C 900 + V 100 + S 100 = E 1100, R = 10%.
Now, assume that there is a similar Capital, but where only 10% of the C is transferred into the final product in any one year. So:
K the total Fixed and Circulating Capital = 900, but C the circulating Constant Capital = 90.
K 900, C 90 + V 100 + S 100 = E 290, R = 10%.
Although, the total Exchange Value (E) of the output has fallen dramatically, the Rate of Surplus Value S/V remains at 100%, and because the rate of profit, R, is calculated on the total Capital advanced K + V, it remains at 10%. However, in year 2, because a portion of K, i.e. the 90 of C, has been used up we will have:
K 810, C 90 + V 100 + S 100 = E 290, R = S/K+V = 100/810 + 100 = 10.99%.
The increase in the Rate of Profit is due to the fact that the Value of the Constant Capital has fallen as a consequence of a portion being consumed in the final product. However, this apparent good fortune of the Capitalist does not really help him. Assuming everything else remains constant, at the end of Year 10, all of the Value of C will have been used up in wear and tear, and transferred to the final product. The £90 of C transferred into the end product, and thereby recovered by the Capital in the price of the end product, will have been accumulated to an amount of £900, which is just enough to replace the now worn out K.
Depreciation, however, occurs outside the Labour Process, outside the valorisation process, as Marx described in the quote at the end of Part 1. In fact, it appears to occur not because of wear and tear, or because the means of production take part in that process, but because they do not! Yet, as Marx says, no Use Value can transfer more Value to the final product than it possesses. The loss of value of Constant Capital due to depreciation, therefore, does not reappear is not recovered in the Value of the final product, in the way that wear and tear is. In fact, quite the opposite. Because, the Value of the Constant Capital declines as a result of depreciation, the value it is able to transfer to the final product is likewise reduced! So:
If we have this Capital with K = 900, of which 10% is transferred as C each year i.e. it is worn out after ten years, then:-
K 900, C 90 + V 100 + S 100 = E 290, R = 10%. However, if K is depreciated by 10% per year, then in year 2:
K had been reduced to 810 by depreciation, it loses 10% of this as a consequence of wear and tear, during the next year, the amount lost to wear and tear i.e. transferred to the final product continues to fall, as the Value of K continues to depreciate. That has to be the case, or else it would after ten years have transferred more Value to the final product than it possessed. So, in Year 3 K would have been depreciated to 810 – 81 = 729, meaning 72.9 is transferred in wear and tear and so on.
But, for the Rate of Profit, it is not just the reduction in the Value of Capital due to depreciation to be taken into consideration, but the fall in its Value due to the portion transferred to the final product. So in year 2:
K = 900 less 90 Depreciation Year 1 = 810, less 90 wear and tear Year 1 = 729. So
K 729, C 81 + V 100 + S 100 = E 281, R 12.06%.
The Rate of Profit is rising faster than where there was no depreciation, because the Value of the Capital is being reduced faster. However, where the Capitalist reproduces the Value of C transferred to the final product due to wear and tear, they cannot recover the value of C lost by depreciation in the same way. It represents a Capital Loss outside the process of production, just as would be the case if a machine was broken, or material stolen. If the depreciation is due to natural factors such as age, rusting, or other natural deterioration, it represents a Capital Loss to the Capitalist, and is indeed a loss to the whole Capital Stock. Capitalists simply have to suck it up, and introduce additional Capital to cover it, or accept that their Capital has shrunk. On the other hand, if another Capitalist bought the firm, they would do so on the basis of these current valuations, and would make the higher rate of profit on it accordingly. In that respect it represents a Capital Loss to the particular Capitalist, not to Capital as a whole.
If, the Depreciation is what Marx terms Moral Depreciation that is it is a result of a rise in productivity that makes producing the particular machines, or material cheaper, or else is a result of an existing machine becoming obsolete, because of the introduction of some new better machine, the situation is somewhat different. In the case, of the first type of depreciation, when the Capitalist comes to replace their machine or material, they have to pay its original undepreciated price, for which they have not been compensated in the price of the final product. However, in the latter case, their loss due to moral depreciation is offset precisely by the fact that they now buy the replacement machine at the now lower price. So assume that all of the Constant Capital is consumed in one year.
C 900 + V 100 + S 100 = E 1100, R = 10%.
Now, C is morally depreciated by 50% due to a rise in productivity in its production.
