“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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