Valorisation
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The valorisation of capital is a concept created by Karl Marx in his critique of political economy. The German original term is "Verwertung von Kapital" or "Kapitalverwertung" but this is difficult to translate, and often wrongly rendered as "realisation of capital", "creation of surplus-value" or "self-expansion of capital".
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[edit] Definition
Marx introduces the concept in chapter 7 of the first volume of Das Kapital. 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 (or she) 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 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?
[edit] The mysteries of capital's growth
When a worker is put to work on a commercial 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.
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.
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 understand the connection between human activity which forms new value, and the increase in the value of their assets.
If Kapitalverwertung 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.
[edit] Valorisation and management theory
By contrast, in management 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.
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. But without the active human subject, no new value is created at all, and capital assets lose value.
[edit] Devalorisation
The opposite process is devalorisation ("Entwertung") which refers to the process whereby production capital invested loses part or all of its value, because labour 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.
[edit] 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 unless the outputs are sold at a favorable price.
At an unfavourable price, output is sold without increasing capital assets. So, new value added in production may be lost to the producer or owner, when the new product is traded.
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.
