Friday, 3 July 2015

Capital III, Chapter 9 - Part 11

If the price of elements of constant capital rises or falls, this is passed on immediately into the price of the end product. Of course, as Marx set out in Chapter 6, it may not pass wholly into the market price of the end product, because a significant rise might choke off demand, causing the capitalists in this sphere to absorb some of the rise. In order to continue producing at an efficient level. Similarly, they may not pass on the whole of any price fall, if demand is sufficient to allow each capital to enjoy the additional profit without competition between them forcing all of the reduction to be passed on.

However, if productivity rises or falls, so that the same quantity of labour-power produces more or fewer commodities, that is not the case. The amount paid out in wages remains the same, i.e. the variable capital component of the cost price does not change, whereas the constant capital component did. If the productivity of labour rises by 50% say, because a new machine is introduced, the wage bill may remain at £1,000. But, whereas previously this £1,000 was spread over 100,000 pieces produced, i.e. £0.10 per piece, now it is spread over 150,000 pieces, i.e. £0.075 per piece. Consequently, the surplus value produced would rise, and with it the rate of profit.

However, Marx says,

“But no matter whether the cost-price of the individual commodity (or, perhaps, the cost-price of the sum of commodities produced by a capital of a given magnitude) rises or falls, be it due to such changes in its own value, or in that of its elements, the average profit of, e.g., 10% remains 10%. Still, 10% of an individual commodity may represent very different amounts, depending on the change of magnitude caused in the cost-price of the individual commodity by such changes of value as we have assumed.” (p 171)

This seems to suggest that capital in this sphere would only obtain the average 10% profit, and thereby prices of production would be adjusted accordingly. However, there is no reason to believe this would be the case. The process of formation of an average rate of profit itself presumes that profit rates must differ. If they didn't there could be no process of formation, by one capital moving from one lower profit sphere to some other higher profit sphere. Consequently, we have to assume that if productivity changes occur, that result in a higher rate of profit in one sphere, the immediate result will not be that prices in this sphere fall, so that only the average rate of profit is obtained. On the contrary, the assumption must be that this sphere enjoys higher profits, which encourages capital inflow, which raises supply, and thereby reduces prices and profits.

If prices simply fell so that capital in this sphere only obtained the average 10% profit, without any increase in supply, the lower price would increase demand, causing an imbalance, and forcing prices higher once more. Of course, it could be the case that the higher productivity is itself manifest in higher levels of output, in which case supply would increase, prices would fall and thereby profits. That is more likely the case where there are a large number of small firms competing in that sphere. Where, as under modern capitalism, production is dominated by a small number of very large firms, oligopolies, any such cost reduction, resulting from higher productivity is likely to go directly into higher profits, as there is no reason for such firms to expand their production beyond what provides them with optimum profits.

Moreover, even in a situation where there is competition between many capitals, this situation could not arise without an inflow of capital. If productivity rises so that output doubles, this may leave the capital laid out as variable capital the same, but it necessarily requires additional constant capital to be laid out, because now twice as many materials are processed.

What the capitalist does see is that as productivity rises, a given amount of wages produces a larger quantity of commodities, and so the wage cost per unit falls, and vice versa.  As set out above, the consequence of this is now that, this leaves a larger proportion of surplus value per commodity unit. This is different from where we were just concerned to examine the value or exchange value of the commodity.  In respect of the value of the commodity, if productivity rose, the value of the commodity fell, because less labour-time was required for its production.  In that case, dependent upon what effect the rise in productivity had in terms of the production of relative surplus value, the reduction in the share of wages in each commodity unit, would be matched by the reduction in the surplus value in each commodity unit, so there would be no change in the rate of surplus value.

But now, the price of the commodity is not immediately determined by the labour-time required for its production, but by its cost of production.  That is upon the cost of production, plus the average profit on the advanced capital.

“The changes in the labour-time required for the production of the commodities, and hence the changes in their value, thus appear in regard to the cost-price, and hence to the price of production, as a different distribution of the same wage for more or fewer commodities, depending on the greater or smaller quantity of commodities produced in the same working-time for the same wage. What the capitalist, and consequently also the political economist, see is that the part of the paid labour per piece of commodity changes with the productivity of labour, and that the value of each piece also changes accordingly. What they do not see is that the same applies to unpaid labour contained in every piece of the commodity, and this is perceived so much less since the average profit actually is only accidentally determined by the unpaid labour absorbed in the sphere of the individual capitalist. It is only in such crude and meaningless form that we can glimpse that the value of commodities is determined by the labour contained in them.” (p 171-2)

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