Marx says that the merchant capitalist replaces the price of production of the commodity for the industrial capitalist, by advancing their own money-capital, M. In this respect, all the merchant capital is, is the industrial capitalist's commodity-capital separated off into an independent existence. For the merchant capitalist, their cost price is M, whereas the price of production of the commodities they sell is M + ΔM.This is true, Marx says, provided we assume that the merchant capitalist has no expenses that must be deducted. If the merchant capitalist's profit is M' – M = the average rate of profit, then its clear that if the merchant capitalist then has expenses to meet, their profit will then be below the average. Marx says of these expenses,
“As much of this element of cost as consists of circulating capital passes wholly as an additional element into the selling price of the commodities; and as much of it as consists of fixed capital only to the extent of its wear and tear.” (p 288)
But, how is this to be understood? On the one hand, as Marx says, these costs do not add anything to the value of the commodity being sold, on the other, Marx is saying this cost “ passes wholly as an additional element into the selling price of the commodities”.
The answer was provided in Capital II. There Marx analyses the situation of the production of something like grain. Its value is determined by the labour-time required for its production, as with any other commodity. If we ignore the question of commodities exchanged at prices of production rather than exchange value, the situation then arises of how to deal with the question of storage of the grain. The grain having been produced, its value is already determined. The cost of storing the grain can add nothing further to the value. All it can do is to prevent its value from being reduced due to rotting, or being eaten by mice etc. Yet, the farmer will seek to be reimbursed for the cost of having to provide storage facilities, or else this cost, deducted from their profit would mean they received less than the average profit.
The same applies also in agriculture with depreciation of various pieces of machinery. In general, the depreciation of fixed capital is a capital loss, that must be born by the individual capital. It transfers no value to the commodity, in whose production it participates, as opposed to its wear and tear, whose value is transferred to the commodity. The latter is a function of use, the former a function of time and non-use.
But, because of the nature of agricultural production, as seasonal, some elements of fixed capital are necessarily left unused for prolonged periods, during which time they depreciate. This is then a necessary cost, which the farmer will seek to recoup, or again they will fail to make average profits.
Finally, as Marx set out earlier in Capital III, there are some lines of production that have high risks, such as shipping. In order to even out these risks, capital develops insurance, but the high risk industries face higher insurance premiums. These firms recover these higher premiums in the prices they charge, so as to make the average profit, even though these costs add nothing to the value of their products.
The same is true here. Unless the commercial capitalist is compensated for the costs they incur over and above the price they pay for the commodities bought from industrial capital, the profit they make will fall below the average. These costs, therefore, add nothing to the value of the commodities they sell, but must be included in their selling price, so that the merchant capital still makes the average profit. In essence, it acts as a deduction from the total surplus value, so that the higher prices charged, to cover these costs, mean lower prices must be charged elsewhere.
“But whether fixed or circulating, this entire additional capital participates in forming the general rate of profit.” (p 288)
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