Cops Out Now

Once again, a US city is burning. Once again, the spark has been the death of a black man, at the hands of cops. This time, the city is Baltimore, yet another former industrial hub, that has been gutted. This time, the man is Freddie Gray. Once again, the response has been to send in more cops, and more heavily armed cops and troopers. In the end, the state is likely to mobilise sufficient violence, against the community, to suppress the protest, but it represents no solution. For workers, the solution, as was seen with the UK riots, in 2011, resides not in the mobilisation of more force by the capitalist state, but in organised workers taking back control over their lives and their communities. The cops are an obstacle to that process. Our aim should be to establish organised workers control of our communities, and self-policing of those communities, based upon it, and, on that basis, to get the cops out.

As in the riots of 2011, in the UK, these riots are an illustration of the weakness of the labour movement, and the breakdown of the kind of organised structures, which, in the past, could direct opposition in a positive direction. Whatever the subjective motivations and intentions of those involved in such riots, the reality is that, objectively, they are reactionary. They are a very understandable response to the situation that individuals have found themselves in, and who have no organised structures through which to respond – other than neighbourhood gangs, which themselves are a part of the problem not the solution. This kind of individualistic, violent, destructive response, is the kind of response seen before in history, on the part of other groups who lacked an organised, solidaristic culture. Most notably, it was the response of the peasantry, which went in for things such as barn burning, or the burning down of manor houses.

But, in general, if you do not have something better to put in the place of what you are opposing, simply lashing out at the status quo, whilst understandable, is always objectively reactionary, because into the resulting vacuum will step other organised forces, and that alternative, by definition, will represent a step backwards.

There is a parallel with the labour process itself. In The Communist Manifesto, Marx refers to the situation that workers found themselves in, at the start of the 19th century, as new machine production, especially based around the power of the steam engine, was introduced. Up to that time, the growth of productive capacity had been pretty much in line with the growth of population and of the market. In fact, as new overseas markets developed, production could not keep up with demand, and the machines simply acted to make up for that shortage. In Capital I, Marx says that the opposition to the machines, at that point, came not from workers, who benefited from their introduction, as industry expanded, but from the old monopolies, the guild producers, who found themselves being undercut. But, when machine industry proper comes in, backed by steam power, production increases so rapidly that not only do markets become glutted, but, as a consequence, workers themselves start to be replaced and laid off. But, Marx says,

“They direct their attacks not against the bourgeois conditions of production, but against the instruments of production themselves; they destroy imported wares that compete with their labour, they smash to pieces machinery, they set factories ablaze, they seek to restore by force the vanished status of the workman of the Middle Ages.”

and, as Marx says,

“It took both time and experience before the workpeople learnt to distinguish between machinery and its employment by capital, and to direct their attacks, not against the material instruments of production, but against the mode in which they are used.” (Chapter 15, p  404)

And here too this is true. It is not against workers interest to have order and control within their communities. The point is whose order, whose control? In a modern bourgeois social democratic state, big industrial capital has no desire for bigotry amongst its cops, or other state functionaries, whether that bigotry is manifest as racism, homophobia or whatever. It provides no financial benefit for that big industrial capital. On the contrary, by provoking antipathy, social unrest and violence, of the kind being seen, it undermines the kind of harmony that it requires to socialise the working-class, to incorporate it, and to facilitate increased social productivity and capital accumulation. Outright violence and destruction, in fact, represents a direct cost and reduction in capital, for it.

For that reason, a modern bourgeois social democracy is quite happy to establish rules and regulations, which outlaw such bigotry and other attitudes and behaviour that cause such disharmony and limitations on its ability to maximise profits. It is also happy to introduce elements of democracy and control, so as to implement such laws and regulations. But, this democracy, this control can only ever be partial, for several reasons.

The state, even a bourgeois social democratic state, remains a capitalist state. It exists to protect the property and rule of capital. Capital could never, therefore, concede real control over that state to the majority of the population, the working-class, because to do so would be to write its own suicide note. The democracy and control that exists, is, and can only ever be, limited to within the confines of the basic social democratic compromise, between big industrial capital and the organised working-class. That is to bargain within the system, on the basis of a shared interest, dependent upon the continuation of the system. It, therefore, requires the involvement of that working-class, via its social democratic organisations, such as the trades unions and political parties.

But, the ruling class could never actually hand over real democratic control over the state, even if it wanted to, because such real democratic control requires that the working-class itself be continually mobilised, and actively involved in that process. But, the basis of social democracy is that the working-class is not permanently mobilised, in its entirety, but that it remains inactive, docile, and operates through the channels of its organisations, and their bureaucracy. The very functioning of the capitalist mode of production, conditions workers to operate on that basis – excluded from democracy and control at the point of production, and only required to respond periodically. Similarly, they are only required to be mobilised periodically, every few years, to vote in elections, and so on.

The nature of the capitalist mode of production conditions workers to such an approach, which is why, for example, after the Russian Revolution, the vast majority of workers were prepared to sink back into the old routine, leaving the factory committees and so on to fall into the hands of careerists and bureaucrats.

Again a parallel can be drawn with the labour process. Marx, in Capital I, describes the fact that, under slave production, productivity is very low. The slave unable to respond in any other way to their situation, sabotages production wherever they can, works inefficiently, mistreats animals and equipment and so on. Machines have to be made more robust, and less sophisticated, far more time has to be spent on providing supervision and so on. A similar thing was noted in relation to workers in the USSR and other Stalinist states.

By contrast, Marx notes the conditions under which production occurs, within worker-owned co-operatives. There, a labour of superintendence is still required, but only in so far as its necessary to have a “functioning-capitalist”, i.e. manager, who acts like the conductor of an orchestra, to organise and direct production, not to discipline the workers, which function is now either removed entirely, or carried out collectively by the workers themselves, as part of the labour process.

But, similarly, within the big industrial capital, the role of “functioning capitalist” remains the same, in terms of organising and coordinating production, but, without actual workers control of production, must also include the task of superintendence and discipline over the workers. In many ways, such an enterprise is a microcosm of the bourgeois social democratic state itself. This function of superintendence and control is itself regulated via social democratic organisations, i.e. the trades unions, and, indeed, the “functioning capitalists” will often be members of trades unions themselves, a condition which exists not just in the workplace, but within the state itself.

It was in this context, as Engels states, that this big industrial capital actually welcomed the role of the trades unions in enabling this regulation to occur. What big capital really dislikes is the inability to undertake such regulation whether it comes from disruptive individualist responses, or, as happened in the 1960's and 70's, where workers do become more permanently mobilised, on a wide scale – for example, through rank and file movements, the shop stewards movement and so on – and it is this they try to constrain within these organisational channels of social democracy.

