“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. As Engels states, in theory, 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. But, in practice, in the initial development of capitalist production, the opposite occurs.
“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)
The reason is, as follows. Even in the towns, the small, independent commodity producer, still has a small plot of land, from which they can produce the food required to reproduce their labour-power. He says,
So, when this small commodity producer sells their production, it is not the labour-power (variable-capital) value they must reproduce in it, but the value of the material. The larger the proportion of the latter, compared to the former, i.e. the higher the organic composition of capital, the greater the potential for ruin, and inability to continue production. Its this which opens the door to the merchant capitalist to then simply provide free the materials, but only on condition they now obtain the finished product, in return only for what amounts to the payment of a wage to the producer, thereby appropriating the produced surplus value.
“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)
The merchant now become contractor, now appropriates not just their merchant's profit, but also the surplus value that formerly was appropriated by the direct producer themselves. Not only do they produce more efficiently, but they can afford to even give up some of this additional surplus value, so as to undercut their competitors amongst the independent producers. The price of the commodity is driven down below its exchange value. Those independent producers that also produced more efficiently, would similarly, be able to buy up some of the means of production of their failed neighbours, and to use any money they had hoarded from their profits, to employ their neighbours as wage labourers. By this process a differentiation of the small producers into bourgeois and proletarians takes place.
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.
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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