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

[3. Value and Average Price in Agriculture. Absolute Rent]

[a) Equalisation of the Rate of Profit in Industry]

Marx sets out here the process by which an average rate of profit is determined. He describes this process as set out by Smith and Ricardo. There are two elements here – one correct and one incorrect – that are intertwined. On the one hand, the description of the formulation of an average rate of profit as a consequence of competition and the movement of capital from where the annual rate of profit is low to where it is high is correct. But, Smith, Ricardo, and following them Rodbertus, conclude from this process that the result of this competition is thereby to settle market prices for commodities around their values. As Marx demonstrated, in Capital III, given different organic compositions of capital, this is impossible. Those capitals with a low organic composition of capital will produce a large quantity of surplus value, and vice versa. In that case, the annual rate of profit of the former will be higher than average, and that of the latter lower than average.

The two things are not compatible. In fact, capital will flow from the latter to the former, as described. As supply in that sphere then rises, market prices will fall below the commodities' value, reducing the rate of profit and vice versa. The effect of this process is not to settle the market price around the value of the commodity, but around its price of production, i.e. the cost price plus average profit.

In this section, Marx also elaborates on his description of this process, which clarifies some of his description in Capital III. For example, Marx describes the way the higher profits in the one sphere are also mirrored in the lower profits in other spheres.

“If the commodity is a means of subsistence generally consumed by the worker, then it will depress the rate of profit in all other branches; if it enters as a constituent part into the constant capital, then it will force down the rate of profit in all those spheres of production where it forms an element in constant capital.” (p 25)

This adds to Marx’s comments in Capital III, where he describes the situation where the price of production of wage goods is higher than their exchange value. In that case, because it is this higher price of production which the worker must now pay to obtain the necessaries, the value of labour-power is raised, workers have to spend a greater part of the working day reproducing their labour-power, so the mass of surplus value, and so rate of profit falls.

As demonstrated elsewhere, this is not the case in relation to constant capital. The total new value created does not change when determined by price of production rather than exchange value, only its division between s and v. Likewise, the total value of production does not change, and remains equal to c + v + s, so the overall value of c cannot change.

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