Monday, 14 October 2019

Theories of Surplus Value, Part III, Chapter 23 - Part 28

The importance of the relation of fixed capital to circulating capital resides in its effect on the rate of turnover of capital. By increasing the rate of turnover, it increases the amount of surplus value for any given mass of advanced capital. Where the turnover period is prolonged, the opposite occurs. 

“It is clear first of all that the difference between fixed and circulating capital can affect surplus-value (apart from the differences in the mass of living labour employed, i.e., differences which are related to the ratio of variable to constant capital) only insofar as it affects the turnover of the total capital. It is therefore necessary to investigate how the turnover affects surplus-value. Two factors are obviously closely connected with it: 1) surplus-value cannot be accumulated, reconverted into capital, so rapidly (so often); 2) the capital advanced must increase both to continue to employ the same number of workers, etc., and because the advances of money which the capitalist makes to himself to cover his own consumption costs must extend over a longer period. These factors are important in connection with profit. Here, however, it is, to begin, with, only necessary to examine how they affect surplus-value. One must moreover always clearly distinguish between these two factors.” (p 389-90) 

In other words, suppose £100 of capital is laid out, during the year, and turns over just once. It produces £10 of surplus value, so that the rate of profit is 10%. The amount of surplus value is a function of the total labour exploited during the year. Suppose then that the capital now turns over twice during the year. £100 of capital continues to be laid out, and the same quantity of labour is thereby exploited, producing the same £10 of surplus value. However, now only £50 of capital is advanced (but turned over twice) to produce this £10 of surplus value, so the annual rate of profit doubles to 20%, even though the amount of surplus value has remained constant. 

“The rate of profit is not simply the surplus-value calculated on the capital advanced, but the mass of surplus-value realised within a given period, that is, in a definite period of circulation. Insofar as the difference between fixed and circulating capital affects the mass of surplus-value which a particular capital yields within a given period, it affects the rate of profit. Two aspects must be taken into consideration: firstly, the difference in the size of the capital advanced (relative to the surplus-value realised) and secondly, the difference in the length of time for which these advances have to be made before they are returned with a surplus.” (p 390) 

So, if we take a capital of £100, which produces £10 of profit, the rate of profit is 10%. But, this rate of profit is itself essentially meaningless. In the same way, if I borrow £1,000, and I'm told the interest to be paid is only 1%, it makes a big difference whether this 1% interest is for a day, a week, a month or a year. After ten days, if I go to pay off the loan, I might be shocked to find that I owe, not £1,010, but £1,100. That's not 1%, but 10%, I might protest, only to be told that the 1% was per day, not for the duration of the loan. 

The rate of profit, like the rate of interest, or the rate of surplus value, is only meaningful if it is for a given period of time, such as for a year. In the same way that lenders have to quote an annual percentage rate of interest, so the rate of profit is only meaningful in determining the average rate of profit etc., if it is calculated on the basis of profit produced in a year by a given amount of advanced capital. If £100 of capital, advanced for a month, produces £10 of profit, so producing a 10% rate of profit, this £100 of advanced capital produces £120 of profit in a year, so that the annual rate of profit is 120%. because the average rate of profit is based upon this annual rate of profit, this is why the rate of profit/profit margin on commodities produced by capitals that turn over quickly is low, whereas the profit margin on commodities where the capital turns over slowly is high. 

The Rule of Unelected Ruling Class Judges - Part 10 - Conservative Social Democracy v Progressive Social Democracy (2)

Part 10 - Conservative Social Democracy v Progressive Social Democracy (2) 

What Thatcher's government represented was the end of the period during which progressive social-democracy was in the ascendant, and the start of the period in which conservative social-democracy replaces it. In the long wave, post war uptrend, rapidly expanding socialised capital produces rapidly expanding profits. The rapidly expanding profits also meant that the revenues from those profits – interest/dividends, rents, and profit of enterprise could expand along with it. It doesn't require that the rate of interest or rate of rent needs to rise. More land being cultivated results in more rent, even if rental per hectare falls. More profits means that even with the same dividend yield, the amount of dividends can rise, and the same with yields on bonds. That can be because either the price of shares and bonds rises, or, as with more land in cultivation, because more shares and bonds are issued. As with rental, the latter means that a greater mass of dividends/interest is also compatible even with lower yields. 