Although, the capitalist paid £900 for it, it now becomes worth £450, so
C 450 + V 100 + S 100 = E 650, R = 18.18%.
This seems like wonderful news to the capitalist, in fact as he says in discussing this later in Vol III, the Capital loss that he suffers in the fall in value of his Capital is compensated for by the rise in his rate of profit, and vice versa. If the capitalist invests his Surplus Value, it is good news, because the Surplus value will now buy twice as much C, but if they consume all their Surplus Value the situation does not seem so good. In that case, when they come to reproduce the capital used up they will find that they only have enough to buy as much as they had before. That is because the fall in the Value of C was passed through into the price of the final product, which fell from 1100 to 650. They still only have enough to buy C 450 and V 100.
Value can only be transferred to the final product from means of production to the extent that their Use Value is transferred. That can only happen as a consequence of it being consumed by Labour Power in the production process. That does not happen with depreciation. No Use Value is transferred as a result of depreciation. Nor is it like the case of necessary waste referred to earlier. There waste, sawdust, metal shavings, “Devil's Dust”, increases in proportion to the amount of material consumed, the amount of time machines are run etc. But, as Marx describes, depreciation occurs whether material is consumed, machines are run or not. In fact, as Marx describes later in Vol III, where capitals face Moral Depreciation, they try to mitigate it by using existing machines more intensively. This is one reason that Capital has sought to introduce things such as “Just In Time”, which means that they do not suffer from depreciation, because necessary material is only brought in to be used, as and when it is required. It takes part in the Labour Process without any delay during which it could be depreciated. The main reason for JIT, however, is so that Money Capital is not tied up unproductively in holding stock.
Marx, however, makes clear that this is a consequence that affects individual capitalists not Capital itself. He says that where one Capitalist loses out another gains. The capital is bought up at its current value by some other Capitalist. An indication of the difference between Capital Gains/Losses and Profits/Losses from production can be given by the different treatment for Tax. Individuals and companies pay some form of Income Tax on their earnings from selling their commodities (workers wages, companies profits). But, they pay Capital Gains Tax on any Gain they make as a result of the revaluation of their assets.
Things are different with Labour Power compared to Constant Capital. The means of production can only, at most, transfer their own Use Value to the product, and as has been described, as a consequence of depreciation, not even all of that can be transferred. But, every minute that labour-power is working, it is creating a new use Value, and with it new value.
NB. We should insert the proviso here that Marx set out in the previous chapter, which is that the worker is actually creating new Use Values, and is working to the average standard. If the worker produces faulty products then these are not Use Values, and are not Values either. Rather than creating new value, the worker has destroyed existing Value embodied in the means of production. This is why the employer has supervisors, Quality Control, and penalties for poor workmanship. It is why, also, as Marx describes, slave labour is so inefficient.
“This is one of the circumstances that makes production by slave labour such a costly process. The labourer here is, to use a striking expression of the ancients, distinguishable only as instrumentum vocale, from an animal as instrumentum semi-vocale, and from an implement as instrumentum mutum. But he himself takes care to let both beast and implement feel that he is none of them, but is a man. He convinces himself with immense satisfaction, that he is a different being, by treating the one unmercifully and damaging the other con amore. Hence the principle, universally applied in this method of production, only to employ the rudest and heaviest implements and such as are difficult to damage owing to their sheer clumsiness. In the slave-states bordering on the Gulf of Mexico, down to the date of the civil war, ploughs constructed on old Chinese models, which turned up the soil like a hog or a mole, instead of making furrows, were alone to be found. Conf. J. E. Cairnes. “The Slave Power,” London, 1862, p. 46 sqq. In his “Sea Board Slave States,” Olmsted tells us: “I am here shown tools that no man in his senses, with us, would allow a labourcr, for whom he was paying wages, to be encumbered with; and the excessive weight and clumsiness of which, I would judge, would make work at least ten per cent greater than with those ordinarily used with us. And I am assured that, in the careless and clumsy way they must be used by the slaves, anything lighter or less rude could not be furnished them with good economy, and that such tools as we constantly give our labourers and find our profit in giving them, would not last out a day in a Virginia cornfield – much lighter and more free from stones though it be than ours. So, too, when I ask why mules are so universally substituted for horses on the farm, the first reason given, and confessedly the most conclusive one, is that horses cannot bear the treatment that they always must get from negroes; horses are always soon foundered or crippled by them, while mules will bear cudgelling, or lose a meal or two now and then, and not be materially injured, and they do not take cold or get sick, if neglected or overworked. But I do not need to go further than to the window of the room in which I am writing, to see at almost any time, treatment of cattle that would ensure the immediate discharge of the driver by almost any farmer owning them in the North.” (Note 1, p 191)
If the worker produces products that are not wanted these are also not Use Values and have no Value.
