Archive for the ‘Capital Volume 3, Part 2: The Transformation of Profit into Average Profit’ Category

1  The causes of a change in the prices of production

As we saw in chapter 9, the two component parts of the price of production – cost price and average profit – are differently determined. Cost price – ‘the portion of […] [the] commodity price that replaces the parts of the capital that are consumed in […] production’ – is ‘completely governed by the outlay within each respective sphere of production’; profit, on the other hand is governed ‘by the mass of profit that falls on average to each capital invested, as an aliquot part of the total social capital invested in the total production, during a given period of time. [This] profit […] is independent of […] [the] particular sphere of production, it is a simple average per 100 units of capital advanced.

Marx argues: ‘In Volumes 1 and 2 we were only concerned with the values of commodities. Now a part of this value has split away as the cost price, on the one hand, while on the other, the production price of the commodity has also developed, as a transformed form of value.’ In other words, whereas previously the value of an individual commodity was seen as an undifferentiated mass, whose magnitude was singularly determined by the labour-time socially necessary for its production, now we see the value of the commodity as differentiated, composed of elements whose determination is different. With regard to the production price of a commodity, cost price – ‘the portion of […] [the] commodity price that replaces the parts of the capital that are consumed in […] production’ – is ‘completely governed by the outlay within each respective sphere of production’; while average profit is governed ‘by the mass of profit that falls on average to each capital invested, as an aliquot part of the total social capital invested in the total production, during a given period of time. [This] profit […] is independent of […] [the] particular sphere of production […]’

It follows from this that there can only be two possible reasons behind a change in a commodity’s price of production: either the element formed through the rate of general profit changes, or its cost price changes, i.e. ‘because more or less labour is required for its actual reproduction’.

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To appreciate what Marx wants to achieve here, it is worth setting his argument in political economic context.

Adam Smith had argued (although not consistently) that, since the value of a product of labour is given by the quantity of labour it commanded in exchange, any rise in wages would increase the value of the commodity product produced. Ricardo, correctly, opposed this view:

There can be no rise in the value of labour [i.e., a rise in wages] without a fall of profits. […] Suppose […] that owing to a rise of wages, profits fall […]. [T]he manufactured goods in which more fixed capital was employed, would fall relatively to […] any other goods in which a less portion of fixed capital entered. The degree of alteration in the relative value of goods, on account of a rise or fall of labour, would depend on the proportion which the fixed capital bore to the whole capital employed. All commodities which are produced by very valuable machinery, or in very valuable buildings, or which require a great length of time before they can be brought to market, would fall in relative value, while all those which were chiefly produced by labour, or which would be speedily brought to market would rise in relative value.

Ricardo’s theoretical interest was to decouple the prices of commodities from fluctuations in wages: not all commodities would be equally affected were wages to rise, and, relative to each other, a rise in wages could provoke the prices of some commodities to fall with respect to others.

However, Ricardo’s demonstration of the point rested on the belief that – amongst other factors – a variation in the composition of capital would affect the value of the commodities produced by it (and hence that value itself had determinations other than the labour embodied in a commodity): ‘difference[s] in the degree of durability of fixed capital […] introduce another cause, besides the greater or less quantity of labour necessary to produce commodities, for the variations in their relative value […].’ This conclusion was necessarily the case for Ricardo, insofar as he lacked a theory of surplus-value, and hence could not see how the price of a type of commodity could contain a quantity of profit – surplus (unpaid) labour – different from that actually produced in its production; and it was on this point that Marx’s critique of Ricardo centred:

Ricardo concludes quite wrongly, that because ‘there can be no rise in the value of labour without a fall of profits’, there can be no rise of profits without a fall in the value of labour. The first law refers to surplus-value. But since profit equals the proportion of surplus-value to the total capital advanced, profit can rise though the value of labour remains the same, if the value of constant capital falls. Altogether Ricardo mixes up surplus-value and profit. Hence he arrives at erroneous laws on profit and the rate of profit.

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What Marx set out in the previous chapter was essentially: ‘if there were to be a general rate of profit, what would it look like?’ We have not yet, however, considered the concrete mechanisms by which the profit rate either does, or tends to, equalise.


I  The tendency towards the equalisation of the rate of profit through competition

To the degree that the value composition of capital in a given sector of production coincides with the value composition of the total social capital considered as an aggregate, the production prices of the commodities it produces coincide with their ‘value expressed as money’. In this sector, composed of capitals of average composition, surplus-value is equal to general profit.