During most of this period, even though interest rates and rates of rent do not rise much, or even fall, this does not result in large rises in asset prices, because a large portion of revenues are poured back into real capital accumulation, rather than into speculation in existing assets. Indeed, because more land is brought into cultivation, and more bonds/shares are issued to finance additional real capital accumulation, this additional supply of assets/fictitious capital, acts to push the price of those assets down, counteracting the forces pushing them up. The interests of the owners of fictitious capital are then consonant with the interests of large-scale socialised capital, and whatever helps that socialised capital to produce more profits is thereby in the interests of the owners of that fictitious capital whose main concern, during this period, is to maximise their revenues. 

The end of this period of uptrend changes those conditions. Already, in the 1960's, as wages rise, because the period of extensive accumulation of capital means that labour supplies start to be used up, this begins to squeeze profits. By the 1970's, this rise in wages, at a time when the rise in productivity also slows, causes this squeeze on profits to intensify. It results in a crisis of overproduction of capital, i.e. wages rise to an extent that any additional employment of capital only pushes wages even higher, to a level where the additional labour produces no additional surplus value, or even reduces the actual mass of surplus value, as a result of a falling rate of surplus value. The additional capital cannot act as capital. It has been overproduced

Anyone doubting the role of interest rates on asset prices, only
need look at this chart.
As this period of squeeze on profits occurs, during the 1960's and 70's, capital is still seeking to expand. The very rises in wages that squeeze profits, means that the demand for wage goods rises sharply, illustrating, as Marx says, that such crises are not, as Malthus and the Keynesians believed, due to “underconsumption”. Every capital involved in wage goods production seeks to expand to meet this increased demand, and thereby expand its mass of profit, and if possible its share of the market. It must accumulate additional capital, including more constant capital, and more workers. In the process, thereby, the suppliers of machines, materials and so on to such companies also seek to expand to meet this increased demand. But, now, they must expand at a time when their own profits are being squeezed. They must finance a greater proportion of their expansion not directly from their own profits, but by borrowing more money-capital. They can take out bank loans, issue more bonds or shares as a means of doing so. Whichever option they take, it means that the demand for money-capital rises relative to its supply, and so this causes interest rates to rise. This rise in interest rates now causes the prices of assets to fall, because asset prices are determined by capitalised revenues. Speculators will offer lower prices for any newly issued shares or bonds, in order to obtain a higher yield on them. This fall in asset prices, during the period of the 1960's and 70's, is hidden because of the effect of inflation during the period. As inflation rose, so asset prices rose too. But adjusted for inflation, asset prices fell between 1965 to 1982, as interest rates rose. 

The underlying divergent interests of the owners of fictitious capital from the interests of socialised capital now sharpens. The former represent the dominant section of the ruling class, and the fraction that wields political control. But, this reality itself rests upon a contradiction. As Marx describes in Capital III, this fictitious capital, as its name suggests, is not real capital. It does not independently self expand. It only expands, in the form of interest/dividends, because productive-capital, bought with the loaned money-capital, itself self-expands via the appropriation of the average profit, which itself is dependent upon the creation of surplus value in production. Interest-bearing capital (fictitious-capital), like merchant capital and landed property, is thereby always ultimately subordinated to productive-capital. But, this plays out as a competitive struggle between these different fractions of capital. 

Landed property seeks to obtain higher rents, but if rents rise to a level whereby capital cannot make the average profit, the demand for land will fall, and rents will drop. Commercial capital seeks to force down the prices it pays for the elements of commodity-capital it buys from producers, but if commercial profits rise above the average annual rate of profit, capital will leave productive activity and enter commerce, thereby increasing competition in that sphere, causing profit margins to fall, and prices paid to producers to rise. Interest-bearing capital will always seek to extract the highest rate of interest, but if interest rates rise too high, the demand for money-capital will fall, whilst producers will put more money into the money market, and finance more of their investment internally from profits, thereby depressing interest rates. 

