Capitalist Profits

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Capitalist Profits
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Profit Rate in the NFC sector
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• Capitalism is often said to be a system of profit
  and loss. And so it iswhen viewed from the
  standpoint of a firm.
• Yet capitalists as a group generally see profits
  every year, not losses. ( 1932 and 1933
  exceptions)
• Owners of capital goods who received their income
  in the form of interest or rent did not suffer
  losses.
• Despite the misfortunes of particular companies,
  the capitalist class as a whole makes a profit
  every year

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Two sorts of profits

• The profits that result from buying cheap and
  selling dear are called commercial profits.
• Capitalist profits, on the other hand, are
  profits that result (directly or indirectly) from
  a labor process. Profit results because the price
  of what is produced is greater than the cost of
  the labor time and other inputs used to produce
  it.

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Outline

• Profit is the remainder or surplus left for
  capitalists after their output has been sold and
  the inputsmaterials used, wear and tear on
  machines, and labor employedhave been paid for.
• Corrolary-If workers received as wages the value
  of the goods that they (and the machines and
  materials they work with) produce, profits would
  not exist.
• The profit rate is defined as the amount of
  profit divided by the value of the capital goods
  invested.
• How high the profit rate is for the capitalist
  class as a whole depends on how successful that
  class is in waging a three-front war to extract
  high levels of effort from workers at a low wage
  cost, to gain necessary services from the
  government at a low tax cost, and to acquire raw
  materials and other inputs from abroad at a low
  cost.
• The determinants of the profit rate constitute a
  list of the various ways in which outcomes of the
  conflicts between the capitalist class and other
  groups influence the profit rate.

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Example

• Suppose that a farm produces only grain
• Average producer 100 bushels of grain. 30
  bushels to replace the seed, feed the draft
  animals and take care of other maintenance
  activities,
• net output of 70 bushels a year per producer.
• Now assume farm is part of a capitalist society.
  Assume that they are paid a wage of 5 per hour
  that the market price of grain is 100 per
  bushel, and that a typical worker spends his or
  her annual income of 5000 purchasing 50 bushels
  of grain from the capitalist. This 50 bushels
  represents the customary level of consumption for
  workers.
• The net output of 70 bushels per worker is owned
  by the capitalist. As stated, 50 bushels of this
  is sold to workers. The other 20 bushels is
  exported, also at a price of 100 per bushel.
  Total sales revenue for the year is 7000, of
  which 5000 is paid to the worker, leaving the
  capitalist with a profit of 2000 per worker.
  

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Calculating Profit

• Total revenues (assuming that all of the output
  is sold)10,000
• Depreciation (feed and seed) 3,000
• Net revenues (from sale of
  net output) 7,000
• Wages paid 5,000
• Profit 2,000

8
Depreciation

• Amount you set aside from revenues to account for
  wear and tear of machinery and equipment. Over
  the lifetime of the machine, depreciation pays
  for the use of the machine.

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• rR/K
• where r rate of profit
• R amount of total profit (in dollars)
• K value of capital goods owned (in dollars).

10
Payments to owners of capital goods.

• number of different types of payments that are
  made to the owners of the capital goods used in
  production
• The first type of payment consists of dividends.
  A dividend is a payment made by a corporation to
  owners of shares of its stock.
• The second type of payment is interest, paid to
  owners of corporate bonds and to bankers who
  have provided direct loans to firms.
• A third type of payment is rent, paid to owners
  of land, office space, buildings or other
  facilities used by firms to carry out their
  operations.
• Finally, there are retained earnings

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Determining Profit Rates

• Determinants of Profits why study it?
• Capitalists will use their surplus product to
  expand production in one country only if they can
  anticipate a rate of return there that is higher
  than what might be made building factories in
  other countries.
• And of course capitalists will invest in
  productive, growth-enhancing enterprises only if
  these promise a higher rate of return than
  unproductive activities such as playing the stock
  market or speculating in real estate.
• Moreover, knowledge of the relationship between
  the profit rate and investment is critical to an
  understanding of booms, busts and economic crises.

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What is net output?

• Y S M
• where Y value of net output (dollars per year)
• S value of total sales (dollars per year)
• M cost of materials and capital goods used
  (dollars per year)

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What is the formula for Profits?

