Valorisation
Encyclopedia
The valorisation or valorization of capital
is a theoretical concept created by Karl Marx
in his critique of political economy
. The German original term is "Verwertung" (specifically Kapitalverwertung) but this is difficult to translate, and often wrongly rendered as "realisation of capital", "creation of surplus-value" or "self-expansion of capital" or "increase in value".
In German language, the general meaning of "Verwertung" is the use or application of something (an object, process or activity) so that it makes money, or generates value, with the connotation that the thing validates itself and proves its worth when it results in earnings, a yield. Thus, something is "valorized" if it has yielded its value. Similarly, Marx's specific concept refers both to the process whereby a capital value is conferred or bestowed on something, and to the increase in the value of a capital asset.
In modern translations of Marx's economic writings, the term valorisation (as in French) is preferred because it is recognized that it denotes a highly specific economic concept, i.e. a term with a technical meaning.
. The capitalist production process, he argues, is both a labour process creating use-values and a value-creation process through which new value is created. However, value creation as such is not what the capitalist aims at. The capitalist wants his capital to increase. This means that the worker must create more value for the capitalist than he receives as wage from the capitalist. The worker must create not only new value but surplus value
. A value creation process which goes beyond the point at which the worker has just created the equivalent of the value of his own labour power, and begins to increase the value of capital, is a valorisation process, not just a value creation process.
Valorisation thus specifically describes the increase in the value of capital assets through the application of living, value-forming labour in production. The "problem" of valorisation is: how can labour be applied in production so that capital value grows? How can assets be invested productively, so that they gain value rather than lose it? In Theories of Surplus Value, chapter 3 section 6, Marx emphasizes his view that "Capital is productive of value only as a relation, in so far as it is a coercive force on wage-labour, compelling it to perform surplus-labour, or spurring on the productive power of labour to produce relative surplus-value."
basis, he initially produces a value equal to what it costs to hire him. But once this value has been created, and the work continues, he begins to valorise capital, i.e. increase its value. Thus, normally a worker works part of the day "for himself" in the sense of producing the equivalent of his wage, and part of the day for the employer of his labour. On average, statistical information suggests the ratio is about 50/50, but it can be more or less.
Marx claims however that this process, whereby capital grows in value through human activity in production, becomes obscured and hidden in the theories of economics
. Among other things, the trading (circulation) of products can become to a great extent disconnected from their production in space and time. What the link is between the people who produce products and the people who trade them or own them is often not very clear or even unknown.
The "fetish" of capital reaches its culmination when it appears that capital grows of its own accord without anybody doing anything. In that case, people are no longer able to perceive or comprehend the connection between human activity which forms new value, and the increase in the value of their assets (see also commodity fetishism
and fictitious capital
).
If Verwertungsprozess is translated as "self-expansion of capital", this actually conveys the exact opposite of what Marx intends: after all, the expansion of capital is not automatic, it requires human work to expand it.
theory, analysts are extremely aware of value adding
activities occurring when factors of production
are withdrawn from the market in order to produce new outputs with them. That is because they aim to maximize productivity, i.e. get as much work and product out of the workers as efficiently as possible.
Yet, because perceptions of value growth are based on the relationship between input costs and sales revenue, revealed by accounts, the central role of living labour in conserving, transferring and creating value is still obscured.
The official story is that the factors of production
all add value to the new output. In a sense this is true, since living labour conserves and transfers value from materials and equipment to the new product; and capitalist production could not occur if capitalists did not supply capital in return for profit. But without the active human subject, no new value is created at all, and capital assets lose value. This becomes apparent when workers go on strike
.
Typically what happens in a severe economic crisis is that the real cost structure of production is realigned with market prices. In Marx's terms, productivity growth has changed product-values in different sectors, but it is only after quite some time that prices adjust to changed underlying values. In that case, devalorisation may occur quite rapidly: capital assets are suddenly worth less, and as soon as capital assets are no longer utilised and maintained by living human labour (because of unemployment), the value of those capital assets begins to deteriorate. In the end, the total withdrawal of human labour leaves nothing but a ghost town
.