As Marx points out, in Capital III, Chapter 23, if too much money goes into becoming interest-bearing capital, this money-capital becomes depreciated. It causes interest rates to fall, and thereby causes the price of financial assets to rise, so that the depreciated money-capital buys fewer of these financial assets. This is what has caused the black hole in pension funds, as the price of the assets they must buy to provide future revenues increased astronomically. Marx describes this in the above chapter, pointing out that, as the rate of interest then falls, the revenues (interest) for some of those that depend on them for their existence, drop so low that they cannot survive on them. They must then convert themselves back into productive-capitalists, obtaining profits rather than interest/dividends. Of course, many ordinary workers that previously relied on interest from savings, to supplement their pension etc., cannot do that. Instead, they have been encouraged to become buy-to-let landlords

What Marx could not have envisioned is that there was another alternative to the owners of fictitious capital disposing of it and becoming productive-capitalists. That is that, rather than relying on the revenue produced by these assets, they could instead rely on continuously rising asset prices producing large capital gains, which could then be realised, and used to convert capital into revenue. But, Marx was aware of that potential. He describes in Theories of Surplus Value what happens when savers consume the capital they have saved, rather than relying only on the interest as revenue. It means that their capital is diminished, and so the potential for that capital to provide future revenues is also diminished creating a vicious circle. And, Marx also analysed that this was what happened to the old landed aristocracy. It borrowed against its landed estates as collateral, to finance its continued lavish consumption, but that meant that increasingly, as its own revenues from rent failed to cover the interest it had to pay on its borrowing, it was forced to sell off parts of its estate. A similar thing is happening today with buy-to-let landlords, even before interest rates on their mortgages rise, simply because some of the tax advantages they previously obtained have been removed. 

Conservative social-democracy rests upon the interests of these owners of fictitious-capital. As such its own ideology is itself based upon a fiction. This illustrates Marx's theory of historical materialism, by which being determines consciousness. Because conservative social-democracy does not understand the concept of value, as opposed to price, and because, therefore, it does not understand the difference between surplus value and profit, it sees all rises in prices, particularly asset prices, as an increase in value. Because it sees such increases in prices, relative to their previous or historic price, as being a profit, it confuses capital gains with profits. This results in an obvious delusion. If the price of a house was £1,000 yesterday, and is £2,000 today, this is seen as an increase in its value, and the owner of the house is said to have made £1,000 of profit. In fact, no such thing has happened. The rise in price occurred – assuming there has actually been no change in productivity in house building – not because its value rose, but simply as a result of demand exceeding supply. Even if its value had risen due to a change in productivity, it would not mean that a surplus value had been produced or profit had been made. It would only mean that the owner of the house had made a capital gain. If potential buyers and sellers feel that this excess of demand over supply will persist, then both will speculate in order to make capital gains. Buyers will increase their demand, and offer higher prices thinking they must buy now, before prices rise further. Sellers will either hold off selling or will put their houses on the market at inflated prices, knowing that buyers will be more likely to pay it, or that if they won't this week then they will next week. 

Of course, as with all such speculation, whether its with Tulip bulbs, Railway shares, technology shares, or houses this speculative frenzy becomes a self-fulfilling prophecy. Speculative buyers increase demand, pushing prices higher, sellers seeking capital gains restrict supply at every price, again thereby forcing up prices. This speculative frenzy pushing up asset prices into ever larger bubbles occurs even though there has been no actual change in the value of the house, the tulip bulb, the railway or technology share. But, such speculative frenzies can continue for some time before the bubble bursts, and as the secondary markets for all of these assets expand and become more liquid, speculators in one asset, can switch from one asset class to another, so that asset prices as a whole can be inflated over a much longer period before the bubbles in all of them burst, as happened in 2008. 

In a period when asset prices inflate rapidly, this produces a corresponding world view about the nature of wealth creation. Similarly, when asset prices go nowhere, or fall, whilst real revenues rise, as a result of a rapid expansion of value creation, that creates another. This is being determining consciousness. We are repeatedly told nowadays, for example, that, in the long run, asset prices rise, even if they may have periodic corrections, or crashes. But, as Keynes said, in the long run we are all dead. If you had bought shares just ahead of the 1929 Wall Street Crash, it would have taken until the 1950's, before those shares would have returned to their 1929 level. It similarly, took about 15 years, before the NASDAQ recovered its 2000 level, prior to the Tech Wreck.

