This movement of capital into different spheres, thereby bringing about a redistribution of the total social capital, then also raises another interesting question. In determining the average rate of profit, it is not simply a matter of taking all the individual rates of profit from each sphere and obtaining an average. If the rates of profit are A 10%, B 20%, C 50%, we can't simply sum these and divide by 3 to obtain an average 30%. If A represents 50% of the economy, B 40% of the economy and C only 10% this has to be accounted for in determining the weight of each sector in the average.
But, if as a consequence of these movements of capital to higher profit sectors, those sectors increase as a proportion of the total social capital, this will have an effect on the average rate of profit, which will thereby be raised, as I have set out elsewhere.
Suppose sphere A is a non-capitalist sector where exchange values rule. We can then assume that at these prices demand and supply are in equilibrium. The reason prices fall is because when capital invades this sphere it increases supply, so that it exceeds demand at the old price. The fact that supply is now greater than it was, i.e. output has risen, does not mean that more surplus value is produced, precisely because this increase in supply signifies an expenditure of labour-time that was not necessary on the basis of exchange values. As the table above suggests, however, the fact that capital is being accumulated into areas with a low organic composition, does mean that a proportionately greater mass of labour-power is employed, and that means an increased mass of surplus value.
However, if sphere A produces, for example, food then the price of food will fall, if capital flows into this sphere. That means that the value of labour-power will fall throughout the economy, including in sphere A. On the one hand, profits in A will fall as prices fall, on the other they will rise as the rate of surplus value rises across the economy.
“The general rate of profit is, therefore, determined by two factors:
1) The organic composition of the capitals in the different spheres of production, and thus, the different rates of profit in the individual spheres.
2) The distribution of the total social capital in these different spheres, and thus, the relative magnitude of the capital invested in each particular sphere at the specific rate of profit prevailing in it; i. e., the relative share of the total social capital absorbed by each individual sphere of production.” (p 163)
1) The organic composition of the capitals in the different spheres of production, and thus, the different rates of profit in the individual spheres.
2) The distribution of the total social capital in these different spheres, and thus, the relative magnitude of the capital invested in each particular sphere at the specific rate of profit prevailing in it; i. e., the relative share of the total social capital absorbed by each individual sphere of production.” (p 163)
It is clear why at this point, both historically and logically, Engels is led to say,
“In a word: the Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity production — that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production. Up to that time, prices gravitate towards the values fixed according to the Marxian law and oscillate around those values, so that the more fully simple commodity production develops, the more the average prices over long periods uninterrupted by external violent disturbances coincide with values within a negligible margin. Thus, the Marxian law of value has general economic validity for a period lasting from the beginning of exchange, which transforms products into commodities, down to the 15th century of the present era.” (p 899-900)
That is because from the 15th. century onwards, the invasion of capitalist production replaces the sale of commodities, based on exchange values, with their sale based on prices of production. Because these prices of production also determine input prices, market prices for all commodities become increasingly separated from exchange values. The Law of Value continues to operate in the way Marx describes in his letter to Kugelmann, that is the society has a limited amount of labour-time available to meet its needs for the production of use values, and has to allocate that time accordingly. However, that process is now increasingly mediated by prices of production rather than exchange values. Indeed, it becomes impossible to determine exchange values because all costs of production are denominated in prices not exchange-values.
“We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it.” (p 164-5)
“The transformation of values into prices of production serves to obscure the basis for determining value itself.” (p 168)
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