Monday, 20 August 2012

Capital I Chapter 5 - Part 1

Contradictions In The General Formula Of Capital

Some of the contradictions alluded to in the previous chapter are drawn out here by Marx, as part of his dialectical exposition. He starts by pointing out that for two out of the three people involved in the transactions, things do not look differently to what they were previously. If a capitalist buys commodities from A and sells them to B, then from A's perspective things still appear as they were before for him as a seller i.e. C-M. And for B as a buyer they still appear as M-C. For both, as commodity producers these stages still seem to be within the process, C-M-C.

But, herein lies the contradiction referred to previously. If things really do appear the same to A and B, it is impossible for C to derive a profit, because such a profit here can only be derived as a result of buying the commodity below its Value, or selling it above its Value or both. Yet, its clear that Merchants did and do make profits. What Marx is doing here again is taking us through an historical and logical process to demonstrate how this contradiction is rooted in reality, and how it is resolved.

So, for example, he writes,

The inversion, therefore, of the order of succession, does not take us outside the sphere of the simple circulation of commodities, and we must rather look, whether there is in this simple circulation anything permitting an expansion of the value that enters into circulation, and, consequently, a creation of surplus-value.” (p 155)

To answer this question, Marx goes back a stage to a barter arrangement where one commodity (Use Value) is exchanged for another. Marx introduces here also the concept of Absolute Comparative Advantage. Both parties have gained from the exchange because they have exchanged a Use Value they did not want for one they did (what orthodox economics calls a gain in welfare), but also,

.. there may also be a further gain. A, who sells wine and buys corn, possibly produces more wine, with given labour-time, than farmer B could, and B on the other hand, more corn than wine-grower A could. A, therefore, may get, for the same exchange-value, more corn, and B more wine, than each would respectively get without any exchange by producing his own corn and wine.” (p 155)

But, this increase in welfare or real wealth (i.e. Use Value) does not at all mean that there is any increase in Exchange Value resulting from this exchange. On the contrary, as was seen in Chapter 1, it is usually the case than an increase in real wealth, in the number of Use Values, goes hand in hand with a fall in Exchange Value, because the cause of the rise in the quantity of Use Value (a rise in productivity) is at the same time a cause of a fall in the labour-time required for the production of those Use Values, and, therefore, of their Value!
Marx quotes La Mercier de la Rivière

““A man who has plenty of wine and no corn treats with a man who has plenty of corn and no wine; an exchange takes place between them of corn to the value of 50, for wine of the same value. This act produces no increase of exchange-value either for the one or the other; for each of them already possessed, before the exchange, a value equal to that which he acquired by means of that operation.”” (p 155)

As Marx states,
The result is not altered by introducing money, as a medium of circulation, between the commodities, and making the sale and the purchase two distinct acts. The value of a commodity is expressed in its price before it goes into circulation, and is therefore a precedent condition of circulation, not its result.” (p 155-6)

It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (p 156)

This is the opposite of the position of orthodox economics, particularly of the Austrian School, which sees precisely in this gain in welfare the basis of profit. As Marx points out, this is to confuse Use Value with Exchange Value. Orthodox economics resorts to this device because it is unable to account for the existence of profit. It can provide all sorts of justifications for capitalists receiving profit, such as abstinence, risk-taking and so on, but none of these explain where the profit they receive for these virtues actually comes from! Its like a physician settling for an explanation of Syphilis by claiming that the “Wages of Sin Is Death”. In fact, according to orthodox economic theory, profit should NOT exist at all, because competition should eliminate it!

Marx quotes an early example of this argument by Condillac.

For instance, Condillac says: “It is not true that on an exchange of commodities we give value for value. On the contrary, each of the two contracting parties in every case, gives a less for a greater value. ... If we really exchanged equal values, neither party could make a profit. And yet, they both gain, or ought to gain. Why? The value of a thing consists solely in its relation to our wants. What is more to the one is less to the other, and vice versâ. ... It is not to be assumed that we offer for sale articles required for our own consumption. ... We wish to part with a useless thing, in order to get one that we need; we want to give less for more. ... It was natural to think that, in an exchange, value was given for value, whenever each of the articles exchanged was of equal value with the same quantity of gold. ... But there is another point to be considered in our calculation. The question is, whether we both exchange something superfluous for something necessary.”” (p 157)
As Marx says, the modern economists of his day frequently used Condillac's argument, yet a simple response to it was provided by Le Trosne, who wrote,

If both the persons who exchange receive more to an equal amount, and part with less to an equal amount, they both get the same.” (Note 2, p 157)

Marx continues,

If commodities, or commodities and money, of equal exchange-value, and consequently equivalents, are exchanged, it is plain that no one abstracts more value from, than he throws into, circulation. There is no creation of surplus-value. And, in its normal form, the circulation of commodities demands the exchange of equivalents. But in actual practice, the process does not retain its normal form. Let us, therefore, assume an exchange of non-equivalents.” (p 158)


The same is true if buyers are able to buy at 10% below Value.

The creation of surplus-value, and therefore the conversion of money into capital, can consequently be explained neither on the assumption that commodities are sold above their value, nor that they are bought below their value.” (p 158)
In similar terms, Marx dismisses the argument put forward by Torrens, who writes,

““Effectual demand consists in the power and inclination (!), on the part of consumers, to give for commodities, either by immediate or circuitous barter, some greater portion of ... capital than their production costs.”” (p 159)

Marx comments,

The fact that the owner of the commodities, under the designation of producer, sells them over their value, and under the designation of consumer, pays too much for them, does not carry us a single step further.” (p 159)

and he quotes Ramsay to the same effect,

The idea of profits being paid by the consumers, is, assuredly, very absurd. Who are the consumers?” {G. Ramsay: “An Essay on the Distribution of Wealth.” Edinburgh, 1836, p. 183.} (Note 4 p 159)

The only basis on which this could result in profit is if there were a class of people that,

only buys and does not sell, i.e., only consumes and does not produce. The existence of such a class is inexplicable from the standpoint we have so far reached, viz., that of simple circulation. But let us anticipate. The money with which such a class is constantly making purchases, must constantly flow into their pockets, without any exchange, gratis, by might or right, from the pockets of the commodity-owners themselves. To sell commodities above their value to such a class, is only to crib back again a part of the money previously given to it. The towns of Asia Minor thus paid a yearly money tribute to ancient Rome. With this money Rome purchased from them commodities, and purchased them too dear. The provincials cheated the Romans, and thus got back from their conquerors, in the course of trade, a portion of the tribute. Yet, for all that, the conquered were the really cheated. Their goods were still paid for with their own money. That is not the way to get rich or to create surplus-value.” (p 159-60)

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