The same is true with property. A look at UK house prices from 1900, shows that for nearly 70 years they were essentially flat. My parents bought an old terraced house in 1947, when there was a post-war housing shortage, for £1,000. Three years later, they could have bought a new semi-detached house for just £250, and in 1975, they got just £1,000 for the house, which represented a fraction in real terms of the original price. That clearly had an effect on consciousness about how beneficial, or not, speculation on asset price rises can be.  Despite more rapid economic growth in the 1950's, and 60's, house prices rose very little.

But, in the 1980's, a whole new generation of people were introduced to the idea that the source of wealth was, in fact, such speculation, and the realisation of capital gains, rather than the creation of new value. Conservative social-democracy believes that capital gains are additional wealth, and realised capital gains are additional revenue.

Both Labour and Tory parties are coalitions of different ideologies. Labour comprises conservative social-democrats like Kinnock, Blair and Brown on its right, through to progressive social-democrats like Attlee, Wilson, Benn, Corbyn and McDonnell, to socialists, nearly all of whom are only to be found within its rank and file membership. The conservative social democrats rest upon that fictitious-capital, and the ideology it engenders. Its why Blair and Brown placed so much faith in the rise of asset prices, and ability to borrow against it, which was also behind their support for PFI. Whilst they recognised the need for planning and regulation, it was planning and regulation only at the level of the state (including international para state bodies), whilst the market itself, and the enterprises within it were deregulated, which in turn leads to the blowing up of asset prices bubbles, and in turn leads to the 2008 crash. They leave the planning and regulation at enterprise level to the shareholders, and their appointees, who understandably make hay in that environment. 

The progressive social-democrats recognise not only the requirement for this macro-economic planning and regulation, but also the requirement to extend it to the enterprise level. But, these are, after all, social-democrats with a functionalist, managerialist, bureaucratic mindset, based upon a basically trades union consciousness of bargaining within the system. Their approach to planning and regulation, at the enterprise level, amounts only to corporatism. At its peak it amounts to state capitalism, but beneath that, as the 1970's showed, it amounts to asking companies to enter into Planning Agreements, using a carrot and stick approach. Because it does not understand what capital is, and so also does not understand what fictitious capital is, its solutions are necessary confused and misplaced. 

That can be seen in the proposals of the current Corbyn/McDonnell leadership. It does not understand that the capital of companies is owned by the company itself and not by the shareholders. So, its proposals to buy these companies, by buying out the shareholders, are both hugely expensive and unnecessary. If we take a company like Severn Trent, its capital does not belong to its shareholders; it belongs to Severn Trent itself, as a legal entity. Its impossible, therefore, to buy Severn Trent from its shareholders, because they do not own it to begin with. All they own is their shares, a debt instrument that enables them to obtain interest on those shares, in the form of dividends. Buying out Severn Trent shareholders by issuing bonds to raise money for that purpose, is a rather pointless exercise. Simply directly converting the shares into bonds would be a more rational proposal. But, not even that is necessary. 

The immediate effect of converting Severn Trent shares into bonds would be to remove the right of those shareholders to vote at company meetings, and to appoint Boards of Directors etc. But, that ought to be the case for all shareholders anyway. There is no reason why shareholders should have such a vote, whereas bondholders and other creditors of the company do not. They only exercise that right because the ruling class, via its representatives in parliament, framed company law so as to give them that right to exercise control over capital they do not own. Its long past time that right was removed. Rather than unnecessarily buying out shareholders, or converting shares to bonds, a Labour government only need to change company law, so as to remove the right of shareholders to any such vote, and to ensure that industrial democracy is introduced so that, company boards are wholly elected by the company's workers and managers. But, for reasons I will come to, even progressive social-democrats will not pursue such a course. 