To the extent that attacks on trades unions and other social democratic institutions went beyond that, in the 1980's and 90's, it was objectively not in the interests of big industrial capital, but the interests of small capital, and those sections of capital that actually stand outside the productive process. It was in the interests not of the “functioning capitalists” - many of whom, as stated above, are themselves members of trades unions – who represent the interests of that big industrial capital, but of the money capitalists, the share and bondholders, whose interest is to leach ever increasing amounts of interest or capital gain from businesses, and whose representatives sit in the ivory towers of Board Rooms, and on the trading floors of stock exchanges.

Capital could never give full democratic control to a permanently mobilised working class, in either the work place, or within the state, but without such control, there will inevitably arise functionaries who hold views, which are themselves counter-productive to the interests of big industrial capital. That is because of the nature of the state, and the nature of the relation between these functionaries and those over whom they have to exercise control, as well as the fact that capitalism itself does not come into existence spotless and untarnished, but carries with it the shit of past ages, of which this bigotry is an excrescence.

As Marx put it in his Preface to the First German Edition of Capital Volume I,

“In all other spheres, we, like all the rest of Continental Western Europe, suffer not only from the development of capitalist production, but also from the incompleteness of that development. Alongside the modern evils, a whole series of inherited evils oppress us, arising from the passive survival of antiquated modes of production, with their inevitable train of social and political anachronisms. We suffer not only from the living, but from the dead.” 

Workers cannot exert meaningful control over capitalist property, nor can they exert meaningful democratic control over the capitalist state, or its various institutions. We have to build our own forms of property, and our own forms of democracy and state resting upon that property. We have to take back control of our own communities, establishing co-operative forms of community, within which the working-class is permanently mobilised and actively involved. Having done so, we will be able to begin to provide the forms of order that meet our needs.

Capital III, Chapter 3 - Part 2

There are a number of minor mathematical and methodological errors, in some of the examples Marx gives. I will use his examples and give the corrected version where appropriate. Later, however, the constraints at the beginning here make the examples untenable, if considered as changes in a single capital, and it all descends into a bit of a muddle that I will deal with when we come to it.

Marx starts with an example:

c 80 + v 20 + s 20; s' = 100%, p' = 20%.

He then assumes the working day is increased by 50% from 10 to 15 hours. The total new value created by the workers will then rise also by 50%, from 40 (20 v + 20 s) to 60, now made up v 20 + s 40. So,

c 80 + v 20 + s 40; s' = 200%, p' = 40%.

In fact, there is an error here, because if the quantity of labour-power employed rises by 50%, the amount of constant capital employed should have risen in proportion because they would process more material etc. It should actually be:-

c (80 + 40) + v 20 + s 40; s' = 200%, p' = 28.57%.

If the working day remains the same, but wages fall, we have, for example,

c 80 + v 12 + s 28; s' = 233.33%, p' = 30.43%

“Hence, we see that a prolonged working-day (or a corresponding increase in the intensity of labour) and a fall in wages both increase the amount, and thus the rate, of surplus-value. Conversely, a rise in wages, other things being equal, would lower the rate of surplus-value. Hence, if v rises through a rise in wages, it does not express a greater, but only a dearer quantity of labour, in which case s' and p' do not rise, but fall.” (p 52)

So, changes in wages or in the length or intensity of the working-day would result in changes in v and s, and consequently in the rate of surplus value and rate of profit. But, similarly, a change in the ratio of v to s implies a change in at least one of the three elements above.

“Precisely this reveals the specific organic relationship of variable capital to the movement of the total capital and to its self-expansion, and also its difference from constant capital. So far as generation of value is concerned, the constant capital is important only for the value it has. And it is immaterial to the generation of value whether a constant capital of £1,500 represents 1,500 tons of iron at, say, £1, or 500 tons of iron at £3. The quantity of actual material, in which the value of the constant capital is incorporated, is altogether irrelevant to the formation of value and the rate of profit, which varies inversely to this value no matter what the ratio of the increase or decrease of the value of constant capital to the mass of material use-value which it represents.” (p 52)

Its important not to misunderstand what Marx is saying here, because this seems to be completely at variance with his earlier comment,

“In itself, the magnitude of value of total capital has no inner relationship to the magnitude of surplus-value, at least not directly”,

and pointing out that it is the quantity not value of the constant capital that is relevant,

“Hence there is also to that extent a definite relation between the quantity of surplus-value, or surplus-labour, and the quantity of means of production.” (Chapter 2)

In Volume I, he made clear that, in terms of his conception of the expansion of capital, it is the relation between capital and wage labour that is decisive. The value of the constant capital is irrelevant here, because it only transfers its value to the end product. In this respect, what is then determinant is the quantity not the value of the constant capital, because the technical composition of capital determines how much labour is required to process a given amount of material and vice versa. But, in respect of the rate of profit, it is the value of the constant capital, not its quantity that is relevant, precisely because it is against this value that the surplus value is measured.

“It is different with variable capital. It is not the value it has, not the labour incorporated in it, that matter at this point, but this value as a mere index of the total labour that it sets in motion and which is not expressed in it — the total labour, whose difference from the labour expressed in that value, hence the paid labour, i.e., that portion of the total labour which produces surplus-value, is all the greater, the less labour is contained in that value itself.” (p 52)

In other words, the value the constant capital passes on is the value of the labour-time required to produce it. But, it is not the value of labour-power, the value of the labour-time required to produce it, that is passed on to the end product. Rather it is the new value created by that labour.

If we have a ten hour day, and the value of 10 hours = £10, then if the necessary labour, required to reproduce labour-power, equals 5 hours, which equals £5, and the surplus value £5, if necessary labour falls to 4 hours, variable capital falls to £4, and surplus value rises to £6, because the worker still works for 10 hours and produces 10 hours of new value.

“Hence, as soon as the value of the variable capital ceases to be an index of the quantity of labour set in motion by it, and, moreover, the measure of this index is altered, the rate of surplus-value will change in the opposite direction and inversely.” (p 53)

Back To Part 1

Forward To Part 3

What The Tories Aren't Telling You

David Cameron has today announced that a Tory Government would not increase VAT or National Insurance, until after 2020, and they would legislate to tie the hands of a future Chancellor to ensure it. What they aren't telling you is that in 1999, William Hague, came up with a similar hair-brained scheme, to legislate that they would bring about a year by year reduction in the tax take, and had to abandon it. Other Tories pointed out that if conditions changed, it would be madness to have tied the hands of the Chancellor to respond.

What they also aren't telling you is that the Tories have made promises before elections in the past, simply in order to win, and then dropped them after getting into office. They have done that repeatedly over VAT. Nothing would be easier than for the Tories to abandon such a promise after the election. After all, its impossible for the Tories to win an outright majority, and they have clearly been running a good cop/bad cop routine with the Liberal wing of the Liberal-Tory party, and that Liberal wing have their own “track record” of reneging on promises too.