• r(Y-W)/K
• where r the profit rate
• Y net output (dollars per year)
• W total wages and salaries (dollars per year)
• K value of capital goods owned (in dollars)

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What is the profit per hour of work?

• Divide previous formula by number of hours worked.

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Example of problem from a book what is the rate
of profit

• Good Cod owns 10 nets and employs 10 workers,
  with each worker using one net. The workers catch
  fish by throwing the nets out from the shore, and
  each worker, on average, brings in 25 pounds of
  fish per hour.
• The workers are paid 10 an hour and they each
  work 100 hours a year for Good Cod.
• Each net costs Good Cod 1,250, and it wears out
  after 100 hours of use it therefore has to be
  replaced every year.
• Finally, the price of fish in the market is 1.00
  per pound.

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Example Solved

• (S) (1.00 per pound) X 25,000 lbs. of fish ? S
  25,000.
• 12,500 to replace the 10 nets (10 times 1,250
  per net), hence M 12,500.
• net output (Y S M)?Y 12,500.
• 10 an hour in wages to each of 10 men for 100
  hours per man, so W 10,000.
• Total amount of profit (R Y W) 12500-
  10,000 R 2,500.
• Value of capital goods owned (K) is 12,500 (10
  nets at 1250 per net),
• Good Cods rate of profit 2500/12500 1/520

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That was only the short form!

• Net output per hour of labor is affected
  not only by movements of output and input prices
• also depends on
• (a) how much output workers produce in an hour
  (labor productivity)
• and (b) the quantity of materials required per
  hour and the wear and tear occurring on the
  machinery and other capital goods each hour.
• labor productivity (z) is itself the product
  of two other variables, which we introduce here.
  One is the level of work effort, e, and the other
  is the efficiency of labor, f.

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E and F

• work effort (e) refers to how hard a person
  works. It can be determined voluntarily by the
  worker, or it can be regulated by one or another
  kind of external threat or coercion.
• The efficiency of labor (f) is a related but
  different concept. It refers to how effective a
  persons work is in producing a product, given
  his or her level of work effort
• Exampleimagine you are a carpenter, cutting wood
  planks. You could be working very hard with a
  hand saw and get not much output. You could be
  working as hard or even less hard and get more
  from a machine saw.

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Total revenues per hour of labor

• Since z e times f, we can sum up the
  preceding discussion as follows
• Total revenues (per hour of labor)
• Pzz Pz(ef)
• where Pz the price of the product
• z the number of units produced per hour
• e the intensity of work
• f the efficiency of labor

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Machines and Materials

• both materials and machines are intermediate
  goods, so we lump them together and use M to
  refer to their total amount and m to represent
  the amount of them used per labor hour. We use Pm
  as the symbol for their (average) price. Thus the
  total amount of money required to pay for the
  cost of materials and machines used per labor
  hour is Pmm (the price multiplied by the
  quantity of the materials and machines per hour
  of labor).

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Long(er) form of Profit Rate!
22
Return to Boston...

• lets return to the Good Cod story, adding just
  one more piece of information. The new
  information is that each of the workers throws
  his or her net into the water 5 times each hour
  and, on average, brings in 5 pounds of fish with
  each throw of the net. (This is consistent with
  our earlier statement that each worker, on
  average, brings in 25 lbs. of fish per hour.)
• What happens when e becomes 4 rather than 5 (i.e.
  each worker reduces number of times thrown to 4
  rather than 5?)

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Oops!

• with f remaining at 5 lbs. of fish coming in with
  each throw of the net. Now, each worker brings in
  20 lbs. of fish per hour, which adds up to 2,000
  worth of fish per worker per year (assuming that
  each worker continues to work 100 hours a year).
  Since there are still 10 workers, Good Cods
  total revenues are now 20,000 and net revenues
  (no pun intended!) are 7,500 (since the cost of
  the non-human inputs, M, remains at 12,500).
  Using equation 10.3 we can easily calculate the
  new rate of profit

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What about denominator?

