Wednesday, 22 April 2015

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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