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PART II.: CONVERSION OF PROFIT INTO AVERAGE 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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CONVERSION OF PROFIT INTO AVERAGE PROFIT.
DIFFERENT COMPOSITION OF CAPITALS IN DIFFERENT LINES OF PRODUCTION AND RESULTING DIFFERENCES IN THE RATES OF PROFIT.
IN the preceding part we demonstrated among other things that the rate of profit may vary, may rise or fall, while the rate of surplus-value remains the same. In the present chapter we assume that the intensity of exploitation, and therefore the rate of surplus-value and the length of the working day, are the same in all spheres of production into which the social labor of a certain country is divided. Adam Smith has already shown explicitly that many differences in the exploitation of labor in different spheres of production balance one another by many actual causes, or causes regarded as such by prevailing prejudices, so that they are mere evanescent distinctions and are of no moment in this calculation. Other differences, for instance those in the scale of wages, rest largely on the difference between simple and complicated labor, mentioned in the beginning of volume I, which do not affect the intensity of exploitation in the different spheres of production, although they render the conditions of the laborers in those spheres very unequal. For instance, if the labor of a goldsmith is paid better than that of a day-laborer, the surplus-labor of the goldsmith produces correspondingly more surplus-value than that of the day-laborer. And while the compensation of wages and working days, and thereby of the rates of surplus-value, between different spheres of production, or even different investments of capital in the same sphere of production, is checked by many local obstacles, it is nevertheless accomplished at an increasing degree with the advance of capitalist production and the subordination of all economic conditions under this mode of production. The study of such frictions, while quite important for any special work on wages, may be dispensed with as being accidental and unessential in a general analysis of capitalist production. In such a general analysis it is always assumed that the actual conditions correspond to the terms used to express them, or, in other words, that actual conditions are represented only to the extent that they are typical of their own case.
The difference in the rates of surplus-value in different countries, and consequently in the degree of national exploitation of labor, is immaterial for our present analysis. For we desire to analyse precisely the way in which a general rate of profit is brought about in a certain country. It is evident, however, that a comparison of the various national rates of profit requires but a collation of previous analyses with that which is to follow. First consider the differences in the national rates of surplus-value, then compare on this basis the differences in the national rates of profit. Those differences which are not due to differences in the national rates of surplus-value, must be due to circumstances in which the surplus-value is assumed to be universally the same, constant, as it is in the analysis of this chapter.
We demonstrated in the preceding chapter that, assuming the rate of surplus-value to be constant, the rate of profit may rise or fall in consequence of circumstances which raise or lower the value of one or the other parts of constant capital, and so affect the proportion between the variable and constant components of capital in general. We observed, furthermore, that circumstances which prolong or reduce the time of turn-over of a certain capital may also influence the rate of profit in a similar manner. Since the mass of profits is identical with the mass of surplus-value, the surplus-value itself, it was also seen that the mass of profits, in distinction from the rate of profits, was not touched by the aforementioned fluctuations of value. These fluctuations modified merely the rate through which a certain surplus-value, and therefore a profit of a given magnitude, express themselves, in other words, they indicate the relative magnitude of surplus-value, or profits, as compared with the magnitude of the advanced capital. To the extent that capital was released or tied up by such fluctuations of value, it was not only the rate of profit, but the profit itself, which could be affected by this indirect route. However, this always applied only to such capital as was already engaged, not to new investments about to be made. Besides, the increase or reduction of profit always depended on the extent to which the same capital could set in motion more or less labor in consequence of such fluctuations of value, in other words, the extent to which the same capital, with the same rate of surplus-value, could obtain a larger or smaller amount of surplus-value. So far from contradicting the general rule, or being an exception from it, this seeming exception was really but a special case in the application of the general rule.
It was seen in the preceding part, that the rate of profit varied, when the degree of exploitation was constant while the value of the component parts of constant capital, and the time of turn-over of capital, changed. The obvious conclusion from this was that the rates of profit of different spheres of production existing simultaneously side by side had to differ, when, other circumstances remaining unchanged, the time of turn-over of the invested capitals differed, or when the proportions of the values of the organic components of these capitals were different in the different lines of production. That which we previously regarded as changes occurring successively in the same capital will now be considered as simultaneous differences of contemporaneous investments of capital in different spheres of production.
Under these circumstances we shall have to analyse: 1) The differences in the organic composition of capitals. 2) The differences in their times of turn-over.
The natural premise in this entire analysis is that, in speaking of the composition, or of the turn-over, of a capital in a certain line of production, we always mean the average normal proportions of the capital invested in this line, or, more generally, of the average of the total capital invested in this sphere, not of the temporary differences of the individual capitals in it.
Since our assumption is, furthermore, that the rate of surplus-value and the working day are constant, and since this assumption implies also the constancy of wages, it follows that a certain quantity of variable capital expresses a definite quantity of exploited labor-power and therefore a definite quantity of materialised labor. In other words, if 100 p.st. represent the weekly wages of 100 laborers, indicating 100 actual labor-powers, then n times 100 p.st. indicates the labor-powers of n times 100 laborers, and 100/n p.st. those of 100/n laborers. The variable capital serves here, as is always the case when the wages are given, as an index of the amount of labor set in motion by a definite total capital. Differences in the magnitude of the employed variable capitals serve, therefore, as indices of the differences in the amount of labor-power set in motion. If 100 p.st. indicate 100 laborers per week, representing 6,000 working hours, if the weekly working time is 60 hours, then 200 p.st. indicate 12,000, and 50 p.st. indicate 3,000 working hours.
By the composition of capital we mean, as we have stated in volume I, the proportions of its active and passive parts, of variable and constant capital. Two proportions require consideration under this heading. They are not equally important, although they may produce the same effects under certain circumstances.
The first proportion rests on a technical basis, and must be considered as existing at a certain stage of development of the productive forces. A definite quantity of labor-power, represented by a definite number of laborers, is required for the purpose of producing a definite quantity of products, for instance in one day, and thereby to consume productively, by setting in motion, a definite quantity of means of production, machinery, raw materials, etc. A definite number of laborers corresponds to a definite quantity of means of production, so that a definite quantity of living labor corresponds to a definite quantity of materialised labor in means of production. This proportion differs a great deal in different spheres of production, and frequently even in different branches of one and the same industry. On the other hand, it may occasionally be entirely or approximately the same in widely separated lines of industry.
This proportion forms the technical composition of capital and is the primary basis of its organic composition.
However, it is possible that this first proportion may be the same in different lines of industry, provided that the variable capital is merely an index of labor-power, and the constant capital merely an index of the mass of means of production set in motion by the labor-power. For instance, certain work in copper and iron may be conditioned on the same proportional composition between labor-power and the mass of means of production. But since copper is more expensive than iron, the proportion of value between variable and constant capital may be different in either case, and then the composition of the value of the total capitals is, of course, likewise different. The difference between the technical composition and the composition of values is manifested by each branch of industry by the fact that the proportion of the values of the two parts of capital may vary while the technical composition is constant, and the proportion of values may remain the same while the technical composition varies. This last eventuality will, of course, be possible only if the change in the proportion of the employed masses of means of production and labor-power is compensated by an opposite change in their values.
The composition of the values of capital, which is determined by, and reflects, its technical composition, is called the organic composition of capital.20
We assume, then, that the variable capital is the index of a definite quantity of laborers, or of labor-power, or a definite quantity of living labor set in motion. We saw in the preceding part that a change in the magnitude of the value of variable capital might eventually indicate nothing but a higher or lower price of the same mass of labor. But here, where the rate of surplus-value and the working day have been assumed to be constant, and the wages for a definite working time are given, this is out of the question. On the other hand, a difference in the magnitude of the constant capital may likewise be an index of a change in the mass of means of production set in motion by a definite quantity of labor-power. Still, it may also be due to a difference in value between the means of production set in motion in one sphere and those of another. Both points of view must be considered here.
Finally, the following essential facts must be taken into account:
Take it that 100 p.st. are the weekly wages of 100 laborers. Take it that the working hours are 60 per week. Take it, furthermore, that the rate of surplus-value is 100%. In that case, the laborers work 30 of the 60 hours for themselves, and 30 hours gratis for the capitalist. In fact, those 100 p.st. of wages represent only 30 working hours of those 100 laborers, or a total of 3,000 working hours, while the other 3,000 hours worked by the laborers are incorporated in the 100 p.st. of surplus-value, or as profit, pocketed by the capitalist. Although the wages of 100 p.st. do not express the value in which the weekly labor of those 100 laborers is materialised, still they indicate (since the length of the working day and the rate of surplus-value are given) that this capital set in motion 100 laborers for 6,000 working hours. The capital of 100 p.st. indicates this, first, because it indicates the number of laborers set in motion, since one pound sterling stands for one laborer per week, and 100 p.st. for 100 laborers per week; and in the second place, because every laborer set in motion performs twice the work for which his wages pay, at the given rate of surplus-value of 100%, so that one pound sterling, his wages, the expression of half a week of labor, actually set in motion one whole week's labor, and in the same way 100 p.st., although they pay only for 50 weeks of labor, set in motion 100 weeks of labor. There is, then, an essential difference between variable capital so far as its value, invested as a wages-capital, represents a certain sum of wages, a definite quantity of materialised labor, and variable capital so far as its value is a mere index of the quantity of living labor set in motion by it. This last-named labor is always greater than that incorporated in the variable capital, and is, therefore, represented by a greater value than that of the variable capital. This greater value is determined on one hand by the number of laborers set in motion by the variable capital, and on the other by the quantity of surplus-labor performed by them.
This mode of looking upon variable capital leads to the following conclusions:
When a capital invested in the sphere of production A expends only 100 in variable capital for each 700 of total capital, leaving 600 for constant capital, while a capital invested in the sphere of production B expends 600 for variable and only 100 for constant capital, then the capital of 700 in A will set in motion only 100 of labor-power, or, in terms of our previous assumption, 100 weeks of labor, or 6,000 hours of living labor, while the same amount of capital in B will set in motion 600 weeks of labor or 36,000 hours of living labor. The capital in A would then appropriate only 50 weeks of labor, or 3,000 hours of surplus-labor, while the same amount of capital in B would appropriate 300 weeks of labor, or 18,000 hours. The variable capital is the index, not only of the labor embodied in it, but also, when the rate of surplus-value is known, of the labor set in motion over and above that embodied in itself, in other words, of the surplus-labor. With the same intensity of exploitation, the profit in the first case would be 100/700, or 1/7, or 14 2/7%, and in the second case 600/700, or 6/7, or 85 5/7%, six times the rate of profit of the first. In this case, the profit itself would actually be six times that of A, 600 in B as against 100 in A, because the same capital set in motion six times the quantity of living labor, which, with the same degree of exploitation, means six times as much surplus-value and thus six times as much profit.
If the capital invested in A were not 700, but 7,000 p.st., while that invested in B were only 700 p.st., and the organic composition of both were to remain the same, then the capital in A would expend 1,000 p.st. of the 7,000 as variable capital, that is to say, it would employ 1,000 laborers per week at 60,000 hours of living labor, of which 30,000 would be surplus-labor. But yet each 700 p.st. of the capital in A would continue to set in motion only one-sixth of the surplus-labor of the capital in B, and produce only one-sixth of the profit of this capital. If we consider the rate of profit, then 1000/7000, or 100/700, or 14 2/7%, would be the rate of the capital in A, compared with 600/700, or 85 5/7%, of the capital in B. Taking equal amounts of capital for comparison, the rates of profit differ here, because the masses of surplus-value, and thus of profits, differ, although the rates of surplus-value are the same, owing to the different masses of living labor set in motion.
The same result follows, if the technical conditions are the same in both spheres of production, while the value of the elements of constant capital is greater or smaller in the one than in the other. Let us assume that both invest 100 p.st. in variable capital and employ 100 laborers per week, which set in motion the same quantity of machinery and raw materials. But let the last-named elements of production be more expensive in B than in A. For instance, let the 100 p.st. of variable capital in A set in motion 200 p.st. of constant capital, and in B 400 p.st. of constant capital. With the same rate of surplus-value, 100%, the surplus-value produced is in either case 100 p.st. Hence the profit is also 100 p.st. But the rate of profit in A is 100/200 c 100 v, or 1/3, or 33 1/3%, while in B it is 100/400 c 100 v, or 1/5, or 20%. In fact, if we select a certain aliquot part of the total capital from either side, we find that every 100 p.st. in B sets aside only 20 p.st., or one-fifth, for variable capital, while every 100 p.st. in A sets aside 33 1/3% p.st., or one-third, for this purpose. B produces less profit to each 100 p.st., because it sets in motion less living labor than A. The difference in the rates of profits resolves itself once more, in this case, into a difference of the masses of surplus-value, and thus masses of profit, produced per each 100 of capital invested.
The difference of this second example from the first is just this: The compensation between A and B, in the second case, would require only a change in the value of the constant capital of either A or B, provided the technical basis remained the same. But in the first case, the technical basis itself is different, and would have to be revolutionised in order to consummate a compensation.
The different organic composition of various capitals, then, is independent of their absolute magnitude. It is always but a question of what part of every 100 is variable and what part constant.
Capitals of different magnitude, calculated in percentages, or, what amounts to the same in this case, capitals of the same magnitude, working with the same working time and the same degree of exploitation, may produce considerably different amounts of surplus-value, and thus of profit, for the reason that a difference in the organic composition of capital in different spheres of production implies a difference in their variable parts, and thus a difference in the quantities of living labor set in motion by them, which implies a difference in the quantities of surplus-labor appropriated by them. And this surplus-labor is the substance of surplus-value and of profit. Equal portions of the total capital in the various spheres of production comprise the sources of unequal portions of surplus-value, and the only source of surplus-value is living labor. With the same degree of labor-exploitation the mass of labor set in motion by a capital of 100, and consequently the mass of surplus-value appropriated by it, depend on the magnitude of its variable component. If a capital, consisting of percentages of 90 c + 10 v, produced as much surplus-value, or profit, with the same degree of exploitation, as a capital consisting of percentages of 10 c + 90 v, then it would be as plain as daylight that the surplus-value, and value in general, must have an entirely different source than labor, and that political economy would then be without a rational basis. If we assume continually that one pound sterling stands for the weekly wages of a laborer working 60 hours, and that the rate of surplus-value is 100%, then it is evident that the total product in values which one laborer can supply in one week, is 2 p.st. Then 10 laborers cannot supply more than 20 p.st. And since 10 p.st. of the 20 reproduce the wages, those 10 laborers cannot produce any more surplus-value than 10 p.st. On the other hand the 90 laborers, whose total product is 180 p.st., and whose wages amount to 90 p.st., produce a surplus-value of 90 p.st. The rate of profit in the one case would be 10%, in the other 90%. If matters were different, then value and surplus-value would be something else than materialised labor. Seeing, then, that capitals in different spheres of production, calculated in percentages—or capitals of equal magnitude—are differently divided into variable and constant capital, so that they set in motion unequal quantities of living labor and produce different surplus-values, and profits, it follows that the rate of profit, which consists precisely of the calculation of the percentage of surplus-value on the total capital, must also differ.