Whenever the Tories have been asked where this or that huge sum of money is to come from to meet their frantically announced unfunded spending pledges, they have simply responded “look at our track record”, as though its possible to know how they are going to get from Stoke to London, by looking at how they got from Glasgow to Stoke! But, what the Tories aren't telling you, is that if we do look at their track record, it gives no reason for confidence that they would do what they say. They said they would wipe out the budget deficit by 2015, but they have only reduced it by a third, and only half as a percentage of GDP. The reason is that their insane policy of economic austerity, cratered the economy, stopped the growth that was occurring, in 2010, in its tracks, and thereby reduced the potential tax revenue that was needed to clear the deficit.

If we look at their record, it has been that every time they have said they would not raise VAT, once in office they have done just that. But, its also clear that despite all the fake arguments between the Clegg Liberals and the Cameron Tories, the strategy of both is to recreate the Liberal-Tory government that has so damaged the economy and the social fabric of society over the last five years. There is in reality more real difference between the UKIP wing of the Tory Party and the Cameron wing, than there is between Cameron and Clegg.  Just as the Liberals abandoned their opposition to Tuition Fees, in 2010, and voted through a trebling of them, on the basis of the need to compromise, so Cameron would immediately ditch the promise to freeze VAT and National Insurance as part of the deal they will strike with the Liberals to keep themselves in office.

What the Tories aren't telling you is that they could even keep their promise not to raise VAT rates, and yet still increase VAT, and other purchase taxes. The evidence is that over 20%, increases in VAT tend to be counter-productive, but there are lots of things on which VAT is not currently levied, or on which its levied at a zero rate, etc.  Remember the “Pasty Tax”. The Tories could avoid the chaos that caused by simply levying 20% VAT on all food, and then there are lots of other commodities that could have VAT slapped on them at 20%. The government list here shows just how many goods and services there are that are currently exempt or on which VAT is currently only levied at 5% etc. - HMRC VAT Rates.

But, they could also increase duties on goods, which has the same effect as a rise in VAT. With oil prices having fallen dramatically, they could even carry out the promise they made, before the last election, which they abandoned, which was to increase fuel duty when oil prices fell.

All of that is on top of all the other things that the Tories aren't telling you, despite having been openly questioned about them on multitudinous occasions. Where do they intend to get the £12 billion of welfare cuts they have announced, unless they hit the benefits of the disabled, for example, or by hitting all of those in work benefits on which millions of low paid workers depend, not to mention on which thousands of low paying employers and landlords depend? Where are they going to get the £7 billion of tax cuts for the rich they have announced, but for which they have provided no explanation of how its to be financed? Where are they going to get the £8 billion of additional funding for the NHS they have promised, but again given no explanation of where the money is to come from?

If we look at their track record, there is no reason why we should put any faith in the Liberal-Tories. The only thing we can have confidence in is that they will inflict more damage on the economy, and more pain and suffering on everyone other than the rich.

Capital III, Chapter 3 - Part 1

The Relation of the Rate of Profit to the Rate of Surplus-Value 

At this stage of the analysis, Marx makes clear that the simplifying assumption is that the profit of an individual capital is equal to its surplus value, during a given period of circulation. The later analysis will deal with the reality that the surplus value is shared with money-capitalists, merchant-capitalists, landlords, and the state; that in the formation of a general rate of profit, competition will tend to result in the total social surplus being divided according to the size of capital; and that the actual rate of profit is modified by the rate of turnover of capital. Marx also assumes that the value of money remains constant.

The relations between the rate of surplus value and rate of profit, are reducible to several simple ratios, and so can be analysed via a number of formulas.

The following designations are used.

C = c+v

c = constant capital advanced for one turnover period

v = variable capital advanced for one turnover period

s = surplus value produced in one turnover period

s' = s/v = rate of surplus value

n = the number of turnovers of the variable capital in the year, as defined in Volume II

s'n = the annual surplus value

s'v = s

p = profit

p' = s/C = s/c+v = rate of profit for one turnover period.

“Now, substituting for s its equivalent s'v, we find 

p' = s' (v/C) = s' v/(c + v) 

which equation may also be expressed by the proportion 

p' : s' = v : C ; 

the rate of profit is related to the rate of surplus-value as the variable capital is to the total capital.” (p 50)

So, unless there is no constant capital at all, which never happens, the rate of profit, s/c+v, must always be smaller than the rate of surplus value, because v is always less than C (c+v); the rate of surplus value is a function of v; and the rate of profit a function of v + c = C; the ratio of the rate of surplus value to the rate of profit will be proportional to the relation of v to C.

For example,

(1) c 100 + v 100 + s 100.

C = 200, v/C = 50%, s' = s/v = 100/100 = 100%, p' = s/c+v = 100/200 = 50%

(2) c 150 = v 50 + s 50

C = 200, v/C = 25%, s' = s/v = 50/50 = 100%, p' = s/c+v = 50/200 = 25%.

So,

(1) v/C = 50%, p' = 50%, s' = 100%,

(2) v/C = 25%, p' = 25%, s' = 100%

or in both cases p':s' = v:C

=

(1) p' (50):s' (100) = v(100):C(200)

(2) p' (25):s' (100) = v(50):C(200) 

=

(1) p'(1):s'(2) = v(1):C(2)

(2) p'(1):s'(4) = v(1):C(4)

Although the effect of the rate of turnover of capital is dealt with separately, later, Marx notes that the rate of profit covering several circulation periods, can be calculated by using s'n, the annual rate of surplus value, rather than s'. 

As well as the assumption that the value of money remains constant, and that only one turnover is being considered, a third consideration is the consequences of productivity. An individual capital, that enjoys higher productivity, for whatever reason, will produce commodities that have a lower individual value than their social value, i.e. the labour-time that is actually required for their production is less than the average socially necessary labour-time, required for these commodities production. As a result, this firm will make higher profits, on its sale of these commodities, than other producers of the same commodity, producing at or below the average level of productivity.

As another simplifying assumption, it is taken that all commodities are produced under the average conditions.

“In effect, the value-composition of a capital invested in a branch of industry, that is, a certain proportion between the variable and constant capital, always expresses a definite degree of labour productivity. As soon, therefore, as this proportion is altered by means other than a mere change in the value of the material elements of the constant capital, or a change in wages, the productivity of labour must likewise undergo a corresponding change, and we shall often enough see, for this reason, that changes in the factors c, v, and s also imply changes in the productivity of labour.” (p 51)

For similar reasons, its assumed that the length and intensity of the working day and wages remain constant. However, changes in v and s required to analyse the relation between the rate of surplus value and rate of profit, may imply changes in these factors, because they are their determining elements.

Back To Chapter 2

Forward To Part 2

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UK Economy Tanks Again

Last year, when the Tories, the media and other economists were proclaiming a UK economic miracle, I suggested this miracle was a mirage, and that the UK economy was about to turn down sharply. And so it has been. At the time that post was written only second quarter data was available, and had been revised up from 0.8 to 0.9% (subsequently revised back to 0.8%). But, as I predicted, when third quarter data came in, it showed that the economy was already slowing significantly. The growth rate was down from 0.9% in the first quarter to just 0.6%, a reduction in growth of a third. That same trend continued in the final quarter of 2014. Now, growth for the first quarter of this year has come in at a meagre 0.3%, and, given the direction of travel, its likely that, when the full data is in, the revised figure will show growth even lower than that.