Devalorisation is not the same as devaluation of capital, because the term "devalorisation" applies specifically only to assets which function as production capital, whereas "devaluation" of capital could refer to the loss in value of any capital asset in any particular form.
At an unfavourable price, output is sold without increasing capital assets. So, the new value added in production may be lost to the producer or owner, when the new product is traded. The capital is "valorized", but the value-increase is not (fully) realized by its owner.
In reality, Marx argues, the valorisation of capital in one enterprise is dependent on the valorisation of many related enterprises, since they all influence each other with respect to costs, values and prices. When all is said, the preservation and increase of capital value is a purely social phenomenon.
produced and K is the total capital invested to produce it. This is strictly a value ratio, a relationship between value proportions, not to be confused with the rate of profit on capital invested, since the amount of surplus value yielded by a capital investment, corresponding to a certain quantity of labour-time expended in production, typically diverges from that part of the surplus value which is realized as profit, since at any time products are likely to be traded above or below their value, rather than at prices which exactly reflect their value.
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
is a theoretical concept created by Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
in his critique of political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...
. The German original term is "Verwertung" (specifically Kapitalverwertung) but this is difficult to translate, and often wrongly rendered as "realisation of capital", "creation of surplus-value" or "self-expansion of capital" or "increase in value".
In German language, the general meaning of "Verwertung" is the use or application of something (an object, process or activity) so that it makes money, or generates value, with the connotation that the thing validates itself and proves its worth when it results in earnings, a yield. Thus, something is "valorized" if it has yielded its value. Similarly, Marx's specific concept refers both to the process whereby a capital value is conferred or bestowed on something, and to the increase in the value of a capital asset.
In modern translations of Marx's economic writings, the term valorisation (as in French) is preferred because it is recognized that it denotes a highly specific economic concept, i.e. a term with a technical meaning.
Definition
Marx introduces the concept in chapter 7 of the first volume of Das KapitalDas Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
. The capitalist production process, he argues, is both a labour process creating use-values and a value-creation process through which new value is created. However, value creation as such is not what the capitalist aims at. The capitalist wants his capital to increase. This means that the worker must create more value for the capitalist than he receives as wage from the capitalist. The worker must create not only new value but surplus value
Surplus value
Surplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
. A value creation process which goes beyond the point at which the worker has just created the equivalent of the value of his own labour power, and begins to increase the value of capital, is a valorisation process, not just a value creation process.
Valorisation thus specifically describes the increase in the value of capital assets through the application of living, value-forming labour in production. The "problem" of valorisation is: how can labour be applied in production so that capital value grows? How can assets be invested productively, so that they gain value rather than lose it? In Theories of Surplus Value, chapter 3 section 6, Marx emphasizes his view that "Capital is productive of value only as a relation, in so far as it is a coercive force on wage-labour, compelling it to perform surplus-labour, or spurring on the productive power of labour to produce relative surplus-value."
The mysteries of capital's growth
When a worker is put to work on a commercialProfit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
basis, he initially produces a value equal to what it costs to hire him. But once this value has been created, and the work continues, he begins to valorise capital, i.e. increase its value. Thus, normally a worker works part of the day "for himself" in the sense of producing the equivalent of his wage, and part of the day for the employer of his labour. On average, statistical information suggests the ratio is about 50/50, but it can be more or less.
Marx claims however that this process, whereby capital grows in value through human activity in production, becomes obscured and hidden in the theories of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
. Among other things, the trading (circulation) of products can become to a great extent disconnected from their production in space and time. What the link is between the people who produce products and the people who trade them or own them is often not very clear or even unknown.
The "fetish" of capital reaches its culmination when it appears that capital grows of its own accord without anybody doing anything. In that case, people are no longer able to perceive or comprehend the connection between human activity which forms new value, and the increase in the value of their assets (see also commodity fetishism
Commodity fetishism
In Marx's critique of political economy, commodity fetishism denotes the mystification of human relations said to arise out of the growth of market trade, when social relationships between people are expressed as, mediated by and transformed into, objectified relationships between things .The...
and fictitious capital
Fictitious capital
Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 29 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capital" which is capital actually invested in physical means of production and workers, and...
).
