Oh, Lord, I mistakenly gave Naomi an Atlas. Isn't there a way we can take these back if we err? Anyway, she quotes me as follows, True, profit is total revenue minus total cost. The reason Reisman says that in the pre-capitalist economy, all income is profit is that the workers have no money costs to deduct from their sales receipts. So their entire income is profit; it's also surplus value, because, according to Marx, surplus value "is the excess of value produced by the labor of workers over the wages they are paid." (Oxford English Dictionary). Since in a pre-capitalist economy, there are no wages, as there are no capitalists (no employers), the worker's entire income is surplus value. Since wages are zero, the value produced in excess of wages is 100%. It is also profit, since profit is the excess of receipts from the sale of products over the money costs of producing them, which in a pre-capitalist economy is also zero, as there are no money costs of production. And replies, Yes, I know what Reisman says. But Reisman does not understand what Marx and Smith are saying. You say that with such confidence about an economist whose speciality is the classical and Austrian economists. Remember, surplus value is the excess of value produced (in this case, 500 bushels of wheat) over the wages the workers are paid. Since they aren't paid any wages, their surplus value is 100%. Even if they sell only 100 of the 500 bushels, their profit (of 1000 coins) is also 100%, since (again) profit is the excess of sales receipts over the money costs of production, and in this case, there are no money costs of production. So 1000 coins minus zero money costs equals 100% profit. This is why Reisman says that in a pre-capitalist economy, all money income is profit. Ok, I see where your (and Reisman's) misunderstanding is. When LTV theorists say that "surplus value is the excess of value produced by the labor of workers over the wages they are paid", they DO NOT mean that surplus value = profit/wages. Of course not! And neither do I or Reisman or anyone else I know. To say that "surplus value is the excess of value produced by workers over the wages they are paid" is not to express a mathematical ratio of profit over wages! It refers to how much more value the workers produce than what they are paid in wages. It's best to think of the economy as a machine that takes homogeneous labor units as inputs, and outputs more labor units. The surplus value is the amount of labor units that are produced in excess of the amount of labor units required to reproduce the economy. This is not a good definition. The economy doesn't produce labor units; it produces goods and services by means of the various factors of production, which include labor, capital, land (or natural resources) and entrepreneurship, which organizes the other factors. All of these contribute to production, not just labor by itself. Then, under the "natural wage," surplus value would be the excess of what the laborer produces over what he needs for bare subsistance, correct? For the most part, yes. This distinction between the "natural wage" and the "market wage" is confusing, given Marx's concept of "surplus value" as "the excess of value produced by the labor of workers over the wages they are paid." My understanding is that, according to Marx, his concept of surplus value applied to capitalism, but you're now saying that under capitalism, the "market wage" includes "some portion of the surplus value." Doesn't this contradict his definition of 'surplus value', none of which is included in the workers wages under capitalism?
It is definitely confusing to a modern reader, since we did not grow up learning classical economic theory. When I tried to read Capital years back, I thought it was completely nonsensical, because back then I did not understand that, for classical economists, economics was about reproduction of the economy, and not about trade or markets (those things are kind of secondary). Same goes for Wealth of Nations if you've ever tried to read that.
As long as one's income is above the susbsistence level, then some of that income is made of surplus value. I don't think anybody has said that no surplus value is included in the worker's wages under capitalism. We need to distinguish here between the iron law of wages and the labor theory of value. These two are not the same, but both have been employed to discredit capitalism as an economy of exploitation. The iron law of wages is the view that under capitalism, the workers receive only enough money to sustain themselves at a subsistence level. The labor theory of value is the idea that it is labor that creates the value of the goods and services produced under capitalism, with profit being an unwarranted deduction from it. The difference between the value produced by the workers and the value received in profit by the capitalist is by definition surplus value. According to Marx, it is value that rightfully belongs to the workers. In other words, "surplus value is equal to the new value created by workers in excess of their own labour-cost, which is appropriated by the capitalist as profit when products are sold.[2][3]" [Emphasis added] (Wikipedia). Also Merlin noted, "Not one word about supply and demand." To which you replied, Because those concepts are completely unnecessary, and also, nonsensical. They're neither unnecessary nor nonsensical, as they explain why some workers under capitalism receive very high wages, far above subsistence level, while other workers receive much lower wages. Money wages are determined by the supply and demand for labor. If the demand is high for a particular skill or talent, but the supply of workers possessing that skill or talent is low, then the wages tend to be high, because employers compete for the very valuable but relatively scarce labor, and in so doing bid up its wages. We see this in the high salaries of CEOs and professional athletes. Conversely, if the supply of workers possessing a particular skill or ability is high (because most people possess it) relative to demand, then the wages for those workers tend to be low. We see this in the wages of fast food workers and day laborers. No, supply and demand curves do not explain anything because they cannot be measured independently of each other. Supply and demand curves explain a great deal. Their explanatory value does not depend on anyone's ability to know the exact quantity of goods (or services) that consumers are demanding or the exact quantity producers are supplying.
We can easily measure the price of milk, and with a bit of work we can find out how much milk is sold at that price. But even if we know the current price of milk and how much of it is sold at that price, we could not use supply and demand to figure out how much milk would cost if 10 million more units were produced and sold, because we do not (and indeed cannot) know the supply curve. The reason we can't ever know what the supply curve is is because, even if we were somehow to figure it out, any variations from our prediction of what the price should be given our supply curve and the amount of units sold, can be "accounted for" by movements of the demand curve. And we can make an analogous argument for the demand curve. You're missing the point of what the concepts of supply and demand actually tell us about the economy. My suggestion is to learn a little more about them by taking a course in microeconomics and, if necessary, discussing your concerns with the professor. (Edited by William Dwyer on 8/01, 2:24pm)
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