Theories of Surplus Value, Part II, Chapter 10 - Part 13

Another way of calculating the average rate of profit, here, would be as follows. The farmer turns over their advanced capital of £400 once in the year, but the cotton goods producer turns over their advanced capital only 0.5 times, because they do not sell their output until the end of year two. Using the formula developed by Engels in Capital III, therefore, the rate of profit is the surplus value produced in one turnover period multiplied by the number of turnovers, divided by the total advanced capital. The total advanced capital in the first year is £800. The farmer's capital turns over once, and the cotton goods producer 0.5 times, giving an average rate of turnover of 0.75 times. So, total surplus value is £200 × 0.75 = £150. The rate of profit on the advanced capital of £800 is then 18.75 per cent. The farmer would sell their output for £475. The cotton goods manufacturer would then carry forward a machine with a value of £475 as constant capital, which is advanced in the second year, along with an additional £400 in wages. In year two, therefore, the total advanced capital is £400 by the farmer, and £475 + £400 = £875 by the cotton goods producer = £1275 in total. All of the capital advanced, in year two, is turned over, and the surplus value produced is £200. The rate of profit is then 15.69%. The farmer would then sell their output at £400 + 15.69% = £462.76. The cotton goods producer would sell their output at £875 + 15.69% = £1012.29.

The other option is that both advance £400, and it's taken that both turnover in the year. Then the rate of profit for both in year one is 25 per cent. The Farmer sells their output at £500, and the cotton producer, sells the machine to themselves for £500. Then, in year two, the Farmer advances £400, and the cotton producer £500 + £400 = £900. So, total advanced capital is £1300, and rate of profit is £200/£1300 = 15.38 per cent. Then the farmers sell their output for £461.52, whilst the cotton goods producer sells there is for £1038.42. 

“But it is incorrect to say, as Ricardo does, that here a variation in the relative values takes place “on account of the different degrees of durability of capitals” (p. 30) or “on account of the time which must elapse before one set of commodities can be brought to market” (p. 30). It is, rather, the adoption of a general rate of profit, which despite the different values brought about by the circulation process, gives rise to equal cost-prices which are different from values, for values are determined only by labour-time.” (p 187)

The important point here is that the farmer has their profit available at the end of the first year, as well as their advanced capital. Not only can they advance their capital once more, without advancing additional capital, and so can generate surplus value on the same advanced capital, but they can also accumulate the realised profit. The cotton goods producer, must advance an additional £400 of capital, and does not realise it and the initial £400 until the end of year two, and does not have the realised profit until that time. Capitals engaged in such production would thereby require higher prices of production, so as to equalise real rates of profit.

Marx indicates that the method of calculating the rate of profit as though the cotton goods producer had sold the machine to himself is not valid. Firstly, he does not realise any profit by selling his own output to himself. Unlike the farmer he would have to advance an additional sum simply to cover his own subsistence. Secondly, there can be no equalisation of profits that have not been realised, and so equal zero.

“Incidentally, whether in the second case a compensation can take place and profits can be equalised depends here entirely on the degree to which the profits of the capitals which are turned over in one year are recapitalised, in other words, on the actual amount of profits produced. Where there is nothing, there is nothing to equalise. Here the capitals again produce values, hence surplus-values, hence profits not in proportion to the size of the capital; If profits are to be proportionate to their size, then there must be cost-prices different from the values.” (P 188)

Ricardo gives a third example which he says is different in appearance, but the same in fact.

““Suppose I employ twenty men at an expense of £1,000 for a year in the production of a commodity, and at the end of the year I employ twenty men again for another year, at a further expense of £1,000 in finishing or perfecting the same commodity, and that I bring it to market at the end of two years, if profits be 10 per cent, my commodity must sell for £2,310; for I have employed £1,000 capital for one year, and £2,100 capital for one year more. Another man employs precisely the same quantity of labour, but he employs it all in the first year; he employs forty men at an expense of £2,000, and at the end of the first year he sells it with 10 per cent profit, or for £2,200. Here then are two commodities having precisely the same quantity of labour bestowed on them, one of which sells for £2,310—the other for £2,200. This case appears to differ from the last, but is, in fact, the same” (l.c., pp. 34-35).” (p 188)

This is not just the same in fact, but also in appearance, Marx says, “except that in the one case the commodity is called “machine” and here simply “commodity”.” (p 188). In both cases, it comes down to the fact that one of the producers lays out, in the second year, the whole of the first years product including surplus value, plus an additional capital. In both cases, the real basis of the variation in prices is due to variations in the rate of turnover, and its effect on the average rate of profit, and price of production. But it is because the price is based upon this price of production, as the cost price plus average profit, that the prices differ not because of the variation in values.

“The clumsiness of these examples shows that Ricardo is wrestling with a difficulty which he does not understand and succeeds even less in overcoming.” (p 189)

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