Sunday, 25 December 2016

Theories of Surplus Value Part I, Chapter I

Sir James Steuart [Distinction Between “Profit Upon Alienation” and the Positive Increase of Wealth]

In many ways, the debate over the nature and source of surplus value reflects the contradictory duality of the commodity as both use value and exchange value. This comes out in a number of the studies of the ideas of bourgeois economists undertaken by Marx, and presented in Theories of Surplus Value.

On the one hand, there are those such as the Monetary School and the Mercantilists, who see profit as deriving from an excess of the selling price of the commodity above its cost, i.e. that commodities sell at prices above their values, which locates the source of profit in the realm of exchange. Modern, orthodox economics has essentially been unable to get beyond this delusion. On the other hand, the Physiocrats, by studying the first manifestations of capitalist production, in agriculture, grasped the idea that it is in the realm of production, by being able to produce a physical surplus product, which can be used for the purpose of accumulation, that the true essence of surplus value resides. But, the problem here is not just that the Physiocrats failed to recognise that this surplus product can be produced in a whole range of industries, besides agriculture, but that one reason they fail to recognise this is that the concept of surplus is focussed solely on the existence of a physical surplus, i.e. a surplus of use values rather than a surplus of value.

“Before the Physiocrats, surplus-value — that is, profit in the form of profit — was explained purely from exchange, the sale of the commodity above its value. Sir James Steuart on the whole did not get beyond this restricted view; he must rather be regarded as the man who reproduced it in scientific form.” (p 41)

The division described above is essentially mirrored in Steuart's analysis. He talks about profit in two senses. Firstly, he talks about positive and relative profit. A relative profit is one that involves a profit for one party at the expense of a loss to another. If the source of profit is that commodities are sold at prices above their value, that profit is derived from exchange, then all profit must be 'relative profit', because a profit obtained from a seller, from selling is matched by the equivalent loss made by the buyer in buying.

But, Steuart recognised what some modern, orthodox economists have failed to notice, which is that if exchange is the source of profits, by all commodities being sold at prices above their value, then profit itself is impossible, because the profits made by sellers are cancelled out by the losses made by buyers.

As Marx points out,

“Even the Monetary system, however, thinks of this profit as arising not within a country, but only in exchange with other countries In this it remains stuck in the Mercantile system [which assumed] that this value takes the form of money (gold and silver) and the surplus-value is therefore expressed in the balance of trade, which is settled with money.” (Note *, p 43) 

Steuart, therefore, counterposes positive profit to this relative profit. A positive profit arises where no one loses at the expense of the gain of someone else. The modern equivalent of this in orthodox economics is the idea of consumer surplus, or the conditions that establish Pareto Optimality. In other words, that, as a consequence of an exchange, the two participants are able to move to a higher level of welfare, because A exchanges a commodity in their possession, for another commodity, which for them possesses greater utility, which is in the possession of B, and vice versa.

But, for Steuart, the idea of positive profit involves an increase in utility deriving from an increase in the actual mass of use values. If

“Positive profit arises from “augmentation of labour, industry and ingenuity”. How it arises from this Steuart makes no attempt to explain. The further statement that the effect of this profit is to augment and swell “the public good” seems to indicate that Steuart means by it nothing but the greater mass of use-values produced in consequence of the development of the productive powers of labour, and that he thinks of this positive profit as quite distinct from capitalists’ profit—which always presupposes an increase of exchange-value.” (p 41)

Steuart seems to grasp, therefore, the idea that for a society as a whole 'profit' can only be this 'positive profit', whereby the physical product expands, but gets no further than this, either in understanding how this increase in this physical product, is achieved, - other than a general 'augmentation' brought about by 'labour', 'industry', and 'ingenuity' – or in how this increase in the physical product is related to an increase in value and surplus value.

The concept of surplus value here then remains locked within the confines of surplus use value, or surplus product.

Marx quotes Steuart, to show that for him the profit of each individual capitalist is 'relative profit', or 'profit on alienation', i.e. a profit obtained by the sale or exchange of commodities.