This paltry level of economic growth is a direct result of the economic policy of austerity that the Liberal-Tories have adopted over the last five years. In fact, the slight improvement in growth, that occurred from the end of 2012 until the second half of 2014, was the result of a combination of factors, mostly nothing to do with the Liberal-Tory policies. Firstly, during that period, Britain benefited, as did every other economy, from the global growth resulting from the three year short run cycle. Secondly, as set out in that post, there had been more than £7 billion put into the economy, as a result of a, more or less, one off boost from PPI compensation payments, made to consumers. Thirdly, the Liberal-Tories had reversed their austerity measures, in relation to capital programmes, which gave a temporary boost to construction spending. Fourthly, consumers had resorted once more to debt financed consumption. Fifthly, the Liberal-Tories had thrown the kitchen sink at trying to keep the property bubble inflated, with all sorts of bribes related to “Help To Buy”.

All that, plus the fact that interest rates remained at unsustainable, near zero levels, meant that if there was not going to be some growth during that period, there never would be. But, the trouble was that none of those things were sustainable, and given that the three year cycle, from which they had benefited, since the end of 2012, was set to go into reverse, a downturn in the economy was inevitable, and so it has been.

For all the Liberal-Tories crowing about having rescued the economy, and brought about an economic miracle, nothing could be further from the truth. Since they came to power in 2010, there has been effectively no economic growth overall. The only growth in the economy has been due to increased population, mostly from immigration, as large numbers of, mostly young, immigrants have come into the economy, and engaged in productive activity, whilst simultaneously stimulating demand. Take out the effect of this increase in population, and the economy has gone backwards since 2008!

Today's, growth figure is, in fact, less than a third of the growth figure in the last quarter for which Labour was wholly responsible, in 2010. In fact, in no quarter, during the whole five years of the Liberal-Tory government, have they even equalled the 1% figure achieved by Labour in 2010. What is worse, not only is the sham nature of the Liberal-Tory economic miracle being exposed, but a closer look at the data, shows that things are even worse than the headline figure suggests. Despite huge construction projects like Crossrail, Construction as a whole fell by a whopping 1.6%. Meanwhile, emphasising the point that the Liberal-Tories promise to rebalance the economy back towards production and manufacturing, has been as hollow as all their other promises, Production also fell by 0.1% and Agriculture by 0.2%.

In other words, the only area of the economy that grew was in Services. No wonder that the Tories backers are getting the jitters, and rumours are rife that Boris Johnson and his supporters are getting ready to knife Cameron in the back, just as Thatcher's supporters readied the chop for her, when it became clear she was a loser. Cameron has been criticised for himself looking as though he had thrown in the towel, and his new found verve looks and sounds as fake and empty as his support for Aston Villa.

Its time the Liberal-Tories themselves got relegated.    

Capital III, Chapter 2 - Part 4

Now all capital seems to be the source of profit. In the process of production, the forces of labour appear as the force of capital, as was shown in Volume I. For example, the power of co-operative labour, provided free to capital, as with the power of nature, appears under capitalism, via the division of labour, as the power of capital. The power of labour, itself embodied in the production of ever more powerful, ever more efficient machines, themselves appear as the power of capital, personified by the capitalist. This inversion means that dead labour increasingly subordinates living labour to it.

“Even in the simple relations of production this inverted relationship necessarily produces certain correspondingly inverted conceptions, a transposed consciousness which is further developed by the metamorphoses and modifications of the actual circulation process.” (p 45)

The laws that govern the rate of profit, cannot be equated with those that govern the rate of surplus value, as the Ricardian School do, Marx says. There is a direct relation between the value of the variable capital and the rate of surplus value, but there is no such direct link between the value of the total capital and the rate of profit. It is not the value of the constant capital that provides a direct causal link to the rate of profit, but its physical quantity.

“In itself, the magnitude of value of total capital has no inner relationship to the magnitude of surplus-value, at least not directly. So far as its material elements are concerned, the total capital minus the variable capital, that is, the constant capital, consists of the material requisites — the means of labour and materials of labour — needed to materialise labour. It is necessary to have a certain quantity of means and materials of labour for a specific quantity of labour to materialise in commodities and thereby to produce value. A definite technical relation depending on the special nature of the labour applied is established between the quantity of labour and the quantity of means of production to which this labour is to be applied. Hence there is also to that extent a definite relation between the quantity of surplus-value, or surplus-labour, and the quantity of means of production.” (p 46)

In other words, what is determinate here is the technical not the value composition of capital.

“For instance, if the labour necessary for the production of the wage amounts to a daily 6 hours, the labourer must work 12 hours to do 6 hours of surplus-labour, or produce a surplus-value of 100%. He uses up twice as much of the means of production in 12 hours as he does in 6. Yet this is no reason for the surplus-value produced by him in 6 hours to be directly related to the value of the means of production used up in those 6, or in 12 hours. This value is here altogether immaterial; it is only a matter of the technically required quantity. It does not matter whether the raw materials or means of labour are cheap or dear, as long as they have the required use-value and are available in technically prescribed proportion to the labour to be applied.” (p 46)

Its only if we assume that the values of these physical proportions remain fixed that the value relations between them take on the appearance of significance.

“If I know that x lbs. of cotton are consumed in an hour of spinning and that they cost a shillings, then, of course, I also know that 12 hours' spinning consumes 12x lbs. of cotton = 12 a shillings, and can then calculate the proportion of the surplus-value to the value of the 12 as well as to that of the 6. But the relation of living labour to the value of means of production obtains here only to the extent that a shillings serve as a name for x lbs. of cotton; because a definite quantity of cotton has a definite price, and therefore, conversely, a definite price may also serve as an index for a definite quantity of cotton, so long as the price of cotton does not change. If I know that the labourer must work 12 hours for me to appropriate 6 hours of surplus-labour, that therefore I must have a 12-hour supply of cotton ready for use, and if I know the price of this quantity of cotton needed for 12 hours, then I have an indirect relation between the price of cotton (as an index of the required quantity) and the surplus-value. But, conversely, I can never conclude the quantity of the raw material that may be consumed in, say, one hour, and not 6, of spinning from the price of the raw material. There is, then, no necessary inner relation between the value of the constant capital, nor, therefore, between the value of the total capital (=c+v) and the surplus-value.” (p 46-7)

The rate of profit only expresses the surplus value in relation to the total capital rather than just the variable capital that produced it.

“But in reality (i.e., in the world of phenomena) the matter is reversed. Surplus-value is given, but given as an excess of the selling price of the commodity over its cost-price; and it remains a mystery where this surplus originated — from the exploitation of labour in the process of production, or from outwitting the purchaser in the process of circulation, or from both.” (p 47)

The rate of profit here only shows a difference between fixed and circulating rather than constant and variable capital. A rate of profit calculated on the basis of surplus value to cost price, as opposed to a rate of profit calculated on total capital employed.

