## Friday, 7 August 2015

### Capital III, Chapter 12 - Part 3

So, its clear that those commodities that are produced under conditions of the average organic composition of capital, when measured on a value basis, may not be so when measured on the basis of price of production, and vice versa. But, as Marx says, this does not make any difference, in respect of the laws outlined. Those laws, relating to the rate of profit, the effect of price and wage increases etc. are based, not on the fact that measurement is undertaken on the basis of values rather than prices of production, but on the basis of the proportional relation between these different components of capital.

What applies as a result of the proportion between c/v, s/v, s / c+v etc. when measured on a value basis, applies equally when measured on the basis of price of production. Moreover, as Marx made clear earlier, when taken at the level of the aggregate social capital, the sum of prices of production is equal to the sum of values. But, its clear also, on this basis, that this does not apply to the individual components of capital. As Marx says, in relation to the average capital, measured by price of production,

“Suppose, the average composition is 80 c + 20 v. Now, it is possible that in the actual capitals of this composition 80 c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.” (p 207)

In which case, the actual proportions of c/v and v/s, and, therefore, s/c+v, are different when prices of production rule as opposed to values. This must be the case. If total values equal total prices of production, then c + v + s must come to the same total measured by either values or prices of production. And, this must be true, because whether we measure these values and prices in labour-time, or in money representing labour-time, both are measured by this same unit. Moreover, what is actually being measured here, whether it is called value or price of production, is nothing other than the total labour-time expended in the economy, i.e. the sum of the living labour expended, plus the materialised labour it works with and processes.

But, if we take Marx's comment in relation to v, for example, it shows why s must change, whilst c remains constant. If the price of production of wage goods is higher than the value of wage goods, then, as Marx says above, workers must perform more necessary labour to obtain them. The value of labour-power thereby rises, a greater proportion of total social labour is devoted to producing wage goods. The value of labour-power thereby rises, and the amount set aside as variable capital must then increase. But, if v rises then s must fall, because the total amount of new labour performed in the economy has not changed, workers continue to produce only the same quantity of new value as they did previously. If v + s remains constant, then with c + v + s constant, c must also remain constant. But, v has risen relative to c.

The consequence of wage goods being more expensive, as a result of a shift from exchange values to prices of production, is fairly obvious. A larger proportion of capital must be advanced as variable capital compared to constant capital, meaning the organic composition of capital falls. But, the rate of surplus value also falls as v rises relative to s. As c + v rises, but s declines, the rate of profit also falls. The same is true in reverse if wage goods are cheaper as a result of prices of production replacing exchange values, then workers expend less necessary labour-time, the value of labour-power falls, and surplus labour-time rises, so the rate of of surplus value rises, and, as c + v falls, and s rises, the rate of profit rises too.

It is not then that the shift from exchange values to prices of production does not result in the kinds of changes in the allocation of capital described above, and consequent changes in the rate of surplus value, and profit, but that the consequences of these proportions remain the same, whether it is a regime of prices based on values or on prices of production.

“For instance, in a capital of the given composition 80 c + 20 v, the most important thing in determining surplus-value is not whether these figures are expressions of actual values, but how they are related to one another, i.e., whether v = l/5 of the total capital, and c = 4/5.” (p 207)

Marx then illustrates this, in relation to the law outlined in relation to the effect of wage rises. If we take the average capital, now calculated according to prices of production rather than values, it is composed on a percentage basis 80 c + 20 v.

“Whenever this is the case, the surplus-value produced by v is, as was assumed, equal to the average profit. On the other hand, since it equals the average profit, the price of production = cost-price plus profit = k + p = k + s; i.e., in practice it is equal to the value of the commodity. This implies that a rise or fall in wages would not change the price of production, k + p, any more than it would change the value of the commodities, and would merely effect a corresponding opposite movement, a fall or a rise, in the rate of profit. For if a rise or fall of wages were here to bring about a change in the price of commodities, the rate of profit in these spheres of average composition would rise above, or fall below, the level prevailing in other spheres. The sphere of average composition maintains the same level of profit as the other spheres only so long as the price remains unchanged. The practical result is therefore the same as it would be if its products were sold at their real value. For if commodities are sold at their actual values, it is evident that, other conditions being equal, a rise, or fall, in wages will cause a corresponding fall or rise in profit, but no change in the value of commodities, and that under all circumstances a rise or fall in wages can never affect the value of commodities, but only the magnitude of the surplus-value.” (p 207)

In other words, exactly the same principle applies here of the effect of a wage rise or fall, as was elaborated where prices were calculated on the basis of exchange values. In practice, there can never be some pure, single-system of prices. Under petty-commodity production, as Marx set out, a pretty close approximation to prices based on values emerges from the trade of different tribes and communities. At the same time, the existence of various frictions, such as the existence of guild and other monopolies, allows market prices to be set higher. The same monopolies also inhibit the development of capitalist production, on the other hand, by preventing capital from inserting itself into these higher priced, higher value areas.