Thursday, 22 December 2016

Capital III, Engels Supplement - Part 11

The next stage is the development of manufacture, whereby the individual handicraft workers are brought together under one roof, but effectively continue to produce on the same basis. The savings are made by economies of scale. But, this is enough to undercut handicraft production.

“The same process is repeated; the surplus-value appropriated by the manufacturing capitalist enables him (or the export merchant who shares with him) to sell cheaper than his competitors, until the general introduction of the new mode of production, when equalization again takes place. The already existing mercantile rate of profit, even if it is levelled out only locally, remains the Procrustean bed in which the excessive industrial surplus-value is lopped off without mercy.” (p 906)

The real reduction in production costs came with the introduction of machine industry.

“It is large-scale industry, too, that thus finally conquers the domestic market for capital, puts an end to the small-scale production and natural economy of the self-sufficient peasant family, and places the entire nation in service of capital. Likewise, it equalizes the profit rate of the different commercial and industrial branches of business into one general rate of profit, and finally ensures industry the position of power due to it in this equalization by eliminating most of the obstacles formerly hindering the transfer of capital from one branch to another.” (p 906)

The process by which this equalisation then takes place has been described previously. Capital first moves into those spheres where the organic composition of capital is low, and there is the ability to make the highest rate of profit. For some reason, Engels seems to state this the wrong way around. He writes,

“All the more so in practice, however, for the spheres of production with excessive surplus-value, with high variable and low constant capital — i.e., with low capital composition — are by their very nature the ones that are last and least completely subjected to capitalist production, especially agriculture.” (p 907) 

His explanation for this seems to make no sense. He says,

“For when commodities of this class are first produced capitalistically and enter capitalist commerce, they compete with commodities of the same nature produced by pre-capitalist methods and hence dearer. Thus, even if the capitalist producer renounces a part of the surplus-value, he can still obtain the rate of profit prevailing in his locality, which originally had no direct connection with surplus-value because it had arisen from merchant capital long before there was any capitalist production at all, and therefore before an industrial rate of profit was possible.” (p 907)

But, he is stating here the opposite of the condition that needs to arise. If the capitalist here renounces a part of the surplus value, rather than obtaining more surplus value he is obtaining less! Instead of the price of the commodity rising above its exchange value, it is being driven further below it. The only means by which the desired effect could be achieved would be if the capitalist production was able to significantly reduce the individual value of its output, but its precisely where the organic composition of capital is high, that this would be least likely to be possible, because it would buy its constant capital at the same price as other producers – and that would comprise the majority of the capital advanced – whilst, the ability to reduce the variable capital would be necessarily more limited.

In fact, capital enters agricultural production fairly early on, and it is those areas such as iron-making, which require the advance of large quantities of constant capital, relative to variable capital that are some of the last to fall under the control of capitalist production. Most iron works until the Industrial Revolution, when coal begins to be used for smelting, were small, and little changed from the iron production of Roman times. One iron master in Britain, John Browne, who produced cannon for the crown, is reported to have employed 200 workers in the early 17th century, but the large majority of these were not employed in iron-making, which required few workers, but in mining the ore, and cutting wood for charcoal, which are activities more associated with agricultural production, and with low organic compositions of capital.

Capitalistic methods of production reduce production costs even further so that the rate of profit obtained is even higher. It attracts more capital into this sphere, raising the level of supply, until market prices are reduced (again pushing out the non-capitalist producers) to a level whereby only the average rate of profit is made and capital is then incentivised to move on to the next most profitable investment.

It should also be mentioned here that where industrialisation occurs today, for example, in China, it does so in conditions where capitalist production is already well established, and its production costs have been reduced to a fraction of those of pre-capitalist production. There is no contradiction then in the fact that one reason for Chinese peasants giving up their own means of production, and leaving the countryside, is to be able to obtain a much higher living standard, whilst being exploited by capital, in the towns and cities.

The productivity of the labourer employed in a modern Chinese enterprise is many, many times that of the Chinese peasant, and so even if 90% of the former's labour constitutes surplus labour, whilst the latter retains 100% ownership of the product of their labour, the value of the 10% of the former is considerably more than the 100% of the latter.

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