Theories of Surplus Value, Part I, Chapter 3 - Part 23

By establishing the fact that the surplus value arises because the worker creates more new value than they receive in return in wages, Smith has set out the objective basis of surplus value. This is in contrast to all those explanations of profit which rely on subjective notions about the “interest” of the capitalist, or which seek to confuse profit with the wages of superintendence.

Smith himself sets out what is ridiculous about the latter. He describes a situation where there are two firms. Both employ the same number of workers – twenty – paid £15 each p.a. But, one firm uses material that costs £700, whilst the other material that costs £7,000. If the average rate of profit is 10%, Smith says, the first firm would expect a profit of £100 on the £1,000 of capital advanced, whilst the other firm would expect a profit of £730 on the £7,300 of capital advanced. But, if both firms employ the same number of workers, each paid the same, how could the wages of superintendence in the first case amount to £100, and in the second, £730, Smith asks.

However, Marx sets out that precisely in this example, Smith exposes the weakness of his own argument. Having identified correctly that surplus value is produced by only one part of the capital – the variable capital – Smith abandons this objective basis for the determination of surplus value, in order to equate it with the profit, which is the relation of the surplus value to the total laid out capital.

In the same way that Smith asks how it is that the wages of superintendence are £100 in the first case, and £730 in the second case, despite the same number of workers being employed, he should ask if the profit arises from the additional labour provided by workers over that required to reproduce their labour-power, how is that the 15 workers in the first case, provide much less additional labour than the 15 workers in the second case?

But, he does not do so. Instead, having uncovered the objective basis of surplus value, he ditches it, to explain profit himself on the subjective basis of the capitalists interest. So, he writes,

““He” (the entrepreneur) “could have no interest to employ them, unless he expected from the sale of their work something more than what was sufficient to replace his stock to him; and he could have no interest to employ a great stock rather than a small one, unless his profits were to bear some proportion to the extent of his stock” [ibid., p. 53].” (p 90) 

But, whatever the “interest” of the capitalist in only investing his capital if it provides him with a given rate of return on his total capital, this can provide no objective basis for determining what this rate should be. After all, each capitalist has an “interest” in this rate being as high as possible, so why not choose some other rate such as 20%, 30%, or 200%?

The answer is obviously that competition between capitals reduces the rate to the average rate of profit, but this average rate itself must have some objective basis, or else there is no reason why the average rate should not itself be 20,%, 30%, or 200%. The objective basis is the total surplus value produced.

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