Theories of Surplus Value, Part II, Chapter 10 - Part 9

Marx himself creates some confusion in this chapter, because, as throughout Theories of Surplus Value, he refers to cost prices, whereas what is referring to are prices of production.

The variations in the price of production, Marx says, even where wages remained constant, are a consequence of the different organic composition of capital. This variation is also, “later enlarged by differences arising from the circulation process” (p 176)

What Marx is referring to here is the effect of variations in the rate of turnover of capital. The average rate of profit is calculated on the basis of the annual rate of profit of the total social capital. But, the annual rate of profit is calculated on the advanced capital, i.e. the capital advanced for one turnover period. However, capital in different spheres not only has different organic compositions, but also different rates of turnover. An average composition of capital can be determined by simply totalling the amount of constant and variable capital across all capitals. Similarly, if the capital in each sphere is taken as being of equal size (which, of course, it isn't) then, if the rates of turnover in the different spheres are 2, 5, 10, 20, 50 an average turnover for the economy of 17.6 is arrived at.

The effect on the price of production for all those capitals that turnover at a slower rate than this will be different than for those that turnover faster than the average rate. Take an advanced capital of £1000, comprising £200 constant and £800 variable capital, with a rate of surplus value of 100%. Assume it turns over once a year. Now assume another capital of the same size and composition that turns over twice a year. The advanced capital in the first case is £1000, and it produces £800 of surplus value. But, the second capital turns over twice, so that in a year it produces £1600 of surplus value. The total surplus value is then £2400, on an advanced capital of £2000, giving an average rate of profit of 120%. In other words, the price of production of the output of the first capital is £1000 + £1200 = £2200, whereas the price of production of the second capital is £2000 plus £1200 = £3200.

Both capitals are of the same size, and composition, and both obtain the same average rate of profit, of 120 per cent, but it has different consequences, because of the different rates of turnover. The value of output of the first capital is 1000 plus 800 equals £1800, but its price of production is higher at £2200. The value of output of the second capital is 2000 plus 1600 equals £3600, but its price of production is lower at £3200. In other words, those capitals that turnover more slowly than the average capital (here the average rate of turnover is 1.5 times) have a higher price of production for their output, and vice versa. The rate of profit for the first capital is 120 per cent, whereas its rate of profit calculated as s/c +v is also 80 per cent, but its actual rate of profit on the basis of the price of production is only 60 per cent. In other words, during the year it lays out £2000 in capital and obtains £1200 in profit.

“On the other hand, it must be regarded as a great merit that Ricardo associates the differences in fixed and circulating capital with the varying periods of turnover of capital and that he deduces all these differences from the varying periods of circulation, i.e., in fact from the circulation or reproduction period of capital.” (p 176)

Marx cites Ricardo.

“1. “In every state of society, the tools, implements, buildings, and machinery employed in different trades may be of various degrees of durability, and may require different portions of labour to produce them” (l.c., p. 25).” (p 176)

Ricardo's point that the less durable requires more labour seems to refer to the fact that it will require more labour for frequent repair, and replacement. But, it could also mean, Marx says, that machinery of the same durability may be more or less expensive, requiring more or less labour for its production.

As Marx set out in Capital III, firms will only introduce new machinery where they require less labour for their production than the amount of paid labour they replace. The price of the machine, therefore, is a factor in determining the proportion of variable to constant capital. Where machines are expensive, fewer will be introduced and so relatively more labour will be employed. But, the productivity of this labour will be lower, it will process less material, and so the organic composition of capital will be lower. But, this is not relevant to Ricardo's analysis, so he doesn't consider it. Ricardo is only interested in this question of the different proportions in which fixed capital and labour is combined, along with the question of the durability of the fixed capital. It is evident why he's not concerned with the raw material, Marx says. Ricardo reduces the distinction between fixed and circulating capital to one of durability. So, on the one hand, the items required for the workers' consumption, along with the raw materials are more perishable, whereas things like buildings, machines, and tools are more durable. So, Ricardo places the former in the category of circulating capital, and the latter in the category of fixed capital. On this basis, if wages rise this has no effect on the fixed capital category, but it does increase the circulating capital category.

“Thus the difference between fixed and circulating capital is here reduced to the difference in the time of reproduction (which coincides with the period of circulation).” (p 177)

Ricardo recognizes that this circulating capital turns over at different rates.

“3. “It is also to be observed that the circulating capital may circulate, or be returned to its employer, in very unequal times. The wheat bought by a farmer to sow is comparatively a fixed capital to the wheat purchased by a baker to make into loaves. One leaves it in the ground, and can obtain no return for a year; the other can get it ground into flour, sell it as bread to his customers and have his capital free to renew the same, or commence any other employment in a week” (l.c., pp. 26-27).” (p 177)

The difference in the rate of turnover, here, is a consequence of the different durations of the production period. In one case, grain, as seed, is planted and must remain in the ground, even though no actual labour process is being undertaken. In the other, the wheat is continually being processed. So, even if the actual amount of labour time involved in both cases is the same, and so the value created is the same, it takes much longer for the capital to turnover in one case than the other.

“This applies, for instance, to wine which lies in the cellar to attain maturity, or to certain chemical processes in tanning, dyeing etc.” (p 177)

Ricardo, however, wrongly believes that this difference in the rate of turnover causes one to have a different exchange value to the other.

“But how is a change in the relative values of these commodities brought about by this difference—whether in the degree of durability of fixed capital, or in the period of turnover of circulating capital, or in the proportions in which the two sorts of capital may be combined or, finally, in the time required by different commodities upon which the same quantity of labour is bestowed [to come on to the market].” (p 178)

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