On the Left of the Labour Party, the socialists/Marxists would pursue such a course, but they recognise that it amounts to a Political Revolution. Shareholders will not surrender their control over real capital without a massive fight, and that will require not just acts of parliament, but the mobilisation of the entire working class behind what would amount to a Workers Government pursuing such a course of action. But, socialists also recognise that even this progressive social democratic agenda is not the end of the line. Simply giving workers control over their own capitalist enterprises does not end capitalism, or its laws of motion. They would continue to produce commodities sold in the market; they would sell their own labour-power still as a commodity; the commodities they produce, and sell would have to compete with other commodities, the capital they now control would continue to act as capital, forcing them to maximise their own exploitation, so as to maximise the production of surplus value for reinvestment and so on. Socialists recognise that, in order to change that, it is necessary to increasingly control and regulate the market itself, and to plan production so as to meet human needs rather than to produce profits. Even the progressive social-democrats would have to be pulled into this position as part of a Workers' Government, as opposed to being wholly committed to such a perspective. The conservative social-democrats most certainly would not commit to such a perspective, and would, as they have, instead ally themselves with reactionaries to prevent it. 

The Tory Party consists of conservative social-democrats on its left-wing, and reactionaries on its right-wing. In the post-war period, the Buttskellite conservative social democrats predominated, as social democracy expanded. But, by the 1980's they had been outflanked with the election of Thatcher as Leader, which itself arose in large part due to a palace coup. Thatcher herself is a Bonapartist figure standing between these two factions. On the one hand, she represents a continuation of conservative social-democracy, on the other, by inclination, ideology, and force of circumstance, she is the representative of reaction, of the interests of the small private capitalists from which she herself came. 

I will explore this Bonapartist nature, and how it plays out in the 1980's, in Part 11, which will appear on Wednesday

Back To Part 9

Sunday, 13 October 2019

Theories of Surplus Value, Part III, Chapter 23 - Part 27

Marx demonstrates conclusively, here, that his calculation of the rate of profit and annual rate of profit is calculated on the basis of the value, i.e. current reproduction cost, of the physical components of capital consumed in (rate of profit), or advanced to (annual rate of profit) production. It is not based upon the historical prices paid for the commodities that comprise that capital. He illustrates this by examining the effect of the wear and tear of the fixed capital, of the coal producer, on the annual rate of profit, which is the basis for the calculation of the average rate of profit. In the first year, £100 of capital is advanced - £50 fixed capital, £50 wages. The £50 of surplus value, thereby, produces a 50% annual rate of profit. However, in Year 2, the fixed capital has lost £5 of its value in wear and tear, so that only the residual value of £45 is advanced, along with £50 of variable-capital. As this £50 of variable-capital continues to produce £50 of surplus value, the annual rate of profit, thereby, rises to 50/95 = 52.63%. 

“Thus there can be no doubt that in the case of all capitals employing a great deal of fixed capital—provided the scale of production remains unchanged—the rate of profit must rise in proportion as the value of the machinery, the fixed capital, declines annually, because wear and tear has already been taken into account. If the coal producer sells his coal at the same price throughout the ten years, then his rate of profit must be higher in the second year than it was in the first and so forth.” (p 388-9) 

This is very significant in offsetting the capital losses that firms can experience as a result of depreciation, particularly moral depreciation of their capital. Depreciation and wear and tear are two entirely different phenomena. Wear and tear occurs within the labour process, as a proportion of the use value of fixed capital, and so of its value, is transferred to the end product, and thereby reproduced in the value of that end product. Deprecation occurs outside the labour process, and so it is not recovered in the value of the end product (the exception being, as Marx sets out in Capital II, in agriculture, where machinery is necessarily left unused for part of the year, and so represents an equivalent of necessary waste, such as cotton dust in textile production.) 

The more intensively or extensively a capital can use its fixed capital, and thereby recover its value (from wear and tear), in the value of final output, the more it can protect itself from capital losses arising from the depreciation of that capital. Suppose a firm has just bought a machine for £1,000, whose lifespan is 10 years at average usage. It loses £100 a year in wear and tear, which is recovered in the value of its output. However, if a year later the value of such a machine falls to £50, because it becomes cheaper to produce, or a new machine that is twice as productive is introduced, the firm will lose £500 of capital value, due to this moral depreciation. It will be unable to recover this £500 of value, in the value of its output. It will only be able to transfer £50 of value of wear and tear to its end product. 