“Although the rate of profit thus differs numerically from the rate of surplus-value, while surplus-value and profit are actually the same thing and numerically equal, profit is nevertheless a converted form of surplus-value, a form in which its origin and the secret of its existence are obscured and extinguished. In effect, profit is the form in which surplus-value presents itself to the view, and must initially be stripped by analysis to disclose the latter. In surplus-value, the relation between capital and labour is laid bare...” (p 48)

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Capital III, Chapter 2 - Part 3

The surplus value is realised, however, in circulation, and the conditions existing there once more reinforce the idea that it is there, not in production, that the surplus arises. After all, if conditions are not favourable, not only may no such surplus arise, but losses may be incurred. And, of course, in reality, in this competitive market place, where a range of conditions apply, some capitals will be more favoured than others. Some will sell their commodities above their individual values and some below, so some will accrue more surplus value and others less.

“It is not alone the metamorphoses discussed by us in Book II that take place in the process of circulation; they fall in with actual competition, the sale and purchase of commodities above or below their value, so that the surplus-value realised by the individual capitalist depends as much on the sharpness of his business wits as on the direct exploitation of labour.” (p 43)

Production and circulation intermingle so that they obscure the real relations in other ways. Commodity-capital itself, when sold, steps outside the circuit of capital, and into the circuit of commodities, including money. The capitalist sells the commodities that comprise his commodity-capital, but not as capital, only as commodities, the same as any other commodity owner. He receives in exchange, for it, another commodity – money – which only assumes the form of capital if and when it is thrown into production to buy productive capital. And, the multitude of exchanges of commodities then involve not only the exchange of commodity-capital against revenue I(v+s) = II(c), but also includes the exchange of capital with capital, as happens with the reproduction of constant capital in Department I, but also includes the exchange of revenue with revenue. 

“The time of circulation and working-time cross paths and thus both seem to determine the surplus-value. The original form in which capital and wage-labour confront one another is disguised through the intervention of relationships seemingly independent of it. Surplus-value itself does not appear as the product of the appropriation of labour-time, but as an excess of the selling price of commodities over their cost-price, the latter thus being easily represented as their actual value (valeur intrinsèque), while profit appears as an excess of the selling price of commodities over their immanent value.” (p 44)

On the one hand, as was seen in Volume I, the capitalist has some clue that it is the exploitation of labour, which is the source of his profits. That is why he seeks to exploit more of it, to extend or intensify the working day, week, year, life etc. On the other, it increasingly seems to him that the source of his profit resides outside the production process.

“Even such modern economists as Ramsay, Malthus, Senior, Torrens, etc., identify these phenomena of circulation directly as proofs that capital in its bare material existence, independent of its social relation to labour which makes capital of it, is, as it were, an independent source of surplus-value alongside labour and independent of labour.” (p 44)

And, in that respect, obtaining a saving in wages appears no different than extracting a saving in the purchase of any other input.

“In this way the extortion of surplus-labour loses its specific character. Its specific relationship to surplus-value is obscured. This is greatly furthered and facilitated, as shown in Book I (Abschn. VI)[English edition: Part VI, pp. 535-43. — Ed.], by representing the value of labour-power in the form of wages.” (p 45)

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Capital III, Chapter 2 - Part 2

What is significant here? The end result must be “to preserve the capital or to reproduce it in its original magnitude.” But, in this regard, Marx distinguishes clearly, twice, between the value of that capital (capital-value), and what the capitalist paid for it. So, the value of the commodity includes “... all the elements of its value paid by the capitalist OR for which he has thrown an equivalent into production.” (emphasis added) In other words, the capitalist may have paid £10 for the constant capital used in production, but if its value changes, prior to the commodity being sold, it is not what was paid, but what the VALUE was that was thrown into production that counts. Why, because it is this capital-value that has to be reproduced. And, he makes that distinction again. On the one hand, if the capital-value has not changed, then it is preserved, but if it has, then it is this new value that is reproduced, precisely in order that the capital is once more thrown back into production “in its original magnitude.”

The value of a commodity is determined by the labour-time required for its production, that required to produce the machines, materials etc., as well as that currently required to process it. But, the capitalist only pays out for the value of the commodities he uses in the process. The value of the labour-power is less than the value it creates, and so the capitalist obtains an amount of unpaid labour, even though it appears to him that he has paid the full value of the commodity.

“The capitalist's profit is derived from the fact that he has something to sell for which he has paid nothing. The surplus-value, or profit, consists precisely in the excess value of a commodity over its cost-price, i.e., the excess of the total labour embodied in the commodity over the paid labour embodied in it. The surplus-value, whatever its origin, is thus a surplus over the advanced total capital. The proportion of this surplus to the total capital is therefore expressed by the fraction s/C, in which C stands for total capital. We thus obtain the rate of profit s/C=s/(c+v), as distinct from the rate of surplus-value s/v.” (p 42) 

As defined in Volume I, the surplus value, measured against the variable capital, is the rate of surplus value. Now, we have the first, preliminary, statement of the rate of profit, as the surplus value measured against the total capital. In Volume II, we saw that the rate of surplus value has to be modified to take account of the rate of turnover of the variable capital. Here, we will see later, that the rate of profit has to be similarly modified to take account of the rate of turnover of the advanced circulating capital.

“The transformation of surplus-value into profit must be deduced from the transformation of the rate of surplus-value into the rate of profit, not vice versa. And in fact it was rate of profit which was the historical point of departure. Surplus-value and rate of surplus-value are, relatively, the invisible and unknown essence that wants investigating, while rate of profit and therefore the appearance of surplus-value in the form of profit are revealed on the surface of the phenomenon.” (p 43)

The capitalist is only interested in the rate of profit, not the rate of surplus value, because he is only interested in the return on his total capital, how much he can make from employing it in this way as opposed to some other. But, also, from the perspective of the capital itself, of which the capitalist is merely the personification, the rate of profit sets the limit for how rapidly it can be accumulated, if we set aside the role of credit etc.

Moreover, to the extent that the capitalist is aware of the true nature of surplus value, it is in his interest to say nothing about it.

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Capital III, Chapter 2 - Part 1

The Rate of Profit 

The general formula, which expresses capital as self-expanding value, is M-C-M'. The process that brings about this self-expansion is capitalist production, which results in the creation of surplus value. The process by which the surplus value is realised, is the process of circulation of capital.

Henry Ford did not produce thousands of cars because he wanted them for the utility they provided him. Like every other capitalist, he produced these commodities only because he could create surplus value by doing so. For the individual capitalist, looking at this process, it is not any one part of their capital that creates this surplus value, for them, but all of it together. The machines are no use without materials to process, and workers to operate them; the materials no use without workers to process them, and tools for the workers to use; the workers are no use without tools to use, and material to process.

