Profit

Just as wages are the phenomenal form of the value of labour-power, so profit is the phenomenal form of surplus value under capitalism.

Surplus value is produced by labour, but profit is produced by capital. Labour is value. In every mode of production, value is created by the performance of labour, and the quantity of value is determined by the amount of labour performed. Labour produces a surplus value, wherever the value it creates is greater than the value of the labour power, consumed. The surplus value assumes different forms in different modes of production.

In the primitive commune, it assumes the form of a surplus product, at the disposal of the commune. In a slave society, it takes the form of a surplus product, at the disposal of the slave-owners. In a feudal society, it takes the form of rent extracted by the landlord as tribute. In a capitalist society, it takes the form initially of profit, which is then divided into profit of enterprise, rent, interest and taxes.

The amount of surplus, in each case, is objectively determined by the difference between the value of labour-power, and the value created by labour. If peasants require three days a week of their labour, to be able to produce all of the necessities required for their own reproduction, they cannot sustainably work only two days for themselves, whilst working for four days on the land of the feudal lord. That does not mean that, in practice, at some times, this may not happen. It simply means that where it does, the peasants themselves will be unable to reproduce their labour-power. They will begin to die out, and this will not be a sustainable condition, because it will diminish the absolute surplus obtained by the feudal lord.

Under petty commodity production, where commodities exchange at their values, after discounting the value of the means of production, which simply transfer their value to the end product, and are thereby reproduced within it, the surplus value, is the difference between the value of the labour-power of the producer, and the value they create by the labour they add to the means of production.

If such a producer needs to work for 5 hours to reproduce the value of their labour-power, but they work for 10 hours, the 10 hours of new value they create, will not only reproduce the value of their labour-power, consumed in production, but it will create a surplus value of 5 hours. If this is a money economy, where £1 is equal to one hour of labour, then the producer here will create £10 of new value by the application of their labour, but will only require £5, to buy all of the commodities required to reproduce their labour-power, thereby creating a surplus value of £5.

The surplus value is produced by labour. In a capitalist economy, however, surplus value assumes the form of profit, and profit is produced not by labour, but by capital. This seems contradictory, because profit is the capitalist form of surplus value, and if surplus value is produced by labour, it seems impossible for profit also not then to be produced by labour. But, Marx demonstrates why this is not the case.

At the level of the total capital, the total profit is equal to the total surplus value, and so it remains true, at this level, that the total profit is produced by labour. As an aside, it should be pointed out that this amount of surplus value, however, is not the same under capitalism, where commodities exchange according to their prices of production, as it is under a system of petty commodity production, where commodities exchange at their values. That is because, if the commodities which form the workers' necessaries, and thereby determine the value of labour-power, i.e. wage goods, have a higher than average organic composition of capital, their price of production will be higher than their exchange value. In that case, the value of labour-power will be higher under a system of prices of production than under a system of exchange values. Correspondingly, if the value of labour-power is higher, the rate of surplus value, and mass of surplus value will be lower.

“It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production. Suppose, the average composition is 80c + 20v. Now, it is possible that in the actual capitals of this composition 80c 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.”

(Capital III, Chapter 12)

Under capitalism, the profit obtained by each capital is not equal to the surplus value produced by the labour-power employed by that capital. Each capital will seek to obtain the maximum annual rate of profit, calculated not solely upon its variable capital, but on its total advanced capital. Indeed, capital comes to see that profit as arising from its whole capital, and not simply from labour, and this forms the basis of profit as the phenomenal form of surplus value under capitalism. In fact, each capital comes to see the application of fixed capital, which relatively reduces the amount of labour-power employed, as the basis of increasing rather than diminishing the mass of profit it creates.

Every capital could only achieve this goal of obtaining the maximum annual rate of profit, if each obtained the same annual rate of profit, which would thereby become the general annual average rate of profit. Any capital, which obtained less than this average would see no additional investment, as all new investment would go to those sphere of production, which returned at least the average. Of itself, that would mean the supply of commodities from the below average sphere, would decline relatively, so that their market prices rose, and so lifted them back to the price of production, whereby the average rate of profit is obtained. It may even see, an absolute reduction of the capital invested in the below average sphere, thereby raising the market price of those commodities towards the price of production. The same outflow, would result in a transfer of that capital to other spheres of production, which would see the supply of their commodities rise, thereby reducing their market prices, and as a result of these movements of capital, a new general annual rate of profit would be established.

As a consequence, for any individual capital, the profit it obtains, under capitalism, and system of prices of production, is no longer equal to the surplus value produced by labour. Its profit is now determined by the total mass of capital it advances, and by the general annual rate of profit. A capital which employed no labour-power whatsoever, and which only employed fixed-capital, in a fully automated factory, processing materials, would still obtain the average rate of profit on this capital. Otherwise, the capital would have no reason to continue in that business. Merchant capital produces no surplus value, but as capital, it still participates in the calculation of the general annual rate of profit, and similarly, claims that average rate of profit, on the capital it advances.

When Marx talks about profit, therefore, it is this which he means, the capitalist form of surplus value, produced by capital. It is this form that the surplus value takes, before being divided into profit of enterprise, rent, interest and taxes.