However, if the firm had been using its machine for five years, before this depreciation occurs, its actual value would already have been reduced to £500 anyway, as a result of wear and tear. Or it might have achieved the same condition if it used the machine twice as intensively as normal, so that its lifespan would be reduced to 5 years, and it would have been transferring £200 of wear and tear per year, thereby transferring £500 in 2.5 years. In the earlier example, the coal miner saw his rate of profit rise each year, because he sold his output at the same price, realising the same amount of profit, but on a steadily declining value of advanced capital, due to annual wear and tear. But, the alternative would have been to reduce the price of his output, so as to continue to make the same annual rate of profit, whilst, thereby undercutting his competitors. 

In the same way, after Year 5, when the current value of his fixed capital has fallen to £500, it could transfer £50 as wear and tear to output value, rather than £100, and still make 50% annual rate of profit. So, if some new coal producer entered production, with a new machine with a value of £500, the original coal producer, could sell their output at the same price, whilst still making the same annual rate of profit, as the new entrant. That is why capitals with a lot of fixed capital like to use it as extensively and intensively as possible, so that its value is transferred in the shortest possible time, as wear and tear, and thereby recovered in the value of output, and so protecting themselves against capital losses due to depreciation. Such firms use shift systems, weekend working and so on, to ensure that machines are kept running, buildings are kept occupied and so on. 

Marx describes it like this. 

“This extra profit may be equalised also as a result of the fact that—apart from wear and tear—the value of fixed capital falls in the course of time, because it has to compete with new, more recently invented, better machinery. On the other hand this rising rate of profit, which results naturally from wear and tear, makes it possible for the declining value of the fixed capital to compete with newer, better machinery, the full value of which has still to be taken into account. Finally, the coal producer sold his coal more cheaply [at the end of the second year], on the basis of the following calculation: 50 on 100 means 50 per cent profit, 50 per cent on 95 comes to 47½ ; if therefore he sold the same quantity of coal [not for 105 but] for 102½—then he would have sold it more cheaply than the man whose machinery, for example, began to operate only in the current year. Large installations of fixed capital presuppose possession of large amounts of capital. And since these big owners of capital dominate the market, it appears that only for this reason their enterprises yield surplus profit (rent). In the case of agriculture, this rent derives from working relatively fertile land, but here we are dealing with a case where relatively cheaper machinery is utilised.}” (p 389) 

Saturday, 12 October 2019

Theories of Surplus Value, Part III, Chapter 23 - Part 26

Marx defines the organic composition as follows:- 

“Different ratios in which it is necessary to expend constant capital in the different spheres of production in order to absorb the same amount of labour. The combination of the same amount of labour with the object of labour requires either that both more raw material and more machinery are used in one case than in the other, or that more of only one of these is used.” (p 387-8) 

Marx then examines the situation where the ratios of fixed to circulating capital vary. Some industries, such as mineral extraction, use a lot of fixed capital, but little or no raw material. By contrast, other industries use relatively little fixed capital, but process a lot of raw material. But, the ratio of constant to variable-capital may be the same in both. Marx gives the example of coal mining and tailoring. He excludes auxiliary materials in both cases. 

On that basis, a coal mining capital may comprise half as fixed capital, and the other half as variable-capital. The tailoring capital may comprise half raw material, and half variable-capital. So, the organic composition will be the same in both, if we assume that the same rate of surplus value applies in both spheres. But, the value of output will differ as a result of the variation in fixed and circulating constant capital. 

Marx assumes the advanced capital in both cases is £100. He assumes the fixed capital, in the coal industry, turns over every ten years, whilst the circulating capital in the tailoring industry turns over once a year, as does the variable-capital in the coal industry. Marx assumes a 100% rate of surplus value. So, at the end of the year, the tailor's capital of £100 will have produced an output of £50 material plus, £100 of new value (divided into £50 to reproduce the variable-capital and £50 surplus value) = £150. The coal mining capital will have produced a value of £105 - £5 wear and tear of fixed capital + £100 of new value (divided into £50 to reproduce the variable-capital and £50 surplus value). The annual rate of profit is the same in both cases, because the same £100 of capital has been advanced – although the amount of capital laid out differs (£55 in coal mining, £100 in tailoring) – and the same £50 of surplus value is produced, therefore, the annual rate of profit is 50/100 = 50%. But the rate of profit in mining is s/(c + v), i.e. surplus value as a proportion of the laid-out capital = 50/55 = 90.91%. It retains £45 of value in its fixed capital. In tailoring, where all of the capital is laid out and consumed it is 50/100 = 50%. Marx notes that for the coal miner, 