If anything, as seen previously, it can seem that it is the capital itself that is the source of the surplus. Moreover, when an individual capital replaces labour with machines, it frequently sees its profit rise, reinforcing the idea that it is the application of the capital that is the source of the profit.

“The capitalist does not care whether it is considered that he advances constant capital to make a profit out of his variable capital, or that he advances variable capital to enhance the value of the constant capital; that he invests money in wages to raise the value of his machinery and raw materials, or that he invests money in machinery and raw materials to be able to exploit labour. Although it is only the variable portion of capital which creates surplus-value, it does so only if the other portions, the conditions of production, are likewise advanced. Seeing that the capitalist can exploit labour only by advancing constant capital and that he can turn his constant capital to good account only by advancing variable capital, he lumps them all together in his imagination, and much more so since the actual rate of his gain is not determined by its proportion to the variable, but to the total capital, not by the rate of surplus-value, but by the rate of profit.” (p 42)

In order for capital to continue functioning, on at least the same scale, in selling the commodity, it must at least recover the value of the capital used in its production. Marx's terminology is significant here, in relation to the debate over the TSSI. He writes,

“The costs of the product include all the elements of its value paid by the capitalist or for which he has thrown an equivalent into production. These costs must be made good to preserve the capital or to reproduce it in its original magnitude.” (p 42)

And later, in Volume III, Marx makes clear that when he speaks about “original magnitude” here, he means the original physical quantity, not the original value.

“In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness. If the productiveness of labour remains the same, then this replacement in kind implies replacing the same value which the constant capital had in its old form. But should the productiveness of labour increase, so that the same material elements may be reproduced with less labour, then a smaller portion of the value of the product can completely replace the constant part in kind. The excess may then be employed to form new additional capital or a larger portion of the product may be given the form of articles of consumption, or the surplus-labour may be reduced. On the other hand, should the productiveness of labour decrease, then a larger portion of the product must be used for the replacement of the former capital, and the surplus-product decreases.”

(Capital III, Chapter 49)

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Capital III, Chapter 1 - Part 5

Marx then turns to the reproduction of this argument by Torrens. His version of it went like this. The profit cannot be part of the cost of production, or 'natural price' because if it was that would mean it would also have to have formed part of the expenditure of the capitalist. If a farmer uses 100 quarters of corn to obtain 120 quarters, the 20 quarters form his profit, but they have not been a part of his expenditure.

Marx deals with this argument from Torrens also in Theories of Surplus Value, as we will see then. There he shows that there are several things wrong with it. Torrens assumes that the use value of 100 quarters magically becomes a use value of 120 quarters. But, Marx says this additional use value, of 20 quarters, was there all the time. It existed in other forms – in the nutrients in the soil, in the water provided by the rain, the energy provided by the sun, and, of course, the labour provided by the worker. 

But, Torrens argument from a value rather than use value perspective is wrong too. The former may not have expended any value equal to these additional 20 quarters, but that does not at all mean that this value was NOT expended in their production. On the contrary, it was expended in the labour provided by the worker, but for which the worker was not paid!

If the worker were a peasant, this would have been apparent. If the value produced by a day's labour was £1, and the peasant worked for 100 days, having previously spent 20 days to acquire the 100 quarters of seed, then, at the end, he would have his 120 quarters of wheat to sell worth £120. But, it would not appear to him that he had made any surplus value, or obtained something for nothing. The value of his product would be exactly the same as the value required to produce it, equal to the labour he had expended to acquire the seed and cultivate its crop.

By focussing only on the capital-value laid out, Torrens misses this additional value contributed for free by the worker, and so he can only conceive that the profit is derived because consumers, “... either by immediate or circuitous barter give some greater portion of all the ingredients of capital than their production costs.” (p 38)

This illusion of something arising out of nothing, as Marx describes Torrens argument, is itself generated by the reality of capitalist production, where it is exactly how it appears to be, and thereby becomes established within the ideology of the social relations that develop upon it. Once those capitalist relations become dominant, this mode of thinking is absorbed by the other classes too, for whom this now appears as reality. For the peasant too, his surplus product produced over and above what is required for his reproduction appears as a 'profit' when sold in the market, even though it has not come to him free, but only at the expense of his own labour.

We see the same thing today, in the plethora of get rich quick property programmes, on TV. It is clear in most cases, that those involved have usually grossly deluded themselves about how much a renovation project has actually cost them, because they either do not include the value of their own labour-time expended, or else hugely understate it.

In that regard, Marx quotes Balzac's “Les Paysans”,

“...how a petty peasant performs many small tasks gratuitously for his usurer, whose goodwill he is eager to retain, and how he fancies that he does not give the latter something for nothing because his own labour does not cost him any cash outlay. As for the usurer, he thus fells two dogs with one stone. He saves the cash outlay for wages and enmeshes the peasant, who is gradually ruined by depriving his own field of labour, deeper and deeper in the spider-web of usury.” (p 39)

This view that the cost price was the actual value of the commodity was also adopted by Proudhon, and made the basis of his People's Bank.

If a commodity is sold at its cost price, it does not at all change the fact that the workers have still performed unpaid labour. It only means they have now done so for the purchaser of the commodity rather than the capitalist. If we have 20 kilos of yarn whose value is made up of £20 means of production, £5 labour-power, and £5 surplus value, where £1 = the value produced by 1 hour's labour, the worker will still have worked 10 hours to produce the yarn.  If 20 kilos has a value of £30, which equals £1.50 per kilo, then the means of production, £20, are equal to 13.33 kilos, whilst the new value added by labour is equal to 6.66 kilos, divided 3.33 for labour-power and 3.33 kilos for surplus value. 

If the 20 kilos are sold not at £30, but at £25, the consumer gets a sixth of the product (surplus value = 1/6 of the value) for free, or 20/6 = 3.33 kilos.

“It would be altogether wrong to assume that if all commodities were sold at their cost-price, the result would really be the same as if they had all been sold above their cost-price, but at their value. For even if the value of the labour-power, the length of the working-day, and the degree of exploitation of labour were the same everywhere, the quantities of surplus-value contained in the values of the various kinds of commodities would be unequal, depending on the different organic composition of the capitals advanced for their production.” (p 40)

Which again is the conundrum that has to be solved of how these unequal masses of surplus value can result in an equal rate of profit.

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Tories Panic Policies Unravel

The name's Milibond - Ed Milibond

The Tories are clearly in panic mode. They were told, last year, by their election guru, Linton Crosby, that, by last Easter, they would have seen a breakthrough in the polls. They didn't. They thought they could rely on simply demonising and ridiculing Ed Miliband. They couldn't. They hoped the economy would be booming, and that people would be feeling the benefit from it. It hasn't and they don't. They thought they could get away with continuing to tell lies about the conditions that existed when they came into office, and get away with it, theycouldn't and they haven't. They thought they could hide from the election debates. They couldn't, and they lost where they took part. Rather than getting some boost in the polls, they have gone backwards and stagnated. Cameron's personal rating, over Ed Miliband, has all but disappeared. So, in the last two weeks, the Tories have panicked and even abandoned some of the ground on which they could have stood. That hasn't worked either, even as they have given money away like confetti. No wonder, their desperation has led to them resorting to the use of sock puppets to get over their message!