Now, if capitals in different spheres of production, calculated in percentages, in other words, capitals of equal magnitude, produce unequal profits in different spheres of production, in consequence of their different organic composition, then it follows that the profits of unequal capitals in different spheres of production cannot be proportional to the magnitude of their respective capitals, or, in slightly different words, profits in different spheres of production are not proportional to the magnitude of the respective capitals invested in them. For if profits were to grow at the rate of the investment of capital, it would mean that the percentage of profits was the same, so that capitals of equal magnitude in different spheres of production would have equal rates of profit, in spite of their different organic composition. Only within the same sphere of production, in which the organic composition of capital is known, or in different spheres of production with the same organic composition of capitals, do the masses of profits stand in direct ratio to the masses of capitals invested. To say that the profits of capitals of different magnitude are proportional to their magnitudes is only another way of saying that capitals of equal magnitude yield equal profits, or that the rate of profits is the same for all capitals, whatever may be their organic composition and their magnitude.
These statements hold good on the assumption that the commodities are sold at their values. The value of a commodity is equal to the value of the constant capital contained in it, plus the value of the variable capital reproduced in it, plus the increment of this variable capital, which increment is the surplus-value. With the same rate of surplus-value, its mass evidently depends on the mass of the variable capital. The value of the product of a capital of 100 is in the one case 90 c + 10 v + 10 s, or 110, in the other 10 c + 90 v + 90 s, or 190. If the commodities are sold at their values, then the first product is sold at 110, of which 10 represent surplus-value, or unpaid labor; the second product is sold at 190, of which 90 represent surplus-value, or unpaid labor.
This is especially important when international rates of profit are compared with one another. Let us assume that the rate of surplus-value in some European country is 100%, so that the laborer works one-half of the working day for himself and the other half for his employer. Let us assume, furthermore, that the rate of profit in some Asiatic country is 25%, so that the laborer works four-fifths of the working day for himself, and one-fifth for his employer. Let the composition of the national capital in the European country be 84 c + 16 v, that of the national capital of the Asiatic country, where little machinery, etc., is used, and a given quantity of labor-power consumes relatively little raw material productively in a given time, 16 c + 84 v. Then we have the following calculation:
In the European country: Value of product 84 c + 16 v + 16 s, or 116; rate of profit 16/100, or 16%.
In the Asiatic country: Value of product 16 c + 84 v + 21 s, or 121; rate of profit 21/100, or 21%.
The rate of profit in the Asiatic country is higher by more than 25% than in the European country, although the rate of surplus-value is four times smaller in the former than in the latter. Men like Carey, Bastiat, and others, would come to the opposite conclusion.
By the way, different national rates of profit will generally be based on different national rates of surplus-value. But we compare in this chapter unequal rates of profit resting on the same rate of surplus-value.
Aside from differences of organic composition of capitals, which imply different masses of labor, and consequently, other circumstances remaining the same, of surplus-labor, which set in motion capitals of the same magnitude in different spheres of production, there is still another source for the inequality of rates of profit. This is the different length of the time of turn-over of capital in different spheres of production. We have seen in chapter IV that, other circumstances being the same, the rates of profits of capitals of the same organic composition are proportioned inversely as their times of turn-over. We have also seen that the same variable capital, if turned over in different periods of time, produces unequal masses of annual surplus-value. The difference of the times of turn-over, then, is another reason why capitals of the same magnitude in different spheres of production do not produce equal profits in equal times, and why the rates of profit in these different spheres differ.
On the other hand, the proportional composition of capitals as to fixed and circulating capital does not in itself affect the rate of profit. It can affect this rate only in the case that this difference in composition either coincides with a different proportion of the variable and constant parts so that the difference in the rate of profit is due to this difference in organic composition, and not to the different proportions between fixed and circulating capital; or, if the difference in the proportion of fixed and circulating capital is responsible for a difference in the time of turn-over, during which a certain profit is realised. If capitals are divided into fixed and circulating capital in different proportions, it will, of course, always have an influence on the time of turn-over and cause differences in it. But this does not imply that the time of turn-over, in which the same capitals realise certain profits, is different. For instance, A may have to convert the greater part of its product continually into raw materials, etc., while B may use the same machinery, etc., for a longer time, and need less raw material, but both A and B have a part of their capital engaged so long as they are producing; the one in raw materials, that is to say circulating capital, the other in machinery, etc., or fixed capital. The capitalist in A continually converts a portion of his capital from commodities into money, and this into raw materials, while the capitalist in B employs a portion of his capital for a longer time as an instrument of labor without any such conversions. If both of them employ the same amount of labor, they will sell masses of products of unequal value during the year, but both masses of products will contain the same amount of surplus-value, and their rates of profit, calculated on the entire capital invested, will be the same, although their proportional composition of fixed and circulating capital, and their times of turn-over, are different. Both capitals realise equal profits in equal times, although they are turned over in different periods of time.21 The difference in the time of turn-over has in itself no importance except so far as it affects the mass of surplus-value which may be appropriated and realized by the same capital in a certain time. Seeing that a different distribution of the fixed and circulating capital of A and B does not necessarily imply a different time of turn-over, which would in its turn imply a different rate of profit, it is evident, if there is such a difference in the rates of profit of A and B, that it is not due to a difference in the proportions of fixed and circulating capital as such, but rather to the fact that these different proportions indicate an inequality in the times of turn-over affecting the rates of profit.
It follows, then, that a difference in the composition of capitals in various lines of production, referring to their fixed and circulating portions, has in itself no bearing on the rate of profit, since it is the proportion between the constant and variable capital which decides this question, and since the value of the constant capital, and its relative magnitude as compared to that of the variable, is quite independent of the fixed or circulating nature of its components. But it will be found—and this is one of the causes of wrong conclusions—that whenever fixed capital is considerably developed, it is but an expression of the fact that production is carried on at a large scale, so that the constant capital far outweighs the variable, or the living labor-power employed is trifling compared to the mass of the means of production set in motion by it.
We have demonstrated, that different lines of industry may have different rates of profit, corresponding to differences in the organic composition of capitals, and, within the limits indicated, also corresponding to different times of turn-over; the law (as a general tendency) that profits are proportioned as the magnitudes of the capitals, or that capitals of equal magnitude yield equal profits in equal times, applies only to capitals of the same organic composition, with the same rate of surplus-value, and the same time of turn-over. And these statements hold good on the assumption, which has been the basis of all our analyses so far, namely that the commodities are sold at their values. On the other hand there is no doubt that, aside from unessential, accidental, and mutually compensating distinctions, a difference in the average rate of profit of the various lines of industry does not exist in reality, and could not exist without abolishing the entire system of capitalist production. It would seem, then, as though the theory of value were irreconcilable at this point with the actual process, irreconcilable with the real phenomena of production, so that we should have to give up the attempt to understand these phenomena.
It follows from the first part of this volume that the cost-prices are the same for the products of different spheres of production, in which equal portions of capital have been invested for purposes of production, regardless of the organic composition of such capitals. The cost-price does not show the distinction between variable and constant capital to the capitalist. A commodity for which he must advance 100 p.st. in production cost him the same amount, whether he invests 90 c + 10 v, or 10 c + 90 v. He always spends 100 p.st. for it, no more, no less. The cost-prices are the same for investments of the same amounts of capital in different spheres, no matter how much the produced values and surplus-values may differ. The equality of cost-prices is the basis for the competition of the invested capitals, by which an average rate of profit is brought about.
FORMATION OF A GENERAL RATE OF PROFIT (AVERAGE RATE OF PROFIT) AND TRANSFORMATION OF THE VALUES OF COMMODITIES INTO PRICES OF PRODUCTION
THE organic composition of capital depends at each stage on two circumstances: First, on the technical relation of the employed labor-power to the mass of the employed means of production; secondly, on the price of these means of production. We have seen that this composition must be considered according to its percentages. We express the organic composition of a certain capital, consisting of four-fifths of constant, and one-fifth of variable capital, by the formula 80 c + 20 v. We furthermore assume in this comparison that the rate of surplus-value is unchangeable. Let it be, for instance, 100%. The capital of 80 c + 20 v then produces a surplus-value of 20 s, and this is equal to a rate of profit of 20% on the total capital. The magnitude of the actual value of the product of this capital depends on the magnitude of the fixed part of the constant capital, and on the amount of it passing by wear and tear over to the product. But as this circumstance is immaterial so far as the rate of profit and the present analysis are concerned, we assume for the sake of simplicity that the constant capital is transferred everywhere uniformly and entirely to the annual product of the capitals named. It is further assumed that these capitals realise equal quantities of surplus-value in the different spheres of production, proportional to the magnitude of their variable parts. In other words, we disregard for the present the difference which may be produced in this respect by the different lengths of the periods of turn-over. This point will be discussed later.
Let us compare five different spheres of production, and let the capital in each one have a different organic composition, as follows:
Here we have considerably different rates of profit in different spheres of production with the same degree of exploitation, corresponding to the different organic composition of these capitals.
The grand total of the capitals invested in these five spheres of production is 500; the grand total of the surplus-value produced by them is 110; the total value of all commodities produced by them is 610. If we consider the amount of 500 as one single capital, and capitals I to V as its component parts (about analogous to the different departments of a cotton mill which has different proportions of constant and variable capital in its carding, preparatory spinning, spinning, and weaving rooms, on the basis of which the average proportion for the whole factory is calculated), then we should put down the average composition of this capital of 500 as 390 c + 110 v, or, in percentages, as 78 c + 22 v. In other words, if we regard each one of the capitals of 100 as one-fifth of the total capital, its average composition would be 78 c + 22 v; and every 100 would make an average surplus-value of 22. The average rate of profit would, therefore, be 22%, and, finally, the price of every fifth of the total product produced by the capital of 500 would be 122. The product of each 100 of the advanced total capital would have to be sold, then, at 122.
But in order not to arrive at entirely wrong conclusions, it is necessary to assume that not all cost-prices are equal to 100.
With a composition of 80 c + 20 v, and a rate of surplus-value of 100, the total value of the commodities produced by the first capital of 100 would be 80 c + 20 v + 20 s, or 120, provided that the whole constant capital is transferred to the product of the year. Now, this may happen under certain circumstances in some spheres of production. But it will hardly be the case where the proportion of c to v is that of four to one. We must, therefore, remember in comparing the values produced by each 100 of the different capitals, that they will differ according to the different composition of c as to fixed and circulating parts, and that the fixed portions of different capitals will wear out more or less rapidly, thus transferring unequal quantities of value to the product in equal periods of time. But this is immaterial so far as the rate of profit is concerned. Whether the 80 c transfer the value of 80, or 50, or 5, to the annual product, whether the annual product is consequently 80 c + 20 v + 20 s = 120, or 50 c + 20 v + 20 s = 90, or 5 c + 20 v + 20 s = 45, in all of these cases the excess of the value of the product over its cost-price is 20, and in every case these 20 are calculated on a capital of 100 in ascertaining the rate of profit. The rate of profit of capital I is, therefore, in every case 20%. In order to make this still plainer, we transfer in the following table different portions of the constant capital of the same five capitals to the value of their product.
Now, if we consider capitals I to V once more as one single total capital, it will be seen that also in this case the composition of the sums of these five capitals amounts to 500, being 390c + 110 v, so that the average composition is once more 78 c + 22 v. The average surplus-value also remains 22%. If we allot this surplus-value uniformly to capitals I to V, we arrive at the following prices of the commodities:
Summing up, we find that the commodities are sold at 2 + 7 + 17 = 26 above, and 8 + 18 + 26 below their value, so that the deviations of prices from values mutually balance one another by the uniform distribution of the surplus-value, or by the addition of the average profit of 22 per 100 of advanced capital to the respective cost-prices of the commodities of I to V. One portion of the commodities is sold in the same proportion above in which the other is sold below their values. And it is only their sale at such prices which makes it possible that the rate of profit for all five capitals is uniformly 22%, without regard to the organic composition of these capitals. The prices which arise by drawing the average of the various rates of profit in the different spheres of production and adding this average to the cost-prices of the different spheres of production, are the prices of production. They are conditioned on the existence of an average rate of profit, and this, again, rests on the premise that the rates of profit in every sphere of production, considered by itself, have previously been reduced to so many average rates of profit. These special rates of profit are equal to s/C in every sphere of production, and they must be deduced out of the values of the commodities, as shown in volume I. Without such a deduction an average rate of profit (and consequently a price of production of commodities), remains a vague and senseless conception. The price of production of a commodity, then, is equal to its cost-price plus a percentage of profit apportioned according to the average rate of profit, or in other words, equal to its cost-price plus the average profit.
Since the capitals invested in the various lines of production are of a different organic composition, and since the different percentages of the variable portions of these total capitals set in motion very different quantities of labor, it follows that these capitals appropriate very different quantities of surplus-labor, or produce very different quantities of surplus-value. Consequently the rates of profit prevailing in the various lines of production are originally very different. These different rates of profit are equalised by means of competition into a general rate of profit, which is the average of all these special rates of profit. The profit allotted according to this average rate of profit to any capital, whatever may be its organic composition, is called the average profit. That price of any commodity which is equal to its cost-price plus that share of average profit on the total capital invested (not merely consumed) in its production which is allotted to it in proportion to its conditions of turn-over, is called its price of production. Take, for instance, a capital of 500, of which 100 are fixed capital, and let 10% of this wear out during one turn-over of the circulating capital of 400. Let the average profit for the time of this turn-over be 10%. In that case the cost-price of the product created during this turn-over will be 10 c (wear) + 400 (c + v), circulating capital, or a total of 410, and its price of production will be 410 (cost-price) plus 10% of average profit on 500, or a total of 460.
While the capitalists in the various spheres of production recover the value of the capital consumed in the production of their commodities through the sale of these, they do not secure the surplus-value, and consequently the profit, created in their own sphere by the production of these commodities, but only as much surplus-value, and profit, as falls to the share of every aliquot part of the total social capital out of the total social surplus-value, or social profit produced by the total capital of society in all spheres of production. Every 100 of any invested capital, whatever may be its organic composition, draws as much profit during one year, or any other period of time, as falls to the share of every 100 of the total social capital during the same period. The various capitalists, so far as profits are concerned, are so many stockholders in a stock company in which the shares of profit are uniformly divided for every 100 shares of capital, so that profits differ in the case of the individual capitalists only according to the amount of capital invested by each one of them in the social enterprise, according to his investment in social production as a whole, according to his shares. That portion of the price of commodities which buys back the elements of capital consumed in the production of these commodities, in other words, their cost-price, depends on the investment of capital required in each particular sphere of production. But the other element of the price of commodities, the percentage of profit added to this cost-price, does not depend on the mass of profit produced by a certain capital during a definite time in its own sphere of production, but on the mass of profit allotted for any period to each individual capital in its capacity as an aliquot part of the total social capital invested in social production.22
A capitalist selling his commodities at their price of production recovers money in proportion to the value of the capital consumed in their production and secures profits in proportion to the aliquot part which his capital represents in the total social capital. His cost-prices are specific. But the profit added to his cost-prices is independent of his particular sphere of production, for it is a simple average per 100 of invested capital.
