Capital III, Engels Supplement - Part 10

Shipping, on the scale of the maritime republics, was impossible without sailors who, by definition, had to be wage labourers, though they may also have been paid partly by a profit share. The mines had been converted from guilds into stock companies, that employed wage workers, and merchants had started the “putting-out” system whereby they provided the material to cottage workers, who processed it, and handed back the finished product to the merchant in return for a wage.

The merchants, who became textile producers, had in front of them, the average rate of profit now obtained by merchant capital, as a guide to the kind of average profit they should expect from advancing this capital for production.

“Now, what could induce the merchant to take on the extra business of a contractor? Only one thing: the prospect of greater profit at the same selling price as the others. And he had this prospect. By taking the little master into his service, he broke through the traditional bonds of production within which the producer sold his finished product and nothing else. The merchant capitalist bought the labour-power, which still owned its production instruments but no longer the raw material. By thus guaranteeing the weaver regular employment, he could depress the weaver's wage to such a degree that a part of the labour-time furnished remained unpaid for. The contractor thus became an appropriator of surplus-value over and above his commercial profit.” (p 904-5)

The weavers usually accepted this changed condition initially only as a consequence of debt, which meant they were unable themselves to buy the required raw materials.

Engels then sets out how, in fact, the additional capital the merchant has to advance as contractor is well worthwhile, and how this process itself undermines the other direct producers. He assumes a merchant with a capital of £30,000. £10,000 is employed in the purchase of goods produced in the domestic market, and £20,000 used in the foreign market. The capital turns over every two years giving an annual turnover of £15,000. If the merchant becomes a contractor, he must now advance additional capital, because he must provide the weaver with material, as well as paying a wage to the weaver.

Engels assumes the production period for the quantity of cloth the merchant normally takes to market is two months. That would actually be quite a long time, compared with the actual situation. So, he must advance enough to cover the material he furnishes to the weavers to keep them busy for two months. If his annual turnover is £15,000, that is £2,500 for two months worth of cloth, that he would previously have bought from the weaver. That may have comprised £2,000 for yarn and £500 for the weaver's labour.

Engels' example here is wrong, because he then goes on to say that as a contractor he advances, £2,000 of constant capital, £500 in wages, and makes £125 profit. But, that is not possible, because that would make the value of the cloth £2,625. If previously he bought the cloth for £2,500 from the weaver and sold it in the market at say £2,500 plus 10% = £2,750, he would now have to sell it at £2,625 + 10% = £2,888, which would make him uncompetitive. He must, in fact, be able to buy the weaver's labour-power for less than the £500 of new value the weaver creates.

In other words, he must pay the weaver £400 in wages, and thereby obtain £100 in surplus value. To make £125 in surplus value, as Engels proposes he would have to pay wages of only £375.

On that basis, he would make an additional £750 of profit per year. To achieve this, he had had to advance £2,000 for the purchase of yarn, provided to the weaver, (the wages only being paid on completion of the work), and this additional £750 per year of profit means that this additional capital is recouped in 2.66 years.

But, the merchant can now use some of this additional surplus value to reduce his own selling prices, and thereby undercut the remaining direct producers.

“But in order to accelerate his sales and hence his turnover, thus making the same profit with the same capital in a shorter period of time, and hence a greater profit in the same time, he will donate a small portion of his surplus-value to the buyer — he will sell cheaper than his competitors. These will also gradually be converted into contractors, and then the extra profit for all of them will be reduced to the ordinary profit, or even to a lower profit on the capital that has been increased for all of them. The equality of the profit rate is re-established, although possibly on another level, by a part of the surplus-value made at home being turned over to the foreign buyers.” (p 905-6)

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