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I. Fluctuations in the Price of Raw Materials, and their Direct Effects on the Rate of Profit. - Karl Marx, Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole 
Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole, by Karl Marx. Ed. Federick Engels. Trans. from the 1st German edition by Ernest Untermann (Chicago: Charles H. Kerr and Co. Cooperative, 1909).
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I. Fluctuations in the Price of Raw Materials, and their Direct Effects on the Rate of Profit.
THE assumption in this case, as in previous ones, is that no change takes place in the rate of surplus-value. This assumption is necessary in order that this case may be analysed in its pure state. However, it would be possible that a certain capital, whose rate of surplus-value remains unchanged, might employ an increasing or decreasing number of laborers, in consequence of contraction or expansion caused by fluctuations in the price of raw materials such as we are about to analyse here. In that case, the mass of surplus-value might vary, while the rate of surplus-value remained the same. Still, it will be convenient to set aside also such a case as a side-issue. If improvements of machinery and changes in the price of raw materials simultaneously influence either the number of laborers employed by a certain capital, or the level of wages, one has but to tabulate 1) the effect caused by the variations of constant capital in the rate of profit, and 2) the effect caused by variations in wages on the rate of profit. The result then becomes apparent of itself.
But in general, it should be noted here, as in previous cases: If variations take place, either in consequence of economies in the constant capital, or in consequence of fluctuations in the price of raw materials, they always affect the rate of profit, even though they may leave the wages, and therefore the mass and rate of surplus-value, untouched. They change the magnitude of the C in s' v/C, and thus the value of the whole fraction. It is therefore immaterial, in this case, in contradistinction to what we found to be the case in our analysis of surplus-value, in which sphere of production these variations take place, whether the lines of production affected by them produce articles of food for laborers, or constant capital for the production of such articles, or not. The deductions made here apply just as well if these variations occur in the production of articles of luxury, and by the production of articles of luxury I mean all production not serving for the reproduction of labor-power.
In the raw materials we include here also the auxiliary substances, such as indigo, coal, gas, etc. Furthermore, so far as machinery falls under this head, its own substance consists of iron, wood, leather, etc. Its own price is therefore affected by fluctuations in the prices of raw materials used in its construction. To the extent that its price is raised through fluctuations, either in the price of the raw materials of which it consists, or of the auxiliary substances consumed in its operation, the rate of profit is lowered. And vice versa.
In the following analysis it will be necessary to confine ourselves to fluctuations in the price of raw materials, not so far as they go to make up the raw materials of machinery serving as means of production, or as raw materials in auxiliary substances applied in the operation of machinery, but in so far as they are raw materials contributing to the process in which commodities are produced. We make only this remark: The wealth of nature in iron, coal, wood, etc., which are the principal elements used in the construction and operation of machinery, presents itself here as a natural fertility of capital and becomes an element in determining the rate of profit, independently of the highness or lowness of wages.
Since the rate of profit is represented by s/C, or s/(c+v), it is evident that everything which causes a variation of the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even if s and v, and their mutual proportions, remain unaltered. Now, raw materials constitute one of the principal portions of constant capital. Even in industries which consume no raw material, in the strict meaning, it enters as auxiliary material, or as a component part of machinery, etc., and fluctuations in its price influence to that extent the rate of profit. If the price of raw material falls by the amount d, then s/C, or s/(c+v), become s/(C-d), or s/((c-d)+v), in other words, the rate of profit rises. On the other hand, if the price of raw material rises, then s/C, or s/(c+v), become s/(C+d), or s/((c+d)+v), in other words, the rate of profit falls. Other circumstances remaining unchanged, the rate of profit falls and rises, therefore, inversely as the price of raw material. This shows, among other things, how important the low price of raw material is for industrial countries, even if fluctuations in the price of raw materials were not accompanied by variations in the selling sphere of the product, that is to say, quite aside from the relation of demand to supply. It follows furthermore that foreign trade influences the rate of profit, even aside from its influence on wages through the cheapening of the necessities of life, for it affects the prices of raw or auxiliary materials consumed in industry or agriculture. It is due to the imperfect understanding of the nature of the rate of profit and its specific difference from the rate of surplus-value that economists (like Torrens) give a wrong explanation of the marked influence of the prices of raw material on the rate of profit, as demonstrated by experience, and that on the other hand economists like Ricardo, who cling to general principles, misapprehend the influence of such factors as the world's trade on the rate of profit.
We may realise, then, the great importance of the abolition or reduction of tariffs on raw materials for industry. Already the first rational development of the protective system made the utmost reduction of import duties on raw materials one of its cardinal principles. This, and the abolition of the duty on corn, was the main object of the English free traders, who took also, above all, care to have the duty on cotton abolished.