Let us assume that the five different investments of capital named I to V in the foregoing illustrations belong to one man. The quantity of variable and constant capital consumed for each 100 of the invested capitals in the production of commodities would be known, and these portions of the value of the commodities of I to V would make up a part of their price, since at least this price is required to recover the consumed portions of the invested capital. These cost-prices would be different for each class of the commodities I to V, and the owner would therefore mark them differently. But the different masses of surplus-value, or profit, produced by capitals I to V might easily be regarded by the capitalist as profits of his aggregate capital, so that each 100 would get its proportional quota. The cost-prices of the commodities produced in the various departments I to V would be different; but that portion of their selling price which comes from the addition of the profit for each 100 of capital would be the same for all these commodities. The aggregate price of the commodities of I to V would be equal to their aggregate value, that is to say, it would be equal to the sum of the cost-prices of I to V plus the sum of the surplus-values, or profits, produced in I to V. It would actually be the money-expression of the total quantity of past and present labor incorporated in the commodities of I to V. And in the same way the sum of all the prices of production of all commodities in society, comprising the totality of all lines of production, is equal to the sum of all their values.
This statement seems to be contradicted by the fact that under capitalist production the elements of productive capital are, as a rule, bought on the market, so that their prices include profits which have already been realised. Accordingly, the price of production of one line of production passes, with the profit contained in it, over into the cost-price of another line of production. But if we place the sum of the cost-prices of the whole country on one side, and the sum of its surplus-values, or profits, on the other, it is evident that the calculation must come out right. For instance, take a certain commodity A. Its cost-price may contain the profits of B, C, D, etc., or the cost-prices of B, C, D, etc., may contain the profits of A. Now, if we make our calculation, the profits of A will not be included in its cost-price, nor will the profits of B, C, D, etc., be figured in with their own cost-prices. No one figures his own profit in his own cost-price. If there are n spheres of production, and every one of them makes a profit of p, then the aggregate cost-price of all of them is equal to k-np. Taking the calculation as a whole we see that the profits of one sphere which pass into the cost-prices of another have been placed on one side of the account showing the total price of the ultimate product, and so cannot be placed a second time on the profit side. If any do appear on this side, it can be only because this particular commodity was itself the ultimate product, so that its price of production did not pass into the cost-price of some other commodity.
If an amount equal to p, expressing the profits of the producers of means of production, passes into the cost-price of a commodity, and if a profit equal to p' is added to this cost-price, then the aggregate profit P is equal to p + p'. The aggregate cost-price of a commodity, after deducting all amounts for profit, is in that case its own cost-price minus P. If this cost-price is called k, then it is evident that k + P = k + p + p'. We have seen in volume I, chapter IX, 2, that the product of every capital may be treated as though a part of it reproduced only capital, while the other part represented only surplus-value. Applying this mode of calculation to the aggregate product of society, it is necessary to make some rectifications. For, looking upon society as a whole, it would be a mistake to figure, say, the profit contained in the price of flax twice. It should not be counted as a portion of the price of linen and at the same time as the profit of the producers of flax.
To the extent that the surplus-value of A passes into the constant capital of B, there is no difference between surplus-value and profit. It is quite immaterial for the value of the commodities, whether the labor contained in them is paid or unpaid. We see merely that B pays for the surplus-value of A. But the surplus-value of A cannot be counted twice in the total calculation.
The essential difference is this: Aside from the fact that the price of a certain product, for instance the product of capital B, differs from its value, because the surplus-value realized in B may be greater or smaller than the profit of others contained in the product of B, the same fact applies also to those commodities which form the constant part of its capital, and which indirectly, as necessities of life for the laborers, form its variable part. So far as the constant part is concerned, it is itself equal to the cost-price plus surplus-value, which now means cost-price plus profit, and this profit may again be greater or smaller than the surplus-value in whose place it stands. And so far as the variable capital is concerned, it is true that the average daily wage is equal to the values produced by the laborers in the time which they must work in order to produce their necessities of life. But this time is in its turn modified by the deviation of the prices of production of the necessities of life from their values. However, this always amounts in the end to saying that one commodity receives too little of the surplus-value while another receives too much, so that the deviations from the value shown by the prices of production mutually compensate one another. In short, under capitalist production, the general law of value enforces itself merely as the prevailing tendency, in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations.
Since the average rate of profit is formed by the average of the various rates of profit for each 100 of the invested capital during a definite period of time, say one year, it follows that the difference brought about by the various periods of turn-overs of different capitals is also effaced by this means. But these differences play a leading role in the different rates of profit of the various spheres of production whose average forms the average rate of profit.
In the preceding illustration we assumed each capital in every sphere of production helping to make up the average rate of profit to be equal to 100, and we did so in order to show the differences in the rates of profit by percentages and incidentally the difference in the values of commodities produced by equal amounts of capital. But it is understood that the actual masses of surplus-value produced in each sphere of production depend on the magnitude of the invested capitals, since the composition of each capital is determined by each sphere of production. But the particular rate of profit of any individual sphere of production is not affected by the circumstance that a capital of 100, or m times 100, or xm times 100 may be invested. The rate of profit remains 10%, whether the total profit is as 10 to 100, or 1,000 to 10,000.
However, since the rates of profit differ in the various spheres of production, seeing that considerably different masses of surplus-value, or profit, are produced in them according to the proportion of the variable to the total capital, it is evident that the average profit per 100 of the social capital, and consequently the average, or general, rate of profit, will differ considerably according to the respective magnitudes of the capitals invested in the various spheres. Take, for instance, four capitals A, B, C, D. Let the rate of surplus-value be 100% for all of them. Let the variable capital for each 100 of total capital be 25 in A, 40 in B, 15 in C, and 10 in D. In that case every 100 of the total capital would make a surplus-value, or profit, of 25 in A, 40 in B, 15 in C, and 10 in D. This would make a total of 90, and if these four capitals are of the same magnitude, the average rate of profit would be 90/4, or 22.5%.
Now take it that the amounts of the total capitals are as follows: A equals 200, B, 300, C, 1,000, D, 4,000. The profits produced in that case would be 50, 120, 150, and 400. Lumping these four capitals together into one total capital of 5,500, its profit would be 720, and its average rate of profit 13 1/11%.
The masses of the total value produced differ according to the magnitudes of the total capitals invested in A, B, C, D, respectively. The question of the formation of an average rate of profit is therefore not merely a matter of drawing simply the average of the different rates of profit in the various spheres of production, but quite as much one of the relative weight which these different rates of profit carry in the formation of the average. This depends on the relative magnitude of the capital invested in each particular sphere, or on the aliquot part which the capital invested in each particular sphere forms in the aggregate social capital. There will naturally be a very great difference according to whether a large or a small part of the total capital yields more or less of a rate of profit. And this, again, depends on the fact whether much or little capital is invested in those spheres in which the variable capital is relatively small or large compared to the total capital. It is the same with the average interest which a usurer draws who lends different amounts of capital at different rates of interest; for instance at 4, 5, 6, 7%, etc. The average rate of his interest will depend entirely on the relative magnitudes of the various capitals put out by him at different rates of interest.
We see, then, that the average rate of profit is determined by two factors:
1) By the organic composition of the capitals in the different spheres of production, and consequently by the different rates of profit of the individual spheres.
In volumes I and II we were dealing only with the values of the commodities. Now we have dissected this value on the one hand into a cost-price, and on the other we have developed out of it another form, that of the price of production of commodities.
Take it that the composition of the average social capital is 80 c + 20 v, and that the annual rate of surplus-value, s', is 100%. In that case the average annual profit for a capital of 100 would be 20, and the average annual rate of profit 20%. Whatever may be the cost-price k of the commodities annually produced by a capital of 100, their price of production will be k + 20. In those spheres of production, in which the composition of capital would be (80-x) c + (20 + x) V, the actually produced surplus-value, or the annual profit produced in this sphere, would be 20 + x, that is to say greater than 20, and the value of the produced commodities k + 20 + x, that is to say greater than k + 20, greater than their price of production. On the other hand, in those spheres, in which the composition of the capital would be (80 + x) c + (20-x) v, the annually produced surplus-value, or profit, would be 20-x, or smaller than 20, and consequently the value of the commodities k + 20-x, smaller than the price of production, which is k + 20. Aside from eventual differences in the periods of turn-over, the price of production of the commodities would be equal with their value only in those spheres, in which the composition would happen to be 80 c + 20 v.
The specific development of the social productivity of labor varies more or less in each particular sphere of production in proportion as the quantity of means of production set in motion in a given working day by a given number of laborers is large, and consequently the quantity of labor required for a definite quantity of means of production small. Hence we call capitals of higher composition such capitals as contain a larger percentage of constant and a smaller percentage of variable capital than the average social capital; and vice versa, capitals of lower composition those capitals which give relatively more room to the variable, and relatively less to the constant capital, than the average social capital. Finally, we call capitals of average composition those capitals which have the same composition as the average social capital. If the average social capital is composed of 80 c + 20 v, then a capital of 90 c + 10 v stands above, and a capital of 70 c + 30 v below the social average. Generally speaking, if the composition of the average social capital is mc + nv, m and n being constant magnitudes and m + n being equal to 100, the formula (m + x) c + (n-x) v represents the higher composition, and (m-x) c + (n + x) v the lower composition, of some individual capital or group of capitals. The following tabulation shows the way in which these capitals perform their functions after an average rate of profit has been established, assuming one turn-over per year. In this tabulation, I shows the average composition, in which the average rate of profit is 20%.
I). 80 c + 20 v + 20 s. Rate of profit 20%. Price of product 120. Value of product 120.
The value of the commodities produced by capital II would, therefore, be smaller than their price of production, while the price of production of the commodities of III would be smaller than their value. Value and price of production would be equal only in the case of capital I and others like it in the various lines of production. By the way, in applying these terms to any particular cases it must be borne in mind whether a deviation of the proportion between c and v is not due simply to a change in the value of the elements of constant capital, instead of a difference in the technical composition.
The foregoing statements are indeed a modification of our original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity is equal to the value of the commodities consumed in its production. Now, the price of production of a certain commodity is its cost-price for the buyer, and this price may pass into other commodities and become an element of their prices. Since the price of production may vary from the value of a commodity, it follows that the cost-price of a commodity containing this price of production may also stand above or below that portion of its total value which is formed by the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error, if we assume that the cost-price of the commodities of any particular sphere is equal to the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point. It remains true, nevertheless, that the cost-price of a commodity is always smaller than its value. For no matter how much the cost-price of a commodity may differ from the value of the means of production consumed by it, a previous mistake in this respect is immaterial for the capitalist. The cost-price of a certain commodity has been previously determined, it is a premise independent of the production of our capitalist, while the result of his production is a commodity containing surplus-value, which is an addition to its cost-price. For all other purposes, the statement that the cost-price is smaller than the value of a commodity is now practically changed into the statement that the cost-price is smaller than the price of production. So far as the total social capital is concerned, in the case of which the price of production is equal to the value, this statement is still identical with the former, namely that the cost-price is smaller than the value of a commodity. And while this state of things is modified in the individual spheres of production, still the fundamental fact always remains that, from the point of view of the total social capital, the cost-price of the commodities produced by it is smaller than their value, or smaller than their price of production, which in the case of the total mass of social commodities is identical with their value. The cost-price of a commodity refers only to the quantity of paid labor contained in it, while its value refers to all the paid and unpaid labor contained in it. The price of production refers to the sum of the paid labor plus a certain quantity of paid labor determined by conditions which are independent of the individual sphere in which this particular commodity was produced.
The formula that the price of production of a commodity is equal to k + p, equal to its cost-price plus profit, is now more precisely modified by the explanation that p equals kp' (p' meaning the average rate of profit), so that the price of production is equal to k + kp'. If k is 300 and p', 15%, then the price of production, being k + kp', is 300 + 300 × 15/100, or 345.
The price of production of the commodities in any particular sphere may alter its magnitude in the following cases:
1) If the average rate of profit is changed through conditions which are independent of this particular sphere, assuming the value of commodities to remain the same (so that the same quantities of dead and living labor are consumed in their production as before).
In spite of the great changes occurring continually, as we shall see, in the rates of profit of the individual spheres of production, there is on the other hand no rapid change in the average rate of profit, unless it is brought about exceptionally by extraordinary economic events. A change in the average rate of profit is as a rule the belated work of a long series of fluctuations extending over very long periods of time, fluctuations which require much time before they will consolidate and compensate one another so as to bring about a change in the average rate of profit. In all short periods of time (quite aside from fluctuations of market prices), a change in the prices of production is, therefore, always traceable to actual changes in the value of commodities, that is to say, to changes in the total amount of labor-time required for their production. As a matter of course, mere changes in the money-expression of the same values are not at all considered here.23
On the other hand it is evident that, from the point of view of the total social capital, the value of the commodities produced by it (or, expressed in money, their price) is equal to the value of the constant capital plus the value of the variable capital plus the surplus-value. Assuming the degree of labor-exploitation to be constant, the rate of profit cannot change so long as the mass of surplus-value remains the same, unless either the value of the constant capital changes, or the value of the variable capital, or the value of both, so that C is changed and thereby s/C, the general rate of profit. In every event, then, a change in the average rate of profit is conditioned on a change in the value of the commodities which form the elements of the value of the constant, or variable capital, or of both.
Or, the average rate of profit may change, if the degree of labor-exploitation changes, while the value of the commodities remains the same.
Or, if the degree of labor-exploitation remains the same, the average rate of profit may change through a relative change in the labor employed in comparison to the constant capital, as a result of technical changes in the labor-process. But such technical changes must always find expression in a change of value of the commodities, and be accompanied by it, since their production will then require either more or less labor than before.
We saw in part I that the mass of profit and surplus-value were identical. But the rate of profit was from the first distinguished from the rate of surplus-value, and this appeared to be due, at first sight, to a mere difference of calculation. But at the same time this way of looking at the question served from the outset to obscure and mystify the actual origin of surplus-value, since the rate of profit could rise or fall, while the rate of surplus-value remained the same, and vice versa, and since the capitalist had a practical interest only in the rate of profit. But there was an actual difference of magnitude only between the rates of surplus-value and of profit, not between the masses of surplus-value and of profit. Since the surplus-value was calculated on the total capital in figuring up the rate of profit, and this total capital was regarded as the standard of measurement, the surplus-value itself seemed to have its origin in the total capital and to proceed from all its parts uniformly, so that the organic difference between constant and variable capital was obliterated. In its disguise of profit, the surplus-value had actually concealed its origin, lost its character, and become unrecognizable. However, hitherto the distinction between profit and surplus-value referred only to a change of quality, or form, and there was no real difference of magnitude between the masses of surplus-value and profit, but only between the rates of surplus-value and profit, in this first stage of their metamorphosis.
But this is changed, as soon as a general rate of profit, and, by means of it, an average mass of profit corresponding to the magnitude of the capitals invested in the various spheres of production, have been established.
