

[dogukan]

Profit comes from the uneven distribution of information and specialisms within society.
IF I'm really good at making widgets and demand for them is high, then I stand to make high profits out of them.
Alternatively I might know where to buy high quality widgets cheaply and know where I can sell them for high prices.
Profit is a function of civilization.
Our lives are so complex none of us can know enough to be able to fulfill all of our needs.
My plumber can make a profit because he has knowledge and skills I don't.
This is what I am payiong for and this is where his profit comes from.
If he could not make a profit he would not be able to provide his sevices.

This is trade. I am talking about production.
Obviously, workers is not the only answer for profit.
Increasing efficiency, and having(or creating) business areas help. But in the end, it does not solve everything. Now there is war in Iraq, and weapon manufactorers have a good market. But when it's over, they're left with selling less, with all those workers again.
Also, not everybody finds a chance to do business. And this created the alrady bigger ones to monopolize the out of market.

I think Alfred marshal answered this question about a 100 years ago. Actually settled a hundreds years of debate IIRC.

Would you be kind enough to quote his critisism here? Because obviously, he failed. Seeing as we are in depression again with million of jobless people. And big companies going in debts they can not get out of.

[JP226]

I think Alfred marshal answered this question about a 100 years ago. Actually settled a hundreds years of debate IIRC.

[SigniferOne]

Anyways, Marx's theory supports itself from history with solid things that are still issues today. The conflict between the workers and their bosses.

No it doesn't.

Marx’s theory, by striking contrast, provides a logically robust theory of profit with very
impressive explanatory power. Marx’s theory of profit is of course that profit is produced
by the surplus labor of workers. That is, it only takes a part of the working day for workers
to produce value equal to their wages (the “necessary labor” portion of the working day). In
the remainder of the working day, the value produced by workers becomes the profit of
capitalists. Therefore, Marx’s theory concludes that the profit of capitalists is the result of
the exploitation of workers, because the value produced by workers is greater than the
wages they are paid.

This is not exactly correct. This is merely the "surplus value". The true Marxist theory is expanded here:

According to Marx, value is created by the time, a worker spends creating a material. The longer the time spent on a material, the more valueable it gets. If a watch, was created in 10 days by an artisan, it's value in the market will be measured on that 10 days.

This is what's called the "labor theory of value". And it works by saying that the value of an object, a commodity, is directly proportional to labor put into it. So just as in the example above, the more a worker works on an object, the more valuable it becomes.

First of all, there is no "explanatory power" in this at all, because it is blatently false. A worker can work 'extra' by doing trivial things on an object, such as making designs on a jewelry that nobody will find attractive, or by chipping away the designs that he had made earlier. Is he working "more" on the object? Yes. But is he making it valuable? No.

What is it then that the worker adds to the object by 'reasonably' working on it? He only adds just enough designs to a piece of jewelry, based on his understanding of what his customers will want. He does not chip away designs because of being ignorant, but utilizes his intelligence to make as much artistic contribution as possible.

What then is the worker adding? Mental labor. That is the key here. He is not necessarily adding physical labor, he is adding mental labor. Mental labor is what is more valuable, more important than physical labor. Thus a person who carries water from a well all day long, compared to a guy who sits in an office, does not produce more value. He does brute physical labor because he is not capable of performing mental labor which is more valuable and more effective. An artisan who does a little physical work intelligently designing a jewerly the way it should be, is better than a brute artisan who does endless work chipping away all the designs and patterns from the jewerly and not "knowing" what he is supposed to produce or why.

1) So one major flaw with Marxism, with his labor theory of value, is that he puts physical labor (the worker) at a premium, whereas reality puts mental labor (the manager) at a premium.

