Tuesday, 26 November 2013

Capital II, Chapter 10 - Part 4

In short, in the process of circulation, the same commodities are metamorphosed alternatively into money, and then other commodities, by changing from hand to hand, but in the process of production, the commodities that make up the productive capital, remain in the same hands, and their metamorphosis into new commodities is a real physical transformation.

The important distinction between fixed and circulating capital, moreover, is not as Smith also argues, that fixed capital only wears out by degrees. That is true, Marx says of similar means of production under all modes of production. This fact is only the point of departure for the real distinction. That is that as a result of this fact, a portion of the fixed capital's value remains fixed within, whilst another part circulates along with the product.

“To this different behaviour of material elements corresponds however the transmission of value to the product, and to this in turn corresponds the replacement of value by the sale of the product. That and that alone is what constitutes the difference in question. Hence capital is not called fixed because it is fixed in the instruments of labour but because a part of its value laid out in instruments of labour remains fixed in them, while the other part circulates as a component part of the value of the product.” (p 201-2)

Smith: “"If it (the stock) is employed in procuring future profit, it must procure this profit either by staying with him (the employer), or by going from him. In the one case it is a fixed, in the other it is a circulating capital." [p. 189.] (p 202)

Marx once again points out that this conception of profit essentially from the perspective of the individual capitalist, as stemming from their selling price being higher than their buying price, is crude compared with his more scientific analysis elsewhere. In fact, as Marx has demonstrated, if commodities exchange at their values, then it is impossible for a profit to arise if the product merely reproduces the prices of the commodities used in its production. Simply introducing a time dimension cannot change that.

“Not only the price of materials and that of the labour-power is replaced in the price of the product, but also that part of value which is transferred by wear and tear from the instruments of labour to the product. Under no circumstances does this replacement yield profit. Whether a value advanced for the production of a commodity is replaced entirely or piecemeal, at one time or gradually, by the sale of that commodity, cannot change anything except the manner and time of replacement. But in no event can it transform that which is common to both, the replacement of value, into a creation of surplus-value.” (p 202)

The mistake is to confuse the fact that profit only appears, is only realised, when the commodity is sold, for the reality that the surplus value is created in the process of production. The appearance creates the illusion that it is the exchange that creates the surplus rather than the act of production.

As Marx says, in this respect, Smith's position was a step back from the understanding developed by Quesnay.

“Quesnay, on the other hand, had derived these differences from the process of reproduction and its necessities. In order that this process may be continuous, the value of the annual advances must annually be replaced in full out of the value of the annual product, while the value of the investment capital need be replaced only piecemeal, so that it requires complete replacement and therefore complete reproduction only in a period of, say, ten years (by a new material of the same kind). Consequently Adam Smith falls far below Quesnay.” (p 202-3)

There is an obvious problem which Smith also needs to address which is if profit arises out of exchange, and his definition of fixed capital is that which is not exchanged, but remains in production, in the hands of its original master, how does this capital produce profit. Smith simply argues that fixed capital makes profit by remaining in production, whilst circulating capital makes profit by circulating.

Back To Part 3

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