After that it is but accidentally that the surplus-value actually produced in any particular sphere of production, and thus the profit, is identical with the profit contained in the selling price of the commodities. It then becomes the rule, that not only the rates of surplus-value and profit are the expression of different magnitudes, but also the masses of surplus-value and of profit. Assuming a certain degree of exploitation to exist, the mass of the surplus-value produced in any particular sphere of production is now more important for the average profit of the total social capital, and thus for the capitalist class in general, than for the individual capitalist in any individual line of production. It has any importance for the individual capitalist only to the extent24 that the quantity of surplus-value produced in his line plays a determining role in regulating the average profit. But this is a process which takes place behind his back, which he does not see, nor understand, and which indeed does not interest him at all. The actual difference of magnitude between profit and surplus-value—not merely between the rate of profit and of surplus-value—in the various spheres of production now conceals completely the true nature and origin of profit, not only for the capitalist, who has a special interest in deceiving himself on this score, but also for the laborer. By the transformation of values into prices of production, the basis of the determination of value is itself removed from direct observation. Finally, seeing that the mere transformation of surplus-value into profit separates that portion of the value of commodities which forms the profit from that portion which forms the cost-price of commodities, it is natural that the capitalist should lose the meaning of the term value at this juncture. For he is not confronted with the total labor put into the production of the commodities, but only with that portion of the total labor which he has paid in the shape of means of production, whether they be alive or dead, so that his profit appears to him as something outside of the immanent value of the commodities. And now this conception is fully endorsed, fortified, and ossified by the fact that, from the point of view of his particular sphere of production, the profit is not determined by the limits drawn for the formation of value within his own circle, but by outside influences.
The fact that the actual state of things is here revealed for the first time; that political economy up to the present time, as we shall see in the following and in volume IV, made either forced abstractions of the distinctions between surplus-value and profit, and their rates, in order to be able to retain the determination of value as a basis, or gave up the determination of value and with it all safeguards of scientific procedure, in order to cling to the obvious phenomena of these differences—this confusion of the theoretical economists demonstrates most strikingly the utter incapacity of the capitalist, when blinded by competition, to penetrate through the outward disguise into the internal essence and the inner form of the capitalist process of production.
In fact, all the laws concerning the rise and fall of the rate of profit, as analysed in part I, have the following double meaning:
1) On the one hand, they are the laws of the average rate of profit. In view of the many different causes which bring about a rise or a fall in the rate of profit, one would think that the average rate of profit would change every day. But a certain movement in one sphere will counterbalance that of another, their effects cross and paralyze one another. We shall examine later on toward which side these fluctuations gravitate ultimately. But they are slow. The suddenness, multiplicity, and different duration of the fluctuations in the individual spheres of production tend to compensate them mutually in the order of their succession in time, so that a fall in prices follows after a rise, and vice versa, limiting these fluctuations to local, individual, spheres. As a result, the various local fluctuations ultimately neutralise one another. Changes take place within each individual sphere of production, deviations from the average rate of profit, which on the one hand, balance one another after a certain time and thus do not react upon the average rate of profit, and which, on the other hand, do not react upon it, because they are balanced by other simultaneous fluctuations in other local spheres. Since the average rate of profit is determined, not only by the average profits of each sphere, but also by the allotment of the total social capital to the different individual spheres, and since this allotment is continually changing, this is another continuous cause of changes in the average rate of profit. But it is a cause of changes which largely paralyzes itself, owing to its interrupted and many sided nature.
2) Within each sphere, there is a certain playroom for a space of time in which the local rate of profit may fluctuate, before this fluctuation of rise and fall consolidates sufficiently to gain time for exerting an influence on the average rate of profit and assuming more than a local importance. Within these limits of space and time, the laws of the rate of profit, as developed in Part I of this volume, likewise remain applicable.
The theoretical conception, referring to the first transformation of surplus-value into profit, according to which every part of the capital yields uniformly the same profit,25 expresses a practical fact. Whatever may be the composition of the industrial capital, whether it sets in motion one quarter of dead labor and three quarters of living labor, or three quarters of dead labor and one quarter of living labor, whether it absorbs three times as much surplus-labor, or produces three times as much surplus-value, in one case than in another, it yields the same profit in either case, always assuming the degree of labor-exploitation to be the same, and leaving aside individual differences, which disappear for the reason that we are dealing in either case with the average composition of the entire sphere of production. The individual capitalist, whose outlook is limited, or even all the capitalists in each individual sphere of production, justly believe that their profits are not derived solely from the labor employed in their own individual sphere. This is quite true so far as their average profit is concerned. To what extent this profit is due to the universal exploitation of labor by means of the total social capital, that is to say, by all his capitalist colleagues, this connection of things is a complete mystery for the individual capitalist. And it is all the more so, since no bourgeois economist has so far cleared it up for him. A saving of labor—not only of labor necessary for the production of a certain product, but also of the number of laborers employed—and the employment of more dead labor (constant capital), appear as very correct operations from an economic point of view, and do not seem to exert the least influence on the average rate of profit and the average profit. How, then, could living labor be the exclusive source of profit, seeing that a reduction in the quantity of labor required for production does not only seem to exert no injurious influence on profit, but even seems, under certain circumstances, to be the first cause for an increase of profits, at least for the individual capitalist?
If there is a rise or fall, in any particular sphere of production, in that portion of the cost-price which represents the value of the constant capital, it is a portion coming out of the circulation and passes from the outset into the process of production of the commodities in its enlarged or reduced state. If, on the other hand, the same number of laborers produces more or less in the same time, so that the quantity of labor required for the production of a definite quantity of commodities varies while the number of laborers remains the same, it may be that that portion of the cost-price, which represents the value of the variable capital, may remain the same and contribute the same amount to the cost-price of the total product. But every individual commodity, whose sum makes up the total product, shares in more or less labor (paid and unpaid), and shares therefore in the greater or smaller outlay for this labor, a larger or smaller portion of the wages. The total wages paid by the capitalist remain the same, but the calculation for each individual commodity is different. To that extent there would be a change in the cost-price of the commodities. But no matter whether the cost-price of the individual commodities rises or falls, either as a result of such changes of value in this same commodity, or of changes of value in its elements (or, perhaps, the cost-price of the total amount of commodities produced by a capital of a given magnitude), if the average profit is, say, 10%, it remains 10%. Still, 10%, from the point of view of the individual commodity, may represent very different amounts, according to the change of magnitude in the cost-price of the individual commodities called forth by such changes of value as we have assumed.26
So far as the variable capital is concerned—and this is the more important, because it is the source of surplus-value, and because anything which conceals its relation to the accumulation of wealth by the capitalist serves to mystify the entire system—the matter assumes a coarser form. It appears to the capitalist in this light: A variable capital of 100 p.st. employs, perhaps, 100 laborers per week. If these 100 laborers produce 200 pieces of commodities or 200 C, per week in a given working time, then 1 C—leaving aside the question of that portion of its cost-price which is added by the constant capital, costs 10 shillings, for 100 p.st. pay for 200 c, and therefore 1 C costs 100/200 p.st. Now take it that a change takes place in the productive power of labor. Perhaps it is doubled, so that the same number of laborers now produces twice 200 C in the same time in which they used to produce once 200 C. In that case 1 C costs 5 shillings (always speaking only of that portion of the cost-price which consists of wages), for since 100 p.st. now pay for 400 C, 1 C costs 100/400 p.st. On the other hand, if the productive power were to decrease by one-half, then the same labor would produce only (200/2) C. And since 100 p.st. pay for (200/2) C, 1 C would cost 200/200 p.st., or 1 p.st. The changes in the labor-time required for the production of the commodities, and thus the changes in their values, thus appear with reference to the cost-price and the price of production as different allotments of the same wages to more or fewer commodities, according to the greater or smaller quantity of commodities produced in the same working time for the same wages. The capitalist, and consequently his political economist, see that the aliquot part of the paid labor falling to the share of each individual commodity changes with the productivity of labor, and that the value of these commodities also changes accordingly. But they do not see that the same is true of the unpaid labor contained in every individual commodity, and they see it so much less since the average profit is but accidentally determined by the unpaid labor absorbed in the sphere of the individual capitalist. Only in this vague and meaningless form are we still reminded of the fact that the value of the commodities is determined by the labor contained in them.
COMPENSATION OF THE AVERAGE RATE OF PROFIT BY COMPETITION. MARKET PRICES AND MARKET VALUES. SURPLUS-PROFIT.
ONE portion of the spheres of production has an average composition of their capitals, that is to say, their capitals have exactly or approximately the composition of the average social capital.
In these spheres of production, the price of production of the produced commodities coincides exactly or approximately with their values as expressed in money. If there is no other way of reaching a mathematical limit, this would be the one. Competition distributes the social capital in such a way between the various spheres of production that the prices of production of each sphere are formed after the model of the prices of production in these spheres of average composition, which is k + kp', cost-price plus the average rate of profit multiplied by the cost-price. Now, this average rate of profit is nothing else but the percentage of profit in that sphere of average composition, in which the profit is identical with the surplus-value. Hence the rate of profit is the same in all spheres of production, for it is apportioned according to that one of the average spheres of production in which the average composition of capitals prevails. Consequently the sum of the profits of all spheres of production must be equal to the sum of surplus-values, and the sum of the prices of production of the total social product equal to the sum of its values. But it is evident that the balance between the spheres of production of different composition must tend to equalise them with the spheres of average composition, no matter whether this average composition is exact or only approximate. Again, there are tendencies toward equalisation between the more or less similar spheres, and these tendencies seek to bring about the ideal average, which does not really exist, so that there is a trend toward crystallisation around the ideal. In this way the tendency necessarily prevails to make of the prices of production merely changed forms of value, or to make of profits but mere portions of surplus-value, which are assigned, however, not in proportion to the surplus-value produced in each special sphere of production, but in proportion to the mass of capital employed in each sphere of production, so that equal masses of capital, whatever may be their composition, receive equal aliquot shares of the total surplus-value produced by the total social capital.
In the case of capitals of average, or approximately average, composition, the price of production coincides exactly, or approximately with the value, and the profit with the surplus-value produced by them. All the other capitals, of whatever composition, tend toward this average under the pressure of competition. But since the capitals of average composition are of the same, or approximately the same, structure as the average social capital, all capitals have the tendency, regardless of the surplus-value produced by them, to realise in the prices of their commodities the average profit, instead of their own surplus-value, in other words, to realise the prices of production.
On the other hand it may be said that whenever an average profit, and a general rate of profit, are brought about, no matter by what means, such as average profit cannot be anything else but the profit on the average social capital, the sum of these average profits being equal to the sum of surplus-values produced by the average social capitals, and that the prices brought about by adding this average profit to the cost-prices cannot be anything else but the values transformed into prices of production. It would not alter matters, if certain capitals in certain spheres of production would not submit to the process of equalisation for some reason or other. In that case the average profit would be computed on that portion of the social capital which takes part in the process of equalisation. It is evident that the average profit cannot be anything else but the total mass of surplus-values allotted to the various masses of capital in the different spheres of production in proportion to their magnitudes. The average profit is the total amount of realised unpaid labor, and this total mass of unpaid labor, the same as the paid, dead or living, labor, is materialised in the total mass of commodities and money falling to the share of the capitalists.
The real difficulty lies in the question: How is this equalisation of profits into an average rate of profit brought about, seeing that it is evidently a result, not a point of departure?
It is obvious that an estimate of the values of the commodities, for instance in money, can not be made until they have been exchanged. If we assume such an estimate, we must regard it as the outcome of an actual exchange of commodity-value for commodity-value. But how should such an exchange of commodities at their real values have come about?
Let us assume that all commodities in the different lines of production are sold at their real value. What would be the outcome? According to our foregoing analyses, the rates of profit in the various spheres of production would differ considerably. It is quite obvious that we are dealing with two different things, whether on the one hand commodities are sold at their values (that is to say, sold in proportion to the value contained in them, or exchanges with one another at the price of their values), or whether, on the other hand, they are sold at such prices that their sale yields equal amounts of profits on equal masses of the respective capitals advanced for their production.
If capitals employing unequal amounts of living labor are to produce unequal amounts of surplus-value, it must be assumed, at least to a certain degree, that the intensity of exploitation, or the rate of surplus-value, are the same, or that any existing differences in them are balanced by real or imaginary (conventional) elements of compensation. This would presuppose a competition among the laborers and an equilibration by means of their continual emigration from one sphere of production to another. Such a general rate of surplus-value—as a tendency, like all other economic laws—has been assumed by us for the sake of theoretical simplification. But in reality it is an actual premise of the capitalist mode of production, although it is more or less obstructed by practical frictions causing more or less considerable differences locally, such as the settlement laws for English farm laborers. But in theory it is the custom to assume that the laws of capitalist production evolve in their pure form. In reality, however, there is always but an approximation. Still, this approximation is so much greater to the extent that the capitalist mode of production is normally developed, and to the extent that its adulteration and amalgamation with remains of former economic conditions is outgrown.
The whole difficulty arises from the fact that commodities are not exchanged simply as commodities, but as products of capitals, which claim equal shares of the total amount of surplus-value, if they are of equal magnitude, or shares proportional to their different magnitudes. And this claim is to be satisfied by the total price realised by a certain capital on the commodities produced by it within a certain space of time. This total price, again, is but the sum of the prices of the individual commodities produced by this capital.
The essential point will become most visible, when we look upon the matter in this way: Let us assume that the laborers themselves are in possession of their respective means of production and exchange their commodities with one another. In that case these commodities would not be products of capital. The value of the various instruments of labor and raw materials would differ according to the technical nature of the labors performed in the different lines of production. Furthermore, aside from the unequal value of the means of production employed by them, they would require different quantities of means of production for given quantities of labor, according to whether a certain commodity can be finished in one hour, another in one day, and so forth. Let us assume, also, that these laborers work on an average equal lengths of time, allowing for compensations due to different intensities of labor. In that case, two laborers, both working one day, would have in the commodities produced by them, first, an equivalent for their outlay, the cost-prices of the means of production consumed by their labor. These would differ according to the technical nature of their lines of production. In the second place, both of them would have created equal amounts of new value, namely the working day added by them to the means of production. This would comprise their wages plus the surplus-value, the last representing surplus-labor exceeding their necessary wants, the product of which would belong to them. If we were to use capitalist terms, we should say that both of them receive the same wages plus the same profit, or the same value expressed, say, by the product of a working day of ten hours. But in the first place, the values of their commodities would differ. The commodities of I, for instance, might contain more value for each portion of the consumed means of production than the commodities of II. And, to introduce all possible differences, we may assume right now that the commodities of I absorb more living labor, and consequently require more labor-time for their production, than the commodities of II. Then the value of the commodities of I and II, we repeat, differs considerably. So do the sums of the values of their commodities, which represent the product of the labor performed by laborers I and II in a certain time. The rates of profit would also differ considerably for I and II, assuming that we call rate of profit, in this case, the proportion of the surplus-value to the total value of the invested means of production. The means of subsistence daily consumed by I and II during production, which take the place of wages, will form that part of the invested capital which we would call variable capital under different circumstances. But the surplus-values would be the same for I and II, or, to express it more accurately, since both I and II receive the value of the product of one day's labor, both of them receive equal values after the value of the invested "constant" capital has been deducted, and we may regard one portion of this remaining value as an equivalent for the means of subsistence consumed during production, and the other as surplus-value. If laborer I has higher expenses, they are made good by a greater portion of the value of his commodities replacing this "constant" part, and he has to reconvert a larger portion of the total value of his product into the material elements of this constant part, while laborer II, if he receives less for this purpose, has to reconvert so much less. Under these circumstances a difference in the rates of profit would be of no concern, just as it is immaterial for the wage-laborer to-day what rate of profit may express the amount of surplus-value filched from him, and just as in international commerce the difference in the various national rates of profit is immaterial for the exchange of their commodities.
