August 19, 2009

PART ONE: The Transformation of Surplus-Value into Profit, and of the Rate of Surplus-Value into the Rate of Profit

Key for this section:
“An increase in the rate of profit always stems form a relative or absolute increase in the surplus value in relation to its cost of production, i.e. to the total capital advanced, or from a reduction in the difference between the rate of profit and the rate of surplus value. (237)”

CHAPTER ONE: Cost Price and Profit

It should be noted that as with Vol. I we return to (begin from) the commodity form as the essential form from which to extrapolate the more general dynamics of capitalism (or, at least how Engels had arranged the text). Here, the task is to develop the distinction between value and cost price – and the unfolding relational dynamic that Marx derives his theory of the tendency towards equalization of the rate of profits (and the tendency for the rate of profit to fall). Verifying Mandel’s succinct summary in the introduction, Marx takes up the issue of cost price in the production process:

“This old value [value of capital advanced] reappears therefore as a component of the product’s value, though it does not originate in the production process of this commodity. It exists only as a component of the commodity’s value because it existed previously as a component of the capital advanced….This element of the cost price has therefore a dual significance. On the one hand it enters into the cost price of the commodity because it is a component of commodity value, and replaces the capital used up; on the other hand it forms a component of this commodity value only because it is the value of capital that has been used up, or because the means of production cost such and such an amount. (119)”

This distinction, both at the analytical-logical and economic levels, is necessary in order to isolate cost price and value (in relation to production, capital advanced and commodity capital), tying this into the discussion of Vol. II between fixed/circulating and constant/variable capital. But most importantly, we arrive to profit and its relation to surplus value:

“Profit, as we are originally faced with it, is thus the same thing as surplus-value, save in a mystified form, through one that necessarily arises form the capitalist mode of production. (127)”

This then establishes the problem – the relation between surplus-value and profit, and their relation to market prices (both in terms of input prices and the creation of commodity capital). In this regard, Marx argues that the:
“basic law of capitalist competition…the law that governs the general rate of profit and the so-called prices of production determined by it, depends…on this difference between the value and the cost price of commodities, and the possibility from this of selling commodities below their value at a profit. (128)”

Cost price thus acts as the obvious “minimum limit” to the sale price. On the flip-side, profit is not magnitude that appears out of “nothing” in the market place, as Torrens and other classical economists imagine, but has to be located in the production of surplus value (thus again, the stakes of this distinction). With this general distinction established, Marx then sets out to development this dynamic more fully….

CHAPTER TWO: The Rate of Profit

Simply put:
1) Rate of Surplus Value = s/v (surplus over variable capital)
2) Rate of Profit – s/C (surplus over total capital); or, in other words s/c+v (surplus over constant and variable)

Note that although these are seemingly ratios only of capital advanced and productive capital (i.e. the composition of capital in relation to production – variable, constant and the surplus value produced), these ratios carry into the field of circulation due to the value embodied in the commodity (for sale) itself. Thus we are dealing with ratios that operate (or express value ratios) in both fields (production/circulation), which open into the intertwining of circuits, and most importantly, not derived from the accounting delimited to a singular capital.

These are measuring the SAME magnitude (quantity), though Marx notes that the rate of profit is the appearance (“the historical starting point”) while the rate of surplus-value is the “invisible essence. (134)” Again this signals to the social character of surplus value, that the rate of surplus-value is not derived directly from the extraction of surplus-labour employed in an individual capital but derives from social necessary labor and the variations in the composition(s) of capital. Thus when we enter into the realm of circulation, though it is imperative that the capitalist realizes his value (both advanced, but also of surplus) via the act of selling, Marx reminds us that “if a commodity is sold above or below its value, there is simply a different distribution of the surplus-value, and that this distribution, the altered ratio in which various individuals partake of the surplus-value, in no way affects wither the magnitude or the character of the surplus-value itself….[Via competition], as far as the individual capitalist is concerned, the surplus-value that he realizes depends just as much on this mutual cheating as on the direct exploitation of labour. (134)”

The relation between these two rates, expressed in the commodity form, necessarily entails the mutually constituting spheres of production and circulation, and this is where Marx begins to draw the connections between the various levels/circuits. Employing the metaphor of the organic, Marx writes:

“Capital runs through the cycle of its transformations, and finally steps as it were from its inner organic life into its external relations, relations where it is not capital and labour that confront one another, but on the one hand capital and capital, and on the other hand individuals as simple buyers and sellers once again….The original form in which capital and wage-labour confront one another is disguised by the intervention of relations that seem to be independent of this; value-value itself does not appear as having been produced by the appropriation of labour-time, but as the excess of the sale price of commodities over their cost price…(135)”

We find a certain homology here: essence/internal/production/confrontation of labour-power and capital vs. appearance/external/market place/confrontation of capital and capital (competition) and buyers/sellers. “Mystification” emerges from the very dynamic/practices of the system itself, not from any kind of veil of metaphysical confusion. Additionally, the essential dynamics, through systemic imperative, move towards appearances at times, as Marx states that the “nature of surplus-value persistently impresses itself on the capitalist’s consciousness in the course of the immediate production process…by his greed for the labour-time of others. (135)” In other words, the greed for profit is the appearance of a more fundamental systemic dynamic that the capitalist himself is not necessarily conscious of. On the other hand, this systemic mystification does, however, serve an ‘interest,’ albeit structurally inscribed rather than consciously formulated, that “it is actually in his [capitalist] interest to disguise these particular ratios and inner connections” (134) between surplus value, price and profit. Marx then posits two short comments on why, systematically, production does not appear in the understanding of the creation of extra-value (profit) – both of which are reminiscent of Vol. I:

(1) “The Immediate process of production is itself simply an evanescent moment…so that any inkling of the source of his profit…appears at the most as an equally valid moment alongside the notion that the excess that is realized stems from a movement that is independent of the production process itself and derives from the sphere of circulation, a movement therefore that capital possesses independently of its relation to labour. (135)”

(2) “Under the heading of costs…the extortion of unpaid labour appears simply as an economy in the payment for one of the articles that comprise these costs…(136)”

This is a sort of theory of social-knowledge, wherein the system itself imparts the limits in which its own forms emerge on the level of appearance. This “inversion of subject and object” (136) is replicated at the level of price and value – and their different ratios:

“This inverted relationship necessarily gives rise, even in the simple relation of production itself, to a correspondingly inverted conception of the situation, a transposed consciousness, which is further developed by the transformations and modifications of the circulation process proper. (136)”

With these restatements of the forms of appearance of the system, wherein the excess value, inscribed in the commodity during production, appears as a sale price in excess of cost price…which is ultimately to say that:

“even if the rate of profit is numerically different from the rate of surplus-value, while surplus-value and profit are in fact the same and even numerically identical, profit is still for all that a transformed form of surplus-value, a form in which its origin and the secret of its existence are veiled and obliterated. In point in fact, profit is the form of appearance of surplus-value, and the latter can be sifted out from the former only by analysis. (139)”

The task for Marx then is to tease out this relationship, one masked by the very forms it takes, through an analysis of the differential ratios between rate of profit and rate of surplus-value; not since one is real and the other fantasy – both have their real effects – but in order to show the dynamic that emerges from between these two tendencies – both limits, (falling rate of profit) and possibilities of adjustments, once the necessary assumptions that delimit Marx’s initial theorization are discarded (think Mandel’s discussion of long-waves, or Harvey’s discussion both in the lectures and Limits.)

CHAPTER THREE: The Relationship between Rate of Profit and Rate of Surplus Value

As I got a little lost in the equations of this chapter, let me try to tease out what I think are the main points:

One, note that, right from the outset, in order to formulate the relational logic between these two different rates, that Marx necessarily assumes “that the sum of profit that accrues to a given capital is the same as the total sum of surplus-value which this capital produces in a given period of circulation” and that he necessarily has to ignore that “surplus-value by no means coincides in the majority of cases with profit. (141)” This obviously is not how the system actually works, but to establish a base-line understanding of these two rates in relation to each other. He also has to ignore value of money, turnover, the differential rates of labor productivity, and the effects of the length of the working day, intensity of labour and wage (see 142-43). This is a massive delimitation of variables, so it should be noted that what follows are not formulas to be applied, but rather is an attempt to get to fundamental tendency that underlies phenomenal forms and their multiple variations.

Rate of Profit:
p’ = s/C = s/c+v
p’ = s’v/C = s’v/c+v

(wherein s’v is the ratio between surplus-value and the variable capital advanced, i.e. the rate of surplus value)
This then get us to:
p’:s’ = v:C
Which is to say: “rate of profit is to rate of surplus-value as variable capital is to total capital.”

