“Simple as this law appears from the foregoing statements, all of political economy has so far had little success in discovering it, as we shall see in a later part. [K. Marx,Theorien über den Mehrwert. K. Marx/F. Engels, Werke, Band 26, Teil 2, S. 435-66, 541-43. — Ed.] The economists perceived the phenomenon and cudgelled their brains in tortuous attempts to interpret it. Since this law is of great importance to capitalist production, it may be said to be a mystery whose solution has been the goal of all political economy since Adam Smith, the difference between the various schools since Adam Smith having been in the divergent approaches to a solution. When we consider, on the other hand, that up to the present political economy has been running in circles round the distinction between constant and variable capital, but has never known how to define it accurately; that it has never separated surplus-value from profit, and never even considered profit in its pure form as distinct from its different, independent components, such as industrial profit, commercial profit, interest, and ground-rent; that it has never thoroughly analysed the differences in the organic composition of capital, and, for this reason, has never thought of analysing the formation of the general rate of profit — if we consider all this, the failure to solve this riddle is no longer surprising.” (p 213-4)
Marx then elaborates the law by reference to capitals in different countries at different levels of development, which, therefore, have different organic compositions and different rates of surplus value. His point is to show that even where the rate of surplus value, in the developed economy, is much higher than in the less developed economy – because the value of labour-power is lower due to higher productivity – the rate of profit will be lower, because the organic composition of capital is higher.
In fact, his example is wrong, for the reasons he sets out in Capital I, and also describes again later here, where he shows that, in firms where higher productivity is obtained, by the use of machines not used elsewhere in the industry, the effect is to turn the labour employed into the equivalent of complex labour.
He writes, discussing the situation in comparing two different countries
“Let a capital of 100 consist of 80 c + 20 v, and the latter = 20 labourers. Let the rate of surplus-value be 100%, i.e., the labourers work half the day for themselves and the other half for the capitalist. Now let the capital of 100 in a less developed country = 20 c + 80 v, and let the latter = 80 labourers. But these labourers require 2/3 of the day for themselves, and work only 1/3 for the capitalist. Everything else being equal, the labourers in the first case produce a value of 40, and in the second of 120. The first capital produces 80 c + 20 v+ 20 s= 120; rate of profit = 20%. The second capital, 20 c+ 80 v+ 40s= 140; rate of profit 40%. In the second case the rate of profit is, therefore, double the first, although the rate of surplus-value in the first = 100%, which is double that of the second, where it is only 50%. But then, a capital of the same magnitude appropriates the surplus-labour of only 20 labourers in the first case, and of 80 labourers in the second case.”
But, in Capital I, Marx sets out the way in which the introduction of machinery, by particular firms, acts to make the labour of its workers the equivalent of complex labour, in relation to that of the firm's competitors. In other words, say there are five firms in an industry, and they take, on average, 100 hours to produce 10,000 units of a commodity. Now, firm A introduces a machine, which means that its workers produce 20,000 units in 100 hours. The firm will continue to sell these units at the market value determined by the average for the industry. The consequence is that it is as if an hour of firm A's workers labour produces twice as much value as an hour of labour by workers in all the other firms. Unlike actual complex labour, however, firm A's workers will only be paid the normal wage for the industry.
But, Marx points out, in discussing international wages, that this situation applies also to the different levels of productivity of different countries resulting from the different degrees of development of their productive forces. The consequence is, he says, to create a modification of the Law of Value, so that, in the same way as above, an hour of labour in one country produces more value than an hour of labour in some other country, where labour productivity is lower.
“In every country there is a certain average intensity of labour below which the labour for the production of a commodity requires more than the socially necessary time, and therefore does not reckon as labour of normal quality. Only a degree of intensity above the national average affects, in a given country, the measure of value by the mere duration of the working-time. This is not the case on the universal market, whose integral parts are the individual countries. The average intensity of labour changes from country to country; here it is greater, there less. These national averages form a scale, whose unit of measure is the average unit of universal labour. The more intense national labour, therefore, as compared with the less intense, produces in the same time more value, which expresses itself in more money.
But the law of value in its international application is yet more modified by the fact that on the world-market the more productive national labour reckons also as the more intense, so long as the more productive nation is not compelled by competition to lower the selling price of its commodities to the level of their value.
In proportion as capitalist production is developed in a country, in the same proportion do the national intensity and productivity of labour there rise above the international level. The different quantities of commodities of the same kind, produced in different countries in the same working-time, have, therefore, unequal international values, which are expressed in different prices, i.e., in sums of money varying according to international values.”
(Capital I, Chapter 22)
It is, in fact, as Marx points out there, the very fact that the more productive labour, in one country, acts as though it were complex labour, compared to the labour in the less productive country, that enables wages in the former to be higher than in the latter, and yet for the former to still be more competitive. The fact, that the labour is more productive in the former, does not mean, however, as Carey believed, that wages were proportionately higher or lower depending upon the level of productivity. Capitalists in the former country are able to pay higher wages, and provide a higher living standard for their workers, and yet still extract a larger volume of relative surplus value, precisely by not passing on the full benefit of the higher productivity to their workers. It was precisely on this basis that during much of the 20th century, Fordism acted to increase productivity, raise workers real wages, and yet still extract an ever increasing amount of relative surplus-value.
It is, in fact, as Marx points out there, the very fact that the more productive labour, in one country, acts as though it were complex labour, compared to the labour in the less productive country, that enables wages in the former to be higher than in the latter, and yet for the former to still be more competitive. The fact, that the labour is more productive in the former, does not mean, however, as Carey believed, that wages were proportionately higher or lower depending upon the level of productivity. Capitalists in the former country are able to pay higher wages, and provide a higher living standard for their workers, and yet still extract a larger volume of relative surplus value, precisely by not passing on the full benefit of the higher productivity to their workers. It was precisely on this basis that during much of the 20th century, Fordism acted to increase productivity, raise workers real wages, and yet still extract an ever increasing amount of relative surplus-value.
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