Part VII. Revenues and their Sources
The Trinity Formula
This chapter was put together by Engels from three fragments contained in different parts of the manuscript for Part 6 of Volume III.
Having examined "capital in general", in the earlier chapters of Volume III, and then analysed how capital in general divides into commercial capital, interest-bearing capital and productive-capital, as well as the way landed property appropriates a portion of the surplus value, as rent, Marx now examines how this division of the produced surplus value appears in its phenomenal form. That is how it appears as revenue accruing to capital (interest), land (rent) and entrepreneurship (profit of enterprise), alongside the revenue that flows to labour as wages.
In previous chapters, Marx set out the way that money-capital comes to be seen as the only real form of capital. Interest appears to accrue to capital as some inherent property belonging to it. Just as apples grow on apple trees, so interest is produced by capital.
This then leads to the idea (capitalisation) that other revenues are the natural property of other factors of production, and that the value of these factors can be determined on the basis of capitalising their revenue, based on the rate of interest. So, the price of land is nothing other than capitalised rent.
Industrial profit (profit of enterprise), on this view, is only a return to entrepreneurship, as nothing more than a special form of wages, a view that is reinforced, as these entrepreneurs, the functioning capitalists, are increasingly not the owners of the company, but only professional managers, using the money-capital of others, provided as share capital, or loaned in exchange for bonds, or provided by banks.
The basis of this view is also to be found in those aspects of Adam Smith's writings, where he puts forward a cost of production theory of value, as opposed to those parts where he advocates a labour theory of value. Marx describes the difference between the two in Capital II. A labour theory of value determines the value of a commodity – and hence also of society's total commodity-capital, its total output value – on the basis of the labour-time required for its reproduction. Having determined this value, it can be divided into separate funds that are set aside to ensure that reproduction can take place. Those funds are the society's consumption fund, comprising the consumer goods required to reproduce the labour-power, equal to the variable capital, and the fund required to reproduce the means of production consumed, equal to the constant capital. Anything left over after that constitutes a surplus product, and a surplus value. It is used to provide the consumption goods required by the capitalists, and other non-producers. In addition, it provides the fund for accumulation of additional means of production and consumption, so that capital can be reproduced on an extended scale.
So, the value of a commodity may be equal to 100 hours of labour-time. This value is made up of the fact that, in order to reproduce it now requires 60 hours of labour-time to be expended reproducing the materials used in its production, and the wear and tear of the fixed capital used in its production, along with all the other auxiliary materials, i.e. the constant capital. In addition, it may require a further 40 hours of labour to process these materials and create the final product, making 100 hours in total.
If the labour-power requires only 20 hours of labour-time to produce the consumption goods required to produce it, then out of the 40 hours of new value created by this labour, 20 hours will go to reproduce it, and the other 20 will constitute a surplus value. Thereby,
c 60 + v 20 + s 20 = 100 hours.
But, a cost of production theory of value stands this formula on its head. Rather than looking at the value of production, based on the current labour-time used in production, it instead looks at the past labour-time used in production, and its money equivalent, i.e. the historic price paid, and adds them together to give the price of the commodity. So, if the prices paid were as above:-
c 60 + v 20 + s 20, it would derive the value as 100 accordingly.
Yet, as Marx sets out in Capital II, this is logically flawed. If I have a piece of string that is 1 metre long, I can divide it into three pieces of 60, 20 and 20 cm. But, the length of the piece of string is not determined by the combined length of these three pieces! Rather, it is the length of the string itself, which sets the limit of how it can be divided into these three sections. No matter how I cut it, the combined length of the individual pieces can never be longer or shorter than the original piece.
So with the value of a commodity. It is not the price of the constant capital used in the production of the commodity plus the wages and the profits which determine the value of the commodity. Rather it is the current labour-time required for its reproduction which determines its value, and which determines how it can be divided into these three components.
Suppose there is a fall in productivity that means more labour-time is required to reproduce the means of consumption, so that the value of labour-power rises. This may not affect the labour-time required to produce the constant capital, nor will it affect the labour-time required to process materials, to create this commodity. In that case, the value of the commodity remains 100 hours, made up of 60 hours required to reproduce the constant capital, and 40 hours of new labour performed. But, now, if the value of labour-power has risen, we may have this value of 100 hours divided as:-
c 60 + v 30 + s 10 = 100.
Indeed, if say there was a crop failure, the value of the commodity may remain 100 hours, as above, but the value of labour-power may now rise to 50. In that case, we would have:-
c 60 + v 50 + s -10.
As Marx, points out in Theories of Surplus Value, Chapter 4, when discussing productive labour, it is not the absolute productivity of labour that counts, but its relative productivity, i.e. its ability to create more new value than is required for its own reproduction.
“Productivity in the capitalist sense is based on relative productivity—that the worker not only replaces an old value, but creates a new one; that he materialises more labour-time in his product than is materialised in the product that keeps him in existence as a worker. It is this kind of productive wage-labour that is the basis for the existence of capital.” (TOSV 1, p 153)
Here, labour is absolutely productive – it creates 40 hours of positive, new value – but it is relatively unproductive, because the positive new value it creates, is less than the value required for its own reproduction. As Marx points out in Theories of Surplus Value, the definition of productive labour is that it both exchanges with capital, rather than revenue, and that it produces surplus value.
“Productive labour, in its meaning for capitalist production, is wage-labour which, exchanged against the variable part of capital (the part of the capital that is spent on wages), reproduces not only this part of the capital (or the value of its own labour-power), but in addition produces surplus-value for the capitalist.” (TOSV 1, p 152)
In other words, although the labour-power employed continues to create 40 hours of positive, new value, because it is employed for these 40 hours, this new value produced, is less than the value required to reproduce the labour-power consumed, because the crop failure means that the value of food has risen, causing the value of labour-power to rise sharply. Instead of it producing a surplus value, it produces a loss of 10, which means that the capital must be contracted, it cannot reproduce itself fully.
Indeed, as Marx sets out in Theories of Surplus Value, Chapter 17, this is the basis of Ricardo's erroneous theory of crisis, based on the law of a falling rate of profit. Ricardo, following Malthus erroneous theory of diminishing returns, believed that as the industry grew, agriculture and primary production would be forced to move to less and less fertile land. That would push up the price of materials, but more importantly, the price of food. That would raise the value of labour-power, forcing wages higher, and thereby reducing profit, until it ultimately disappeared, bringing about a catastrophic end to capitalism itself.
In other words, Ricardo's theory of crisis resulting from the law of the rate of profit to fall is based upon falling social productivity, which causes the rate of surplus value to fall. Marx points out that the opposite is the case. The Law of the Tendency for the Rate of Profit to Fall, is based upon rising not falling productivity, and a rising not falling rate of surplus value. It is also for this reason that the falling rate of profit/profit margin occurs simultaneously with a rising general annual rate of profit.
Indeed, as Marx sets out in Theories of Surplus Value, Chapter 17, this is the basis of Ricardo's erroneous theory of crisis, based on the law of a falling rate of profit. Ricardo, following Malthus erroneous theory of diminishing returns, believed that as the industry grew, agriculture and primary production would be forced to move to less and less fertile land. That would push up the price of materials, but more importantly, the price of food. That would raise the value of labour-power, forcing wages higher, and thereby reducing profit, until it ultimately disappeared, bringing about a catastrophic end to capitalism itself.
In other words, Ricardo's theory of crisis resulting from the law of the rate of profit to fall is based upon falling social productivity, which causes the rate of surplus value to fall. Marx points out that the opposite is the case. The Law of the Tendency for the Rate of Profit to Fall, is based upon rising not falling productivity, and a rising not falling rate of surplus value. It is also for this reason that the falling rate of profit/profit margin occurs simultaneously with a rising general annual rate of profit.
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