Friday, 22 September 2017

Theories of Surplus Value, Part II, Chapter 8 - Part 25

In order for social reproduction to occur, on at least the same scale, the constant capital must be replaced in kind, but that does not require that it is replaced in kind for the producer for whom it acts as constant capital. So, for example, the farmer may reproduce their own seed in kind, but they will not reproduce their plough or other machines in kind. The machine maker reproduces the farmer's machines, and will use their own machines to reproduce their own machines, thereby reproducing them in kind, but they will not replace the wood, iron and leather consumed in that production in kind themselves. Those elements will be reproduced by the timber producer, iron maker and tanner, and so on.

“Whether constant capital is wholly or partially replaced in kind, in other words, whether it is replaced by the producers of the commodity for which it serves as constant capital, is of no consequence. First of all, all constant capital must in the end be replaced in kind: machinery by machinery, raw material by raw material, auxiliary material by auxiliary material. In agriculture, constant capital may also enter as a commodity, i.e., be mediated directly by purchase and sale. In so far as organic substances enter into reproduction, the constant capital must of course be replaced by products of the same sphere of production. But it need not be replaced by the individual producers within this sphere of production. The more agriculture develops, the more all its elements enter into it as commodities, not just formally, but in actual fact. In other words, they come from outside, for instance, seeds, fertilisers, cattle, animal substances, etc., are the products of other producers. In industry, for example, the continual movement to and fro of iron into the machine shop and machines into the iron mines, is just as constant as is the movement of wheat from the granary to the land and from the land to the granary of the farmer. The products in agriculture are replaced directly. Iron cannot replace machines, But iron, to the value of the machine, replaces the machine for one [producer], and [the machine replaces] the iron for the other, in so far as the value of his machine is replaced by iron.” (p 54) 

Its for this reason that the rate of profit, the extent to which this reproduction can be expanded, must be calculated on the current reproduction cost of those use values, rather than their historic prices.

If we take a farmer who produces grain with a value of £110, having advanced £100 of capital, they make 10% profit. The capital may comprise £20 for seeds, £20 machinery and £60 wages. If they produce 1100 kilos of grain, so that it has a price of £0.10 per kilo, it would divide 200 kilos to be set aside to replace seed, 200 kilos set aside to replace machines, and 600 kilos set aside to pay wages, leaving 100 kilos as profit.

The fact that the farmer uses 200 kilos directly to replace their seed does not make it any different to the other 900 kilos. The farmer sells this other 900 kilos, and obtains £90 for it. They use £20 to replace machines, and £60 to cover wages, leaving £10 profit. But, the profit of £10, realised in selling these 900 kilos is only possible on the basis of the whole £100 of capital advanced, including the £20 of seed replaced in kind directly out of production.

The £20 of seed has not been bought or sold, and so contains no profit, whereas the £20 to reproduce machinery includes the profit made by the machine maker. But, both amounts are still £20, both represent 200 kilos of grain that has to be sold in order to reproduce this capital.

In fact, the £20 of machinery may include no profit either if it represents that part of the machine maker's output which simply replaces, in kind, his own constant capital. But, if we considered agriculture more widely, then it could also be viewed in terms of the machine maker reproducing all of his constant capital in kind, or in exchange with agriculture, just as agriculture replaced its own constant capital in kind from its own production, or in exchange with the machine maker.

In other words, the machine maker uses his own machines to reproduce his own machines. He also needs wood and leather to do so. He reproduces the wood and leather by exchanging machines with agriculture. Agriculture thereby reproduces its machines by exchanging wood and leather for them. Agriculture reproduces its own constant capital, seed, livestock, etc. out of its own production.

As productivity rises, the labour-time currently required to reproduce the constant capital, in kind, thereby shrinks, and so any given amount of surplus labour-time/value reproduces more of it. In other words, the rate of profit rises.

In the example above, where £100 of capital is advanced to produce 1100 kilos of grain, a £10 profit, or 10% is obtained. But, the buyers of the grain, a miller, for example, does not pay the full cost of the value of the farmer's output. The total value of output is £110. The miller only pays £90, which includes the £10 profit. But, that is because the miller only buys 900 kilos of grain, which includes the 100 kilos of surplus product.

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