2) Secondly, modern economics does not believe that just because a worker put some effort into a commodity, that it will then become "valuable". Would a modern oil refinery be valuable in the ancient times? And just how valuable will be the building of a pyramid in the modern world? Yet the oil refinery is valuable today, and the pyramid was valuable in ancient times. What does this teach us? It teaches us that the value of commodities is relative. That there is no 'built-in' value for any object. That values of objects constantly shift and change, and this is what you will see if you go to the Wiki article for the Labor Theory of Value:

modern mainstream economics replaces it by the marginal utility approach

Marginal utility is the theory arguing that value is not intrinsic, but arises when a commodity is merely more valuable to personal A than person B. It is more marginally useful to person A than B, hence it has value to A.

Finally, let's tie all this together: how does Marginal Utility tie in with the Intellectual Labor Theory of Value (above)? Because it is the intellect that is able to follow the shifting marginal utility, and determines what is more valuable to person A than B. The brute worker just works at his plant and employs his physical labor without any understanding. It is the man of intellect and understanding who adds more value to the commodity (above), but furthermore, his intellect allows him to constantly shift what he produces and how he produces it, to more closely and most effectively follow the Marginal Utility of any object, to produce as much as possible of that which is Useful (or "wanted"), while producing as little as possible of that which is not useful, or, "not wanted". The USSR did not have millions of capitalists and managers constantly following the shifting Marginal Utility as closely as possible. This is why the USSR despite having a horde of trained engineers couldn't even produce a competent computer or a basic microwave, and its people were starving.

[Dr. Croccer]

Profitability of a product depends on the costs of it's production (labour, products necessary, machinery) along with other costs and it's demand in the market. Products are priced according to their quantity and what they cost the salesman, within realistic limits depending on competition.

[Enemy of the State]

How can we measure value?

You can't. Value is subjective. A glass of water is far more valuable to someone dying of thirst, and he might give all his worldly possessions to get that glass of water, because in the current situation, he values water more. An object is only valuable if it satisfies desires, and those desires are individually determined.

[Jingles]

You can't. Value is subjective. A glass of water is far more valuable to someone dying of thirst, and he might give all his worldly possessions to get that glass of water, because in the current situation, he values water more. An object is only valuable if it satisfies desires, and those desires are individually determined.

Exchange value is subjective. It's regulated by labour though - the base value, so to speak.

[SigniferOne]

Exchange value is subjective.

That is the only value that exists.

[Enemy of the State]

Exchange value is subjective. It's regulated by labour though - the base value, so to speak.

There is only exchange value. A diamond is of the same value to a customer, regardless of wheter it was found after hours of labor or by accident.

[xcorps]

I think this part is very striking, and will also make you understand socialism better. The surplus created by workers, the profit, goes to capitalists in a free market society. Thus creating the rich.
What socialism is, very basically, THIS PROFIT created by workers, going to a place that will return it to the people. Marx is not against the creation of surplus by exploitation of workers. What he and many socialists argue is, this extra created returning to society as social services.

Marx says, a capitalist CAN NOT PROFIT, if he pays the workers, what they deserve. (since it is the worker who creates

Profit is created when a good or service is sold and the revenue from the sale price is higher than money lost from expenses. It doesn't have anything to do with workers, because workers aren't required for profit to exist. Unless you don't believe in the concept of sole proprieter.

Marx was an idiot.

[Enemy of the State]

Marx was an idiot.

I think he was just a product of his time. He simply took Smith's and Ricardo's fallacies to their conclusion. The Marginal Revolution hadn't happened yet. Economics was still a young science.

[Jingles]

There is only exchange value. A diamond is of the same value to a customer, regardless of wheter it was found after hours of labor or by accident.

The price ain't the same for them though. Your exchange value isn't entirely subjective, because price always has to take into account what was put into producing the commodity in question.

You seem to be quibbling about use-value, which is purely subjective. My fault for saying exchange value to start with really.

Profit is created when a good or service is sold and the revenue from the sale price is higher than money lost from expenses. It doesn't have anything to do with workers, because workers aren't required for profit to exist. Unless you don't believe in the concept of sole proprieter.

BS. Without anyone making your damn commodity, you've got nothing to profit from. Without labour power you're just a guy with a bright idea.

