Capital III, Engels Supplement - Part 8

Engels then turns to the important role played in this process by merchant capital. Marx earlier had described how the problems of deriving a social value for any commodity, i.e. an average based upon a multiplicity of individual values, arising from varying conditions of production, is resolved because the merchant buys commodities from this mass of scattered producers, and sells their commodities in the market. The merchant can then develop a knowledge of value that each individual producer can never know, and competition between merchants means that the prices they are prepared to pay this multiplicity of producers necessarily gravitates to this average social value.

Engels describes in detail the formation of merchant companies and corporations, in Germany, which, like the guilds, develop out of the mark associations, which, in turn, grow out of primitive communism. Initially, in the mark association, each peasant had an equal area of land.

“After the mark had become a closed association, and no new hides were allocated any longer, subdivision of the hides occurred through inheritance, etc., with corresponding subdivisions of the common rights in the mark; but the full hide remained the unit, so that there were half, quarter and eighth-hides with half, quarter and eighth-rights in the mark. All later productive associations, particularly the guilds in the cities, whose statutes were nothing but the application of the mark constitution to a craft privilege instead of to a restricted area of land, followed the pattern of the mark association.” (p 900-01)

In other words, these associations operate as closed monopolies, and in respect of the merchants associations, each merchant obtained an equal profit, and equal rate of profit. The association determined the prices at which commodities would be bought from producers and sold in the market. The association would also control the quality of the commodities to be sold, by organising public inspection, often accompanies by some form of stamp of quality. The Milk Marketing Board, established in the UK, would be a more modern equivalent.

In order to ensure these equal profits, the associations imposed strict control over these buying and selling prices.

“Woe to the man who sold under the price or bought above the price! The boycott that struck him meant at that time inevitable ruin, not counting the direct penalties imposed by the association upon the guilty.” (p 901)

If we take into consideration the time, and nature of the business, which usually includes transporting commodities over considerable distances, requiring long durations, it is quite clearly a risky business. Not only are the merchants subject to robbery by common criminals, but on the high seas they are subject to piracy from state sponsored privateers.

“This original rate of profit was necessarily very high. The business was very risky, not only because of wide-spread piracy; the competing nations also permitted themselves all sorts of acts of violence when the opportunity arose; finally, sales and marketing conditions were based upon licences granted by foreign princes, which were broken or revoked often enough. Hence, the profit had to include a high insurance premium. The turnover was slow, the handling of transactions protracted, and in the best periods — which, admittedly, were seldom of long duration — the business was a monopoly trade with monopoly profit. The very high interest rates prevailing at the time, which always had to be lower on the whole than the percentage of usual commercial profit, also prove that the rate of profit was on the average very high.” (p 902)

It was these very high profits that led Martin Luther to set out his objections to the merchants as Marx discussed in Capital.

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