The Cooking the Books Column from the November 2014 issue of the Socialist Standard
It can’t be often that Karl Marx gets a favourable mention in the Investors Chronicle. But he did in its 5 September issue. Chris Dillow, in an article discussing whether or not robotisation would be good for profits and dividends, quoted Marx as pointing out that new, more productive machines not only replace workers but also, as they spread, reduce the value of the older machines still in use. Part of the value of these machines is destroyed through what he called ‘moral depreciation’ (Capital, Vol 1, ch. 15, s.3b).
Dillow’s point was that this ‘moral depreciation’ reduced the value of the firm’s capital and so also of shares in it. There is another reason why an investor should steer clear of such firms. A firm with old machines will be less profitable as its machines won’t be able to produce its product as cheaply as its competitors who have installed the new machines.
Dillow claims that ‘profits come from monopoly power’ and, on this assumption, asks ‘will new technologies be a source of monopoly power or not?’ His answer: yes, at least for a while until the new technology becomes the norm.
In saying this he was pointing out that those firms that first employ a new technology will, because they can produce more cheaply than the average, be able to make an above average profit. This ‘superprofit’ attracts other firms to adopt the new technology, so bringing the average cost of production down and, with this, the end of the temporary superprofits of the innovating firms.
This is well explained by Ernest Mandel (despite his Trotskyism) in his Introduction to Marxist Economic Theory:
‘ … an enterprise or industrial sector with an above average level of productivity … economizes in its expenditure of social labour and therefore makes a surplus profit, that is to say, the difference between its costs and selling prices will be greater than the average profit. The pursuit of this surplus profit is, of course, the driving force behind the entire capitalist economy. Every capitalist enterprise is forced by competition to try to get greater profits, for this is the only way it can constantly improve its technology and labour productivity. Consequently all firms are forced to take this same direction, and this of course implies that what at one time was an above-average productivity winds up as the new average productivity, whereupon the surplus profit disappears. All the strategy of capitalist industry stems from this desire on the part of every enterprise to achieve a rate of productivity superior to the national average and thereby make a surplus profit, and this in turn provokes a movement which causes the surplus profit to disappear, by virtue of the trend for the average rate of labour productivity to rise continuously. ’ (www.marxists.org/archive/mandel/1967/intromet/index.htm)
So it is not true that ‘profit comes from monopoly power’. Profits come from the surplus value produced by the working class. Monopoly power only enables a firm to draw more than average from this pool of surplus value. If monopoly power was the source of profits then if there was none, as in the ideal of so-called ‘perfect competition’, there would be no profits. Which is absurd. In that situation firms would still be making a profit, only the average with none making a superprofit.