“As in the case of the tailor, the total value of his product plus the fixed capital will amount to 150, that is, the product, 105, plus 45 for the remaining fixed capital. The production of different magnitudes of value therefore does not preclude the production of the same amount of surplus-value.” (p 388) 

Northern Soul Classics - Let's Get A Thing Going - Don Gardner

Friday, 11 October 2019

Friday Night Disco - Soul Master - Edwin Star

Theories of Surplus Value, Part III, Chapter 23 - Part 25

The difference between a release of capital from a cheapening of constant capital, as opposed to a release of capital from a cheapening of wage goods can be seen here. Where constant capital is cheapened, it results in a rise in the rate of profit. It can only result in a rise in the mass of surplus value if the released capital is accumulated, so that more labour is employed. A cheapening of wage goods, however, raises the rate of profit, because less capital value is laid-out, i.e. if v falls, then (c + v) falls, and so, even if s remains constant, s/(c + v) rises. But, it also directly increases the mass of surplus value, because it raises the rate of surplus value, i.e. if v falls, s rises, and so s/v rises. In addition, by releasing variable-capital, it can also raise the mass of surplus value, where this released capital is accumulated so that more labour is employed. The opposite occurs where the value of wage goods rises, and capital is tied up, with more variable-capital having to be laid out. 

“The amount of labour remains the same, but a smaller part of it is surplus labour, and this smaller part corresponds to a larger capital. This takes place when the scale of production remains the same, while the value of the total capital increases. If the value of the total capital does not increase, the scale of production must be reduced. The amount of labour declines and a smaller portion of this reduced amount constitutes surplus labour, which, too, bears a smaller proportion to the total capital advanced.” (p 386) 

Marx examines further the relations between the technical, value and organic compositions of capital. As stated previously, he defines the organic composition of capital as being determined by the technical rather than value composition. Where the technical composition remains the same, the organic composition can vary as a result of a different value composition. For example, the technical composition may be the same in the steel producing industry as in the copper producing industry. However, iron ore is cheaper than copper ore. In both industries, say 1,000 tons of ore is processed by 100 workers, working for 10 hours, so that the technical composition is 1:1. Say wages amount to £1,000, and iron ore is £10 per ton, and copper ore £50 per ton. In steel production, the organic composition would be 10:1, but in copper production it would be 50:1. 

Marx then asks if the organic composition can vary when the value composition remains the same. He shows that it can. His example involves two capitals A and B. A employs 5 workers who are more skilled, whereas B employs 25 less skilled workers. The wages of both sets of workers is £100. On the basis of the same rate of surplus value, the surplus value produced by the workers in A is the same as that produced in B. A's workers process 100 kilos of material, with a value of £500 whilst B's workers process 1,000 kilos of material also with a value of £500. 

“The value ratio is the same: The value of constant capital in A is the same as in B, and proportionately A lays out the same amount of capital in, wages as B. But the quantity of his products will be smaller. Although he employs the same absolute quantity of labour as B, he uses more relatively, because his constant capital is dearer. He processes less raw material, etc., in the same time, but this smaller quantity costs him as much as the larger quantity processed by B. The value ratio in this case is the same, the organic composition is different. In the other case the value ratio being assumed to be the same, this can occur only if the amounts of the surplus labour are different or if the value of the different kinds of labour are different.” (p 387) 

The other case cited by Marx, where the amount of surplus value differs, involves situations, such as in agriculture, compared to industry, where less surplus labour is undertaken. In agriculture, at least at the time Marx was writing, night work is not possible. 

“... although the individual agricultural labourer can be over-worked, nevertheless the total amount of labour which can be expended on a given area of land is limited by the object being produced (corn), whereas in a factory of a given size the amount produced depends on the hours of labour worked—that is to say, it is due to the different kinds of production that more surplus labour can be employed in one sphere at a given level of production than in another then, even if the value ratio of constant and variable capital is the same, the amount of labour employed in proportion to the total capital will nevertheless be different.” (p 387)