The quote provided by
Marx at the end of Part 1 highlights the difference between wear and
tear of the means of production, whose value is transferred to the
product of which they become a part i.e. their participation in the
Labour Process, and process of valorisation, and depreciation, which
occurs outside it. In the former, the means of production are
reduced in value in proportion to how much is transferred to the
product. How does this affect the Rate of Profit? The fact that a
portion of Value of Constant Capital is transferred to the final product does not change the amount of Surplus Value. In setting
out the basis for calculating the Rate of Profit, much later, Marx
makes the point that the Rate of Profit is calculated on the whole
capital advanced, not just that which is transferred to the product. However, because the total Constant Capital is reduced by the amount transferred to the final product, this does affect the Rate of Profit in each subsequent year.
The Constant Capital advanced to the final product does not, and
cannot, as Marx has just demonstrated, affect the quantity of Surplus
Value produced, which is solely a function of the exploitation of the
living labour. So, assume a Capital made up:
c 900 + v 100 + s 100 = e 1100, r' = 10%.
Now, assume that there is a similar capital, but which, purely for the sake of illustration uses no circulating constant capital, and where 10% of the value of its fixed capital is transferred into the final product in any one year. So:
K the total fixed capital = 900, but d, the wear and tear = 90.
K 900, d 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, s', 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 d, has been used up we will have:
K 810, d 90 + v 100 + s 100 = e 290, r' = s/K+v = 100/810 = 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 K will have been used up in wear and tear, and transferred to the final product. The £90 of d 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. Moreover, this amortisation fund, as it accumulates, is really advanced capital value, stored in the form of a money hoard. If this value of capital is included, the rate of profit remains the same. Its one reason that capital seeks to use this money hoard, for other productive purposes, in the intervening period.
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 d each year, i.e. it is worn out after ten years, then:-
K 900, d 90 + v 100 + s 100 = e 290, r' = 10%. However, if K loses 20% of its value due to depreciation then in year 2:
K has been reduced to 720 by depreciation. If 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 is now only 72, rather than 90. That has to be the case, or else it would, after ten years have transferred more value to the final product than it possessed. If, in Year 3 K has been depreciated by a further 50%, possibly due to moral depreciation, as a new machine is introduced, its value falls to 360, meaning only 36 is transferred in wear and tear and so on.
The rate of profit would then be:
K 360, d 36 + v 100 + s 100 = e 236, r' = 100/460 = 21.74%.
The rate of profit is rising faster than where there was no depreciation, because the value of the capital is being reduced. However, where the capitalist reproduces the value of d transferred to the final product, due to wear and tear, they cannot recover the value of K, 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.
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