The exchange of commodities at their values, or approximately at their values, requires, therefore, a much lower stage than their exchange at their prices of production, which requires a relatively high development of capitalist production.
Whatever may be the way in which the prices of the various commodities are first fixed or mutually regulated, the law of value always dominates their movements. If the labor time required for the production of these commodities is reduced, prices fall; if it is increased, prices rise, other circumstances remaining the same.
Aside from the fact that prices and their movements are dominated by the law of value, it is quite appropriate, under these circumstances, to regard the value of commodities not only theoretically, but also historically, as existing prior to the prices of production. This applies to conditions, in which the laborer owns his means of production, and this is the condition of the land-owning farmer and of the craftsman in the old world as well as the new. This agrees also with the view formerly expressed by me that the development of product into commodities arises through the exchange between different communes, not through that between the members of the same commune.27 It applies not only to this primitive condition, but also to subsequent conditions based on slavery or serfdom, and to the guild organisation of handicrafts, so long as the means of production installed in one line of production cannot be transferred to another line except under difficulties, so that the various lines of production maintain, to a certain degree, the same mutual relations as foreign countries or communistic groups.
In order that the prices at which commodities are exchanged with one another may correspond approximately to their values, no other conditions are required but the following: 1) The exchange of the various commodities must no longer be accidental or occasional, 2) So far as the direct exchange of commodities is concerned, these commodities must be produced on both sides in sufficient quantities to meet mutual requirements, a thing easily learned by experience in trading, and therefore a natural outgrowth of continued trading, 3) So far as selling is concerned, there must be no accidental or artificial monopoly which may enable either of the contracting sides to sell commodities above their value or compel others to sell below value. An accidental monopoly is one which a buyer or seller acquires by an accidental proportion of supply to demand.
The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium. We shall also have to note a market value, which must be distinguished from the individual value of the commodities produced by the various producers. Of this more anon. The individual value of some of these commodities will be below the market-value, that is to say, they require less labor-time for their production than is expressed in the market-value, while that of others will be above the market-value. We shall have to regard the market-value on one side as the average value of the commodities produced in a certain sphere, and on the other side as the individual value of commodities produced under the average conditions of their respective sphere of production and constituting the bulk of the products of that sphere. It is only extraordinary combinations of circumstances under which commodities produced under the least or most favorable conditions regulate the market-value, which forms the center of fluctuation for the market-prices, which are the same, however, for the same kind of commodities. If the ordinary demand is satisfied by the supply of commodities of average value, that is to say, of a value midway between the two extremes, then those commodities, whose individual value stands below the market-value, realise an extra surplus-value, or surplus-profit, while those, whose individual value stands above the market-value cannot realise a portion of the surplus-value contained in them.
It does not do any good to say that the sale of the commodities produced under the most unfavorable conditions proves that they are required for keeping up the supply. If the price in the assumed case were higher than the average market-value, the demand would be greater. At a certain price, any kind of commodities may occupy so much room on the market. This room does not remain the same in the case of a change of prices, unless a higher price is accompanied by a smaller quantity of commodities, and a lower prices by a larger quantity of commodities. But if the demand is so strong that it does not let up when the price is regulated by the value of commodities produced under the most unfavorable conditions, then these commodities determine the market-value. This is not possible unless the demand exceeds the ordinary, or the supply falls below it. Finally, if the mass of the produced commodities exceeds the quantity which is ordinarily disposed of at average market-values, then the commodities produced under the most favorable conditions regulate the market value. These commodities may be sold exactly or approximately at their individual values, and in that case it may happen that the commodities produced under the least favorable conditions do not realise even their cost prices, while those produced under average conditions realise only a portion of the surplus-value contained in them. The statements referring to market-value apply also to the price of production, if it takes the place of market-value. The price of production is regulated in each sphere, and this regulation depends on special circumstances. And this price of production is in its turn the center of gravity around which the daily market-prices fluctuate and tend to balance one another within definite periods. (See Ricardo on the determination of the price of production by those who produce under the least favorable conditions.)
No matter what may be the way in which prices are regulated, the result always is the following:
1) The law of value dominates the movements of prices, since a reduction or increase of the labor-time required for production causes the prices of production to fall or to rise. It is in this sense that Ricardo (who doubtless realised that his prices of production differed from the value of commodities) says that "the inquiry to which he wishes to draw the reader's attention relates to the effect of the variations in the relative value of commodities, and not in their absolute value."
2) The average profit which determines the prices of production must always be approximately equal to that quantity of surplus-value, which falls to the share of a certain individual capital in its capacity as an aliquot part of the total social capital. Take it that the average rate of profit, and therefore the average profit, are expressed by an amount of money of a higher value than the money-value of the actual average surplus-value. So far as the capitalists are concerned in that case, it is immaterial whether they charge one another a profit of 10 or of 15%. The one of these percentages does not cover any more actual commodity-value than the other, since the overcharge in money is mutual. But so far as the laborer is concerned (the assumption being that he receives the normal wages, so that the raising of the average profit does not imply an actual deduction from his wages, in other words, does not express something entirely different from the normal surplus-value of the capitalist), the rise in the price of commodities due to a raising of the average profit must be accompanied by a corresponding rise of the money-expression for the variable capital. As a matter of fact, such a general nominal raising of the rate of profit and the average profit above the limit provided by the proportion of the actual surplus-value to the total invested capital is not possible without carrying in its wake an increase of wages, and also an increase in the prices of the commodities which constitute the constant capital. The same is true of the opposite case, that of a reduction of the rate of profit in this way. Now, since the total value of the commodities regulates the total surplus-value, and this the level of the average profit and the average rate of profit—always understanding this as a general law, as a principle regulating the fluctuations—it follows that the law of value regulates the prices of production.
Competition first brings about, in a certain individual sphere, the establishment of an equal market-value and market-price by averaging the various individual values of the commodities. The competition of the capitals in the different spheres then results in the price of production which equalises the rates of profit between the different spheres. This last process requires a higher development of capitalist production than the previous process.
In order that commodities of the same sphere of production, the same kind, and approximately the same quality, may be sold at their value, the following two requirements must be fulfilled:
1) The different individual values must have been averaged into one social value, the above-named market-value, and this implies a competition between the producers of the same kind of commodities, and also the existence of a common market, on which they offer their articles for sale. In order that the market-price of identical commodities, which however are produced under different individual circumstances, may correspond to the market-value, may not differ from it by exceeding it or falling below it, it is necessary that the different sellers should exert sufficient pressure upon one another to bring that quantity of commodities on the market which social requirements demand, in other words, that quantity of commodities whose market-value society can pay. If the quantity of products exceeds this demand, then the commodities must be sold below their market-value; vice versa, if the quantity of products is not large enough to meet this demand, or, what amounts to the same, if the pressure of competition among the sellers is not strong enough to bring this quantity of products to market, then the commodities are sold above their market-value. If the market-value is changed, then there will also be a change in the conditions under which the total quantity of commodities can be sold. If the market-value falls, then the average social demand increases (always referring to the solvent demand) and can absorb a larger quantity of commodities within certain limits. If the market-value rises, then the solvent social demand for commodities is reduced and smaller quantities of them are absorbed. Hence if supply and demand regulate the market-price, or rather the deviations of market-prices from market-values, it is true, on the other hand, that the market-value regulates the proportions of supply and demand, or the center around which supply and demand cause the market-prices to fluctuate.
If we look closer at the matter, we find that the conditions determining the value of some individual commodity become effective, in this instance, as conditions determining the value of the total quantities of a certain kind. For, generally speaking, capitalist production is from the outset a mass-production. And even other, less developed, modes of production carry small quantities of products, the result of the work of many small producers, to market as co-operative products, at least in the main lines of production, concentrating and accumulating them for sale in the hands of relatively few merchants. Such commodities are regarded as co-operative products of an entire line of production, or of a greater or smaller part of this line.
We remark by the way that the "social demand," in other words, that which regulates the principle of demand, is essentially conditioned on the mutual relations of the different economic classes and their relative economic positions, that is to say, first, on the proportion of the total surplus-value to the wages, and secondly, on the proportion of the various parts into which surplus-value is divided (profit, interest, ground-rent, taxes, etc.). And this shows once more that absolutely nothing can be explained by the relation of supply and demand, unless the basis has first been ascertained, on which this relation rests.
Although both commodity and money represent units of exchange-value and use-value, we have already seen in volume I, chapter I, 3, that in buying and selling both of these functions are polarised at the two extremes, the commodity (seller) representing the use-value, and the money (buyer) the exchange-value. It was one of the first conditions for the sale of a commodity that it should have a use-value and satisfy some social need. The other essential condition was that the quantity of labor contained in a certain commodity should represent socially necessary labor, so that its individual value (and what amounts to the same under the present assumption, its selling price) should coincide with its social value.28
Now let us apply this to the mass of commodities on the market, which represent the product of a whole sphere of production. The matter will be most easily explained by regarding this whole mass of commodities, coming from one line of production, as one single commodity, and the sum of the prices of the many identical commodities as one price. In that case the statements made in regard to one individual commodity apply literally to the mass of commodities sent to the market by one entire line of production. The postulate that the individual value of a commodity should correspond to its social value has then the significance that the total quantity of commodities contains the quantity of social labor necessary for its production, and that the value of this mass is equal to its market-value.
Now let us assume that the bulk of these commodities has been produced under approximately the same normal conditions of social labor, so that this social value is at the same time identical with the individual value of the individual commodities constituting this mass. In that case, a relatively small portion of these commodities may have been produced below, and another above, these conditions, so that the individual value of the one portion is greater, and that of the other smaller, than the average value of the bulk of the commodities, but in such proportions that these extremes balance one another. The average value of the commodities in these extremes is then equal to the average value of the great bulk of average commodities. Under such circumstances, the market-value is determined by the value of the commodities produced under average conditions.29 The value of the entire mass of commodities is equal to the actual sum of the values of all individual commodities combined, no matter whether they were produced under average conditions, or under conditions above or below the average. In this case, the market-value, or the social value, of the mass of commodities—the necessary labor time contained in them—is determined by the value of the average bulk.
Let us assume, on the other hand, that the total mass of commodities brought to market remains the same, while the value of the commodities produced under the least favorable conditions is not balanced by the value of the commodities produced under the most favorable conditions, so that the mass of commodities produced under the least favorable conditions constitutes a relatively large quantity, compared to the average mass as well as to the other extreme. In that case the mass produced under the least favorable conditions determines the market-value, or social value.
Take it, finally, that the mass of commodities produced under the most favorable conditions is considerable in excess of the mass produced under the least favorable conditions, and is large even compared with the average mass. Then the mass produced under the most favorable conditions determines the market-value. We leave aside the question of a transfer of the market, whenever the mass of commodities produced under the most favorable conditions regulates the market-price. We are not dealing here with the market-price in so far as it differs from the market-value, but with the various modes of determining the market-value itself.30
In fact, assuming the strictest case (which, or course, is realised only approximately and with a thousand modifications) of our first illustration, the market-value regulated by the average values of the total mass of commodities is equal to the sum of their individual values, although this market-value is forced as an average value upon the commodities produced at the extremes. Those who produce under the worst conditions must then sell their commodities below their individual values; those producing under the best conditions sell them above their individual values.
In the second case, the two lots of commodities produced as the two extremes do not balance one another. The lot produced under the worst conditions decides the question. Strictly speaking, the average price, or the market-value, of every individual commodity, or of every aliquot part of the total mass, would now be determined by the total value of the mass as ascertained by the addition of the values of the commodities produced under different conditions, and by the aliquot part of this total value falling to the share of the individual commodity. The market-value thus ascertained would be above the individual value, not only of the commodities belonging to the most favorable extreme, but also of those belonging to the average lot. But still it would be below the individual value of the commodities produced at the most unfavorable extreme. The extent to which this market-value would approach the individual value of this extreme, or coincide with it, would depend entirely on the volume occupied in that sphere of commodities by the lot of commodities produced at the unfavorable extreme. If the demand exceeds the supply but slightly, then the individual value of the unfavorably produced commodities regulates the market-price.
Finally, if the lot of commodities produced at the most favorable extreme occupies the greatest space, as it does in the third case, compared not only to the other extreme, but also to the average lot, then the market-value falls below the average value. The average value, computed by the addition of the sum of values of the two extremes and of the middle, stands here below that of the middle, and approaches it or recedes from it, according to the relative space occupied by the favorable extreme. If the demand is weak compared to the supply, then the favorably situated part, whatever may be its size, makes room for itself forcibly by contracting its price down to its individual value. The market-value cannot coincide with this individual value of the commodities produced under the most favorable conditions, except when the supply far exceeds the demand.
This mode of determining market-values, which we have here outlined abstractly, is promoted on the real market by competition among the buyers, provided that the demand is just large enough to absorb the quantity of commodities at the values fixed in this manner. And this brings us to the second point.
2) To say that a commodity has a use-value is merely to say that it satisfies some social want. So long as we were dealing simply with individual commodities, we could assume that the demand for any one commodity—its price implying its quantity—existed without inquiring into the extent to which this demand required satisfaction. But this question of the extent of a certain demand becomes essential, whenever the product of some entire line of production is placed on one side, and the social demand for it on the other. In that case it becomes necessary to consider the amount, the quantity, of this social demand.
In the foregoing statements referring to market-value, the assumption was that the mass of the produced commodities remains the same given quantity, and that a change takes place only in the proportions of the elements constituting this mass and produced under different conditions, so that the market-value of the same mass of commodities is differently regulated. Let us suppose that this mass is of a quantity equal to the ordinary supply, leaving aside the possibility that a portion of the produced commodities may be temporarily withdrawn from the market. Now, if the demand for this mass also remains the same, then this commodity will be sold at its market-value; no matter which one of the three aforementioned cases may regulate this market-value. This mass of commodities does not only satisfy a demand, but satisfies it to its full social extent. On the other hand, if the quantity is smaller than the demand for it, then the market-prices differ from the market-values. And the first differentiation is that the market-value is always regulated by the commodity produced under the least favorable circumstances, if the supply is too small, and by the commodity produced under the most favorable conditions, if the supply is too large. In other words, one of the extremes determines the market-value, in spite of the fact that the proportion of the masses produced under different conditions ought to bring about a different result. If the difference between demand and supply of the product is very considerable, then the market-price will likewise differ considerably from the market-value in either direction. Now, the difference between the quantity of the produced commodities and the quantity of commodities which fixes their sale at their market-value may be due to two reasons. Either the quantity itself varies, by decreasing or increasing, so that there would be a reproduction on a different scale than the one which regulated a certain market-value. If so, then the supply changes while the demand remains unchanged, and we have a relative overproduction or underproduction. Or, the reproduction, and the supply, remain the same, while the demand is reduced or increased, which may take place for several reasons. If so, then the absolute magnitude of the supply is unchanged, while its relative magnitude, compared to the demand, has changed. The effect is the same as in the first case, only it acts in the opposite direction. Finally, if changes take place on both sides, either in opposite directions, or, if in the same direction, not to the same extent, in other words, if changes take place on both sides which alter the former proportion between these sides, then the final result must always lead to one of the two above mentioned cases.
