Tuesday, December 28, 2010

Zero-sum games (2010)

The Cooking the Books column from the December 2010 issue of the Socialist Standard

“Currency trading,” wrote Anatole Kaletsky in the (London) Times (8 September), “is undoubtedly a zero-sum game for the world as a whole, in the sense that every currency trader’s profit represents a cost borne by some other trader, business or consumer. Despite this, however, currency trading can be hugely profitable for Britain, if most of the profits are made in the City of London and most of the losses are borne in some other country”.

This is very true but it doesn’t just apply to currency trading. It applies to all profit-chasing.
The source of all profits is surplus value arising from the unpaid labour of productive wage and salary workers. Although this surplus value is created in production it is only “realised” (i.e. converted into money) on the market, but each capitalist firm does not realise the surplus value produced by its own workers. If this were the case then labour-intensive industries would tend to be the most profitable. In fact, however, they are no more profitable than industries which employ more machinery and less labour.

The tendency under capitalism is for the same amount of capital to realise the same profit. This comes about through an averaging of the rate of profit, the average being the total amount of surplus value produced divided by the total amount of capital invested.

As Marx explained in Volume 3 of Capital:
“Thus although the capitalists in the different spheres of production get back on the sale of their commodities the capital values consumed to produce them, they do not secure the surplus-value and hence profit that is produced in their own sphere in connection with the production of these commodities.” (Chapter 9).
In effect the whole capitalist class exploits the whole working class:
“The basic notion in this connection is that of average profit itself, the idea that capitals of equal size must yield equal profits in the same period of time. This is based in turn on the notion that capital in each sphere of production has to participate according to its size in the total surplus value extorted from the workers by the total social capital; or that each particular capital should be viewed simply as a fragment of the total capital and each capitalist in fact as a shareholder in the whole social enterprise, partaking in the overall profit in proportion to the size of his share of capital.” (chapter 12).
This is why profit-chasing by all capitalist firms is a zero-sum game. The total amount of profits that can be realised by all firms together is limited by the total amount of surplus value that has been produced. Each capitalist firm – more accurately, each block of capital – strives to secure the maximum amount of profit it can. It is in fact through this that the averaging of the rate of profit comes about as capital leaves low-profit fields to flow into fields with higher profits.

The more profit one firm realises the less there is for the others. This means that firms are competing not only against other firms in the same field of activity but against all other firms. It’s a competitive struggle for profits amongst all blocks of capital.

On the world level, as Kaletsky pointed out about currency trading, the more profit the capitalist firms in one country can secure the less there is for the capitalist firms of other countries. Which is why international rivalry and downward pressures to be “competitive” are built-in to capitalism and why world cooperation for the common good is ruled out.