Sunday, 30 August 2015

Capital III, Chapter 13 - Part 16

The proportion of value added by living labour in each individual commodity unit, and, therefore, the proportion of profit can rise, if productivity increases so as to reduce the value of the constant capital relative to the variable capital. This is particularly the case in relation to the fixed capital. If a new machine is introduced, which is twice as productive as existing machines, then, as set out in Capital I, the result is to cut the value of existing machines in half. Because the value of the machine is reduced by 50%, the amount of value it transfers to commodities, via wear and tear, is also thereby cut by 50%. For the new machine, because it is twice as productive as the old, the amount of value it transfers, via wear and tear, to each commodity unit is already half what the previous machine transferred.

As Marx set out in Chapter 6, this kind of change, for raw materials, tends to occur in step changes. It takes a prolonged period of high market prices before copper miners will commit to the cost of developing a new copper mine, or before new areas of land are opened up to new farms, as is happening now in Africa, as it happened, in the US, in the 19th century. But, when these new sources of supply do come on stream, their production costs are usually a fraction of those of existing producers. Moreover, it is frequently the case that the previous period of under-supply, which caused market prices to exceed prices of production, is then matched by periods of over-supply, when market prices undershoot prices of production.

“In no case does a fall in the price of any individual commodity by itself give a clue to the rate of profit. Everything depends on the magnitude of the total capital invested in its production.” (p 230)

The fall in the price may result from a fall in the value of the constant capital used in its production – either the fixed capital or the circulating capital. In that case, the fall in price would coincide not with a fall, but a rise in the rate of profit. The falling price may result from changes in productivity, so that a given amount of labour processes a larger quantity of material, so that although the material costs remain the same per unit of output, less is comprised of wages and profit. In that case, the rate of profit would fall.

“The phenomenon, springing from the nature of the capitalist mode of production, that increasing productivity of labour implies a drop in the price of the individual commodity, or of a certain mass of commodities, an increase in the number of commodities, a reduction in the mass of profit on the individual commodity and in the rate of profit on the aggregate of commodities, and an increase in the mass of profit on the total quantity of commodities — this phenomenon appears on the surface only in a reduction of the mass of profit on the individual commodity, a fall in its price, an increase in the mass of profit on the augmented total number of commodities produced by the total social capital or an individual capitalist. It then appears as if the capitalist adds less profit to the price of the individual commodity of his own free will, and makes up for it through the greater number of commodities he produces. This conception rests upon the notion of profit upon alienation, which, in its turn, is deduced from the conception of merchant capital.” (p 230-1)

Profit upon alienation is a term developed by Sir James Steuart,
and discussed by Marx in Theories of Surplus Value. It refers to the profit, particularly merchant capitalists obtain, from the sale of commodities, as opposed to the surplus value created in production. Specifically, it means the profit obtained from the selling of a commodity above its value. This notion of the source of profit developed by the Mercantilists, although it can explain why this or that capital obtains a profit, or a higher or lower profit, cannot explain the source of profit in general, for the reasons Marx sets out in Capital I, i.e. if every commodity owner sold their commodity at say 10% above its value, they rob each other by the same amount, so it would be the same as if they simply sold them at their value.

Yet, it seems to each capital that this is precisely what they do, i.e. they take their cost price and add a percentage for profit. How much they can add appears to be simply a question of the state of demand for the particular commodity, or their particular skill in reducing the cost price. It may also seem, as Marx says, that the ability to obtain a greater mass of profit arises from the decision to adopt a lower profit margin so as to maximise demand. The mass of profit then seems to be a function of multiplication, i.e. it is the profit margin multiplied by the quantity of units sold, whereas the reality is that it is a process of division. It is the mass of profit, which is divided by the units sold, which determines the profit margin on each unit.

In order to produce at the least cost, the capitalist must produce in the proportions determined by the technical composition of capital, and the technical constraints discussed in Capital I, in relation to the minimum size of capital. Given the available capital of each firm, this then determines the quantity they will produce. The produced surplus value will then be equal to the value of this level of output minus its cost of production. The surplus value per unit is then equal to this amount divided by the number of units.

But, each firm sees this reality reflected through the lens of competition. Having determined its optimum level of production, it must deal with the issue of demand, which continually fluctuates with consumer preferences. Its objective, therefore, is to realise as much of the produced surplus value as possible, within the constraints of that demand, by charging the highest price possible, compatible with selling all of its output.

In reality, therefore, this aspect of maximising profit has nothing to do with the skill of the individual capitalist. The conditions for producing at the most efficient, least cost level are technically determined, whilst the level of demand for the commodities is determined not by the producer but by the consumer.

“The fall in commodity-prices and the rise in the mass of profit on the augmented mass of these cheapened commodities is, in fact, but another expression for the law of the falling rate of profit attended by a simultaneously increasing mass of profit.” (p 231)

Marx also comments that the rise in productivity that results in this increase in the mass of commodities produced and a fall in their individual value, does not change the value of labour-power, and rate of surplus value, unless these commodities are wage goods. But, in reality, other than perhaps luxury goods, all commodities enter in some way into the production of wage goods. If the price of a machine falls, this is not itself a wage good, but, to the extent that the machine is used to produce wage goods, or even just to produce materials or fixed capital used in the production of wage goods, it thereby indirectly affects the price of wage goods.

Moreover, as Marx set out in the previous chapter, the market price of any commodity, under capitalism, is not determined in isolation from all other commodities, precisely because it is a function of its price of production, which depends upon the average rate of profit.

Those capitalists who operate with the latest technology and techniques, but which have not yet been widely adopted, as was seen in Capital I, are able to sell at a market price above their individual price of production, and thereby to obtain a profit above the average until such time as competition reduces it.

“During this equalisation period the second requisite, expansion of the invested capital, makes its appearance. According to the degree of this expansion the capitalist will be able to employ a part of his former labourers, actually perhaps all of them, or even more, under the new conditions, and hence to produce the same, or a greater, mass of profit.” (p 231)

Forward To Chapter 14

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