However, setting all of the provisos aside, the worker can work and continue producing new value beyond the point at which the cost of reproducing their labour power has been met and this new value over and above that constitutes Surplus Value.
“The surplus of the total value of the product, over the sum of the values of its constituent factors, is the surplus of the expanded capital over the capital originally advanced. The means of production on the one hand, labour-power on the other, are merely the different modes of existence which the value of the original capital assumed when from being money it was transformed into the various factors of the labour-process. That part of capital then, which is represented by the means of production, by the raw material, auxiliary material and the instruments of labour does not, in the process of production, undergo any quantitative alteration of value. I therefore call it the constant part of capital, or, more shortly, constant capital.
On the other hand, that part of capital, represented by labour-power, does, in the process of production, undergo an alteration of value. It both reproduces the equivalent of its own value, and also produces an excess, a surplus-value, which may itself vary, may be more or less according to circumstances. This part of capital is continually being transformed from a constant into a variable magnitude. I therefore call it the variable part of capital, or, shortly, variable capital. The same elements of capital which, from the point of view of the labour-process, present themselves respectively as the objective and subjective factors, as means of production and labour-power, present themselves, from the point of view of the process of creating surplus-value, as constant and variable capital.” (p 202)
“The definition of constant capital given above by no means excludes the possibility of a change of value in its elements. Suppose the price of cotton to be one day sixpence a pound, and the next day, in consequence of a failure of the cotton crop, a shilling a pound. Each pound of the cotton bought at sixpence, and worked up after the rise in value, transfers to the product a value of one shilling; and the cotton already spun before the rise, and perhaps circulating in the market as yarn, likewise transfers to the product twice its, original value. It is plain, however, that these changes of value are independent of the increment or surplus-value added to the value of the cotton by the spinning itself. If the old cotton had never been spun, it could, after the rise, be resold at a shilling a pound instead of at sixpence. Further, the fewer the processes the cotton has gone through, the more certain is this result. We therefore find that speculators make it a rule when such sudden changes in value occur, to speculate in that material on which the least possible quantity of labour has been spent: to speculate, therefore, in yarn rather than in cloth, in cotton itself, rather than in yarn. The change of value in the case we have been considering, originates, not in the process in which the cotton plays the part of a means of production, and in which it therefore functions as constant capital, but in the process in which the cotton itself is produced. The value of a commodity, it is true, is determined by the quantity of labour contained in it, but this quantity is itself limited by social conditions. If the time socially necessary for the production of any commodity alters — and a given weight of cotton represents, after a bad harvest, more labour than after a good one — all previously existing commodities of the same class are affected, because they are, as it were, only individuals of the species, and their value at any given time is measured by the labour socially necessary, i.e., by the labour necessary for their production under the then existing social conditions.” (p202-3)
Marx then goes on to demonstrate that not only does the raw material have to be revalued according to its current reproduction costs, but the same applies to the machinery and other equipment costs, buildings and so on.
“If in consequence of a new invention, machinery of a particular kind can be produced by a diminished expenditure of labour, the old machinery becomes depreciated more or less, and consequently transfers so much less value to the product. But here again, the change in value originates outside the process in which the machine is acting as a means of production. Once engaged in this process, the machine cannot transfer more value than it possesses apart from the process.” (p 203)
That reaffirms the point I made earlier in respect of moral depreciation. In other words, the point that Marx is making here in respect of these changes in Capital Values, is that I have made elsewhere in relation to the TSSI. It is that these changes occur outside the labour process – though they may well occur within some other labour process – and consequently have nothing to do with the process of creation of Surplus Value. They are in truth to be analysed as Capital Gains or Losses, which even bourgeois Economics and Accountancy is able to distinguish from trading Profits and Losses.
These kinds of “profits” are the stock in trade of Neo-Classical economics, which as Mandel said often bases its examples on the Bond and Stock Markets, where changes in Capital Values are frequently described as a Profit or Loss.
Changes in the proportion of Constant to Variable Capital does not affect their functions only the quantitative relation is altered.