## Saturday, 28 January 2017

### Theories of Surplus Value, Part I, Chapter 3 - Part 17

Now, we can analyse the situation instead, in terms of value, rather than use value. To do so, we must assign an amount of available social labour-time, for this production. What this amount is does not matter, as the principle remains the same whether we choose 100 hours, or 1 million hours. Let us assume that the workers here work for 900 hours. On this basis, the above use values have the following values. Initially,

c 100 + v 500 + s 400 = 1,000 hours.

As Marx sets out, in Capital I, in analysing such situations, the constant capital, as a constant value, can be set to zero, so as to only focus on the variables. The value of the output is equal to 1,000 hours of labour-time, even though only 900 hours of social labour-time is available, precisely because 100 hours of this value is comprised of the constant capital which was produced in previous year's. However much labour-time was previously expended on its production, i.e. whatever its historic cost, is irrelevant, because in order for social reproduction to occur, this physical quantity of constant capital (100 kg) must be replaced out of the current year's production, and the proportion of current value set aside for this replacement is, therefore, based on its current value/reproduction cost.

The value of this constant capital has been set at 100 hours of labour, because the 900 hours of living labour has produced an additional 900 kg of grain, so that 1 kg of grain has a value equal to 1 hour of labour – 1,000 kg of output has a value of 1,000 hours of labour. If we then analyse the situation where, due to a poor harvest, output falls to 600 kg of grain, we have then 900 hours of new value created by labour, which is represented in 500 kg. of additional output. If we take the total labour expended in producing the 600 kg it is 1000 (100 seed plus 900 new labour) The value per kg, therefore rises to 1000/600 = 1.67 hours) This means that the value of the commodities (grain) which comprise the constant and variable capital, has risen by two-thirds. More of current production, and so current social labour-time is required for their reproduction.

To reproduce the 100 kg of seed now requires 167 hours of labour, and to reproduce the 500 kg of grain required for wages requires 833 hours. All of the new value created by labour, equal to 900 hours, is now required to reproduce the capital, leaving nothing left over as profit. Yet, the surplus value produced is actually equal to 67 hours. The reason is that an additional 67 hours of value is now also required to replace the consumed constant capital (seed). It creates the illusion of a loss due to a tie-up of capital, which I will discuss shortly. The 100 kg of seed consumed as constant capital, is physically reproduced out of the current production, but its value is now equal to 167 hours of labour, rather than 100 hours. This illustrates Marx's point that the value of the commodities that comprise the constant and variable capital are not determined by the labour-time previously used in their production, but the labour-time currently required for their reproduction.

“If the price of raw material, for instance of cotton, rises, then the price of cotton goods — both semi-finished goods like yarn and finished goods like cotton fabrics — manufactured while cotton was cheaper, rises also. So does the value of the unprocessed cotton held in stock, and of the cotton in the process of manufacture. The latter because it comes to represent more labour-time in retrospect and thus adds more than its original value to the product which it enters, and more than the capitalist paid for it...

The reverse takes place when the price of raw material falls. Other circumstances remaining the same, this increases the rate of profit.”

(Capital III, Chapter 6)

Here, its clear that, on a value basis, as opposed to the physical basis of use value, used by the Physiocrats, the fall in output, which means a reduction in social productivity, results in a rise in the value of each kilogram of output. Although the physical quantity of use values required for social reproduction to occur does not change, here, the value of both the constant and variable capital does rise, (by 67%), precisely because of the rise in value of the commodities that comprise it. The amount of new value created by labour does not rise, it remains constant at 900 hours, but now the value of the labour-power that creates this new value, has risen to 833 hours, leaving only 67 hours surplus value.

Marx describes this situation of falling productivity, which causes the value of labour-power to rise, in Capital III, Chapter 50.

“In this case, the total value in which the same labour, paid and unpaid, would be incorporated, would remain the same. But the mass of products in which this quantity of labour would be incorporated would have decreased so that the price of each aliquot portion of this product would rise, because each portion would contain more labour. The increased wages of 150 would not represent any more product than the wages of 100 did before; the reduced surplus-value of 100 would represent merely ⅔ the former product, i.e., 66⅔% of the mass of use-values formerly represented by 100. In this case, the constant capital would also become dearer to the extent that this product would enter into it.”

That is the case above, because the product of the labour in question is grain, and this grain also comprises the seed, which represents the constant capital. Its value is determined by its current reproduction cost, not its historic price. We have 600 kg of output, and each kg has a value of 1.67 hours, giving a total value of output of 1,000 hours. That is comprised of 900 hours of new value, and 100 hours previously consumed in the production of constant capital. In the terms of the Physiocrats, the amount of value would have fallen, because, for them, value is measured by the quantity of use values, but, in reality, although the mass of use values has fallen, from 1,000 kg. to 600 kg., the value of this output has remained constant. It represents an increase in the unit value of grain.

For social reproduction to continue on the same scale, as Marx says in Capital III, Chapter 49,

“In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness.”

(Capital III, Chapter 49, p 849)

100 kg of grain is physically removed from current output to replace, “in kind”, the 100 kg consumed in production. It has a value of 167 hours. That leaves 500 kg, which is required to replace, “in kind”, the grain required to reproduce the consumed labour-power. It, and so the labour-power, now has a value of 833 hours. That accounts for all of the physical production, and all of its value, leaving no surplus product, and no profit. That means that no accumulation of capital can occur, but similarly, no contraction of capital arises either. If we then relate this to the other situations discussed, if output fell to 700 kg, this would mean that the 900 hours of labour would have produced an additional 600 kg. The total labour expended is still 1000 hours (100 hours seed plus 900 hours new labour) The value of each kg would then be 1.43 hours. The total value of output would be 1,000 hours. The value of the 100 kg of constant capital would rise to 143 hours, and the value of labour-power would rise to 714 hours. That gives a cost of production of 857 hours, leaving 143 hours of profit, which is contained in the remaining 100 kg of output.

