## Friday, 29 September 2017

### Theories of Surplus Value, Part II, Chapter 8 - Part 32

Continuing with the earlier example, Marx considers the situation where a definite value of £100 is used for raw materials.
 I. Agriculture Constant capital Variable capital Surplus-value Value Price Profit Machinery 100 100 50 250 233.33 [33.33=] 16.66% II. Industry Constant capital Variable capital Surplus-value Value Price Profit Raw materials Machinery 100 100 100 50 350 350 50 = 16.66%
An equal rate of profit exists here because the agricultural product is sold below its value at £233.33, rather than £250. But, this simply means that the law of average prices (prices of production) has come into play so that the rate of profit is equalised. What Rodbertus needs to explain is why prices in agriculture remain high, and why a surplus profit continues to exist in agriculture rather than submitting to the law of average prices as in other industries.

“It becomes evident here that Rodbertus does not understand what the (general) rate of profit and the average price are.” (p 66)

Marx then sets out the basis of prices of production, and the formation of the average rate of profit as also set out in Capital III, Chapter 9.

 Constant Capital Variable Capital (wages) Surplus-value Rate of surplus-value % Profit Rate of profit % Value of product Machinery Raw materials I 100 700 200 100 50 100 10 1,100 II 500 100 400 200 50 200 20 1,200 III 50 350 600 300 50 300 30 1,300 IV 700 none 300 150 50 150 15 1,150 V none 500 500 250 50 250 25 1,250

If these five different types of commodities exchanged at their values they would sell for the money prices listed in the final column. At these prices, each sphere produces a different rate of profit as listed in the penultimate column, even though the same total capital is employed in each sphere, and the same rate of surplus value of 50% applies in each sphere.

The difference is due to varying organic compositions of capital, so that in those spheres that employ relatively more labour-power, relatively more surplus value is also produced. Its possible to consider the production in all five spheres as being the aggregate output of a total social capital. The total social capital consists of £5,000 and is divided into £3,000 of constant capital and £2,000 of variable capital. This then the organic composition of the total social capital, and the ratio in each sphere can then be compared against it.

Wherever the organic composition is higher than the total (average) composition, the rate of profit will be lower than the average profit, because it employs less labour-power, and so produces less surplus value, and vice versa.

If we take the total social capital of £5,000 and the total surplus value of £1,000, this gives an average rate of profit of 20%. Looking at commodity II, we see that its organic composition of capital (500 + 100):400 = 6:4 = 3:2, is equal to the average organic composition of 3000:2000 = 3:2.

Correspondingly, it also receives the average rate of profit of 20%.

If we take Commodity I, its organic composition of capital is 800:200 = 8:2 = 4:1, and so higher than the average, and its rate of profit is correspondingly lower, at 10%. By contrast, Commodity III has an organic composition of capital of 400:600 = 4:6 = 2:3, which is lower than the average and its rate of profit is correspondingly higher than the average at 30%.

Consequently, if commodities sold at their values, it would be impossible for there to be the same rate of profit in each sphere. But, capitalists only engage in production to make profits, and so those capitalists that had advanced £1,000 in sphere I, and only obtained 10% profit would look at sphere III, where they could obtain 30% profit, and decide to move into that production instead.

In reality, its unlikely that this would mean an immediate withdrawal of capital from I, and transfer to III, but it would mean that any new capitals being established would start business in III, and no one would choose to start a business in I. Similarly, capitalists with capital invested in I, will not add to it, but will be likely to use any profits to invest in the new more profitable area of III.

The result is that the output of commodity I does not rise significantly, as no new capital is accumulated in that sphere. But, output of commodity III rises rapidly as capital favours this production to obtain the higher profits. Supply of III rises relative to I, and so the price of III falls relative to I. As the price of III falls, so the excess profit also falls, until it reaches the average (price of production).

In reality, as the economy expands, because capital is accumulated in III and V, which have the higher rates of profit, so this expands demand for all commodities, on average. So, if the supply of I and IV does not rise, because capital shuns their lower than average profits, whilst the demand for them rises, their prices will rise, and with the rising prices will then come rising profits, until they reach the average.

In short, competition in search of the maximum rate of profit will lead to capital accumulating faster in those areas where the organic composition of capital is lower than the average and rate of profit higher, and vice versa. The supply of commodities will rise faster in the former than the latter, as a result, and so the prices in the former will fall, whilst the prices of the latter will rise. The prices of the former will fall below the exchange-value of the commodity, and for the latter will rise above the value of the commodity. An equilibrium condition is arrived at when the prices for each type of commodity result in the capital in that sphere obtaining the average profit.