Marx is right that this is the consequence of Steuart's argument, because on the basis of the argument put forward, as with Adam Smith, it is impossible for surplus value to be produced in the production process. If the value of commodities is determined by the labour-time required for their production, and if this is determined on the basis of the cost of production of the elements involved in the commodities' production, i.e. the means of production and the labour-power, then there is no scope left for surplus value.

“The “real value”, he says, is determined by the “quantity” of labour, which “upon an average, a workman of the country in general may perform … in a day, a week, a month”. Secondly: “the value of the workman’s subsistence and necessary expense, both for supplying his personal wants, and … the instruments belonging to his profession, which must […] taken upon […] average as above …” Thirdly: “… the values of the materials …” (l.c., pp. 244-45). “These three articles being known, the price of manufacture is determined. It cannot be lower than the amount of all the three, that is, than the real value; whatever is higher, is the manufacturer’s profit. This will […] be in proportion to demand, and therefore will fluctuate according to circumstances” (l.c., p. 245). “Hence appears the necessity of a great demand, in order to promote flourishing manufactures … the industrious […] regulate their living and expense according to their certain profit” (l.c., p. 246).” (p 42) 

This excess, according to Steuart, is greater or lesser depending upon the extent of demand for the commodity. However, its not entirely clear to me that this was actually Steuart's intention in the argument he was presenting. As Marx says, Steuart specifically rejected the idea that surplus value could arise from the process of exchange.

“Steuart on the one hand rejects the conception of the Monetary and Mercantile systems, according to which the sale of commodities above their value, and the profit resulting therefrom, creates surplus-value, a positive increase of wealth.” (p 43)

In which case, Steuart would indeed be left in what appears an inexplicable contradiction, if as Marx says,

“On the other hand he holds to their view that the profit of the individual capital is nothing but this excess of the price over the value, the profit upon alienation. This however according to him is only relative, the gain on the one side being compensated by the loss on the other, and consequently this movement is nothing more than “a vibration of the balance of wealth between parties”. (p 43)

The other interpretation could be that Steuart, like Smith and others, simply had a confused and incomplete theory about how the surplus value itself arose in production. In other words, it seems completely tenable to me for Steuart to hold the same position as Marx, that commodities exchange at their values, and those values themselves contain an element of surplus value. The difference is that, for Marx, this surplus value arises because labour-power creates a greater mass of new value than is required for its reproduction, whereas, for Steuart, it arises because a given mass of use values is transformed in the production process into a greater mass of use values, as a consequence of their augmentation, by 'labour', 'industry' and 'ingenuity'.

In fact, this mistaken notion of the identity of surplus value with surplus product, or with the augmentation of the mass of use values, is to be found in the writing of others dealt with by Marx in Theories of Surplus Value, such as Torrens.

Its quite possible then for Steuart to believe that a surplus value arises in production, as a consequence of this 'augmentation', but that, as with Marx, the resultant mass of use values thereby already embody this surplus value, as part of their value. Steuart's profit on alienation then becomes nothing more than the excess of the market price above this value.

As Marx says,

“His theory of “vibration of the balance of wealth between parties”, however little it touches the nature and origin of surplus-value itself, remains important in considering the distribution of surplus-value among different classes and among different categories such as profit, interest and rent.” (p 42)

However confused, or incomplete, the notion of where a social surplus value might have come from, the very recognition that it exists, as a physical reality, means that the question of of how it is thereby distributed arises. In this respect, a theory of competition, and of demand, comes into its own, as Marx describes in Capital III. It provides the basis for an understanding of surplus profits, and on the back of it, rent, as well as the rate of interest. Indeed, it is fundamental to the very mechanism for establishing a general annual rate of profit, and prices of production, so as thereby to bring about a sharing out of this social surplus, on a proportionate basis.

Steuart's main contribution, Marx says, is that his studies showed how, particularly in agriculture, the means of production are separated from labour-power, and how this process leads to the concentration of ownership of the former in the hands of the capitalist class, “... without as yet seeing it directly as the genesis of capital, although he sees it as a condition for large-scale industry.” (p 43)

Back To The Preface

Forward To Chapter 2

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