Monday, 22 August 2016

Capital III, Chapter 45 - Part 7

Marx asks the question whether this rent was the equivalent of a tax, but levied by the landlord rather than the state. In his argument here, Marx gives the impression that he believes that such a tax represents an addition to the price of such commodities over their price of production.

“The point is whether the rent paid on the worst soil enters into the price of the products of this soil — which price regulates the general market-price according to our assumption — in the same way as a tax placed on a commodity enters into its price, i.e., as an element that is independent of the value of the commodity.” (p 758)

But, in fact, Marx does not believe taxes have this effect. He believes that taxes – understood in the strict economic sense of being the means for paying for the machinery of the state, as opposed to levies by the state to cover the provision of commodities such as healthcare, education and so on – are a deduction from surplus value. If a tax is levied on a particular commodity, so that the profit of this capital is reduced below the average, capital will leave this sphere. Supply will fall until the market price rises to a level where average profits are made.

However, the capital having left this sphere, will be invested elsewhere, where the rate of profit is higher. Supply in these other spheres will rise, so that market prices and profits fall to the average. So, the ultimate effect of a tax on any commodity is to reduce the level of average profits. It is a deduction from the total surplus value produced in the economy.

A tax levied on a commodity in a sphere where surplus profits are being made may appear to be like a rent, but, in fact, its not. The normal response where such surplus profits exist would be for capital to flock to this sphere, increasing supply, until the rate of profit fell to the average. But, if a tax on these surplus profits is introduced, the consequence is that there is no incentive for capital to move. So, then capital remains tied up in existing areas, where lower profit rates obtain. The consequence then is the same, that the tax forms a deduction from surplus value.

“We have seen that the price of production of a commodity is not at all identical with its value, although the prices of production of commodities, considered in their totality, are regulated only by their total value, and although the movement of production prices of various kinds of commodities, all other circumstances being equal, is determined exclusively by the movement of their values. It has been shown that the price of production of a commodity may lie above or below its value, and coincides with its value only by way of exception. Hence, the fact that products of the land are sold above their price of production does not at all prove that they are sold above their value; just as the fact that products of industry, on the average, are sold at their price of production does not prove that they are sold at their value. It is possible for agricultural products to be sold above their price of production and below their value, while, on the other hand, many industrial products yield the price of production only because they are sold above their value.” (p 758)

In spheres where the organic composition of capital is above the average, prices of production are higher than their exchange values, and vice versa. Marx does not deal with it here, but covers it in Theories of Surplus Value, Chapter 8, where he returns to the question of rent again in more detail, but in addition to whether the organic composition is higher or lower than the average, the fact of whether the rate of turnover of capital in a particular sphere, also affects the price of production. Where the rate of turnover of capital is greater than the average rate of turnover of the total social capital, the price of production will tend to be lower than the exchange value and vice versa.

The reason for that is that the average profit is calculated on the advanced capital, i.e. it is the annual rate of profit. Suppose the average annual rate of profit is 10%, and a capital of £1,000 is advanced, which turns over once during a year. In that case, the profit of £100 is added to the cost of production of the firm's output, giving a price of production of £1,100. However, if the £1,000 of advanced capital is turned over four times during the year, the total laid out-capital, or cost of production is £4,000. Adding the £100 of profit to this cost of production, gives a price of production for the output of £4,100, a rate of profit, or profit margin of 2.5%. Put another way, a laid out-capital of £4,000, which turns over just once during the year, would have a price of production of £4,400. Given the lower rate of turnover of agricultural capital, this will tend to offset the effect of the lower organic composition.

“If the capital in a certain sphere of production is of a lower composition than the average social capital, then this is, in the first place, merely another way of saying that the productivity of the social labour in this particular sphere of production is below the average; for the level of productivity attained is manifested in the relative preponderance of constant over variable capital, or in the continual decrease — for the given capital — of the portion used for wages. On the other hand, if the capital in a certain sphere of production is of a higher composition, then this reflects a development of productiveness that is above the average.” (p 759)

In addition, certain industries will require more or less constant relative to variable capital, dependent upon the technical requirements, and some will require more fixed capital relative to circulating capital. Mining and quarrying requires no raw materials, and very little in the way of auxiliary materials. However, it uses proportionally larger quantities of fixed capital.

“Nevertheless, here too, progress may be measured by the relative increase of constant capital in relation to variable capital.” (p 759)

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