This is all to set up a series of examples wherein different rates of profit are shown to be derived from various compositions of capital (organic composition), none of which in direct correlation to rate of . These can only be relational (i.e., social, not internal to individual circuits of capital). From these, Marx summarizes his finding by arguing that:

“The rate of profit is thus determined by two major factors: the rate of surplus-value and the value composition of the capital.” (161) He goes on to summarize his findings:

“The rates of profit of two different capitals, or of one and the same capital in two successive different states…are equal: 1) given the same percentage composition and the same rate of surplus-value; 2) given unequal percentage compositions and unequal rates of surplus-value, if the [mathematical] product of the rate of surplus-value and the percentage of the variable part of capital (s' by v) is the same in each case, i.e., the mass of surplus-value reckoned as a percentage of the total capital (s = s'v)…” and reversely, are unequal if “given the same percentage composition, if the rates of surplus-value are unequal….(2) given the same rate of surplus-value are different percentage compositions…[and finally] (3) given different rates o f surplus-value and different percentage compositions…(p. 162).”

CHAPTER FOUR: The Effect of the Turnover on the Rate of Profit
Remember that Marx necessarily had to delimit the multiple variables that could affect the related profit ratios described in Chapter Four – here, Engels takes it upon himself to discuss the effect of turnover. Engels notes that as Vol. II found that turnover affected the rate of surplus-value, then it necessarily follows that it affects profit rate as well. He reminds us that the “mass of surplus-value appropriated in the course of a year is therefore equal to the mass of surplus-value appropriated in one turnover period of the variable capital, multiplied by the number of such turnovers in a year. (167)”As with surplus-value, then, an annual rate of profit can be noted as well, P’ = s’n /c.

What has been emphasized in these last few chapters is the central importance of the organic composition of individual capitals in relation to a general social average. While Vol. I isolated and emphasized labour-time, and more importantly, the portion of labour that is unpaid and thus the site of surplus-value creation, Vol. III expands this into a general social relation – a relation of proportionality – which then allows for larger systemic tendencies to be ascertained. Chapter Five is important because it emphasizes the role that constant capital plays in this general relation, a component that has been somewhat de-emphasized in the general literature. What is interesting that here is that Marx accounts for the fetishistic character of constant capital within capitalist accounting; i.e., though expressed at the level of appearance as an obsession with constant capital, this is expresses (maybe not the correct word) a very real role and tendency that constant capital plays within the organic composition of capital. This chapter ends with some very interesting categories such as the “combined worker”, “universal labour”, and “communal labour” though these are not fully developed. I will note Marx’s discussion of them below…but first….

Marx notes that there is systematically derived “need to increase fixed capital in the modern industrial system” and that this “was…a major stimulus for profit-mad capitalists to prolong the working day. (170)” But even in the case of the extraction of relative surplus value (vs. absolute), in other words, in the case of increasing productivity and labour intensity, a capitalist has to increase the amount of the circulating component of constant capital (i.e. raw materials) as well as increased outlay on fixed capital (machinery, buildings, etc). Thus a general tendency to build up constant capital outlays, something that was noted in Vol. I when Marx discussed technological innovation as well.

Building off of the social character of production, and specifically its character in industrial production (i.e. the mass concentration of labor in one site), Marx also notes the economical use of industrial refuge (the re-use or re-cycling of by-products of the production process). Why is this important? Marx hints that “if surplus-value is a given factor, the profit rate can be increased only by reducing the value of the constant capital required for the production of the commodities in question.” (173) Thus economizing constant capital outlays.

The most interesting aspect that I found in this section was where Marx talks about the general effects of innovation in one sector of production and its necessary, general affect on other sectors of industry:

“the development of the productive power of labour in one branch of production...appears as the condition for a reduction in the value and hence the costs of means of production in other branches of industry…This is evident enough, for the commodity that emerges from one branch of industry as a product enters another branch as means of production. (174)”

This then leads to a condition wherein:

“the rise in the profit rate for one branch of industry depends on the development of labour productivity in another. The benefit that accrues here to the capitalist is once more an advantage produced by social labour, even though not by the workers whom he direct exploits. (175)”

This helps explain the capitalist’s class obsession with rates of constant capital (i.e., cost of machinery, buildings, infrastructure, etc) – e.g. from this important tendency/factor that constant capital plays in the organic composition of capital (see 176). And yet, to the capitalist, the “economical use of constant capital still appears…as a requirement completely alien to the worker and absolutely independent of him” (177) which means not only that the development of this innovation was a product of social labor, but that this is one component in a ratio that involves variable capital. This is yet another side of fetishism, wherein “the capital relation actually does conceal the inner connection in the state of complete indifference, externality and alienation in which it places the worker vis-à-vis the conditions of realization of his own labour. (178)” The necessary connection between labour productivity and the economical use of constant capital is thus concealed.