If Verwertungsprozess is translated as "self-expansion of capital", this actually conveys the exact opposite of what Marx intends: after all, the expansion of capital is not automatic, it requires human work to expand it.
Valorisation and management theory
By contrast, in managementManagement
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
theory, analysts are extremely aware of value adding
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...
activities occurring when factors of production
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
are withdrawn from the market in order to produce new outputs with them. That is because they aim to maximize productivity, i.e. get as much work and product out of the workers as efficiently as possible.
Yet, because perceptions of value growth are based on the relationship between input costs and sales revenue, revealed by accounts, the central role of living labour in conserving, transferring and creating value is still obscured.
The official story is that the factors of production
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
all add value to the new output. In a sense this is true, since living labour conserves and transfers value from materials and equipment to the new product; and capitalist production could not occur if capitalists did not supply capital in return for profit. But without the active human subject, no new value is created at all, and capital assets lose value. This becomes apparent when workers go on strike
Strike action
Strike action, also called labour strike, on strike, greve , or simply strike, is a work stoppage caused by the mass refusal of employees to work. A strike usually takes place in response to employee grievances. Strikes became important during the industrial revolution, when mass labour became...
.
Devalorisation
The opposite process is devalorisation ("Entwertung") which refers to the process whereby production capital invested loses part or all of its value, because the labour maintaining the value of capital is withdrawn, or because output cannot be sold, or sold at the intended price, or because more modern production techniques devalue older equipment.Typically what happens in a severe economic crisis is that the real cost structure of production is realigned with market prices. In Marx's terms, productivity growth has changed product-values in different sectors, but it is only after quite some time that prices adjust to changed underlying values. In that case, devalorisation may occur quite rapidly: capital assets are suddenly worth less, and as soon as capital assets are no longer utilised and maintained by living human labour (because of unemployment), the value of those capital assets begins to deteriorate. In the end, the total withdrawal of human labour leaves nothing but a ghost town
Ghost town
A ghost town is an abandoned town or city. A town often becomes a ghost town because the economic activity that supported it has failed, or due to natural or human-caused disasters such as floods, government actions, uncontrolled lawlessness, war, or nuclear disasters...
.
Devalorisation is not the same as devaluation of capital, because the term "devalorisation" applies specifically only to assets which function as production capital, whereas "devaluation" of capital could refer to the loss in value of any capital asset in any particular form.
Valorisation and the realisation of capital
Valorisation of capital is for Marx not at all the same as the "realisation of capital". Value may be added in the production process, but this additional value may not be realised as an additional sum of money, unless the outputs are sold at a favourable price.At an unfavourable price, output is sold without increasing capital assets. So, the new value added in production may be lost to the producer or owner, when the new product is traded. The capital is "valorized", but the value-increase is not (fully) realized by its owner.
In reality, Marx argues, the valorisation of capital in one enterprise is dependent on the valorisation of many related enterprises, since they all influence each other with respect to costs, values and prices. When all is said, the preservation and increase of capital value is a purely social phenomenon.
Rate of valorisation
In Capital Vol. 3 Marx defines the rate of valorisation as S/K where "S" is the surplus valueSurplus value
Surplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
produced and K is the total capital invested to produce it. This is strictly a value ratio, a relationship between value proportions, not to be confused with the rate of profit on capital invested, since the amount of surplus value yielded by a capital investment, corresponding to a certain quantity of labour-time expended in production, typically diverges from that part of the surplus value which is realized as profit, since at any time products are likely to be traded above or below their value, rather than at prices which exactly reflect their value.
See also
- Capital accumulationCapital accumulationThe accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
- Constant capitalConstant capitalConstant capital , is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital...
- Labour theory of value
- Relations of productionRelations of productionRelations of production is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism, and in Das Kapital...
- Surplus valueSurplus valueSurplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
- Value addedValue addedIn economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...
- Value-formValue-formThe value-form or form of value is a concept in Karl Marx’s critique of the political economy. It refers to a socially attributed characteristic of a commodity which contrasts with its tangible use-value or utility .The concept is introduced in the first chapter of Das Kapital where Marx argues...
- Value productValue productThe value product is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies...