Capital III, Chapter 51 - Part 3

On the one hand, capitalist production can only demonstrate its superiority, and begin to supplant feudal production if, as a minimum, production can be undertaken by handicraft workers brought together on the basis of the division of labour. But, on the other hand, there is only a basis for such production, on a larger scale, if sufficiently developed markets exist to absorb it, which means that a development of towns is required.

“... a precondition which is itself the historical result and product of a preceding process, and from which the new mode of production proceeds as its given basis; that the production relations corresponding to this specific, historically determined mode of production — relations which human beings enter into during the process of social life, in the creation of their social life — possess a specific, historical and transitory character; and, finally, that the distribution relations essentially coincident with these production relations are their opposite side, so that both share the same historically transitory character.” (p 878)

As stated earlier, in examining the distribution of the social product, a fallacy has arisen, going back to Adam Smith, that this product, the National Output, is equal to the National Income or National Expenditure. Put another way, it suggests that all of this output is bought by some form of revenue or income – wages, profit, interest or rent.

“But if so expressed, it is a misstatement. The product is apportioned on one side to capital, on the other to revenue.” (p 878)

If we take wages, Marx says, they do not assume the form of revenue without first taking the form of capital. In other words, wages, as a return to labour is itself dependent upon the existence of capital and wage labour. This is not strictly true. There has always been a number of people, in society, who obtain revenue from the sale of labour-power, and this labour-power is not always exchanged with capital, as Marx discusses in Theories of Surplus Value, Chapter 4. The providers of various forms of personal services, for example, sell the product of their labour, in return for revenue, and the buyers of those services buy them from their own revenue, not from capital. The retainers that provided labour to meet the needs of feudal lords, for example, were paid wages out of the revenue of the aristocracy.

However, the numbers of such workers is small. Today, although the proportion of the economy that derives from service production is by far the largest, this service production is still capitalist production, organised by capitalist enterprises that employ wage labour, to undertake the required production.

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Capital III, Chapter 51 - Part 2

This distribution is considered natural and flowing from the nature of all human production, even though in reality, both the nature of production and of distribution have changed throughout Man's history. In fact, its quite clear that under feudalism the distribution relations were quite different.

Although rent, as a form of revenue exists under both feudalism and capitalism, the nature of rent under the two systems is quite different. Under feudalism, rent is paid to the feudal lord, not in return for the use of his land, but purely on the basis of his customary and legal right to be paid tribute. It is a direct appropriation of surplus value.

But, capitalist rent only arises after capital itself has appropriated surplus value. It arises as an appropriation of only a portion of surplus value, the form of surplus profits. Because land, under capitalism, becomes a commodity that is bought and sold, rent becomes itself a payment for the use of the land.

Rent under feudalism is revenue received by the feudal lord, a share of the society's social production, based on status and rank in society, whereas under capitalism rent is revenue received by a capitalist landowner, a share in the society's output, based on their ownership of a factor of production, and its proportionate contribution to the value of society's production.

“The only correct aspect of this conception is: Assuming some form of social production to exist (e.g., primitive Indian communities, or the more ingeniously developed communism of the Peruvians), a distinction can always be made between that portion of labour whose product is directly consumed individually by the producers and their families and — aside from the part which is productively consumed — that portion of labour which is invariably surplus-labour, whose product serves constantly to satisfy the general social needs no matter how this surplus-product may be divided, and no matter who may function as representative of these social needs. Thus, the identity of the various modes of distribution amounts merely to this: they are identical if we abstract from their differences and specific forms and keep in mind only their unity as distinct from their dissimilarity.” (p 877-8)

Marx refers obliquely to the view of J.S. Mill (Some Unsettled Questions in Political Economy, London, 1844), who did recognise the differences in the form of distribution in different societies, “... but nevertheless clings all the more tenaciously to the unchanging character of production relations themselves, arising from human nature and thus independent of all historical development.” (p 878)

But, the analysis conducted so far, demonstrates that capitalism is an historically specific form of production that could only arise on the basis of the existence of a series of preconditions, which themselves could only be created by a long preceding historical development. For capitalism to exist, it requires the existence of capital and wage labour. That is, it requires that the means of production do not just exist as means of production, in the hands of the producers, but that they exist in the form of capital, means of production in the hands of a few, who will only allow them to be used by the producers, if the producers provide free labour to the owners of the means of production.

It requires, as a corollary, that the producers have been dispossessed of their own means of production. Otherwise, those means of production cannot be monopolised by a few, and the producers would have no reason to provide free labour. But, also for this to occur, it presupposes that the productive forces have themselves been developed to a necessary level.

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Capital III, Chapter 51 - Part 1

Distribution Relations and Production Relations

If we take the total social output, it divides into that part which must physically reproduce the consumed means of production (c), plus the part which must physically reproduce the workers' means of consumption (v), plus a part which represents surplus production. This latter part must itself be used to provide an insurance fund to physically replace those elements of capital that are destroyed by accidents, and of the remainder, a portion is required to meet the consumption of non-producers, and a part is required for the accumulation of additional means of production.

Each of these different physical components of the total output has a value, and in order for it to be purchased, the potential purchasers must obtain a corresponding amount of value as revenue to do so.

But, in fact, its clear that if the total value of this output is comprised of c + v + s, then it cannot all be purchased from revenue, because these revenues – wages, profit, interest and rent – comprise only v + s, i.e. the amount of new value produced by labour during the year.

In fact then, the total output can be divided into a portion that is bought not by revenue but by capital. That is the value of the consumed means of production. In reality, the consumed means of production must be physically reproduced out of the current physical production. The value of those means of production are also reproduced at their current reproduction cost in the value of the current output, and this value is thereby automatically reproduced and forms the means by which the commodities that comprise the constant capital are bought.

In addition to the total output being divided into this portion bought by capital, it comprises a second portion bought by revenue. This portion is equal to the new value created by labour during the year. It can, therefore, be seen why the value of this output must be based on current reproduction costs rather than historic prices, because otherwise a disproportion necessarily arises between the value created in production, and the value distributed as revenue and capital.

The means of production consumed must be physically reproduced for social reproduction to occur on the same scale, and for this to occur, for this portion of the total current social output to be bought, it must be valued in accordance with its value, not its historic cost. If not, either too much or too little value will be allocated for its reproduction, which means that accordingly, either too much or too little value will exist in the respective fund to reproduce that portion of the total output.

Of the portion of this total value that is distributed as revenue, it is divided into wages, profit, interest and rent, and must be equal to the new value produced by labour, and is incorporated in the new physical product.

“The new value added by the annual newly added labour — and thus also that portion of the annual product in which this value is represented and which may be drawn out of the total output and separated from it — is thus split into three parts, which assume three different forms of revenue, into forms which express one portion of this value as belonging or falling to the share of the owner of labour-power, another portion to the owner of capital, and a third portion to the owner of landed property. These, then, are relations, or forms of distribution, for they express the relations under which the newly produced total value is distributed among the owners of the various production factors.” (p 877)

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Capital III, Chapter 50 - Part 20

In examining the conditions under which competition occurs, wages, interest, rent and profits are taken as constants, and this adds to the illusion. For example, if in country A wages are high, but the price of land is low, capital will tend to use the land extensively, but seek to minimise the use of labour, which may only be possible if capital is also used extensively.

In country B, wages may be low and the price of land also low, whilst a lack of capital will cause interest rates to be high. In each case, because of competition between A and B, it will appear that the value of the commodity is a function of the value of the land, labour and capital employed in each case, and that the quantity of each employed was a function of its individual price.

This indeed is the basis of the determination of value by marginal productivity theory, whereby land, labour and capital are treated as homogeneous independent variables, each contributing a marginal product and consequently a marginal revenue product, and with each of these factors being employed up to the point where the additional value contributed is equal to the price of that factor.

“Here, then, experience shows theoretically, and the self-interested calculation of the capitalist shows practically, that the prices of commodities are determined by wages, interest and rent, by the price of labour, capital and land, and that these elements of price are indeed the regulating constituent factors of price. 

Of course, there always remains an element here which is not assumed, but which results from the market-price of commodities, namely, the excess above the cost-price formed by the addition of the aforementioned elements: wages, interest and rent. This fourth element seems to be determined by competition in each individual case, and in the average case by the average profit, which in its turn is regulated by this same competition, only over longer periods.” (p 875) 

In fact, when the neo-classical economists are forced to take their theory to its logical conclusion, they are forced to conclude, like Walras, that profit cannot exist, because if labour is employed up to the point where it creates no additional value above what is paid in wages; if land is employed up to the point where it creates no additional value above what is paid in rent; and if capital is employed up to the point where no additional value is created above what is paid in interest, the whole value of the commodity is accounted for, and distributed as revenue, leaving nothing left over for profit, any such profit would be competed away.

Even where production takes place on a non-capitalist basis, and where these divisions do not exist, the value of the commodity is still divided up in this way. A self-employed worker is thereby considered to pay themselves wages, as a cost of their production; if they own their own land or property, as the basis of their production, they are considered to be their own landlord, paying an imputed rent to themselves, which forms an additional cost of production; the remainder of the value of their production is then considered profit, which they pay to themselves, as their own capitalist.

“Assuming the capitalist mode of production and the relations corresponding to it to be the general basis of society, this subsumption is correct, in so far as it is not thanks to his labour, but to his ownership of means of production — which have assumed here the general form of capital — that he is in a position to appropriate his own surplus-labour. And furthermore, to the extent that he produces his product as commodities, and thus depends upon its price (and even if not, this price is calculable), the quantity of surplus-labour which he can realise depends not on its own magnitude, but on the general rate of profit; and likewise any eventual excess above the amount of surplus-value determined by the general rate of profit is, in turn, not determined by the quantity of labour performed by him, but can be appropriated by him only because he is owner of the land. Since such a form of production not corresponding to the capitalist mode of production may thus be subsumed under its forms of revenue — and to a certain extent not incorrectly — the illusion is all the more strengthened that capitalist relations are the natural relations of every mode of production.” (p 875-6)

But, if capitalism is not assumed then this division becomes rather meaningless. A division is indeed required, because every mode of production, out of its total output, must divide it into a portion required to physically reproduce the consumed means of production, and the consumed means of consumption, and it must set aside another portion as an insurance fund to replace those means of production destroyed by accidents, as well as a social insurance fund to cover the consumption of those who cannot work. It will need to set aside a portion of total output to cover the consumption needs of those whose labour is needed by society, but which does not create additional value. Finally, it will need to set aside a portion of total output to be used to increase the means of production, so as to satisfy its future needs.

“... if we strip both wages and surplus-value, both necessary and surplus labour, of their specifically capitalist character, then certainly there remain not these forms, but merely their rudiments, which are common to all social modes of production.” (p 876)

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Capital III, Chapter 50 - Part 19

The new value produced by labour continually gets divided between workers, capitalists and landlords, both in terms of a portion of the social product, and as regards the revenues required to buy that portion of the social product. This division takes the form of periodically determined contracts of employment, leases, loan agreements etc. For so long as capitalism exists, these contracts and this division will continue.

“The definite form in which the parts of value confront each other is presupposed because it is continually reproduced, and it is continually reproduced because it is continually presupposed.” (p 872)

For the capitalist, the only manifestation of value is market price. These market prices may fluctuate, but over a long period do so around an average figure, and this average figure is then simply determined by the market price of labour, land and capital. However, the individual capitalist cannot get away from the fact that his cost-price is not comprised solely of wages, but also of the elements of constant capital. But, the resolution here seems obvious to the individual capitalist. His commodity-capital resolves into wages, profit and rent, but these commodities are also sold to other capitalists for whom they represent elements of their constant capital.

If the constant capital of other capitalists can thereby be resolved into his wages, profit and rent, that comprise the value of his commodity-capital, so too then can his constant capital be resolved into the wages, profit and rent of some other capital. So, then we are back to the “absurd dogma” of Adam Smith, whereby the value of the commodity and of national output can be resolved into wages, profit and rent – v + s – rather than c + v + s.

A fourth reason for the illusion that it is the individual value of the factors of production, which determine the commodity value is the fact that for the individual capitalist, the real process of value creation goes on behind his back, and the determination of market prices by prices of production gives a false impression.

For the individual capitalist, a rise in productivity results in a relative reduction in the labour employed, and this reduction seems to go along with a reduction in his own production costs. At the same time, this rise in productivity brought about by the introduction of new machines etc. appears to result in no reduction in the value, i.e. the market price of the commodity.

The fall in the value contributed by labour appears to be equally compensated by the rise in the value contributed by capital – wages fall, but profits rise.

For the functioning capitalist, concerned to make at least the average profit, his cost of production, which includes wages, rent and interest then appears as a limiting factor.

“Apart from the constant portion of capital-wages, interest and rent appear to him, therefore, as the limiting and thereby productive determining elements of the commodity-price. Should he succeed, e.g., in depressing wages below the value of labour-power, i.e., below its normal level, in obtaining capital at a lower interest rate, and in paying less lease money than the normal amount for rent, then it is completely irrelevant to him whether he sells his product below its value, or even below the general price of production, thereby giving away gratis a portion of the surplus-labour contained in the commodities.” (p 873-4)

He may want to do so, in order to obtain greater market share. The same applies to the means of production which the individual capitalist will try to buy cheaper than his competitors, and the success in doing so will be another reason for believing that the portion of value added to the commodity, in the form of profit of enterprise derives from the specific skill of the entrepreneur.

“Profit of enterprise, from this standpoint, seems to be either determined by the excess of market-prices, dependent upon accidental conditions of competition, over the immanent value of commodities determined by the above-mentioned elements of price; or, to the extent that this profit itself exerts a determining influence upon market-prices, it seems itself, in turn, dependent upon the competition between buyers and sellers.” (p 874)

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Capital III, Chapter 50 - Part 18

Once that idea is established that wages are merely an equivalent of the value contributed by labour, then the same is seen in respect of profit and rent. New value is no longer the product of labour, but equally of land and capital, completely separated from labour.

A third reason why this illusion arises, that the value of commodities is determined by the value of capital, land and labour, used in their production, is because of the way this appears to be the case from the perspective of each individual capital.

Assume, Marx says, that market prices and prices of production are always the same; productivity remains constant; the new value created by labour divides into constant portions of wages, profit and rent, so wages equals the value of labour-power, realised profit is equal to the average rate of profit, and rent is thereby limited within the bounds previously determined.

“In a word, let us assume that the division of the socially produced values and the regulation of the prices of production takes place on a capitalist basis, but that competition is eliminated.” (p 870)

Even then, Marx says, things would appear in a distorted form. The individual capitalist sees their commodity in terms of its cost price, and this cost price is made up of the historic prices that the capitalist pays for the components of this cost-price, i.e. the means of production and wages.

For the capitalist, however, it does not appear that the wages he has to pay for the labour he buys, is determined by the value of labour-power, which in turn is determined by the value of the commodities required to reproduce that labour-power. Rather, it appears to the capitalist that the value of the labour he buys is equal to the value it contributes to the commodity, and thereby is fully reimbursed in the wages paid for it.

As Marx puts it,

“The average price of labour is a given magnitude, because the value of labour-power, like that of any other commodity, is determined by the necessary labour-time required for its reproduction. But as concerns that portion of the value of commodities which is embodied in wages, it does not arise from the fact that it assumes this form of wages, that the capitalist advances to the labourer his share of his own product in the form of wages, but from the fact that the labourer produces an equivalent for his wages, i.e., that a portion of his daily or annual labour produces the value contained in the price of his labour-power.” (p 870)

The fact of historic prices, i.e. prices of wages determined and paid ahead of the determination of the commodity value reinforce this illusion.

“But wages are stipulated by contract, before their corresponding value equivalent has been produced. As an element of price, whose magnitude is given before the commodity and its value have been produced, as a constituent part of the cost-price, wages thereby do not appear as a portion which detaches itself in independent form from the total value of the commodity, but rather, conversely, as a given magnitude, which predetermines this value, i.e., as a creator of price and value.” (p 870-1)

Something similar, in fact, exists, in relation to the profit, Marx says. As soon as an average rate of profit is established, each capitalist has this figure in mind when they come to set prices. In the 1970's, when I worked for a large pottery manufacturer, prices were determined in exactly this way, of the cost-price plus a percentage profit margin. In fact, the firm, like most others, controlled also the retail selling price, by establishing recommended retail prices, based again on the price to retailers plus a set profit margin.

“But so far as it figures in this manner, it is a pre-existent magnitude, which is in fact independent of the value and surplus-value produced in any particular sphere of production, and thus even more so in the case of any individual investment of capital in any sphere of production. Rather than appearing as a result of a splitting of value, it manifests itself much more as a magnitude independent of the value of the produced commodities, as pre-existing in the process of production of commodities and itself determining the average price of the commodities, i.e., as a creator of value.” (p 871)

The same is true for the other elements into which the surplus value is divided. The rent appears equally as a cost or production, directly related to the land used for production, and which, therefore, adds to the value of the commodity. Interest paid on borrowed money-capital equally appears as a cost of production, even where that money-capital is provided by the functioning capitalist themselves, because its use in one function has an opportunity cost in relation to the alternative uses to which it could have been put.

“These portions into which surplus-value is split, being given as elements of cost-price for the individual capitalist, appear conversely therefore as creators of surplus-value; creators of a portion of the price of commodities, just as wages create the other. The secret wherefore these products of the splitting of commodity-value constantly appear as prerequisites for the formation of value itself is simply this, that the capitalist mode of production, like any other, does not merely constantly reproduce the material product, but also the social and economic relations, the characteristic economic forms of its creation. Its result, therefore, appears just as constantly presupposed by it, as its presuppositions appear as its results. And it is this continual reproduction of the same relations which the individual capitalist anticipates as self-evident, as an indubitable fact.” (p 871-2)

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Capital III, Chapter 50 - Part 17

“But to the industrialists, merchants and bankers, and to the vulgar economists, this appears quite different. For them, the value of the commodity, after subtracting the value of the means of production consumed by it, is not given = 100, this 100 then being divided into x, y and z. But rather, the price of the commodity simply consists of the value of wages, the value of profit and the value of rent, which magnitudes are determined independently of the value of the commodity and of each other, so that x, y and z are each given and determined independently, and only from the sum of these magnitudes, which may be smaller or larger than 100, is the magnitude of value of the commodity itself obtained by adding these component values together.” (p 867)

This illusion is inevitable, Marx says, because it appears that these three factors are themselves completely separate and independent contributors to the value of the commodity, and the value of each of these components in its turn is independently determined.

“But the value does not arise from a transformation into revenue; it must rather exist before it can be converted into revenue, before it can assume this form. The illusion that the opposite is true is strengthened all the more as the determination of the relative magnitudes of these three components in relation to one another follows different laws, whose connection with, and limitation by, the value of the commodities themselves no wise appear on the surface.” (p 868)

The second reason this illusion is fostered is that superficial observation seems to show such a correlation between wages and prices. In Chapter 12, Marx demonstrated that a general rise in wages causes opposite effects in terms of prices of production, for those firms that have higher than average organic compositions of capital, compared to those with lower than average compositions.

Firms with a higher than average composition of capital, actually see their price of production fall, when there is a general rise in wages, whereas firms with a lower than average composition of capital see their prices of production rise, whilst firms with an average composition see no change in their price of production.

Given that it is usually big capitals that operate with higher than average compositions, its clear why these capitals are more favourable to general rises in wages, or the establishment of Minimum Wages than are small capitals. These big capitals see their price of production fall, whereas small capitals see their price of production rise. The only way this can occur is if the supply of commodities by the former rises, and falls by the latter.

In other words, big capital expands and small capital contracts. Moreover, as a consequence of this process, even though the big capitals may obtain a lower rate of profit, the expansion of production in this sector, may result in an expansion of the mass of profit, which outweighs any fall in the rate of profit.

However, wages may rise, not on a general basis, but on a local basis, either geographically or by industry or type of labour. A rise in wages here may then be associated with a rise in prices. But, correlation here does not show causality. Wages may rise in a particular industry, because the industry itself is benefiting from monopoly profits. Wages are able to rise, because the particular capitals are able to pay them. It is not the higher wages which cause the higher monopoly prices.

“This rise in the relative value of one kind of commodity in relation to the others, for which wages have remained unchanged, is then merely a reaction against the local disturbance in the uniform distribution of surplus-value among the various spheres of production, a means of equalising the particular rates of profit into the general rate.” (p 868)

The same applies in relation to specific geographical variations. In a particular area, for example, London, the cost of many commodities, such as shelter, may be high, which increases the value of labour-power, in that area. Wages must be higher to cover this higher cost of living. Higher wages, and higher commodity prices in this area seem to be correlated, but the correlation is caused by high commodity prices pushing up the value of labour-power, not higher wages pushing up commodity prices.

And, in fact, something similar occurs where wages and prices in general rise. It is not the rise in wages that causes the commodity prices to rise, but the rise in commodity prices, which increases the value of labour-power, and thereby causes wages to rise.

In addition, wages and the rate of profit may move in the same direction, because the rate of profit is not the same as the rate of surplus value. Wages may rise, and the mass of surplus value fall. But, if the value of constant capital falls, the total of c + v may fall, even as v rises.

In that case, s/c + v may rise even as s falls, and v rises.

“Similarly if wages should rise as a result of a rise in the prices of the means of subsistence, the rate of profit may remain the same, or even rise, due to greater intensity of labour or prolongation of the working-day. All these experiences bear out the illusion created by the independent and distorted form of the component values, namely, that either wages alone, or wages and profit together, determine the value of commodities.” (p 869)

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Capital III, Chapter 50 - Part 16

As Marx describes, it is the need to replace the physical capital that is the determinant, and the level of output, and consequently surplus product, then varies in accordance with changes in productivity. If previously 500 units were produced, and now only 400 are produced, in the same time, productivity has fallen by 20%, but consequently, the individual value of each unit has risen by 25%.

If the previous output was the product of 500 hours of labour, then each unit had a value equal to 1 hour of labour-time. In that case, the constant capital had a value equal to 100 hours, the variable capital to 200 hours, and the surplus value to 200 hours. The total value was equal to 500 hours of labour-time, but not because it was a summation of the value of 100 hours of constant capital, 200 hours of variable capital and 200 hours of surplus value.

Rather it had such a value, because the constant capital has a value of 100 hours, equal to the labour-time required for its reproduction, and because 400 hours of additional new labour was expended, which resulted in the new production.

If productivity falls, so that only 400 units are produced, these 400 units have required the expenditure of as much labour-time as previously were expended to produce 500 units. In other words, these 400 units have the same value, as previously 500 units possessed. Clearly then, the value of each individual unit is equal to 125% its previous value.

In that case, the value of c rises from 100 hours to 125 hours, v to 250 hours. The surplus product has fallen from 200 units with a value of 200 hours to 100 units with a value of 125 hours. This reflects the division of the current social production and social labour-time required to ensure social reproduction on the same scale.

If we calculate the rate of profit, on this basis as Marx does, as s/c + v, we then obtain 125/(125 + 250) = 125/375 = 33.3%. This is quite clearly different than had we calculated the rate of profit on the basis of historic costs. On that basis the price of c + v, determined by the level of productivity from the previous year's harvest was 100 + 200 = 300. The output of 400 units this year, still has a value equal to 500 hours, the amount of social labour-time expended, which then leaves a surplus value of 500 – 300 = 200. This gives a rate of profit of 200/300 = 66.6%!

Its clear then how this use of historic prices distorts the true picture of the allocation of the available social product and social labour-time, required to ensure social reproduction. In so doing, in conditions of falling social productivity, it results in the above distortion, whereby the extent of social surplus value and rate of profit is exaggerated, and in the more normal situation, of rising social productivity, it understates the extent of social surplus value, and rate of profit. It thereby overstates past rates of profit, and understates current rates of profit, which adds to the delusion of a falling rate of profit.

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What Trumps Pimping Of Farage Tells US

Donald Trump has pimped out Nigel Farage to Theresa May for the job of US Ambassador.  It tells us a lot about Trump, but also about the way Britain will be perceived and treated in a post Brexit world.

Farage, of course, is happy to be pimped out by Trump in this way.  Like Trump he needs to continually have his ego massaged, and the media have been happy to accommodate both men.  They are junkies addicted to self-publicity, and public adulation.  They are the raw material from which all demagogues, bonapartists, and dictators are forged.  That Trump should suggest Farage for the job as Ambassador, shows us that Trump has absolutely no idea about the way the machinery of government works, but it also is in line with the other appointments he has made to his government over the last week, and the way he has seen taking on the job of President as just another business opportunity for him and his family to make money.

Like Boris Johnson and other Brexiteers who never thought that they would win the vote on Brexit, but who saw it as a means of promoting their own political careers, Trump probably never thought that there were enough US voters who were stupid enough to take seriously what he said, and to actually elect him.  He probably did not know about Lincoln's quote that you can feel some of the people all of the time, and some of the people all of the time, but not all of the people all of the time, but he was probably familiar with H.B. Barnum's statement about "one being born every minute".   Standing in the election was a cheap means of obtaining publicity for his business ventures for Trump, whilst massaging his ego.

But, if the reports of nepotism being covered in the US media are anything to go by, then Trump's fairly open and brazen use of the office with antics such as his pimping of his old friend Farage are an indication of why he perhaps has not been so successful in business as his self publicity would have us believe.  During the election campaign Trump talked about his old friend Hillary Clinton, now dubbed by him "crooked Hillary", being put in gaol.  Now that has gone, and instead we see Trump himself coughing up $25 million in a legal settlement of claims relating to Trump University.  He is facing a series of other legal challenges.  As things stand, it is a question of whether it will be the Democrats, or his fellow Republicans, who are the ones to appoint a special investigator into his activities.  It is increasingly also a question, with the next Congressional elections only two years away, whether it will be a Democrat or Republican led Congress that starts impeachment proceedings against him, because his Presidency is almost certain to blow up in his face, just as Brexitt is blowing up in the face of the Tories.

But, Trump's unprecedented call for the Tory government to appoint Farage as its Ambassador to the US also tells us a lot about the status of Britain in the world post-Brexit.  The world rightly considers the three Brexiteers appointed by Theresa May, to be almost as much of a joke as Trump and Farage. They are more like The Three Stooges.  At every turn they are treated with due contempt by EU politicians, as happened today with David Davies visit to Brussels.  The reality is that Britain is a rapidly declining economic and political power, and the pace of that decline will accelerate massively once Britain is actually outside the EU.

Boris Johnson and the Tory government have responded with some sense of injured pride that Trump should even suggest to them who they should appoint as US Ambassador, but they should get used to it, because that is the way a rapidly declining Britain will be treated by all of the larger global powers, be it the US, EU, China, Russia or other economic and political blocs.  Its why Britain had pooled its resources with other European countries into the EU in the first place.

There is no reason that a president Trump, or any other US President, will treat an independent UK as anything other than the equivalent of something stuck to the bottom of their shoe.  The EU will have every reason to treat an independent UK as a hostile force, and will have every reason to try to diminish its economic, military, political and diplomatic influence, as soon as possible, just as any large firm tries to destroy a smaller competitor by any means possible, or to make it subservient to it.

The not unforeseen irony is that the Brexiters proposed leaving the EU in order to regain sovereignty, but the rality is that a declining Britain only had any hope of exercising any sovereignty in today's global economy, as part of the EU.  What Brexit actually signifies, as the actions of Trump and the contempt for UK Ministers, by the EU politicians shows, is that rather than regaining sovereignty, Britain is about to experience the biggest decline in its sovereignty since the Norman Conquest.

Capital III, Chapter 50 - Part 15

Marx sets out this clearly in Theories of Surplus Value, Part One, Chapter 2, in describing the correctness of the Physiocrats approach of seeing this social reproduction in these material terms.

“The determination of the value of labour-power, as a commodity, is of vital importance. This value is equal to the labour-time required to produce the means of subsistence necessary for the reproduction of labour-power, or to the price of the means of subsistence necessary for the existence of the worker as a worker. It is only on this basis that the difference arises between the value of labour-power and the value which that labour-power creates...

Therefore the foundation of modern political economy, whose business is the analysis of capitalist production, is the conception of the value of labour-power as something fixed, as a given magnitude — as indeed it is in practice in each particular case. The minimum of wages therefore correctly forms the pivotal point of Physiocratic theory. They were able to establish this although they had not yet recognised the nature of value itself, because this value of labour-power is manifested in the price of the necessary means of subsistence, hence in a sum of definite use-values. Consequently, without being in any way clear as to the nature of value, they could conceive the value of labour-power, so far as it was necessary to their inquiry, as a definite magnitude...

The sum total of the means of subsistence which the labourer consumes from one year to another, or the mass of material substance which he consumes, is smaller than the sum total of the means of subsistence which he produces... In agriculture it shows itself directly in the surplus of use-values produced over use-values consumed by the labourer, and can therefore be grasped without an analysis of value in general, without a clear understanding of the nature of value. Therefore also when value is reduced to use-value, and the latter to material substance in general.”

The value of the output cannot be derived by taking the prices paid (historic prices) of these factors and adding them together. The value of the commodity-capital is not derived from these prices, but rather the opposite is the case, these revenues are themselves determined by the value of the commodity-capital.

The illusion is created by competition, and it also gives rise to the illusion that inflation, the rise in commodity prices, is a consequence of a rise in wages, whereas the reality is that it is a rise in the price of commodities, which thereby causes a rise in the value of labour-power, which requires a rise in wages. The illusion is created by competition that profits etc. are simply a proportional addition to these wage costs, which thereby rise in nominal money terms, as nominal money wages rise.

“Hence, if wages were equal to 110 instead of 100, the profit would have to be = 11 and the ground-rent = 16½, so that the price of the commodity would = 137½. This would leave the proportions unaltered. But since the division would always be obtained by way of a nominal addition of definite percentages to wages, the price would rise and fall with the wages. Wages are here first set equal to the value of the commodity, and then divorced from it again. In fact, however, this amounts to saying in a roundabout and meaningless way that the value of the commodity is determined by the quantity of labour contained in it, whereas the value of wages is determined by the price of the necessary means of subsistence, and the excess of value above the wage forms profit and rent.” (p 866-7)

The value of a commodity, and of the commodity-capital is comprised of c + v + s. In reality, whatever was paid as historic prices for the means of production (c) and the means of consumption, consumed by workers (v), is irrelevant. For production to continue on the same scale the elements of c + v must be physically reproduced, and the labour-time required to achieve that, i.e. the value of c + v, is then determined by current levels of productivity and technology, i.e. current reproduction costs.

For example, using Marx's analysis of social reproduction, following on from the Physiocrats and the Tableau Economique, a farmer has a capital that divides into constant and variable capital. This capital exists in a physical form as grain. 100 units of grain form constant capital as seed. A further 200 units are set aside as variable capital, i.e. they are used by the farmer to pay the workers, and are equal to the value of labour-power.

If, in the current year, 500 units of grain are produced, the 100 units used as constant capital, which themselves were produced in the previous period, can be reproduced, as can the 200 units of variable-capital. This leaves 200 units of grain as surplus value. Its clear that what determines the surplus product here is the amount of grain that must be set aside as seed (c), and food for workers (v), and what the total output is, which depends on the level of productivity, including effects of the weather etc. But, whatever the level of productivity, the physical quantities of c + v must be reproduced.

If productivity falls by 20%, so that output is only 400 units, it would still require 100 units of c and 200 units of v, for social reproduction to continue on the same scale. If the farmer tries to recover the lost 100 units of surplus product by reducing the quantity of c + v, this could not work. On the basis of this new level of productivity, if the farmer reduced the amount of seed to 50 units, which then required only half the workers to process it, requiring then only 100 units of variable capital, the output would now fall to just 200 units, leaving only 50 units of surplus product.

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Forward To Part 16

Capital III, Chapter 50 - Part 14

If the price of a commodity is equal to 100, and this price is determined by the price of labour – wages – we might also determine the rate of profit as equal to 10% of wages, and the rent as 15% of wages. In that case, the price of the commodity becomes 100 + 15 + 10 = 125 – equal to wages, profit and rent.

As seen in Capital I, this 25 of profit and rent cannot arise as a result of exchange, or the circulation of commodities because if every commodity owner, with a commodity whose value is 100, sells it for 125, it is no different than had they each sold it at 100. The 25 they gain on the sale of their own commodity, they lose in the purchase of other commodities whose price has been equally inflated.

If the worker has 100 to spend, then if the price of the commodity is 125, the worker can buy 0.80 of it. The capitalist can buy 0.08 of it, and the landlord 0.12 of it. In reality, therefore, its clear that the value of the commodity had not been determined by wages, because wages could only buy 80% of the commodity.

It is just the same here as if the value of the commodity was equal to 100, the amount of labour actually contained in it, but that workers had only been paid wages of 80. The difference between the value of the commodity of 100, and the wages of 80 can then more clearly be seen as a surplus value, and that the profit and rent are then merely components of it.

If this were an agricultural economy, for example, it would be as if the worker had produced 100 units of food, and been given 80 of those units back by the farmer, as wages. The 20 units would then be seen clearly as a surplus product, and when the farmer gives 12 units to the landlord as rent, and keeps 8 units for themselves, as profit, these latter two amounts are merely components of that surplus product.

But, the point here is what determines this division. The output itself cannot be increased to 125, simply on a whim, of saying that the workers should be paid 100 units (and indeed on an historic cost basis may have been paid 100 units, set aside from last year's production), whilst the farmer demands 8 units as profit, and the landlord demands 12 units as rent!

The output is 100 units. That is what, given the level of productivity, and given the labour and capital employed, was actually produced, during that production period. What determines that 12 units can be set aside as rent, and 8 units as profit, is purely that 80 units must be set aside as wages, because objectively that is the amount required to ensure that the labour-power is reproduced. Whether workers were actually paid with 100 units (the historic cost of wages), set aside from last year's harvest, in the current year is irrelevant. If that were the case, then its clear that if workers now only require 80 units, fewer workers are employed to produce the 100 units of output, i.e. productivity has risen.

If the output is 100 units, but the workers require 100 units to reproduce their labour-power then its clear that there is no surplus product, or surplus value. Everything produced must be consumed by the workers, so there is no surplus value, and no possibility, therefore, of profit or rent.

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The Brexiteers Need To Get Over Themselves, Wake Up and Smell The Coffee

There is a basic problem with the Brexiteers. It is that they have a ridiculously exaggerated notion of the importance of Britain. They seem to be living in that 19th century world in which Britain was the workshop of the world, and ruled the waves. They need to get over themselves, stop deluding themselves with those fantasies, and realise that Britain is of little global significance, and its significance is diminishing by the day, and all the faster as a result of Brexit. The world just is not that into Britain, whatever the Brexiteers might wish.

The fantasy of the Brexiteers was illustrated throughout the referendum campaign when they put forward a number of such delusions such as the idea that Britain was significant because it was the fifth largest economy. But, the fragility of that claim was exposed when within a couple of weeks of the Brexit vote, the fall in the value of the pound reduced Britain to being only the sixth largest national economy. As other countries are growing at a faster pace, within a decade, Britain is likely to be only the 12th or 15th largest national economy. But, the fact of presenting things in terms of the size of a national economy itself shows how desperate the Brexiteers are to delude themselves and anyone else foolish enough to be taken in by them. 

The modern world is characterised by large economic areas, like the EU, not by national economies. The EU is larger than the US economy, for example, and the US has itself linked up with Canada and Mexico within NAFTA. Compared to the EU or US, the British economy is miniscule, whether it be the fifth, sixth or sixteenth largest national economy!

On that basis and the continued delusion of Britain's importance, the Brexiteers have argued that outside the EU the rest of the world will beat a path to Britain's door. The US under Trump is likely to be more protectionist, and his policy of “America First”, and the idea that countries, like Britain, that have a trade surplus with the US are somehow cheating it, is likely to see Britain suffer, rather than benefit with his Presidency. Countries that gave Britain, as a member of the EU access to their markets, are more likely to restrict that access than to extend it, when in return those countries only get access to the UK's 60 million consumers, rather than the EU's 500 million. Moreover, the UK simply will not have the firepower that the EU has in such negotiations, it will be like a small firm trying to do deals with a large multinational, and that always ends up with the former getting screwed by the latter.

The Brexiteers then tried to kid themselves and everyone else that because the other EU states sell more to the UK than the UK sells to the EU, they would have an interest on having zero tariffs. But, the fact is that the EU has already shown that its more interested in sending a message to any other nationalists that life outside the EU would be tough. The EU can put tariffs on British imports, in the safe knowledge that if Britain responds, UK consumers will still buy German cars, French wines and so on, just paying more for them. Moreover, that will even more be the case, when BMW relocates its production back to Europe, and so on, so that those things currently produced in Britain by EU companies, providing jobs for UK workers, become things produced by EU companies, employing EU workers!

The latest delusion in this respect takes the form that after the election of Trump, and his threat not to defend Europe, the EU will be increasingly dependent on the British military power, which is the largest in Europe. The argument here is that not wanting to alienate Britain, and its military power, the EU will give the UK a good deal on Brexit. Complete, Alice in Wonderland stuff.

Most of the EU sees Britain as a disruptive element in Europe, as it has been for centuries. Over the last 60 years it has been seen as the US's representative in Europe. Why would the EU want to tie itself to a dependence on the British military (which is tiny compared to the US military), if the EU could not count on the US, when the UK military itself is seen as simply an extension of the US military?

That is even more the case, given that many in the EU have been arguing the need for an EU Defence Force separate from NATO. In the past, France kept its military forces separate from NATO, including its nuclear deterrent. Trump's implied threat to Europe, and his close ties to Putin, give every incentive for the EU, to push ahead with an EU army, EU border forces and so on. In fact, it provides a fairly obvious basis for the EU to push ahead with closer integration, and to implement fairly immediate measures of EU wide economic stimulus.

The EU has large-scale integrated aerospace industries that could quickly be ramped up to provide additional military aircraft – obviously cutting British Aerospace and other British engineering firms out of that process when the UK is outside the EU. It can quickly ramp up production of tanks, military vehicles, and ships, as part of building this EU Defence Force. Not only would that provide tens of thousands of industrial jobs for EU workers directly, but it would also mean that EU steel production would need to be ramped up to meet the needs of building all these ships and planes etc. It would mean that demand for a whole series of other EU industries would be ramped up to meet this additional requirement. The advantage of that at a time when the need to shift from monetary stimulus to fiscal stimulus has been recognised across the globe, is obvious.

Capital III, Chapter 50 - Part 13

If we take wages, we might then argue that wages are the product of competition, of demand and supply. But, the demand for labour is a function of capital. In other words, the demand for labour rises when capital expands, and requires more of it.

But then, what is capital in this sense? It consists of commodities be it those that comprise the constant capital, or the money-capital.

“But the value of commodities, according to our assumption, is determined, in the first instance, by the price of the labour producing the commodities, by wages.” (p 863)

The variation in the demand for labour by capital is a function of the ratio of the supply of capital and labour. But, the capital is itself comprised of a given quantity of commodities at a given price, and that price is determined by the price of labour. Yet, the price of labour here is a function of the demand for labour by capital.

“In order to determine wages, we cannot, therefore, presuppose capital, for the value of the capital is itself determined in part by wages.” (p 864)

And, in fact, as shown previously, the price of labour, as with any other commodity, cannot be accounted for by competition. Competition, which creates a fluctuation in supply and demand, can explain why prices move up or down, but not why they settle at a particular equilibrium price.

“Nothing remains but to determine the necessary price of labour by the necessary means of subsistence of the labourer. But these means of subsistence are commodities, which have a price. The price of labour is therefore determined by the price of the necessary means of subsistence and the price of the means of subsistence, like that of all other commodities, is determined primarily by the price of labour.” (p 864)

Which seems to leave us in exactly the same conundrum.

“Therefore, the price of labour determined by the price of the means of subsistence is determined by the price of labour. The price of labour is determined by itself. In other words, we do not know how the price of labour is determined. Labour in this case has a price in general, because it is considered as a commodity. In order, therefore, to speak of the price of labour, we must know what price in general is. But we do not learn at all in this way what price in general is.” (p 864) 

The same thing applies with profit. Competition can act to equalise profits by ensuring that producers of each type of commodity charge the same price for their commodities, and by capital moving from where the rate of profit is low to where it is high. But, this competition cannot create this profit or determine its total magnitude. The competition which shares this profit out presupposes that this profit already exists of a particular magnitude, and so the question then is where this profit came from, and what determined that it was of this particular magnitude?

“Thus, nothing remains but to declare rate of profit, and therefore profit, to be in some unaccountable manner a definite extra charge added to the price of commodities, which up to this point was determined by wages. The only thing that competition tells us is that this rate of profit must be a given magnitude. But we knew this before — when we dealt with general rate of profit and "necessary price" of profit.” (p 865)

This same absurd circular argument applies in the case of rent, Marx says, which leaves the price of commodities being determined by the price of labour, and with profits and rent then being some extra charges added on to this price, and whose magnitude is determined by some unaccountable laws.

“In short, competition has to shoulder the responsibility of explaining all the meaningless ideas of the economists, whereas it should rather be the economists who explain competition.” (p 866)

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Forward To Part 14

Capital III, Chapter 50 - Part 12

The total value of the national output of the commodity-capital, therefore, cannot be derived by treating the value of wages, profit, interest and rent independently, based upon historic prices paid for the respective factors, and then adding them together.

“In reality, the commodity-value is the magnitude which precedes the sum of the total values of wages, profit and rent, regardless of the relative magnitudes of the latter.” (p 862)

Marx then goes through the conundrum that arises if the commodity value is considered to be determined by the historic prices of wages, profits, interest and rent.

“In the first place it is evident that if wages, profit and rent were to form the price of commodities, this would apply as much to the constant portion of the commodity-value as to the other portion, in which variable capital and surplus-value are incorporated. Thus, this constant portion may here be left entirely out of consideration, since the value of the commodities of which it is composed would likewise resolve itself into the sum of the values of wages, profit and rent. As already noted, this conception, then, denies the very existence of such a constant portion of value.” (p 862-3)

In other words, this conception of value leads directly to the fallacy of Smith's Trinity Formula, in which the value of the commodity product comprising c + v + s is, at the same time, dissolved into just the revenues of wages, profits, interest and rent, i.e. v + s.

“It is furthermore evident that value loses all meaning here. Only the conception of price still remains, in the sense that a certain amount of money is paid to the owner of labour-power, capital and land. But what is money? Money is not a thing, but a definite form of value, hence, value is again presupposed.” (p 863)

This is yet a further problem with historic prices, because it assumes that there has been no change in the exchange value of the money in which the historic prices were denominated, compared to the value of the money in which current commodity prices are denominated. But, its clear that if there has been no change in productivity, and so values, historic prices, and current reproduction costs will be the same, but if there has been such a change, the exchange value of money (or what is actually the same, the exchange value of commodities expressed in money, i.e. their prices) will thereby have changed, and so comparing these historic money prices with current money prices is like comparing apples with oranges.

“Let us say, then, that a definite amount of gold or silver is paid for these elements of production, or that it is mentally equated to them. But gold and silver (and the enlightened economist is proud of this discovery) are themselves commodities like all other commodities. The price of gold and silver is therefore likewise determined by wages, profit and rent. Hence we cannot determine wages, profit and rent by equating them to a certain amount of gold and silver, for the value of this gold and silver, by means of which they should be evaluated as in their equivalent, should be first determined precisely by them, independently of gold and silver, i.e., independently of the value of any commodity, which value is precisely the product of the above three factors. Thus, to say that the value of wages, profit and rent consists in their being equivalent to a certain quantity of gold and silver, would merely be saying that they are equal to a certain quantity of wages, profit and rent.” (p 863)

In essence, this comes down to the situation Marx described in Capital I, whereby the determination of value by wages, leads to a contradiction, because if the value of commodities is determined by wages, as the price of labour, the question then arises what determines the value of labour. The value of labour is like all other commodities determined by the price of labour! Even if we say it is determined by the value of the commodities required for its production, this does not help because the value of those commodities is then also determined by the price of labour, so the same circular argument exists whereby the price of labour is determined by the price of the commodities required for its production, and the price of those commodities is determined by the price of labour.

The only difference here is that instead of determining the price of commodities by just the price of labour – wages – it is determined by the price of labour, capital and land, i.e. by wages, profit, interest and rent. But, this leads into the same conundrum when we come to enquire into these prices.

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Forward To Part 13

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Everybody get some.

Friday Night Disco - Mighty Love - The Spinners

There is no such thing as a bad Spinners track.

Britain Is Headed For Stagflation - Part 3 of 3

The other feature that has been developing for several years is that those factors that reduced commodity prices have started to reverse. Not only have productivity gains slowed globally, but China has seen rapidly rising wages. In addition, the value of the Yuan has been rising. So that although China remains the world's workshop, and supplier of vast quantities of consumer goods, which remain cheaper than equivalent commodities produced in more advanced economies, the prices of these Chinese goods is not as cheap as they were, and those prices are likely to continue to rise.

Finally, we have the situation with primary product prices. After the start of the new long wave boom, in 1999, raw material prices rose sharply as rapid increases in demand could not be satisfied by supply. But, rising industrial productivity meant that, despite these higher material prices, the cost of production of commodities fell.

The end of the rise in productivity more or less coincided with the point also where investment in raw material production started to bring huge amounts of new supply on to the market, around 2013-14, which led to significant oversupply and sharp falls in the global prices of oil, iron ore, copper, agricultural products like milk, and so on. In other words, the prices of commodities were initially constrained, because rapid productivity growth offset higher material prices, and when productivity growth slowed, that was offset by falling material prices. But, now we have a slowdown of productivity along with a stabilisation and steady rise in global material prices. For an economy like the UK, which relies on importing large amounts of energy, food and materials, and now also finished commodities, and whose currency is sinking like a stone, that is very bad news.

The UK can do little about the volume of these things it needs to import, and the continued falls in the Pound mean that their sterling price will continue to rise, sharply raising the cost of living. At the same time, the UK offsets these import costs by the export of services, but the demand for these services is not likely to rise significantly, simply because of a lower Pound. On the contrary, Brexit means that large sections of that service industry will relocate to Paris, Frankfurt or Dublin. In fact, one model for am independent Scotland, inside the EU, would be to offer Edinburgh as such a centre, where large large portions of the UK financial services industry is already located.

One factor mitigating a UK slowdown in growth is that despite the prognostications of the perennial catastrophists, global growth appears to be rising. The US economy grew by 2.9% in the last quarter, and it continues to create large numbers of new jobs, in excess of what is required to cover the growth of the labour force, reducing its unemployment rate, and even drawing some workers back into the labour market that had left it. Wages are rising, in the US, as a result, and that provides a basis for increased demand for those new ranges of consumer goods referred to earlier.

The election of Trump may cause a political shock that disturbs that, but, in fact, Trump is committed to a bigger fiscal stimulus than was Clinton. That stimulus will be financed by higher levels of public borrowing, which is one reason that the yields on government bonds have been rising sharply since Trump's election. Another reason, in the case of US Treasuries is that 65% of US debt is held by China, and given Trump's threats to China, it makes sense for China to sell its holdings of US assets before Trump can confiscate them, as he has threatened to do with Mexican assets to pay for the construction of the wall!

In Europe too, especially in its power house, Germany, recent survey data indicates a pick-up in growth, and inflation. Europe and much of the world is moving to a higher rate of growth, at a time when global productivity growth is slowing, when the glut of primary products is ending, when monetary policy and the inflation of financial assets has reached the end of the road, but Brexit means that Britain will be cut off from the main beneficial aspects of that growth, whilst suffering all the consequences of it, in rising inflation, and rising interest rates.

In other words, rising inflation, as global primary product prices, and consumer goods prices rise, rising rates of interest making the UK's huge trade deficit ever harder to finance; a collapse in financial asset and property prices, as rising interest rates reduce their capitalised values; a falling Pound, intensifying all those factors; a growing lack of competitiveness, as Britain, outside the EU, suffers from a lack of economies of scale and from tariff and non-tariff barriers on its exports.

But, Brexit, like Trumpism, also represents a resort to protectionism for all of those inefficient sectors of the economy. It means that the inefficient home producers will use it to increase their prices. It is a repetition of what happened in the UK's sclerotic economy of the mid 1960's and after, that led to nationalistic campaigns to limit imports such as “I'm Backing Britain”.  The Brexiteers are hoping that Trump will ride to their rescue, as they are isolated from the huge EU market, but Trump's protectionist policies, and pursuance of "America First", will have the opposite effect.  It will mean a contraction of trade, from which Britain as a relatively small economy will suffer.  Outside the bargaining power of the EU, any deals that Trump might do with Britain will reflect the fact that the US is a huge $17 trillion economy, whereas Britain is a tiny $2 trillion economy.  Any benefit will go to the US at the UK's expense, as happens with any such deal between parties with vastly unequal bargaining power.

And, of course, not only are such reactionary campaigns doomed to failure, but they initially reduce workers' living standards, as they have to pay these higher prices made possible by the excess liquidity sloshing about the system. Then, especially where workers are heavily over-borrowed, they lead to demands for higher wages, which protected firms then pay, in the belief they can simply recover the pay rise via yet higher prices.

The difference today from the 1970's is that the UK is a much less significant economy, as others, like China, India, Japan, and elsewhere have developed. Moreover, the amount of liquidity in the system, and the degree of inflation of asset prices is at historic and and unprecedentedly high levels; the degree of private household debt is huge, whilst wages are low and productivity is falling. In the 1970's, the UK was entering the EEC, with all of the advantages that provided of a larger market and lower costs that brought with it, whereas today it is proposing to cut itself off from those benefits.

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Capital III, Chapter 50 - Part 11

The market prices, setting aside any variations due to changing productivity or unusual events, vary from these prices of production, as a result of changes in supply and demand, within relatively narrow limits, so that movements above and below more or less cancel each other out, i.e. a reversion to the mean.

“The same domination of the regulating averages will be found here that Quetelet pointed out in the case of social phenomena.” (p 860)

Assuming an absence of any market frictions that prevent a free flow of capital and labour, so that these prices of production can be established, i.e. no monopoly prices, then rent resolves into differential rent, i.e. it arises due to surplus profits, where natural advantages enable specific capitals to enjoy prices of production below the market regulating price of production.

“Here, then, rent has its definite limit of value in the deviations of the individual rates of profit, which are caused by the regulation of prices of production by the general rate of profit. If landed property obstructs equalisation of the values of commodities into prices of production, and appropriates absolute rent, then the latter is limited by the excess of the value of the agricultural products over their price of production, i.e., by the excess of the surplus-value contained in them over the rate of profit assigned to the capitals by the general rate of profit. This difference, then, forms the limit of the rent, which, as before, is but a definite portion of the given surplus-value contained in the commodities.” (p 861)

Even where there are market frictions and monopoly prices, this does not remove the limit imposed on the mass and rate of profit arising from the value of commodities. It simply means that the surplus value due to some spheres is transferred to those spheres that enjoy these monopoly prices.

“A local disturbance in the distribution of the surplus-value among the various spheres of production would indirectly take place, but it would leave the limit of this surplus-value itself unaltered. Should the commodity having the monopoly price enter into the necessary consumption of the labourer, it would increase the wage and thereby reduce the surplus-value, assuming the labourer receives the value of his labour-power as before. It could depress wages below the value of labour-power, but only to the extent that the former exceed the limit of their physical minimum. In this case the monopoly price would be paid by a deduction from real wages (i.e.. the quantity of use-values received by the labourer for the same quantity of labour) and from the profit of the other capitalists. The limits within which the monopoly price would affect the normal regulation of the prices of commodities would be firmly fixed and accurately calculable.” (p 861)

In other words, as stated earlier, social reproduction requires that the physical mass of commodities consumed in current production as constant and variable capital be reproduced. The constraint on surplus value is then determined, not by the historic price of those commodities, but their value, i.e. their current reproduction cost, which determines what proportion of current production, of available social labour-time, must be devoted to this production, and what, therefore, is left over as a surplus product, available as surplus value to be divided as profit, interest and rent.

“Thus just as the division of the newly added value of commodities, and, in general, value resolvable into revenue, finds its given and regulating limits in the relation between necessary and surplus labour, wages and surplus-value, so does the division of surplus-value itself into profit and ground-rent find its limits in the laws regulating the equalisation of the rate of profit. As regards the division into interest and profit of enterprise, the average profit itself forms the limit for both taken together. It furnishes the given magnitude of value which they may split among themselves and which alone can be so divided. The specific ratio of this division is here fortuitous, i.e., it is determined exclusively by conditions of competition. whereas in other cases the balancing of supply and demand is equivalent to elimination of the deviations in market-prices from their regulating average prices, i.e., elimination of the influence of competition, it is here the only determinant.” (p 861-2)

The reason is that the limit of surplus value is set by the factors described above, i.e. ultimately by the value of commodities. But, the share of this surplus value going as interest or profit of enterprise, therefore, has to be resolved within the constraint of this limit, by a competition between the claims of two owners of the same factor of production – capital. The money-capital that the rentier loans to the productive capitalist is the same money-capital that the latter metamorphoses into productive capital. It is only this productive capital that produces the surplus value, and which must thereby be divided between these owners of the one and the same amount of capital value. 

The competition revolves around the extent to which one is prepared to accept an amount of guaranteed interest in return for relieving themselves of the task of taking risk and having to undertake productive activity, whereas the other is prepared to take on risk and undertake productive activity in the hope of greater reward.

“But the fact that there is no definite, regular limit here for the division of the average profit does not remove its limit as part of the commodity-value; just as the fact that two partners in a certain business divide their profit unequally due to different external circumstances does not affect the limits of this profit in any way.” (p 862)

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