Wednesday, 13 September 2017

Theories of Surplus Value, Part II, Chapter 8 - Part 16

In the example provided here, I have indicated that on the basis of five turnovers of the capital, the commodity sells for £11,180, giving a profit of £1,180. But, in this particular production, the cost of production was £10,000, whilst the surplus value produced was £4,000, giving a selling price of £14,000 and profit margin of 40%. So, why is it that the capitalist producing this commodity sells it for a lower price, and only obtain the lower average rate of profit. (The 40% profit on the advanced capital of £11,800 would be 33.90%.)

“This average price is thrust upon him; it is by no means the result of his own free will; he would prefer to sell the commodity above its value. It is forced upon him by the competition of other capitals. For every capital of the same size could also be rushed into A, the branch of production in which the relationship of unpaid labour to the invested capital, for instance, £100, is greater than in production spheres B, C, etc. whose products also satisfy a social need just as much as the commodities of production sphere A.” (p 40)

In other words, wherever the market price of commodities includes such a surplus profit, as opposed to just being a temporary imbalance of supply and demand, existing capitals, in this sphere, will seek to obtain these surplus profits by expanding production, and other capitals will seek to gain some of the action by investing in this sphere. So, supply of this commodity will rise, its price will fall, and the surplus profit will then disappear.

However, Marx points out that these surplus profits may themselves be a consequence of production taking place under more favourable conditions than the average. A factory on land that benefits from a waterfall, or windmill that produces its power, may, for example, have lower production costs than other firms in the industry that have to buy coal and steam engines to produce their power. In that case, the landowner, on whose land the waterfall or windmill resides, will say to the capitalists, as a result of the cost-saving you enjoy from my waterfall/windmill, you make above average profits. So, I want those surplus profits as rent, for having provided those facilities.

If the capitalist were to refuse to pay this rent, or if it were to transpire that the rent did not account for all of the surplus profit, then other capitalists would step in as potential tenants of the land, so as to obtain the higher than average rate of profit. But, this competition for the land would then drive up the rent until it absorbed all of the surplus profit and only average profit was made on the land.

Marx sets out that three problems should be dealt with, but that this was not the place to do so. The three problems are:- 1) the transition from feudal land ownership to free peasant property, and the change from feudal rent to commercial rent, regulated by capitalist production; 2) how rent comes into existence somewhere like the US, where there is no established land ownership; and 3) the existence of the Asiatic Mode of Production.

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