The real difficulty in determining the meaning of the concepts supply and demand is that they seem to amount to a tautology. Consider first the supply, either the product on the market, or the product which can be supplied to the market. In order to avoid useless details, we shall consider only the mass annually reproduced in every given line of production and leave out of the question the varying faculty of some commodities to withdraw from the market and go into storage for consumption at a later time, for instance next year. This annual reproduction is expressed in a certain quantity, in weight or numbers, according to whether this mass of commodities is measured continuously or discontinuously. They represent not only use-value satisfying human wants, but these use-values are on the market in definite quantities. In the second place, this quantity of commodities has a definite market-value, which may be expressed by a multiple of the market-value of the individual commodity, or of the measure, which serve as units. There is, then, no necessary connection between the quantitative volume of the commodities on the market and their market-value, since many commodities have, for instance, a high specific value, others a low specific value, so that a given sum of values may be represented by a very large quantity of some, and a very small quantity of other commodities. There is only this connection between the quantity of articles on the market and the market-value of these articles: Given a certain basis for the productivity of labor in every particular sphere of production, the production of a certain quantity of articles requires a definite quantity of social labor time; but this proportion differs in different spheres of production and stands in no internal relation to the usefulness of these articles or the particular nature of their use-values. Assuming all other circumstances to be equal, and a certain quantity a of some commodity to cost b labor time, a quantity na of the same commodity will cost nb labor-time. Furthermore, if society wants to satisfy some demand and have articles produced for this purpose, it must pay for them. Since the production of commodities is accompanied by a division of labor, society buys these articles by devoting to their production a portion of its available labor-time. Society buys them by spending a definite quantity of the labor-time over which it disposes. That part of society, to which the division of labor assigns the task of employing its labor in the production of the desired article, must be given an equivalent for it by other social labor incorporated in articles which it wants. There is, however, no necessary, but only an accidental, connection between the volume of society's demand for a certain article and the volume represented by the production of this article in the total production, or the quantity of social labor spent on this article, the aliquot part of the total labor-power spent by society in the production of this article. True, every individual article, or every definite quantity of any kind of commodities, contains, perhaps, only the social labor required for its production, and from this point of view the market-value of this entire mass of commodities of a certain kind represents only necessary labor. Nevertheless, if this commodity has been produced in excess of the temporary demand of society for it, so much of the social labor has been wasted, and in that case this mass of commodities represents a much smaller quantity of labor on the market than is actually incorporated in it. (Only when production will be under the conscious and prearranged control of society, will society establish a direct relation between the quantity of social labor time employed in the production of definite articles and the quantity of the demand of society for them.) The commodities must then be sold below their market-value, and a portion of them may even become unsaleable. The opposite takes place, if the quantity of social labor employed in the production of a certain kind of commodities is too small to meet the social demand for them. But if the quantity of social labor spent in the production of a certain article corresponds to the social demand for it, so that the quantity produced is that which is the ordinary on that scale of production and for that same demand, then the article is sold at its market-value. The exchange, or sale, of commodities at their value is the rational way, the natural law of their equilibrium. It must be the point of departure for the explanation of deviations from it, not vice versa the deviations the basis on which this law is explained.
Now let us look at the other side, the demand.
Commodities are bought either as means of production or means of subsistence, in order to be used for productive or individual consumption. It does not alter matters that some commodities may serve both ends. There is, then, a demand for them on the part of the producers (who are capitalists in this case, since we have assumed that the means of production have been transformed into capital) and on the part of the consumers. It appears at first sight as though these two sides ought to have a corresponding quantity of social demands offset by a corresponding quantity of social supplies in the various lines of production. If the cotton industry is to accomplish its annual reproduction on a given scale, it must produce the usual quantity of cotton and an additional quantity determined by the annual extension of reproduction through the necessities of accumulating capital, always assuming other circumstances to remain the same. This is also true of means of subsistence. The working class must find at least the same quantity of necessities on hand, if it is to continue living in the accustomed way, although these necessities may be of different kinds and differently distributed. And there must be an additional quantity to allow for the annual increase of population. This applies with more or less modification to the other classes.
It would seem, then, that there is on the side of demand a definite magnitude of social wants which require for their satisfaction a definite quantity of certain articles on the market. But the quantity demanded by these wants is very elastic and changing. Its fixedness is but apparent. If the means of subsistence were cheaper, or money-wages higher, the laborers would buy more of them, and a greater "social demand" would be manifested for this kind of commodities, leaving aside the question of paupers, whose "demand" is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, the demand of the capitalists for it would increase, more additional capital would be thrown into the cotton industry, etc. It must never be forgotten that the demand for productive consumption is a demand of capitalists, under our assumption, and that its essential purpose is the production of surplus-value, so that commodities are produced only to this end. Still this does not argue against the fact that the capitalist as a buyer, for instance of cotton, represents the demand for this cotton. Moreover it is immaterial to the seller of cotton, whether the buyer converts it into shirting or into guncotton, or whether he intends to make it into wads for his and the world's ears. But it does exert a considerable influence on the way in which the capitalist acts as a buyer. His demand for cotton is essentially modified by the fact that he disguises thereby his real demand, that of making profits. The limits within which the need for commodities on the market, the demand, differs quantitatively from the actual social need, varies naturally considerably for different commodities; in other words, the difference between the demanded quantity of commodities and that quantity which would be demanded, if the money-prices of the commodities, or other conditions concerning the money or living of the buyers, were different.
Nothing is easier than to realise the inequalities of demand and supply, and the resulting deviation of market-prices from market-values. The real difficulty consists in determining what is meant by balancing supply and demand.
Demand and supply balance one another, when their mutual proportions are such that the mass of commodities of a definite line of production can be sold at their market-value, neither above nor below it. That is the first thing we hear.
The second is this: If the commodities are sold at their market-values, then supply and demand balance.
If demand and supply balance, then they cease to have any effect, and for this very reason commodities are sold at their market-values. If two forces exert themselves equally in opposite directions, they balance one another, they have no influence at all on the outside, and any phenomena taking place at the same time must be explained by other causes than the influence of these forces. If demand and supply balance one another, they cease to explain anything, they do not affect market-values, and therefore leave us even more in the dark than before concerning the reasons for the expression of the market-value in just a certain sum of money and no other. It is evident that the essential fundamental laws of production cannot be explained by the interaction of supply and demand (quite aside from a deeper analysis of these two motive forces of social production, which would be out of place here). For these laws cannot be observed in their pure state, until the effects of supply and demand are suspended, are balanced. As a matter of fact supply and demand never balance, or, if they do, it is by mere accident, it is scientifically rated at zero, it is considered as not happening. But political economy assumes that supply and demand balance one another. Why? For no other reason, primarily, than to be able to study phenomena in their fundamental relations, in that elementary form which corresponds to their conception, that is to say, to study them unhampered by the disturbing interference of supply and demand. The other reason is to find the actual tendencies of economic movements and to fix them, as it were. For the inequalities are of an antagonistic nature, and since they continually follow one after another, they balance one another by their opposite movements, by their opposition. Since supply and demand never balance each other in any given case, their differences follow one another in such a way that supply and demand are always balanced only when looking at them from the point of view of a greater or smaller period of time. For the result of a deviation in one direction is a deviation in the opposite direction. Such a balance is only an average of past movements, a result of a continual movement in contradictions. By this means the market-prices differing from the market-values reduce one another to the average of market-values and balance the different plus and minus in their divergencies. And this average figure has not merely a theoretical, but also a practical, value for capital, since its investment is calculated on the fluctuations and compensations of more or less fixed periods of time.
The relation of demand and supply explains, therefore, on the one hand only the deviations of market-prices from market-values, and on the other the tendency to balance these deviations, in other words, to suspend the effect of the relation of demand and supply. (Such exceptions as commodities having prices without having any value are not considered here.) Demand and supply may bring about a balance in the effect caused by their inequalities in many different ways. For instance, if the demand, and consequently the market-price, fall, capital may be withdrawn and the supply reduced. But instead it may happen that the market-value itself is reduced and balanced with the market-price through inventions, which reduce the necessary labor time. Vice versa, if the demand increases, and consequently the market-price rises above the market-value, too much capital may flow into this line of production and production may be increased to such an extent, that the market-price finally falls below the market-value. Or, it may lead to a rise of prices which cuts down the demand. It may also bring about a rise in the market-value itself for a shorter or longer time, in some lines of production, in which a portion of the desired products must be produced under more unfavorable conditions during this period.
If demand and supply determine the market-price, so does the market-price, and in the further analysis the market-value determine demand and supply. This is obvious in the case of demand, which moves in opposition to price, rising when prices fall, and falling when prices rise. But it may also be noted in the case of supply. For the prices of the means of production which are incorporated in the supplied commodities determine the demand for these means of production, and thus the supply of the commodities whose supply implies the demand for these means of production. The prices of cotton are determining elements for the supply of cotton goods.
This confusion of a determination of prices by demand and supply, and at the same time a determination of supply and demand by prices, is worse confounded by the determination of the supply by the demand, and the demand by supply, of the market by production, and of production by the market.31
Even the ordinary economist (see our foot-note) recognizes that the proportion between supply and demand may vary in consequence of a change in the market-value of commodities, without a change in the demand of supply by external circumstances. The author of the Observations continues after the passage quoted in the foot-note: "This proportion" (between demand and supply) "however, if we still mean by 'demand' and 'natural price' what we meant just now, when referring to Adam Smith, must always be a proportion of equality; for it is only when the supply is equal to the effectual demand, that is, to that demand, which will pay neither more nor less than the natural price, that the natural price is in fact paid; consequently there may be two very different natural prices, at different times, for the same commodity, and yet the proportion which the supply bears to the demand, be in both cases the same, namely the proportion of equality." It is admitted, then, that with two different natural prices of the same commodity at different times demand and supply may balance one another and must balance one another, if the commodity is to be sold at its natural price in both instances. Since there is no difference in the proportion of supply and demand in either case, but only a difference in the magnitude of the natural price itself, it follows that this price is determined independently of demand and supply, and cannot very well be determined by them.
In order that a commodity may be sold at its market-value, that is to say, in proportion to the necessary social labor contained in it, the total quantity of social labor devoted to the total mass of this kind of commodities must correspond to the quantity of the social demand for them, meaning the solvent social demand. Competition, the fluctuations of market-prices which correspond to the fluctuations of demand and supply, tend continually to reduce the total quantity of labor devoted to each kind of commodities to this scale.
The proportion of supply and demand repeats, in the first place, the relation of the use-value and exchange-value of commodities, of commodity and money, of buyer and seller; in the second place, the relation of producer and consumer, although both of them may be represented by third merchants. In studying buyers and sellers, it is sufficient to confront them individually, in order to set forth their relations. Three individuals suffice for the complete metamorphosis of commodities, and therefore for the complete transactions of sale and purchase. A converts his commodity into the money of B, to whom he sells his commodity, and he reconverts his money into commodities which he buys for it from C. The whole transaction takes place between these three. Furthermore: In the study of money it had been assumed that the commodities are sold at their values, because there was no reason to take into consideration any divergence of prices from values, it being a question of changes of form experienced by the commodities in their transformation into money and their reconversion from money into commodities. As soon as a commodity has been sold and a new commodity bought with the receipts, we have the entire metamorphosis before us, and for the consideration of this process it is immaterial whether the price of the commodity stands above or below its value. The value of the commodity is essential as a basis, because the concept of money cannot be developed on any other foundation but this one, and because price, in its general meaning, is but value in the form of money. Of course, it is assumed in the study of money as a medium of circulation that more than one metamorphosis of a certain commodity takes place. It is the social interrelation of these metamorphoses which is studied. Only by this means do we arrive at the circulation of money and at the development of its function as a medium of circulation. While this connection of the matter is very important for the transition of money into its function of a circulating medium, and for its resulting change of form, it is of no moment for the transaction between the individual buyer and seller.
In a question of supply and demand, however, the supply means the sum of the sellers, or producers, of a certain kind of commodities, and the demand the sum of the buyers, or consumers, of the same kind of commodities (both productive and individual consumers). There two bodies react on one another as units, as aggregate forces. The individual counts here only as a part of a social power, as an atom of some mass, and it is in this form that competition enforces the social character of production and consumption.
That side of competition, which is momentarily the weaker, is also that in which the individual acts independently of the mass of his competitors and often works against them, whereby the dependence of one upon the other is impressed upon them, while the stronger side always acts more or less unitedly against its antagonist. If the demand for this particular kind of commodities is larger than the supply, then one buyer outbids another, within certain limits, and thereby raises the price of the commodity for all of them above the market-price, while on the other hand the sellers unite in trying to sell at a high price. If, vice versa, the supply exceeds the demand, some one begins to dispose of his goods at a cheaper rate and the others must follow, while the buyers unite in their efforts to depress the market-price as much as possible below the market-value. The common interest is appreciated only so long as each gains more by it than without it. And common action ceases, as soon as this or that side becomes the weaker, when each one tries to get out of it by his own devices with as little loss as possible. Again, if some one produces more cheaply and can sell more goods, thus assuming more room on the market by selling below the current market-price, or market-value, he does it, and thereby he begins an action which gradually compels the others to introduce the cheaper mode of production and which reduces the socially necessary labor to a new, and lower, level. If one side has the advantage, every one belonging to it gains. It is as though they had exerted their common monopoly. If one side is the weaker, then every one may try on his own hook to be the stronger (for instance, any one working with lower costs of production), or at least to get off as easily as possible, and in that case he does not care in the least for his neighbor, although his actions affect not only himself, but also all his fellow strugglers.32
Demand and supply imply the transformation of values into market-prices, and to the extent that they proceed on a capitalist basis, to the extent that the commodities are products of capital, they are based on capitalist processes, that is, on quite different and more complicated conditions than the mere purchase and sale of goods. In these capitalist processes it is not a question of the formal conversion of the value of commodities, into prices, not a question of a mere change of form. It is a matter of definite differences in quantity between market-prices and market-values, and, further, prices of production. In simple purchases and sales, it is enough to consider merely the producers of articles as such. But supply and demand, in a wider analysis, imply the existence of different classes and sections of classes which divide the total revenue of society among themselves and consume it as revenue among themselves, which, therefore, constitute the demand in the form of revenue. On the other hand, the attempt to grasp the question of the supply and demand among the producers as such requires an analysis of the total conformation of the capitalist process of production.