The use of flour in the cotton industry may serve as an illustration of the importance of a reduction in the price of an article, which, although not strictly raw material, is an auxiliary and, of course, at the same time one of the principal elements of food. As long ago as 1837, R. H. Greg13 calculated that the 100,000 power looms and 250,000 hand looms then operated in the cotton mills of Great Britain consumed 41 million lbs. of flour in the smoothing of chains. To this was added a third of this quantity for bleaching and other processes. The total value of the flour so consumed was placed by him at 342,000 p.st. per year for the preceding ten years. A comparison with the prices of flour on the continent showed that the raise in the price of flour forced upon the manufacturers by the corn-laws amounted alone to 170,000 p.st. per year. For 1837, Greg estimated it at a minimum of 200,000 p.st., and he mentions the fact that one firm had to pay 1,000 p.st. more per year for flour. In consequence of this "Large manufacturers, careful and calculated business men, declared that 10 hours of labor per day would be enough, if the corn-laws were repealed." (Rep. Fact., Oct. 1848, page 98.) The corn-laws were repealed. Also the duties on cotton and other raw materials. But no sooner had this been accomplished than the opposition of the manufacturers to the Ten Hours Bill became more violent than ever. And when the ten hour day in factories nevertheless became a law soon after, the first result was an attempt to reduce wages all around.
The value of the raw materials and auxiliary substances passes entirely, and all at one time, into the value of the product in whose creation they are consumed, while the elements of fixed capital transfer their value only gradually to the product in proportion as they are worn away. It follows that the price of the product is influenced to a far higher degree by the price of raw materials than by that of fixed capital, although the rate of profit is determined by the total value of the capital, regardless of how much of this capital is consumed in the product. But it is evident—although we mention this merely incidentally, since we are still assuming that commodities are sold at their values, so that fluctuations of price caused by competition do not concern us here—that the expansion or restriction of the market depends on the price of the individual commodity and is inversely proportioned to the rise or fall of this price. For this reason we note in reality that a rise in the price of raw material is not accompanied by a corresponding rise of the price of the product, nor a fall in the price of the raw material by a corresponding fall of that of the product. Consequently the rate of profit falls lower in one case, and rises higher in the other, than it would if products were sold at their value.
Furthermore, the mass and value of the employed machinery grows with the development of the productivity of labor, but not in the same proportion as this productivity, in other words, not in the same proportion as the machine increases its output. Those lines of industry, which consume raw materials, so that the objects on which they expend their labor are themselves products of previous labor, express the growing productivity of labor precisely by the proportion in which a certain increased portion of raw material absorbs a definite quantity of labor. In other words, this increasing productivity is measured by the increasing amount of raw material converted into products, worked up into commodities, for instance, in one hour. To the extent, then, that the productivity of labor is developed, the value of raw material forms an ever growing component of the value of the product in commodities, not only because it passes wholly into them, but also because every aliquot part of the aggregate product contains an ever decreasing share of that portion which represents the wear of machinery and that other which represents newly added labor. In consequence of this falling tendency the other portion of value which represents raw material increases correspondingly, unless this growth is counterbalanced by a proportionate decrease in the value of the raw material due to a growing productivity of the labor required for its production.
Again, we know that the raw materials and auxiliary substances, the same as wages, form parts of the circulating capital and must be continually reproduced in their entirety through the sale of the product, while the machinery is renewed only to the extent that it wears out, a reserve fund being accumulated for that purpose. And it is not so essential that each individual sale should contribute its share to this reserve fund, so long as the total annual sales contribute their annual share. We see, then, once more that a rise in the price of raw material can curtail or clog the entire process of reproduction, since the price realised by the sale of the commodities may not suffice to reproduce all the elements of these commodities. Or, it may render a continuation of the process on a scale fitting for its technical basis impossible, so that either a portion of the machinery remains idle, or the whole machinery works only a part of the usual time.
Finally, the expense due to waste varies in direct proportion to the fluctuations in the price of raw material, rises and falls with them. Of course, there is a limit also in this case. In 1850 it was still reported, in the factory reports for April, 1850, page 17, that one source of considerable losses through the raising of the price of raw material would hardly be noticed by any one who is not a practical spinner, namely losses through waste. The reporting inspector had been informed that a rise in the price of cotton implied a greater rise in the expenses of the spinner than is indicated by the difference in price. The waste in the spinning of coarse yarns amounts to fully 15%. If this percentage causes a loss of ½ d. per lb. when cotton is worth 3½ d., then the loss increases to 1 d. per lb. as soon as cotton rises to 7 d. per lb. But when, as a result of the American Civil War, cotton rose to a height not equalled in almost a century, the report read differently. We learn from the factory reports of October, 1863, page 106, that the price then paid for cotton waste, and the return of the waste to the factory as raw material, offered some compensation for the difference in the loss through waste between Indian and American cotton. This difference amounted to 12½%. The loss in working up Indian cotton is 25%, so that really this cotton costs the spinner one-fourth more than he paid for it. The loss through waste was not so important while American cotton was quoted at 5 or 6 d. per lb., for it did not exceed ¾ d. per lb. But it became a matter for serious consideration, when cotton cost 2 sh. per lb. and the loss through waste amounted to 6d.14
[13.] The Factory Question and the Ten Hours Bill. By R. H. Greg. London, 1837, page 115.
[14.] The report makes a mistake in the last sentence. Instead of 6d. for loss, through waste, only 3d. should be allowed. This loss amounts indeed to 25% with Indian, but only to 12½ to 15% with American cotton, and this last kind is meant, the same percentage being correctly stated for the price of 5 to 6d. It is true, however, that the percentage of waste increased at times considerably, for American cotton brought to Europe during the closing years of the Civil War.—F. E.