Marx moves through factory reports that describe the detrimental effects of capitalists cutting corners on constant capital outlays (i.e., not fixing machinery, unhealthy factory environments, etc) - reminiscent of the more social-history elements of Volume One. We are being shown the real human effects of this system. Again, this all of derives from the social character of production. In this regard, Marx finishes the chapter by deploying three, somewhat under-theorized, terms:

-Combined worker: “it is only the experience of the combined work that discovers and demonstrates how inventions already made can most simply be developed, how to overcome the practical frictions that arise in putting the theory into practice…[etc.]” (198-199). This then gets divided into two elements….
-Universal Labour: “is all scientific work, all discovery and invention. It is brought about partly by the cooperation of men now living, but partly also by building on earlier work.”
-Communal Labour: “simply involves the direct cooperation of individuals. (199)”

We have to assume that this distinction is historically-specific, though, assumedly, they have a certain omni-historical or possibly ontological quality to them. It is reminiscent of the more anthropological sections that Marx used to begin certain sections concerning human history and labor in Vol. I. Here, however, we need to ask, how should we understand these terms? Are these terms that cut through history? At what point does the ‘combined’ or ‘universal’ character (though distinct terms) arise? And what is the analytical value of these terms – what do they allow us to ask, or what do they automatically assume?

CHAPTER SIX: The Effect of Changes in Price

Beginning from the assumption that “everything that gives rise to a change in the magnitude of c [constant capital], and therefore of C [total capital], also brings about a change in the profit rate (201)” Marx runs through the effects of changes in prices; noting the imperative for a reduction of import tariffs in order to acquire cheap, raw materials for production. This opens into a short discussion of foreign trade – but mainly concerning import/export politics and its relationship to this tendency within the proportionality between various capital’s organic compositions.

One section that I think clearly expresses what Marx is trying to tie together here is when he discusses productivity, machine cost, market contraction/expansion and the fluctuation of input prices all in relation to each other:

“the size and value of the machines employed grows as the productivity of labour develops, but not in the same proportion as this productivity itself, i.e. the proportion to which these machines supply an increased product. Thus in any branch of industry that uses raw materials, i.e. wherever the object of labour is already the product of earlier labour, the increasing productivity of labour is expressed precisely in the proportion in which a greater quantity of raw material absorbs a certain amount of labour, i.e. in the increasing mass of raw material that is transformed into products, worked up into commodities, in an hour, for example. In proportion therefore as the productivity of labour develops, the value of the raw material forms an ever-growing component of the value of the commodity produced, not only because it enters into it as a whole, but because in each aliquot part of the total product, the part formed by the depreciation of the machines and the part formed by newly added labour both constantly decline. As a result of this falling movement, a relative growth takes place in the other component of value, that formed by the raw material, provided that this growth is not cancelled out by a corresponding decline in the raw material’s value arising from the increasing productivity of the labour applied in its own creation. (204)”

I thought that this paragraph sums up nicely what is at stake, and how many variables Marx is trying to highlight in the relation of capital outlays that go into a commodity’s value and which expresses general social differentials of profit and surplus-value ratios (see p. 201-204).

In the section entitled “Revaluation and Devaluation of Capital; Release and Tying-Up of Capital” Marx notes that he needs to account for how is appears that the rate of profit and it mass can fluctuate independently of the “movements of surplus-value”, but actually derive from this movement. Again, its both to show the connections, as well as account for the fetishistic character of an ‘independent’ movement.

But first a clarification of terms:

Revaluation/Devaluation: “capital present increases or decreases in value as the result of certain general economic conditions…that the value of the capital advanced to production rises or falls independently of its valorization by the surplus value it employs. (206)” Note that here, we are working specifically with the general social determination of value that then affects individual capitals.

Release/Tying-Up of Capital: The latter means that “out of the total value of the product, a certain additional proportion must be transformed back into the elements of constant or variable capital, if production is to continue on its old scale” while “release” means that “a part of the product’s total vale which previously had to be transformed back into either constant or variable capital becomes superfluous for the continuation of production on the old scale and is now available for other purposes. (206)”

I wonder if we can connect the notion of “release” with Marx’s notion of “set-free” from Volume II – a term that Marx used to talk about the source of the funds that went into the credit pool that then could return to lubricate production during periods of capital shortages and crises?