Under capitalist production it is not a question of merely throwing a certain mass of values into circulation and exchanging that mass for equal values in some other form, whether of money or other commodities, but it is also a question of advancing capital in production and realising on it as much surplus-value, or profit, in proportion to its magnitude, as any other capital of the same or of other magnitudes in whatever line of production. It is a question, then, of selling the commodities at least at prices which will yield the average profit, in other words, at prices of production. Capital comes in this form to a realisation of the social nature of its power, in which every capitalist participates in proportion to his share in the total social capital.
In the first place, capitalist production is essentially indifferent to the particular use-value, or the peculiarity, of any commodity produced by it. In every sphere of production it is the sole purpose of production to secure surplus-value, to appropriate in the product of labor a certain quantity of unpaid labor. And it is likewise the nature of the wage-labor subject to capital to be indifferent to the specific character of its labor, to transform itself in accord with the requirements of capital, and to submit to being transferred from one sphere of production to another.
In the second place, one sphere of production is now as good or as bad as another. Every one of them yields the same profit, and every one of them would be useless, if the commodities produced by them did not satisfy some social need.
Now, if the commodities are sold at their values, then, as we have shown, considerably different rates of profit arise in the various spheres of production, according to the different organic composition of the masses of capital invested in them. But capital withdraws from spheres with low rates of profit and invades others which yield a higher rate. By means of this incessant emigration and immigration, in one word, by its distribution among the various spheres in accord with a rise of the rate of profit here, and its fall there, it brings about such a proportion of supply to demand that the average profit in the various spheres of production becomes the same, so that values are converted into prices of production. This equilibration is accomplished by capital in a more or less perfect degree to the extent that capitalist development is advanced in a certain nation, in other words, to the extent that conditions in the respective countries are adapted to the capitalist mode of production. As capitalist development proceeds, it develops also its own peculiar conditions and subjects to its specific character and its immanent laws all the social requirements on which the process of production is based.
The incessant equilibration of the continual differences is accomplished so much quicker, 1), the more movable capital is, the easier it can be shifted from one sphere and one place to another; 2) the quicker labor-power can be transferred from one sphere to another and from one local point of production to another. The first condition implies complete freedom of trade in the interior of society and the removal of all monopolies with the exception of those which naturally arise out of the capitalist mode of production. It implies, furthermore, the development of the credit-system, which concentrates the inorganic mass of the disposable social capital instead of leaving it in the hands of individual capitalists. Finally it implies a subordination of the various spheres of production to the control of capitalists. This last implication is of itself included in the assumption that it is a question of a transformation of values into prices of production in all capitalistically exploited spheres of production. But this equilibration meets great obstacles, whenever numerous and large spheres of production, which are not operated on a capitalistic basis (such as farming by small farmers), are interpolated between the capitalist spheres and interrelated with them. A great density of population is also a requirement.—The second condition implies the abolition of all laws which prevent the laborers from moving from one sphere of production to another and from one local center of production to another; an indifference of the laborer to the nature of his labor; the greatest possible reduction of labor in all spheres of production to simple labor; the elimination of all craft prejudices among laborers; and last, not least, a subjugation of the laborer under the capitalist mode of production. More detailed statements concerning these points belong in a special analysis of competition.
It follows from the foregoing that the individual capitalist as well as the capitalists as a whole in each particular sphere of production are participants in the exploitation of the total working class by the total capital, and in the degree of that exploitation, not only out of general class sympathy, but also for direct economic reasons, because, assuming all other conditions, among them the value of the advanced constant capital, to be given, the average rate of profit depends on the intensity of exploitation of the total labor by the total capital.
The average profit coincides with the average surplus-value produced for each 100 of capital, and so far as the surplus-value is concerned, the foregoing statements apply as a matter of course. In the determination of the rate of profit, the value of the advanced capital becomes an additional element. In fact, the direct interest taken by the capitalist, or the capital, of any individual sphere of production in the exploitation of the laborers directly employed by him, or it, is limited to the endeavor to make an extra gain, a profit exceeding the average, either by exceptional overwork, or by a reduction of wages below the average, or by an exceptional productivity of labor. Aside from this, a capitalist who would not employ any variable capital, and therefore no laborers (an exaggerated assumption), would be as much interested in the exploitation of the working class by capital, and would derive his profit quite as much from unpaid surplus-labor, as a capitalist who would employ only variable capital (another exaggeration), and who would invest his entire capital in wages. The degree of exploitation of labor depends on the average intensity of labor, if the working day is given, and on the length of the working day, if the average intensity of exploitation is given. The degree of exploitation of labor determines the size of the rate of surplus-value, and therefore the size of the mass of surplus-value for a given total mass of variable capital, and consequently the magnitude of the profit. The individual capitalist, as distinguished from his sphere, has the same special interest in the exploitation of the laborers personally employed by him that the capital of a certain sphere, as distinguished from the total social capital, has in the exploitation of the laborers directly employed by it.
On the other hand, every particular sphere of capital, and every individual capitalist, has the same interest in the productivity of the social labor employed by the total capital. For two things depend on this productivity: In the first place, the mass of use-values by which the average profit is expressed; and this is doubly important, where this average profit serves as a fund for the accumulation of new capital and as a fund for revenue to be spent in enjoyment. In the second place, the amount of the value of the total capital invested (constant and variable), which, with a given amount of surplus-value, or profit, for the whole capitalist class, determines the rate of profit, or the profit on a certain percentage of capital. The special productivity of labor in any particular sphere, or in any individual business of this sphere, interests only those capitalists who are directly engaged in it, since it enables that particular sphere, or that individual capitalist, to make an extra profit over that of the total capital.
Here, then, we have the mathematically exact demonstration, how it is that the capitalists form a veritable freemason society arrayed against the whole working class, however much they may treat each other as false brothers in the competition among themselves.
The price of production includes the average profit. We call it price of production. It is, as a matter of fact, the same thing which Adam Smith calls natural price, Ricardo price of production, or cost of production, and the physiocrats prix nécessaire, because it is in the long run a prerequisite of supply, of the reproduction of commodities in every individual sphere.33 But none of them has revealed the difference between price of production and value. We can well understand, then, why these same economists, who always resist a determination of the value of commodities by labor-time, by the quantity of labor contained in them, always speak of prices of production as centers, around which market-prices fluctuate. They can afford to do that, because the price of production is an utterly external and, at first glance, meaningless form of the value of commodities, a form as seen in competition and thus reflected in the mind of the vulgar capitalist, and consequently in that of the vulgar economists.
Our analysis resulted in the discovery that the market-value (and everything said concerning it applies with the necessary modifications to the price of production) implies a surplus-profit for those who produce in any particular sphere of production under the most favorable conditions. With the exception of crises, and of over-production in general, this applies to all market-prices, no matter how much they may deviate from market-values or market-prices of production. For the market-price signifies that the same price is paid for commodities of the same kind, although they may have been produced under very different individual conditions and may have considerably different cost-prices. (We do not speak at this point of any surplus-profits due to monopolies in the strict meaning of the term, whether they are artificial or natural.)
A surplus-profit may also arise, when certain spheres of production are in a position to evade the conversion of the values of their commodities into prices of production, and thus a reduction of their profits to the average profit. We shall devote more attention to the further modifications of these two forms of surplus-profit in the part dealing with ground-rent.
EFFECTS OF GENERAL FLUCTUATIONS OF WAGES ON PRICES OF PRODUCTION.
LET the average composition of social capital be 80 c + 20 v, with a profit of 20%. The rate of surplus-value is then 100%. A general increase of wages, all other things remaining the same, is a reduction of the rate of surplus-value. In the case of the average capital, profit and surplus-value are identical. Let wages rise by 25%. Then the same quantity of labor, which was formerly set in motion with 20, costs 25. Instead of 80 c + 20 v + 20 p, we have then for the value of one turn-over 80 c + 25 v + 15 p. The labor set in motion by the variable capital still produces a value of 40, the same as before. If v rises from 20 to 25, then the surplus p, or s, amounts only to 15. The profit of 15 on a capital of 105 is 14 2/7%, and this would be the new average rate of profit. Since the price of production of commodities produced by the average capital coincides with their value, the price of production of these commodities would remain unchanged. The raising of wages would have brought about a reduction of profits, but no change in the value and price of the commodities.
Formerly, so long as the average profit was 20%, the price of production of the commodities produced in one period of turn-over was equal to their cost-price plus a profit of 20% on this cost-price, in other words k + kp' = k + 20 k/100. In this formula k is a variable magnitude, changing according to the value of the means of production which are incorporated in the commodities, and according to the amount of wear transferred from the fixed capital to the product. Now the price of production would amount to k + (14 2/7 k)/100.
Now let us first select a capital, whose composition is lower than the original composition of the average social capital of 80 c + 20 v (which has now been transformed into 76 4/21 c+ 23 17/21 v), for instance a capital of 50 c + 50 v. In this case, the price of production of the annual product, assuming for the sake of simplicity that the entire fixed capital passes through wear into the product and that the time of turn-over is the same as that in the first case, would have been 50 c + 50 v + 20 p, or 120, before the raising of wages. A raising of wages by 25% means for the same quantity of labor a rising of the variable capital from 50 to 62½. If the annual product were sold at the former price of production of 120, then we should have the formula 50 c + 62½ v + 7½ p, or a rate of profit of 6 2/3%. But the new average rate of profit is 14 2/7%, and since we assume all other circumstances to remain the same, this capital of 50 c + 62½ v will also have to make this profit. Now, a capital of 112½ makes a round profit of 16 1/12 at a rate of profit of 14 2/7%. Therefore the price of production of the commodities produced by this capital is now 50 c + 62½ v + 16 1/12 p = 128 7/12. In consequence of a raise in wages of 25%, the price of production of the same quantity of the same commodities has risen from 120 to 128 7/12, or more than 7%.
Vice versa, let us select a sphere of production of a higher composition than the average capital, for instance a capital of 92 c + 8 v. The original average profit in this case would still be 20, and if we assume once more that the entire fixed capital passes into the annual product, and that the time of turn-over is the same as in the first and second case, the price of production of the commodities is also 120.
In consequence of the rise of wages by 25% the variable capital for the same quantity of labor rises from 8 to 10, the cost-price of the commodities from 100 to 102, while the average rate of profit has fallen from 20% to 14 2/7%. Now 100 : 14 2/7 = 102 : 14 4/7 (approximately). The profit now falling to the share of 102 is 14 4/7. Therefore the total product sells at k + kp', or 102 + 14 4/7, or 116 4/7. The price of production has fallen from 120 to 116 4/7, or more than 3%.
Consequently, if wages are raised by 25%,
1) the price of production of the commodities of a capital of average composition is not changed;
Since the price of production of the commodities of the average capital remains the same and equal to the value of the product, it follows that the sum of the prices of production of the products of all capitals remain the same and equal to the sum of the values produced by the total social capital. The increase on one side is balanced by the decrease on the other and the level of the average social capital maintained for the total social capital.
Seeing that the price of production in the second illustration rises, while it falls in the third, it is evident from these opposite effects brought about by a fall in the rate of surplus-value or by a general rise of wages that there is no prospect of any compensation in the price for the rise in wages, since the fall of the price of production in No. III cannot very well compensate the capitalist for the fall in the profit, and since the rise of the price in No. II does not prevent a fall in profit. On the contrary, in either case, whether the price rises or falls, the profit remains the same as that of the average capital whose price remains unchanged. It is the same average profit, which has fallen by 5 5/7, or about 25%, in the case of II as well as III. It follows from this, that if the price did not rise in II and fall in III, II would have to sell below and III above the new, recently reduced, average profit. It is quite evident that a rise of wages must affect a capitalist who has invested one-tenth of his capital in wages differently from one who has invested one-fourth or one-half, according to whether 50, 25, or 10 per hundred of capital are advanced for wages. An increase in the price of production on one side, and a fall on the other, according to whether a capital is below or above the average social composition, is effected only by leveling to the new reduced average profit.
Now, how would a general fall of wages, and a corresponding general rise of the rate of profit, and thus of the average profit, affect the prices of production of commodities produced by capitals diverging in opposite directions from the average social composition? We have but to reverse the foregoing statements, in order to find the answer (which Ricardo did not analyse).
I. Average capital 80 c + 20 v = 100; rate of surplus-value 100%; price of production = value of commodities = 80 c + 20 v + 20 p = 120; rate of profit 20%. Let wages fall by one-fourth. Then the same constant capital is set in motion by 15 v, instead of 20 v. We have then as the value of commodities 80 c + 15 v + 25 p = 120. The quantity of labor employed by v remains the same, only the newly created value is differently distributed between the capitalist and the laborers. The surplus-value increases from 20 to 25, and the rate of surplus-value from 20/20 to 25/15, in other words, from 100% to 166 2/3%. The profit on 95 is now 25, so that the rate of profit per 100 is 26 6/19. The composition of the capital in percentages is now 84 4/19 + 15 15/19 = 100.
II. Lower composition. Original composition, as above, 50 c + 50 v. By the fall of wages by one-fourth v is reduced to 37½, and consequently the advanced total capital to 50 c + 37½ v = 87½. Applying to this the new rate of profit of 26 6/19%, we get 100 : 26 6/19 = 87½ : 23 1/38. The same mass of commodities which formerly cost 120, now costs 87½ + 23 1/38 = 100 10/19. A fall in prices of almost 10%.
III. Higher composition. Original composition 92 c + 8 v = 100. The fall in wages by one-fourth reduces 8 v to 6 v, and the total capital to 98. Consequently 100 : 26 6/19 = 98 : 25 15/19. The price of production of the commodities, formerly 100 + 20 = 120, is now, after the fall in wages, 98 + 25 15/19 = 123 15/19. A rise by almost 4%.
We see, then, that we have but to follow the preceding development in the opposite direction with the necessary, modifications; that a general fall of wages carries with it a general rise of surplus-value, of the rate of surplus-value, and, other circumstances remaining the same, also of the rate of profit, although expressed by different proportions; a fall in the prices of production for the commodities produced by capitals of lower composition, a rise in the prices of production for commodities produced by capitals of higher composition. The result is just the reverse of that following a general rise of wages.34 In both cases, whether of a rise or a fall, the assumption is that the working day remains the same, also the prices of the means of subsistence. Under these circumstances, a fall in wages is possible only, if wages stood higher than the normal price of labor, or if they are depressed below this price. The way in which this condition is modified, if the rise or fall of wages is due to a change in value, and consequently in the price of production of commodities usually consumed by the laborer, will be to a certain extent analysed in the part dealing with ground-rent. At this place we make for once and all the following statements:
If a rise or fall in wages is due to a change in the value of the necessities of life, then a modification of the above findings can take place only to the extent that the commodities, whose variation of price raises or lowers the variable capital, pass also as constituent elements into the constant capital and consequently do not affect wages alone. But to the extent that they affect only wages, the above analysis contains all that needs to be said.
In this entire chapter, it is assumed as a fact that there are in existence a general rate of profit, an average profit, and a conversion of values into prices of production. The question was merely in what manner a general rise or fall in wages affected the prices of production of commodities, which were assumed to exist. This is but a very secondary question compared with the important points analysed in this part. But it is the only relevant question treated by Ricardo, and we shall see that he treated even this but onesidedly and imperfectly.
