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Capitalist Profits

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Title: Capitalist Profits


1
Capitalist Profits
2
Profit Rate in the NFC sector
3
  • 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

4
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.

5
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.

6
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.

7
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.

9
  • 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

11
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.

12
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)

13
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)

14
What is the profit per hour of work?
  • Divide previous formula by number of hours worked.

15
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.

16
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

17
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.

18
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.

19
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

20
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).

21
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?)

23
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

24
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).

25
  • 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.

26
Complete form of Profit Rate (whew)!
27
Consider the table in chapter 10
  • Each one of these can be affected...!

28
  • 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.

29
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.

30
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.

31
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.
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