One of the first panic policies the Tories adopted was to look back to Thatcher, and say they would force some private landlords – housing associations – to sell properties to their tenants at a discount. Let's be clear about what this policy is, it is a policy of confiscation of private property by the state. Housing Associations are not parts of the state, like local councils, but private institutions, and their houses are private property. This is not a Communist government proposing this policy, but a Conservative government. Talk about political cross-dressing!

No wonder then that not only people in the Housing industry have described the proposals as dangerous. Representative of Hayeckian liberal thinking in the financial press, Moneyweek, called it “one of the worst policies of the election so far”. Others have pointed out that it would mean that the Housing Associations, who rely on an income stream from rents, to cover their debt financing, would find it increasingly difficult to borrow, if their assets, which provide that income stream was being forcibly sold off by the government.

But, as I'vepointed out before, this reaching back to Thatcher, whether it is in this policy, or previous policies over attacking unions, or introducing Enterprise Zones, is simply a reflection that Cameron's Tories not only lack a single innovative thought in their head, but they are so incompetent that they cannot even understand that the conditions that existed in the 1980's, are not the same conditions that exist today, and so the policies that might have worked for Thatcher then, cannot work today.

In reality, most of those policies, back in the 1980's, did not work either, other than in the very short term, but the cost was the de-industrialisation of Britain, the creation of huge amounts of private debt, and the blowing up of the huge asset price bubbles that corrupt and distort the economy today, and which led to the financial crisis of 2008, and will lead to an even more astronomical bust in the next year or so.

Policies like Enterprise Zones, did not work. They simply created a bureaucratic mechanism, whereby small businesses in one part of town, shut up shop, and took subsidies from the state, which did provide jobs for a series of government bureaucrats organising such facades, only to set up in an Enterprise Zone, where they escaped the taxes they were previously paying, and where their workers, often received poorer conditions.

The policy of council house sales did not work either. As soon as interest rates rose, after 1989, especially combined with the onset of a new period of recession, the thousands of former council house tenants, duped into buying homes they could not afford – which is why they had previously been renting them – found that, now, they could not even make the interest payments on their mortgages. Tens of thousands who had bought their council house found themselves evicted, and reliant once more on the local council, whose ability to house them had been diminished, because its stock had been sold off, and because the Tories had prevented councils from building new houses. The vast majority of the council houses that got repossessed ended up first in the clutches of the banks, and then in the hands of private landlords.

There is no indication that situation is any better under the current Tory version of the plan. Since 2012, when the Liberal-Tories introduced their previous Right to Buy incentive, for council houses, they have sold 26,000 houses. Their policy required them to build one new property for each one sold. In fact, they have not even achieved 10% of that, having built only 2,300 during that period. But, the same thing applies as to the fate of the council houses that were bought by tenants. Of the council houses sold in London, 36% are now in the hands of private landlords!

The same thing was seen with the 1980's policies introduced by Thatcher to create a share owning democracy, also didn't work. Having encouraged millions of people, who were not financially sophisticated, to buy shares during the 1980's, and to buy private pensions based upon the purchase of shares, many saw their shares crash in 1987, and sold in panic as a result. The shares were picked up cheap by the banks and financial magnates just at the time they were about to bubble up again. Having then been ripped off by pension mis-selling by the same banks in the 1990's, they saw their shares, and pension funds crater again in 2000, and again in 2008, and the biggest bust is yet to come. Although, many of the shares were picked up by pension funds, at the moment that provides no solace for workers because they are legally excluded from any organised, democratic control over their own pension funds, and that control is undertaken by the same banks that gambled and speculated, bringing about the crash of 2008.

The Tories then came up with £8 billion of additional funding for the NHS, from their secret money tree, as well as other unfunded promises to cut taxes for the rich, for those with £1 million properties in relation to Inheritance Tax and so on. None of it worked. When it came to the election debates, Cameron performed poorly, whilst Miliband did well, and worse for the Tories narrative, Nicola Sturgeon also did well, topping a number of polls.  In fact, in many surveys, people in Britain themselves have said they would like to be able to vote for Sturgeon!  For people in large swathes of the country, it is not a fear of Sturgeon and Scotland that is the issue, but a fear of Boris Johnson and London.  It is not Scotland that has, and continues to suck the economic lifeblood out of the rest of the country, but London and the continual formulation of national policy to meet its needs, one of the latest examples being HS2, which is designed to ship in cheap labour from the rest of the country to Gotham, no doubt with even more huge subsidies from workers to cover the rail fares.

The Tories incompetence and panic is further illustrated by the fact that they have continued with this narrative that a Labour Government would be in hock to the SNP. Firstly, the suggestion is ludicrous, because Miliband has made the obvious point. A Labour government would put its programme to Parliament, and dare all the other parties, including the SNP to vote it down. The SNP could not, because it would be electoral suicide for them to do so. What the Tory focus on this SNP threat amounts to is a recognition that they have lost the election.

No matter how much they repeat the slogan that they only have to win an additional 23 seats, its clear that they will be losing seats not gaining them on balance. Where they do gain seats it will be at the expense of the Liberal-Democrat wing of the Liberal-Tory Party, and so will make no overall difference to the situation, because its quite clear that the Liberals are fighting the election on the basis of stitching up another deal to stay in government after the election, with the Tories. Labour could no more do a deal with the toxic Liberals, in any case than they could with the SNP, but the Liberals are likely to be left with so few seats that it will be a moot point anyway.

The Tories know they have lost the election, and have simply thrown policies around in panic, in the hope of retaining at least their core vote, as well as trying to win back some kippers. They have played the nationalist card themselves, and the dangers of that have been indicated by other leading Tories like Michael Forsyth and Norman Tebbit. Its notable that for all the Tories bluster about only needing to win 23 seats, they have been deploying all of their resources in marginal Tory seats, rather than in trying to win marginal Labour seats.

And no wonder, because the Tories other gambit, of focussing on attacking the geekiness of Miliband has been a dreadful failure too. In the election debates Miliband came out on top amongst the main party leaders. Moreover, as the campaign has progressed he has become more confident, commanding and Prime Ministerial. In fact, not just that his image has undergone a dramatic transformation. Some observers even asked if he had grown taller? Of course, he hasn't but his stature has grown, whilst that of Cameron has diminished, and Osborne has more or less disappeared from sight.  The Tories should have read their Henry IV, Part I.

In fact, more or less from the moment of the Paxman interview, Miliband has become more laid back and suave with every outing, even to the extent of being invaded by a hen party. If Miliband gets any more laid-back, suave and sophisticated as the campaign continues, he will have the option, if he does not become Prime Minister, of putting himself forward as the next James Bond!

