Friday, 3 October 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 45

The Rise In The Rate of Turnover (10) 

Transport is a productive industry in its own right. It creates new value and surplus value. Its production process is the act of transportation. Communication should be considered simply a form of transportation. Where commodities have to be transported to some other location to be consumed, therefore, the act of transportation of the commodities is a value creating activity. If I buy a commodity that has to be shipped, its price is quoted, alongside the cost of shipping. For some commodities, sold by merchants the value of the shipping is simply added in as a cost, and represented in the price of the commodity. The same is true of commodities that have to be shipped in order to be used as a raw material in some other process. As with any productive-activity, therefore, the extent to which transport and communication can be made more efficient, reduces the value of commodities.

As stated above, for merchant capital, the costs they have to pay, in having commodities shipped to their stores, so they can be sold, are simply included in the price of the commodities on their shelves. If I buy an orange from TESCO, the sticker price does not separate out the price of the orange itself from the cost of it being transported from Spain, for example. But, this cost is a cost that TESCO will seek to recover, and anything they can do to reduce that cost, will be seen as a means of increasing their profits. In fact, to the extent that all merchants are able to benefit from any such cost reduction, it will not be a means of increasing profits. The cost of transport here, is really the same as if it were an element of constant capital consumed in the production of the orange. Because the value of constant capital is only ever transferred to the value of the end product, if the value of transport falls, the value/price of the orange will fall by a corresponding amount, leaving the amount of profit unchanged.

But, the amount that the merchant has to advance as capital to cover these transport costs, does thereby comprise a part of the actual capital in total the merchant must advance, and it is on this total advanced merchant capital that they will expect to receive their share of the total surplus value. Moreover, it is the value of this total advanced merchant capital, i.e. covering the capital they have to lay out as various forms of fixed, constant and variable capital in order to operate their business, besides the capital advanced to buy the commodities, that will be included in calculating the general annual rate of profit.

But, besides transport, there are other associated costs, such as the handling of commodities at docks etc., plus the cost of providing those docks and other facilities. As discussed in Capital II, there are many activities such as the provision of grain silos, which add no value to the grain stored in them, and yet which constitute necessary costs, that the farmer or grain merchant will seek to recoup in the price for the grain, or else the profit they receive will be below the average, when these costs are deducted. The costs of higher insurance premiums for capitals invested in high risk activities such as shipping are of the same nature.

In a sense, these costs are just like the position of the merchant capital. They add no additional value, or surplus value, and yet to the extent that capital must be advanced on them, that capital claims its proportional share of the total surplus value. It is what Marx terms a “grounds for compensating”.

In calculating the general annual rate of profit, therefore, the total of capital advanced, which comprises the denominator of the fraction, includes all of the productive-capital advanced, including that advanced in the transport industry, as well as the merchant-capital advanced for the purchase of the commodities to be circulated, and the capital advanced for all of the necessary costs of circulation, such as the provision of infrastructure, storage facilities, shops and offices, various other forms of circulating constant capital such as to cover energy costs and so on, as well as the variable-capital employed in handling, selling, administering and so on.

The more capital develops, the more the market develops, the more all of these necessary costs of circulation expand massively. The more this weighs down on the calculation of the general annual rate of profit, and the more this increasing mass of circulation capital, claims its share of the total surplus value. Yet, for the same reasons that were shown above in relation to the savings provided by merchant capital, simply in relation to the turnover of the commodity-capital, it is the specialisation of merchant capital, that means that even as this mass of capital grows, it grows proportionately less than the growth of the productive-capital, and the commodity-capital being circulated.

Capital is only interested in the profit it can realise, not the surplus value it has, only theoretically, produced. All of these costs, represent not just a reduction in the general annual rate of profit, but they represent, for productive-capital, an actual reduction in the quantity of surplus value that can be realised as profit. The higher rate of turnover of merchant-capital, in relation to the turnover of the commodity-capital, the more it releases capital and raises the general annual rate of profit, as well as reducing the profit margin on commodities, thereby reducing market prices, but it does not increase the actual amount of surplus value realised. The cost savings that merchant capital provides, by being able to specialise and provide economies of scale, does increase the actual quantity of surplus value that can be realised, compared to if productive-capital had to perform these functions itself.

The merchant capital produces no value, nor surplus value directly, but by reducing these costs of circulation it does increase the realised profit, and this is the basis also of its exploitation of wage-labour so as to extract surplus-value from it, which appears to be otherwise an impossibility.

“The commercial worker produces no surplus-value directly. But the price of his labour is determined by the value of his labour-power, hence by its costs of production, while the application of this labour-power, its exertion, expenditure of energy, and wear and tear, is as in the case of every other wage-labourer by no means limited by its value. His wage, therefore, is not necessarily proportionate to the mass of profit which he helps the capitalist to realise. What he costs the capitalist and what he brings in for him, are two different things. He creates no direct surplus-value, but adds to the capitalist's income by helping him to reduce the cost of realising surplus-value, inasmuch as he performs partly unpaid labour.” 

(Capital III, Chapter 17)

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