[Dr. Croccer]

Marx was an idiot.

Having erroneous views doesn't make one an idiot. Marx was definetly intelligent, his theories just proved to be wrong. It shouldn't be forgotten that he was living in an era in which virtually all of the world's production relied on an underclass of workers. The assumption that labour itself was of value and that workers were being oppressed because they received little of it return was, and still is in some cases, hardly far-fetched.

[Dr. Croccer]

BS. Without anyone making your damn commodity, you've got nothing to profit from. Without labour power you're just a guy with a bright idea.

That doesn't mean that good labour adds value. Badly-made products can be sold for high prices, and well-made products for low prices.

[Jingles]

That doesn't mean that good labour adds value. Badly-made products can be sold for high prices, and well-made products for low prices.

That's just supply and demand at work. Rest assured that If product A was also produced at higher quality it would cost more, and vice-versa for product B.

[SigniferOne]

That's just supply and demand at work. Rest assured that If product A was also produced at higher quality it would cost more, and vice-versa for product B.

You assume that "higher quality" means more labor, whereas in fact is is more thinking.

You also assume that items retain intrinsic value, whereas I demonstrate that, in accordance with the theory of Marginal Utility, items have value only insofar as they are relatively more important to some people other than others. Thus what was sought out highly yesterday will not be sought out today, well-made or not. And only thinking (once again) will determine what the new sought-out items are, and produce them, while the professors of brute labor will continue producing the horse-and-buggy, as happened in the Soviet Union.

Really, I already addressed those two points in an earlier post.

[xcorps]

Without anyone making your damn commodity, you've got nothing to profit from. Without labour power you're just a guy with a bright idea.

So it's impossible to sell my time as say, a network technician out of my home? It's impossible to open a TV repair store on the local town square? I can't be a barber and own my own shop?

Sole proprieterships do exist, and the only labor in a sole proprietership is the proprieter.

The labor I sell to the company I work for is not profit, and does not become profit. It is an expense. When my employer sells what it sells and then deducts the cost of my labor, it has profit. My labor did not not create that profit.

If labor created profit, then GM should be bailing out the government.

[Jingles]

So it's impossible to sell my time as say, a network technician out of my home? It's impossible to open a TV repair store on the local town square? I can't be a barber and own my own shop?

Sole proprieterships do exist, and the only labor in a sole proprietership is the proprieter.

It doesn't matter if the labour power is your own. It's still needed. Though I'd like to see you run anything larger than a local hardware store solely by yourself. If you see what I mean.

The labor I sell to the company I work for is not profit, and does not become profit. It is an expense. When my employer sells what it sells and then deducts the cost of my labor, it has profit. My labor did not not create that profit.

That's correct. It's precisely what your employer does not pay you for your labour that creates the profit. My point is that without your labour, he has no product to sell in the first place.

You assume that "higher quality" means more labor, whereas in fact is is more thinking.

Thinking is labour. If I'm understanding you correctly.

You also assume that items retain intrinsic value, whereas I demonstrate that, in accordance with the theory of Marginal Utility, items have value only insofar as they are relatively more important to some people other than others. Thus what was sought out highly yesterday will not be sought out today, well-made or not. And only thinking (once again) will determine what the new sought-out items are, and produce them, while the professors of brute labor will continue producing the horse-and-buggy, as happened in the Soviet Union.

No, I'm saying that items have use-value, exchange value, and base value. Marginal Utility theorists like to pretend that these don't exist.

[removeduser_4536284751384]

marx was wrong in his assertions that the the effort workers put in is somehow related to the value of the finished product.

BS. Without anyone making your damn commodity, you've got nothing to profit from. Without labour power you're just a guy with a bright idea.

same goes for all the materials and other ingredients of your product. Why make an exception for labour?

I own a chair factory. I need two things to make chairs: wood and labour. I can buy labour for €10 an hour for 3 hours and buy €30 worth of wood. Then I can sell the chair for €100. The labour has no more influence than the wood.