Capital III, Chapter 1 - Part 4

The value of a commodity can only be equal to its cost price if there is no surplus value. Given that the nature of capital is self-expanding value, i.e. it must produce surplus value, to validate itself as capital, that is a situation, which cannot exist under capitalism.

“... although peculiar market conditions may reduce the selling price of commodities to the level of, or even below, their cost-price.”(p 37)

Under modern capitalism, this is not necessarily true. Huge firms like GM made losses year after year on their production activity. They were able to sustain them by drawing on their huge cash reserves on their balance sheet, and by the profits they made on other activities, such as their expansion into finance, via GMAC. But, ultimately, even a behemoth like GM was brought down by its inability to validate its capital.

But, conversely, therefore, if a commodity is sold at its value, it realises as profit the whole surplus value. As a result, the capitalist clearly can still make a profit even if they sell the commodity below its value, but above its cost price.

“There is obviously an indefinite number of selling prices possible between the value of a commodity and its cost-price. The greater the surplus-value element of the value of a commodity, the greater the practical range of these intermediate prices.” (p 37)

This explains why, under certain conditions, of intense competition, and in certain lines of business, under certain conditions, there can be practices of under selling, as was seen in Volume I, in the case of the under priced bakers. But, more importantly it is the key to understanding,

“... the law which regulates the general rate of profit and the so-called prices of production determined by it...” (p 37)

If commodities are sold beneath their cost price, then the capital expended on their production cannot be fully reproduced. The capital itself must thereby shrink, rather than expand. As stated above, even for giant firms like GM, there is a limit to how long that process can continue.

“From this point of view alone, the capitalist is inclined to regard the cost-price as the true inner value of the commodity, because it is the price required for the bare conservation of his capital. But there is also this, that the cost-price of a commodity is the purchase price paid by the capitalist himself for its production, therefore the purchase price determined by the production process itself.” (p 38)

This indeed is the fundamental tenet of bourgeois economic theory, that value is produced by exchange not by production.

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Capital III, Chapter 1 - Part 3

Comparing the advanced capital and the commodity value, the advanced capital simply appears as a combination of the capital advanced to buy the means of production and the labour-power. That advanced capital also reappears as the cost price of the commodity because it is spent to buy the means of production and labour-power required for its production, and whose value is reproduced in the value of the commodity.

“The distinction between constant and variable capital has disappeared. The entire cost-price of £500 now has the double meaning that, first, it is that portion of the commodity-value of £600 which replaces the capital of £500 expended in the production of the commodity; and that, secondly, this component of the commodity-value exists only because it existed previously as the cost-price of the elements of production employed, namely means of production and labour, i.e., as advanced capital. The capital-value reappears as the cost-price of a commodity because, and in so far as, it has been expended as a capital-value.” (p 32)

In place of the distinction between constant and variable capital, what now appears is the distinction between fixed and circulating capital. If the fixed capital had a value of £1200, and loses £20 of this value due to wear and tear, then the capital advanced was £1,680, £1200 for the fixed capital, and £380 for materials, and £100 for labour-power. The materials must be £380, because the value of constant capital was £400, of which we now know £20 comprised the wear and tear of the fixed capital. So, the capital advanced is £1,680, but the cost price of the commodity is only £500.

“This difference between fixed and circulating capital with reference to the calculation of the cost-price, therefore, only confirms the seeming origination of the cost-price from the expended capital-value, or the price paid by the capitalist himself for the expended elements of production, including labour. On the other hand, so far as the formation of value is concerned, the variable portion of capital invested in labour-power is here emphatically identified under the head of circulating capital with constant capital (that part of capital which consists of materials of production), and this completes the mystification of the self-expansion process of capital.” (p 33-4)

Surplus value is an excess of value of the commodity over its cost price. But, as the cost price is equal to the consumed capital, the surplus value is an addition to that capital, which returns along with it via the sale of the commodity. Once the distinction between constant and variable capital is obscured by the lumping of both together as circulating capital, or as cost price, the surplus value appears as an expansion of the whole capital advanced, and not just the variable capital.

“However, surplus-value forms an increment not only of the portion of the advanced capital which goes into the self-expansion process, but also of the portion which does not go into it. In other words, it is an accretion not only to the consumed capital made good out of the cost-price of the commodity, but to all the capital invested in production.” (p 35)

That includes the fixed capital. The process began with a capital advanced of £1,680. £1,200 in fixed capital, £380 in circulating constant capital, and £100 in variable capital. At the end of the self-expansion process, it comprises £1,180 in fixed capital, and a commodity-capital of £600 (£380 circulating constant capital, £20 wear and tear of fixed capital, £100 variable capital, £100 surplus value), which equals £1,780.

“After deducting his advanced total capital of £1,680 there remains a value increment of £100. The £100 of surplus-value thus form as much of an increment in relation to the invested £1,680 as to its fraction of £500 expended during production.” (p 35)

It then appears clearly that this surplus value is the product of his capital advanced in production, because it did not exist prior to his advancing that capital. Moreover, it seems clear to him that this surplus value is the product equally of all his capital without distinction, be it fixed or circulating, used for the purchase of means of production or for labour-power.

And that, in practice, is how it seems in reality. The capitalist appears to obtain a profit proportionate to the size of their capital, irrespective of how that capital is comprised, despite the fact that we know that the surplus value is created only by the variable capital. The resolution to this conundrum is a central part of Marx's theory of how this general rate of profit comes about.

“For this reason, the surplus-value arises as much out of the portion of the advanced capital which goes into the cost-price of the commodity, as out of the portion which does not. In short, it arises equally out of the fixed and the circulating components of the utilised capital. The aggregate capital serves materially as the creator of products, the means of labour as well as the materials of production, and the labour. The total capital materially enters into the actual labour-process, even though only a portion of it enters the process of self-expansion. This is, perhaps, the very reason why it contributes only in part to the formation of the cost-price, but totally to the formation of surplus-value. However that may be, the outcome is that surplus-value springs simultaneously from all portions of the invested capital. This deduction may be substantially abbreviated, by saying pointedly and concisely in the words of Malthus: 

'The capitalist ...expects an equal profit upon all the parts of the capital which he advances.'” (p 36)

In this way, the surplus value assumes the guise of profit, which is the product of capital.

“Hence, a certain value is capital when it is invested with a view to producing profit, or, there is profit because a certain value was employed as capital.” (p 36)

Moreover, the value of a commodity now appears to resolve itself into cost price and profit, and so the idea that profit arises simply by adding a given percentage on to the cost price is reinforced.

“The profit, such as it is represented here, is thus the same as surplus-value, only in a mystified form that is nonetheless a necessary outgrowth of the capitalist mode of production. The genesis of the mutation of values that occurs in the course of the production process, must be transferred from the variable portion of the capital to the total capital, because there is no apparent distinction between constant and variable capital in the assumed formation of the cost-price. Because at one pole the price of labour-power assumes the transmuted form of wages, surplus-value appears at the opposite pole in the transmuted form of profit.” (p 36-7)

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