SOME AFTER REMARKS.
I. Causes Implying a Variation of the Price of Production.
THE price of production of a commodity can vary only from two causes:
1) The average rate of profit varies. This can be due only to a change in the average rate of surplus-value, or, if the average rate of surplus-value remains the same, by a change in the proportion of the sum of the appropriated surplus-values to the sum of the advanced total capital of society.
Unless a variation of the rate of surplus-value is due to a depression of wages below normal, or their rise above normal,—and such movements must be considered as mere oscillations—it can take place only for two reasons: Either the value of labor-power may have risen or fallen. The one eventuality is as impossible as the other without a change in the productivity of that labor which produces means of subsistence, in other words, without a change in the value of the commodities which are consumed by the laborer. Or, the proportion of the sum of appropriated surplus-values to the advanced total capital of society varies. Since the variation in this case is not due to the rate of surplus-value, it must be due to the total capital, or rather to its constant part. The mass of this part, technically speaking, increases or decreases in proportion to the quantity of labor-power bought by the variable capital, and the mass of its value increases or decreases with the increase or decrease of its own mass. Its mass of value, then, increases or decreases likewise in proportion to the mass of the value of the variable capital. If the same labor sets more constant capital in motion, labor has become more productive. If less, less productive. There has then been a change in the productivity of labor, and a change must have taken place in the value of certain commodities.
The following rule, then, applies to both cases: If the price of production of a certain commodity changes in consequence of a change in the average rate of profit, its own value may have remained unchanged, but a change must have taken place in the value of other commodities.
2) The average rate of profit remains unchanged. In that case the price of production of a commodity cannot change, unless its own value has changed. This may be due to the fact that more or less labor is required to produce this commodity, either because the productivity of that labor varies, which produces this commodity in its final form, or of that labor which produces the commodities consumed in its production. Cotton yarn may vary in its price of production, either because cotton is produced at a lower figure, or because the labor of spinning has become more productive in consequence of improved machinery.
As we have seen before, the price of production is equal to k + p, equal to cost-price plus profit. This implies k + kp', and k, cost-price, stands here for a variable magnitude, which changes according to different spheres of production, but is everywhere equal to the value of the constant and variable capital consumed in the production of commodities, while p' stands for the percentage of the average rate of profit. If k = 200, and p' = 20%, the price of production k + kp' is equal to 200 + 200 20/100 = 200 + 40 = 240. It is evident that this price of production may remain the same, although the value of the commodities may change.
All changes in the price of production of commodities reduce themselves in the last analysis to changes in value. But not every change in the value of commodities needs to find expression in a change of the price of production. For this price is not determined merely by the value of any particular commodity, but by the aggregate value of all commodities. A change in commodity A may eventually be balanced by an opposite change of commodity B, so that the general proportion remains the same.
II. Price of Production of Commodities of Average Composition.
We have seen that a deviation of the prices of production from the values may be brought about by the following means:
1) By adding to the cost-price of a commodity, not the surplus-value contained in it, but the average profit.
It is therefore possible that the cost-price may differ from the sum of the values of those elements which make up this portion of the price of production, even in the case of commodities produced by capitals of average composition. Take it that the average composition is 80 c + 20 v. Now it is possible that in the actual capitals of this composition 80 c may be greater or smaller than the value of c, the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way 20 v might differ from its value, if the laborer consumes commodities whose price of production differs from their value, in which case the laborer would work a longer or shorter time for their reproduction, and would thus perform more or less necessary labor, then would be required, if the price of production of the necessities of life coincided with their value.
However, this possibility does not alter the correctness of the rules laid down for commodities of average composition. The quantity of profit falling to the share of these commodities is equal to the quantity of surplus-value contained in them. For instance, the most important point in a capital of the above composition, 80 c + 20 v, so far as the determination of surplus-value is concerned, is not whether these figures are expressions of actual values, but whether this represents their actual proportion to one another, in other words, whether v is one-fifth, and c four-fifths, of the total capital, Whenever this is actually the case, as was assumed above, then the surplus-value produced by v is equal to the average profit. On the other hand, seeing that this surplus-value is equal to average profit, the price of production, or cost-price plus profit, k +p, is equal to k + s, that is, practically equal to the value of these commodities. This implies that a rise or a fall in wages would not change the price of production, k + p, any more than it would change the value of these commodities. It would merely effect a corresponding opposite movement on the side of profit, a fall or a rise. For if a rise or a fall of wages were to bring about a change in the price of commodities of average composition, then the rate of profit in these spheres of average composition would rise above, or fall below, the level it holds in other spheres. The sphere of average composition maintains the same level of profit as the other spheres only so long as the price remains unchanged. The practical result in the case of this sphere of average composition is the same as though its products were sold at their value. For if commodities are sold at their actual values, it is evident that, other circumstances remaining equal, a rise or a fall in wages will cause a corresponding fall or rise in profits, but no change in the value of commodities, and that under all circumstances a rise or a fall in wages can never affect the value of commodities, but only the magnitude of the surplus-value.
III. Fluctuations for which the Capitalist makes Allowance.
It has been said that competition levels the rates of profit of the different spheres of production into an average rate of profit and thereby transforms the values of the products of these different spheres into prices of production. This is accomplished by continually transferring capital from one sphere to another, in which the profit happens to stand above the average for the moment. The fluctuations of profit due to the cycle of fat and lean years, following each other in any given line of industry during given periods, must be taken into consideration, of course. These incessant emigrations and immigrations of capital, which take place between the different spheres of production, create rising and falling movements of the rate of profit. These movements balance one another more or less and thereby create a tendency to reduce the rate of profit everywhere to the same common and universal level.
This movement of capitals is caused primarily by the stand of the market-prices, which lift profits above the level of the universal average in one place and depress them below it in another. We leave out of consideration, for the present, merchant's capital. We know from the sudden paroxysms of speculation in certain favorite articles that this merchants' capital can draw masses of capital from a certain line of business with extraordinary rapidity and throw them with equal rapidity into another. But we have nothing to do with merchants' capital at this place. So far as the sphere of actual production is concerned, that is, industries, agriculture, mining, etc., the transfer of capital from one sphere to another offers considerable difficulty, particularly on account of the existing fixed capital. Moreover, experience demonstrates that, if a certain line of industry, for instance the cotton industry, yields extraordinary profits at one period, it suffers losses, or makes very little profit, at some other period, so that the average profit within a certain cycle of years is pretty much the same as in other lines. And capital soon learns to take this experience into account.
What competition does not show is the way in which value is determined and the movement of production dominated by this determination. It does not show the values that stand behind the prices of production and determine them in the last instance. Competition does show, on the other hand, the following things: 1) The average profits independent of the organic composition of capital in the different spheres of production, and therefore also independent of the mass of living labor appropriated by any given capital in any particular sphere of exploitation. 2) A rise and fall of prices of production as a result of changes in the level of wages, a phenomenon which flatly contradicts at first sight the law of value of commodities. 3) The fluctuations of market-prices, which reduce the average market-price of commodities in a given period of time, not to the market-value, but to a market-price of production differing considerably from this market-value. All these phenomena seem to contradict the determination of value by labor-time as much as the fact that surplus-value consists of unpaid surplus-labor. Everything appears upside down in competition. The existing conformation of economic conditions, as seen in reality on the surface of things, and consequently in the conceptions which the leading human agents of these conditions form in trying to understand them, are not only different from the internal and disguised essence of these conditions, and from the conceptions corresponding to this essence, but actually opposed to them, or their reverse.
Furthermore, as soon as capitalist production has reached a certain degree of development, the reduction of the different rates of profit of the individual spheres to the level of the average rate of profit no longer proceeds solely by virtue of the play of attraction and repulsion, by which the market prices attract or repel capital. After the average prices, and the market-prices corresponding to them, have become stable for a time, the capitalists become conscious of the fact that this leveling process balances definite differences. And then they allow for these differences in their mutual calculations. The differences exist in the consciousness of the capitalists and are taken into consideration as fluctuations for which allowance must be made.
At the bottom of all conceptions lies that of the average profit, to-wit, that capitals of the same magnitude must yield the same profits in the same time. This, again, is based on the assumption that the capital of each sphere of production shares in the total profit squeezed out of the laborers by the total social capital in proportion to its magnitude; or, that every individual capital should be regarded merely as a part of the total social capital, and every capitalist as a shareholder in the total social enterprise, each sharing in the total profit in proportion to the magnitude of his share of capital.
These conceptions serve as a basis for the calculations of the capitalist, for instance the assumption that a capital which is turned over more slowly than another, because its commodities require a longer time for their production, or because they must be sold in more remote markets, should nevertheless charge the profit it loses in this way and reimburse itself by putting up the price. Another idea is that capitals invested in lines which are exposed to considerable danger, for instance in shipping, should be compensated by a raise in prices. As soon as capitalist production, and the insurance business, are developed, the danger is equalised for all spheres of production (see Corbett); but the capitals invested in more than ordinarily dangerous enterprises have to pay higher insurance rates and recover them in the prices of their commodities. All this amounts in practice to saying that every circumstance (and all of them are considered equally necessary within certain limits), which renders one line of production profitable, and another less, are calculated as legitimate grounds for compensation, without requiring the ever renewed action of competition to demonstrate the justification of such claims. The capitalist simply forgets, or rather he does not see, because competition does not show it to him, that all these claims for compensation mutually advanced by the capitalists in the calculation of the prices of commodities of different lines of production repeat in another way the idea that all capitalists are entitled, in proportion to the magnitude of their respective capitals, to equal shares of the common loot, the total surplus-value. They are rather under the impression, seeing that the profit pocketed by them differs from the surplus-value appropriated by them, that those grounds for compensation do not equalise their participation in the total surplus-value, but that they rather create the profit itself, which is supposed to originate in an addition to the price of their commodities, for which they advance different excuses.
In other respects the statements made in chapter VII concerning the assumptions of the capitalists as to the source of surplus-value apply also in this instance. The present case differs a little from those in chapter VII, but only to the extent that a saving in cost-price depends on individual ability, attention to business, etc., assuming the market-price of commodities and the degree of exploitation of labor to be given.
[20.] The above is briefly developed in the third edition of volume I, in the beginning of chapter XXV. Since the two first editions did not contain this passage, it was so much more necessary to repeat it at this place.—F. E.
[21.] It follows from chapter IV that the above statement is correct only in the ease that the capitals of A and B are differently composed so far as their values are concerned, but that the percentages of their variable capitals are proportioned as their times of turn-over, or inversely as their numbers of turn-over. Let capital A have the following percentages of composition: 20 c fixed and 70 c circulating, a total of 90 c, so that the total capital is 90 c + 10 v, or 100. At a rate or surplus value of 100% the 10 v produce in one turn-over 10 s, making the rate of profit for one turn-over 10%. Let capital B have the composition 60 C fixed and 20c circulating, so that we have 80 c + 20 v, or 100. The 20 v produce in one turn-over, at the above rate of surplus-value, 20 s, making the rate of profit for one turn-over 20%, which is double that of A. But if A is turned over twice per year, and B only once, then 2 × 10 also make 20 per year, and the annual rate of profit is the same for both, namely 20%.—F. E.
[23.] Corbett, page 174.
[24.] Of course, we leave aside the question of the probability of securing an extra profit by cutting wages, monopoly prices, etc., at least for the moment.
[27.] In 1865, when Marx wrote these lines, they expressed as yet merely his "view." To-day, since we have the extended researches into the nature of primitive societies made from Maurer to Morgan, these things are accepted facts which hardly anyone cares to deny.—F. E.
[28.] Karl Marx, Critique of Political Economy, Berlin, 1859.
[29.] Karl Marx, Critique of Political Economy, Berlin, 1859.
[30.] The controversy between Storch and Ricardo, incidental to their discussion of ground rent (a controversy which is merely referring to the same object, while the two opponents take no notice of one another) whether the market-value (or rather what they call market-price and price of production respectively) is regulated by the commodities produced under the least favorable conditions (Ricardo), or by those produced under the most favorable circumstances (Storch), resolves itself into the fact that both are right and both wrong, and that both of them have left out of consideration the average case. Compare Corbett on the cases, in which the price is regulated by the commodities produced under the most favorable conditions.—"It is not meant to be asserted by him (Ricardo) that two particular lots of two different articles, as a hat and a pair of shoes, exchange with one another when those two particular lots were produced by equal quantities of labor. By 'commodity' we must here understand the 'description of commodity', not a particular individual hat, pair of shoes etc. The whole labor which produces all the hats in England is to be considered, for this purpose, as divided among all the hats. This seems to me not to have been expressed at first, and in the general statements of this doctrine. (Observations on some verbal disputes in Political Economy, etc. London, 1821, pages 53, 54.)
[31.] The following sagacious statements are great nonsense: "Where the quantity of wages, capital, and land, required to produce an article, have become different from what they were, that which Adam Smith calls the natural price of it, is also different, and that price which was previously its natural price, becomes, with reference to this alteration, its market-price; because, though neither the supply, nor the quantity wanted may have changed"—both of them change here, just because the market-value, or, in the case of Adam Smith, the price of production, changes in consequence of a change of value—"that supply is not now exactly enough for those persons who are able and willing to pay what is now the cost of production, but is either greater or less than that; so that the proportion between the supply, and what is, with reference to the new cost of production, the effectual demand, is different from what it was. An alteration in the rate of supply will then take place, if there is no obstacle in the way of it, and at last bring the commodity to its new natural price. It may then seem good to some persons to say that, as the commodity gets to its natural price by an alteration in its supply, the natural price is as much owing to one proportion between the demand and supply, as the market-price is to another; and consequently, that the natural price, just as much as the market-price, depends on the proportion that demand and supply bear to each other. (The great principle of demand and supply is called into action to determine what A. Smith calls natural prices as well as market-prices, Malthus.)"—Observations on certain verbal disputes, etc., London, 1821, pages 60 and 61.—The good man does not grasp the fact that it is precisely the change in the cost of production, and thus in the value, which caused a change in the demand, in the present case, and thus in the proportion between demand and supply, and that this change in the demand may bring about a change in the supply. This would prove just the reverse of what our good thinker wants to prove. It would prove that the change in the cost of production is by no means due to the proportion of demand and supply, but rather regulates this proportion.
[32.] "If each man of a class could never have more than a given share, or aliquot part of the gains and possessions of the whole, he would readily combine to raise the gains" (he does it as soon as the proportion of demand to supply permits it); "this is monopoly. But where each man thinks that he may any way increase the absolute amount of his own share, though by a process which lessens the whole amount, he will often do it; this is competition." An Inquiry into those Principles respecting the Nature of Demand, etc. London, page 105.
[34.] It is very peculiar that Ricardo (who naturally proceeds differently from us, since he did not understand the compensation of values to prices of production) did not even think of this eventuality, but considered only the first case, that of a rise of wages and its influence on the prices of production of commodities. And the servile herd of imitators did not even make an attempt to advance so much as to apply the practical, or even tautological, test.