In the case where output falls to just 500 kg, the value of output remains 1,000 hours, giving a value per kg. of 2 hours. The value of the consumed constant capital is 200 hours, and the value of the consumed labour-power is 1000 hours. In other words, the cost of production here is greater than the value of the output, so the capital makes a loss, equal to 200 hours, which is represented by 100 kg of grain. In order to continue production, on the same scale, this capital would have to inject an additional capital, in the form of 100 kg of grain, with a value of 200 hours. As Marx put it, in Capital III, Chapter 49.

“This entire portion of constant capital consumed in production must be replaced in kind. Assuming all other circumstances, particularly the productive power of labour, to remain unchanged, this portion requires the same amount of labour for its replacement as before, i.e., it must be replaced by an equivalent value. If not, then reproduction itself cannot take place on the former scale.”

(Capital III, Chapter 49, p 835)

Its important to note, here, that the living labour, in all cases, has worked for 900 hours and thereby, in each case, created 900 hours of new, positive value. The fact that, in this last case, the capital makes a loss is not due to the labour creating a negative value! It is due to the fact that the positive new value it creates, is less than the value of the labour-power itself. That is, the new value created is equal to 900 hours, but to reproduce the labour-power requires 1000 hours. Indeed, as Marx states in Capital III, all surplus value, even absolute surplus value, comes down ultimately to relative surplus value, because it is only when social labour reaches a minimum level of productivity that it can begin to create a greater quantity of output than is required for its own reproduction. In the last case, the productivity of labour has fallen to such a degree that this no longer applies. The labour-time required just to reproduce the labour-power is greater than the labour-time undertaken by that labour, the necessary labour exceeds the labour performed. In addition, the illusion of a further loss arises because of the rise in the value of the constant capital, which causes a tie-up of capital. The actual loss (negative surplus value) is only equal to 100 hours, and yet the loss appears to be 200 hours. That is because to reproduce the 100 kg of seed, an additional 100 hours is tied up as capital.

Unless, the additional 100 kg of seed is injected as constant capital, social reproduction does not take place. The capital shrinks, in just the same way that, inversely, accumulated surplus value causes it to grow. Some of the grain paid to workers as wages would have to be withheld, and used as seed, but not all of the 100 kg. could be made up this way. If 100 kg was withheld from wages, then only 80% of the previous labour-power could be bought with the remaining 400 kg. That would be insufficient to cultivate the 100 kg. of seed. The technical composition of the capital requires that c:v is equal to 1:5, so, of the available 500 kg, 83.33 could be used as seed, leaving the remainder to pay as wages. Because less labour-power is then employed, the surplus value produced in the following year would be reduced, even if productivity returned to its original level.

Marx notes in Capital III, Chapter 6, and in Theories of Surplus Value, Chapter 22, dealing with Ramsay, that these situations in which the value of the components of capital rise, leads to an illusion of losses, because of a tie-up of capital. That is that, if a commodity has been sold, and its value realised, but then the value of, say, cotton required for its reproduction rises, this rise in value will mean that the capital, realised in the previous sale, will not now be adequate to physically reproduce the consumed capital. More capital must now be “tied-up”, so as to ensure reproduction on the same scale. This additional capital has the appearance of being a loss, even though, in fact, there has been no change in the surplus value produced. It may take the form of a reduction in the amount of profit available after the capital is reproduced. This loss is illusory, Marx demonstrates, because there is no change in the amount of surplus value produced. Similarly, if the value of cotton falls, it can be reproduced, whilst a portion of the realised value of yarn, is now no longer required for this reproduction. It creates the illusion that additional profit has been created, even though the surplus value remains exactly as it was before. This represents a release of capital, which now creates an additional revenue, as capital is converted to revenue. This same process applies also to changes in the value of the variable-capital. However, because surplus value is the difference between the new value created by labour, and the value of labour-power, which equals the variable-capital, if the value of variable-capital rises, this will result, also, in a real fall in surplus value, and vice versa. In all cases, whether the tie-up of capital results only in a an illusory loss, or a real fall in surplus value, because the value of variable-capital rises, it will result in a fall in the rate of profit, because, even if the amount of surplus value remains constant, the total value of capital (c + v) will have risen so that s/(c + v) will have fallen. The opposite applies where there is a release of capital.

This led to a confusion by Ramsay, due to his use of historic prices to calculate profits and the rate of profit. The same error is made by the proponents of historic pricing today.

For the Physiocrats, the source of the surplus value is Nature, and so the form of surplus value is rent, payable to the landowner, who provides this gift of nature. For Smith, the source of the surplus value is social labour, and it assumes the form of profit, or rent dependent upon whether it is the owners of capital or land which set to work this labour, and thereby appropriate their surplus labour. It assumes the form of interest only as a secondary form, as a portion of profit or rent.

“When I speak of surplus-value, in relation to the total sum of capital advanced, as profit on capital, this is because the capitalist directly engaged in production directly appropriates the surplus-labour, no matter under what categories he has subsequently to share this surplus-value with the landowner or with the lender of capital. Thus the farmer pays the landowner directly. And the manufacturer, out of the surplus-value he has appropriated, pays rent to the owner of the land on which the factory stands, and interest to the capitalist who has advanced capital to him.” (p 85-6)