• Possible for profits to be affected by value of
  capital goods in use. If same amount is being
  produced with cheaper nets, for example, profits
  go up.
• To fully determine k (the value of capital goods
  owned per hour of labor), we need to introduce
  two new concepts
• The number of capital goods owned that are
  actually in use (CG in use) and, second, the
  capacity utilization rate (u) fraction of owned
  capital goods that are actually in use (CG in
  use/CG).
• And we also need to convert CG in use to a
  per-labor-hour form by dividing it by the number
  of labor hours, N. In doing this, we will use the
  letter c to refer to the quantity of capital
  goods (CG) that are actually in use per labor
  hour (CG in use/N). These last steps enable us to
  see how changes in either the capacity
  utilization rate (u) or the amount of capital
  goods in use per labor hour (c) will affect the
  profit rate (r).

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• kcapital goods in use per hour
• PcPrice of capital goods,
• cnumber of capital goods,
• u capacity utilization rate
• When u is high, k is lower and profits are
  higher.

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Complete form of Profit Rate (whew)!
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Consider the table in chapter 10

• Each one of these can be affected...!

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• U.S. Workers Ranked as World's Most Productive
• Thanks to longer workdays and better training,
  U.S. employees generate more overall value than
  those in other nations.
• By Angus Loten   Sep 18, 2007
• Despite recent gains in parts of Asia and Eastern
  Europe, longer workdays  are keeping the United
  States more productive than other nations, a new
  report shows. Last year, U.S. workers each
  produced 63,885 in value-added labor, compared
  to 55,986 by workers in Ireland, the next
  closest economy, according to the United Nation's
   International Labor Office.
• Yet, measured as value added per hour worked,
  American workers dropped behind those in Norway
  where workers produced 37.99 per hour, compared
  to 35.63 in the United States and 35.08 in
  France.

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Newspaper article Explain in terms of Profit
rates

• Ford Union Workers Reject Wage Concessions
• Claycomo Members Refuse To Give Up Right To
  Strike
• POSTED 553 pm CDT October 26,
  2009UPDATED 802 pm CDT October 26, 2009
• CLAYCOMO, Mo. -- Union workers at Ford assembly
  plant in Claycomo have taken a vote that could
  have national repercussions. The Ford union
  workers overwhelmingly rejected another set of
  concessions from the company, KMBC's Micheal
  Mahoney reported Monday. The union said it was
  being asked to give up the right to strike for
  increased wages and benefits for the next five
  years, among other concessions. "This is the only
  dual factory in North America -- the only factory
  that makes two separate products. We're a large
  local. This is an important plant," Claycomo UAW
  president Jeff Wright said. The union said the
  company is proposing a no-strike clause on higher
  wages and benefits until 2015. They wanted more
  multitasking on the job and more lower paid entry
  workers. It was similar to the offer Detroit had
  won from union workers at GM and Chrysler."Ford
  didn't go into bankruptcy like the others did --
  that's what our members said," Wright said.

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What are being discussed?

• Goodyear Tire Rubber (NYSE GT) is another one
  of those generations-old stocks for which it's
  not easy to make a case.
• The reason GT is not for the squeamish is obvious
  enough a major decline in vehicle sales -- and
  equally significant miles driven -- hits right
  at the company's core revenue stream civilian
  tire sales.
• Further, the U.S. recession will keep F2009 U.S.
  vehicle sales well below the normal, annual fleet
  replacement level (which typically is about 10.5
  million vehicles).
• Tire replacement sales for those keeping their
  existing car also should rise at the first sign
  of an improving economy, as they typically do, as
  selected drivers finally make that delayed
  purchase to replace old tires. This should
  increase capacity utilization. In addition, tire
  margins should be aided by falling raw material
  prices. That fact, combined with Goodyear's
  demonstrated business model and a P/E of 5 tips
  the scale in favor of a Buy.

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What variable is being affected?

• Work collaboration at Minnesota law firm sees
  productivity increase and costs reduced during
  summer vacation period
• Posted August 5th, 2009
• Chicago (IL), Aug 5, 2009 Quinlivan Hughes,
  P.A., a Minnesota-based law firm, has announced
  it has realized considerable efficiency gains and
  cost savings from implementing BigHand voice
  productivity software. The software has allowed
  teams of experienced legal secretaries to
  collaborate instantly to get more work done, help
  each other out at peak times and adopt a highly
  proactive approach in regards firm-wide workload
  and client deadlines. The project has had a
  particularly positive impact during a summer
  vacation period where staffing levels can be
  abnormal.