Thursday, 15 December 2016

Capital III, Engels Supplement - Part 4

Engels also refers to the article by Conrad Schmidt, who describes how Marx's explanation of the average rate of profit provides an objective basis for the magnitude of this profit, something which orthodox economics was unable to do. Schmidt, however, believed that The Law of Value was merely a necessary hypothesis, a theoretical fiction, required to provide the logical basis to explain the actual exchange relations under capitalism. But, they are wrong. Engels says,

“Sombart, as well as Schmidt, — I mention the illustrious Loria merely as an amusing vulgar-economist foil — does not make sufficient allowance for the fact that we are dealing here not only with a purely logical process, but with a historical process, and its explanatory reflection in thought, the logical pursuance of its inner connections.” (p 895)

Once again in defiance of those who would today insist that The Law of Value, and the concept of value itself is limited to capitalism, Engels then follows Marx in demonstrating that The Law of Value applies to all past and future societies, that value is created as soon as Man engages in purposeful free labour, and that this value only becomes exchange value, just as exchange value only becomes prices of production, as the result of a long historical process.

In order to illustrate this, Engels goes back to Marx’s elaboration of this historical process in Chapter 10. In that elaboration, Marx returns to the situation in pre-capitalist societies, where the direct producers owned their means of production, and only produced commodities so as to be able to exchange them for those products they could not produce for themselves.

On this basis, these direct producers working the same length and intensity of working day, would produce equal amounts of new value. However,

“... the product of each would have different value, depending on the labour already embodied in the means of production. This latter part of the value would represent the constant capital of capitalist economy, while that part of the newly-added value employed for the worker's means of subsistence would represent the variable capital, and the portion of the new value still remaining would represent the surplus-value, which in this case would belong to the worker.” (p 896)

So, if worker A produces a commodity that is made up 100 materials (c) + 100 labour (divided 80 necessary labour and 20 surplus labour) it would have a value equal to 200. If worker B produces a commodity made up of 300 materials and 100 labour (divided 80:20 again), its value will be 400. A will exchange two of their commodities for one of B's.

Both workers will obtain sufficient value from the exchange to be able to reproduce the materials they used in the production, and both will obtain the same amount of value – 100 hours – to recompense them for the labour-time they have expended. These direct producers have no reason to question this state of affairs or to feel unhappy because both have exchanged equal amounts of value. However, viewed capitalistically this is not so, and this goes to the heart of the contradiction. As Marx puts it,

"The whole difficulty arises from the fact that commodities are not exchanged simply as commodities, but as products of capitals, which claim participation in the total amount of surplus-value, proportional to their magnitude, or equal if they are of equal magnitude." (Chapter 10)

Looked at from this perspective, A has advanced 200 of constant capital and 160 of variable capital with 40 of surplus value, giving a rate of profit of 11.11%. But, B has advanced 300 of constant capital, plus 80 of variable capital, with a surplus value of 20, giving a rate of profit of 5.26%.

The direct producer only engages in commodity production and exchange so as to obtain those commodities they cannot produce for themselves. In other words, they engage in production only so as to meet their consumption needs. Provided they exchange an amount of value in one form, for an equal amount of value in the other form, therefore, the variations in the rate of profit are irrelevant to them.

But, for the capitalist, the whole purpose of production and exchange is to make and maximise profits. The capitalist does not engage in production to meet their own or anyone else's consumption needs, but only to produce profits. A capitalist looking at the situation above, therefore, and considering where to invest capital, would invest it in the production of A's commodity, because it provides them with the opportunity to make a higher rate of profit on their capital.

As Marx puts it, and Engels repeats,

"The exchange of commodities at their values, or approximately at their values, thus requires a much lower stage than their exchange at their prices of production, which requires a definite level of capitalist development.... Apart from the domination of prices and price movement by the law of value, it is quite appropriate to regard the values of commodities as not only theoretically but also historically antecedent (prius) to the prices of production. This applies to conditions in which the labourer owns his own means of production, and this is the condition of the land-owning working farmer and the craftsman, in the ancient as well as in the modern world. This agrees also with the view we expressed previously, that the evolution of products into commodities arises through exchange between different communities, not between the members of the same community. It holds not only for this primitive condition, but also for subsequent conditions, based on slavery and serfdom, and for the guild organization of handicrafts, so long as the means of production involved in each branch of production can be transferred from one sphere to another only with difficulty and therefore the various spheres of production are related to one another, within certain limits, as foreign countries or communist communities." (Chapter 10)

Engels comments that had Marx lived, he would undoubtedly have “extended this passage considerably.” But, even so, its clear from what Marx says here, that for him The Law of Value and the concept of value are not something that only exists under capitalism.

As Marx says, in his letter to Kugelmann, it is simply that this law assumes different forms under different modes of production.

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