Competition distributes the social capital between the various spheres of production in such a way that the prices of production in each of these spheres are formed after the model of the prices of production in the spheres of mean composition […]. [T]he equalisation between spheres of production of different composition must always seek to adjust these to the spheres of mean composition, whether these correspond exactly to the social average or just approximately. Between these spheres that approximate more or less to the social average, there is […] a tendency to equalisation, which seeks the ‘ideal’ mean position, i.e. a mean position which does not exist in reality. In other words, it tends to shape itself around this ideal as a norm. In this way there prevails, and necessarily so, a tendency to make production prices into mere transformed forms of value, or to transform profits into mere portions of surplus-value that are distributed not in proportion to the surplus-value that is created in each particular sphere of production, but rather in proportion to the amount of capital applied in each of these spheres, so that equal amounts of capital, nomatter how they are composed, receive equal shares (aliquot parts) of the totality of surplus-value produced by the total social capital.

There are two ideas here that we need to keep a hold of as Marx develops the argument which follows: first, that social capital is distributed (i.e. surplus-value is proportioned out as profit) through competition; second, that equalisation (distribution of surplus-value as general profit) is, one, a tendency, which moves towards an average, and, two, a process, rather than an instantaneous fact.

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I  The nature of the problem to be solved

To maintain our grip on what Marx is doing in this chapter, we need to recall the conundrum he has just posed.

We have shown […] that in different branches of industry unequal profit rates prevail, corresponding to the different organic composition of capitals, and, within the indicated limits, corresponding also to their different turnover times; so that at a given rate of surplus-value it is only for capitals of the same organic composition – assuming equal turnover times – that the law holds good, as a general tendency, that profits stand in direct proportion to the amount of capital, and that capitals of equal size yield equal profits in the same period of time. […]. There is no doubt, however, that in actual fact, ignoring inessential, accidental circumstances that cancel each other out, no such variation in the average rate of profit exists between different branches of industry, and it could not exist without abolishing the entire system of capitalist production. The theory of value thus appears incompatible with the actual movement, incompatible with the actual phenomena of production, and it might seem that we must abandon all hope of understanding these phenomena.

In other words, ignoring for the moment differences in turnover time, of the conditions (1) that labour is the source of all new value, (2) that a general rate of profit applies between sectors of production, (3) that a general rate of surplus-value operates between sectors, and (4) that the organic composition of capital varies between sectors, on the face of it only three can coexist at the same time. Yet conditions (2), (3) and (4) are observable facts; and condition (1) is the basis of our entire theory. The existence of a general rate of profit contradicts the determination of value by labour-time: the coexistence of these two factors needs to be explained, as Marx elsewhere puts it, by means of a set of ‘intermediary stages’.

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Marx opens by announcing the level of abstraction he will be working with here: ‘In a general analysis of the present kind, it is assumed throughout that actual conditions correspond to their concept, or, and this amounts to the same thing, actual conditions are depicted only in so far as they express their own general type.’ Concretely, this means:

1  We shall be ignoring the fact that ‘the equalization of wages and working hours between one sphere of production and another, or between different capitals invested in the same sphere of production, comes up against all kinds of local obstacles’, for ‘frictions of this kind […] are […] accidental and inessential as far as the general investigation of capitalist production is concerned […].’

2  In the previous part we saw that the rate of profit may change, even though the rate of surplus-value is constant. Here, we assume a constant rate of surplus-value.

3   In addition, we shall ignore the distinction between simple and complex labour (addressed in volume 1). ‘If the work of a goldsmith is paid at a higher rate than that of a day-labourer, for example, the former’s surplus labour also produces a correspondingly greater surplus-value than does that of the latter.’

4   We also ignore differences in wages across spheres of production and between capitals operating in the same sphere. Such differences ‘are […] accidental and inessential as far as the general investigation of capitalist production is concerned and can therefore be ignored.’

5   We are also disinterested in differences of rates of surplus-value and profit between different countries. However,

It is clear […] that in comparing different national rates of profit one need only combine what has been developed earlier with the arguments to be developed here. One would first consider the variation between national rates of surplus-value and then compare, on the basis of these given rates of surplus-value, how national rates of profit differ. In so far as their variation is not the result of variation in the national rates of surplus-value, it must be due to circumstances in which, as in this chapter, surplus-value is assumed to be everywhere the same, to be constant.

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