Theories of Surplus Value, Part II, Chapter 10 - Part 12

Marx then dissects Ricardo's example further, by taking a step backwards within it, and introducing actual amounts of surplus value. Ricardo does not deal with the issue of surplus value, because he does not recognise it as a category separate from profit, rent or interest. He simply assumes its existence, and imposes an arbitrary rate of profit. He must do so, because he has no theory for determining what profit is, or why it should be some specific amount.

Marx introduces a rate of surplus value of 25 per cent, so that, of the £500 value of the corn and the machine, £400 reproduces wages, and £100 is surplus value. He then assumes that the whole of the value of the machine is used up in wear and tear in the production of cotton goods in the second year.

“In fact Ricardo assumes this, in that, at the end of the second year, he compares not only the value of the cotton goods, but “the value of the cotton goods and the machine” with “the value of the corn ”[l.c., p. 29].” (p 184 – 5)

The value of cotton goods is then £1000 (£500 machine + £500 added labour), and the value of the corn is £500. This is all consistent with the law of value. Both producers obtain 25 per cent of profit – £100 each in year one and two. The difference here is that the farmer realises the £100 profit at the end of year one, but the cotton goods producer does not realise the £100 profit from the machine until the end of year two, when they sell their cotton goods. But, in reality, the cotton goods producer will sell their output at the end of the second year, not for its value of £1000, but for a price higher than this. Ricardo puts this down to the proportion of fixed capital to wages, and the durability of the fixed capital, but, as shown earlier, the real reason here is the consequence of different rates of turnover of capital. In other words, the farmer turns over all their capital in the year, whilst the cotton goods maker only turns over the capital advanced for the machine after two years. The cotton goods producer, Marx says, calculates like this.

“... the first year I laid out £400 and by exploiting the workers, I produced a machine with this, which is worth £500. I thus made a profit of 25 per cent. The second year I laid out £900, namely, £500 in the said machine and again £400 in labour. If I am again to make 25 per cent, I must sell the cotton at £1,125, i.e., £125 above its value. For this £125 does not represent any labour contained in the cotton, neither labour accumulated in the first year nor labour added in the second.” (p 186)

And, if the cotton goods producer sells above value, and there are only these two participants, that means the farmer must exchange their output below its value. But, in that case, the farmer could not make 25 per cent profit. It would mean they were cheated by the cotton goods producer. If both are to obtain the same rate of profit, it must be less than 25 per cent. The average rate of profit, over the two years could be calculated as follows. The farmer advances capital of £400 which turns over twice during the two years, whereas the cotton goods producer advances a total of £800, which turns over once in that time. The total advanced capital is then £1200 and the total surplus value is £400. That gives an average rate of profit, over two years of 33.3 per cent.

In that case, the cost price for the cotton goods producer is £800 and their profit is £266.66, giving a selling price of £1066.66, and the cost price of the farmer is £400, giving a selling price of £800 + £133.33 equals £933.33. The total value of output is £2000, and the total prices of production here are also £2000. Put another way, the farmer, here, would have laid out capital of £400 in year one, and produced output with a value of £500, but would sell it at a price of production of £400 + £66.66 = £466.66. They would do the same in year two. Over the two years, the farmer would sell their output at prices of production £66.66 below value, whereas the cotton goods producer sells their output at a price £66.66 above value.

This is a different conclusion to that arrived at by Marx, which assumes the same amount of capital advanced by both the farmer and the cotton manufacturer. It is also a different result to that arrived at by the editors of the Lawrence and Wishart edition – note 71. They correct for the different sizes of capital, but do not account for the different rates of turnover of capital, and so calculated on the basis of the laid out rather than advanced capital.

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