Anyhow, release and tying up can be related to both constant capital – in the case of constant for example, value depreciation over time of machinery, technical innovation, etc., or, in the case of variable capital, the rise of the necessary commodities for labour reproduction (what Harvey called the “commodity basket”), a fall in wages (i.e., reserve army, etc). These aspects then are the “result of the devaluation and revaluation” of the elements of capital. Its important at this point to recall the Mandel introduction when Mandel pointed to a debate in Marxian economics concerning what he called the ‘feedback’ effect – i.e., how to determine the affects of fluctuating prices on already purchased inputs. While Marx notes “if [raw material] prices [rise], it may be impossible to replace it completely after deducting wages from the value of the commodity. Violent fluctuations in price thus lead to interruptions, major upsets and even catastrophes in the reproduction process. (213)” Here we can think of this in a general process of production circuits and the intervals of capital turnovers, but as this is a process constantly in motion, with multiple circuits (money, production and commodity), involving both the sphere of production and circulation, the exact effects become difficult to work out.

Also, we return to the question of crises and cycles here. The rest of this chapter is Marx both theorizing and then tracing specific examples (specifically the cotton crisis of 1861-65) of crises. Here, this is not systemic crises, but capital cycles emerging from specific crises in valuation and turnover. Here are some of the more important points:

1) That the “more capitalist production is developed…and the more rapid the accumulation…the greater is the relative overproduction of machinery and other fixed capital, the more frequent the relative overproduction of plant and animal raw materials, and the more marked the previously described rise in their price and the corresponding reaction. (214)”

2) With the increasing high prices of materials/machinery that comprise constant outlays, these necessarily collapse (due to a decline in demand and an expansion of production elsewhere). This then effects the reproduction of the raw materials themselves, and re-establishes the monopolies of the already established/developed areas of their production which can withstand this crash.

I am going to skip Marx’s discussion of the Cotton Crisis of the 1860s, and rather end this with a discussion of regulation/market cycles. In Vol. I, Marx noted the contradiction in industrial capitalism wherein, at the very site of production, the factory, regulation, control, management of all aspects was the order of the day. But when anyone discussed regulation of the market (including, most importantly, the labour-market) that this was anathema to the very system. Here, in regards to raw material inputs, Marx notes the same, though momentary, contradiction:

“All ideas of a common, all-embracing and far-sighted control over the production of raw-materials – a control that is in fact incompatible, by and large, with the laws of capitalist production, and hence remains forever a pious wish, or is at most confined to exceptional common steps in moments of great and pressing danger and perplexity – all such ideas give way to the belief that supply and demand will mutually regulate one another. (215)”

Thus cycles/crises are recognized as the unfortunate, though inevitable, consequences of the supply/demand market faith (e.g., Smith) – with the only recourse taken as national import/export tariffs.

For those particularly interested in questions of agriculture – check out the bottom of 216. Following the same line of argumentation – the incompatibility of regulation of raw material with capitalist production – Marx writes “The moral of the tale….is that the capitalist system runs counter to a rational agriculture, or that a rational agriculture is incompatible with the capitalist system (even if the latter promotes technical development in agriculture) and needs either small farmers working for themselves or the control of the associated producers. (216)” Andy? Robert?

Chapter Seven: Supplementary Remarks
These were disparate notes that Engels collected that pertained to aspects discussed thus far in Part One. These notes reiterate that Marx’s main task is to establish a mediated connection between surplus-value and profit (which is to say, to establish surplus-value, and thus his labour theory of value, as an operative economic category), and to account why political economy has failed to make the connection. Thus the chapter is a general statement of this position, and then a direct analysis of Rodbertus’s economic theory (see 236-237). Marx ends with restating that an “increase in the rate of profit always stems form a relative or absolute increase in the surplus value in relation to its cost of production, i.e. to the total capital advanced, or from a reduction in the difference between the rate of profit and the rate of surplus value. (237)”

Lastly, and importantly, Marx explicitly states that “The value of any commodity – and thus also of the commodities which capital consists of – is determined not by the necessary labour-time that it itself contains, but by the socially necessary labour-time required for its reproduction. This reproduction may differ from the conditions of its original production by taking place under easier or more difficult circumstances. (238)” Recall Mandel’s comments in the introduction in relation to the feedback/transformation debate (56-58).

Onto Part Two…..