Theories of Surplus Value, Part II, Chapter 10 - Part 15

It is not that the value of the commodity is varied, as a consequence of a different organic composition of capital, or a different rate of turnover, but that the prices of production are determined by these variations, and that consequently these prices of production must then vary from exchange-values, in order that an average rate of profit, on these capitals, is obtained. However, as demonstrated in Capital III, if we totalled up all of the prices of production, for all commodities, they must equal the total of values of those commodities. The cost price of commodities, k, is c + v, and the price of production is k + p. But, p, the average profit, is only the total surplus value divided proportionally across all the different capitals, and so the total of prices of production is just as equally c + v + s, and is the total of values.

On the one hand, if all of the different capitals are aggregated together, an average composition of capital is thereby determined. Those capitals that have a higher than average composition will then have progressively higher prices of production, relative to their exchange-value. Those that have below average compositions will have a progressively lower price of production relative to their exchange-values. Overall, the two cancel out. But, as Marx sets out, a secondary factor is also at work. Just as the variations in individual organic compositions is subsumed in the composite organic composition of the total social capital, so the same thing applies in relation to the variations in the rate of of turnover of individual capitals. If the total social capital is considered, a single composite rate of turnover is obtained, within which all of these individual variations are subsumed.

In just the same way as with the variations in the organic composition, therefore, variations of each individual capital's rate of turnover, compared to the average, will also thereby modify their prices of production. Those capitals which have a higher than average rate of turnover will have progressively lower prices of production, relative to their value, and vice versa.

These two effects may then counteract or reinforce each other. A capital with a higher than average organic composition, and lower than average rate of turnover, e.g. a shipbuilder, will have a price of production higher than the value of its output, on both counts. A capital that has a higher than average organic composition and higher than average rate of turnover will have a higher price of production than value on the first count, but lower price of production than value on the second count. For example, a very high-tech company may employ robots that process large amounts of material, using little labour. Because little labour is employed, only a small amount of surplus value is produced, and the value of output is thereby lower. In order to obtain the average rate of profit, the price of production for such a capital is higher than the value of its output. However, because the firm is highly productive, large amounts of material are processed quickly. Only a relatively small amount of capital is thereby advanced as circulating capital.

The firm might produce, for example, ball-bearings, thousands of which are turned out and sold each week, so that the advanced capital quickly returns. The shipbuilder might have to wait five years before the capital they have advanced returns. In that five year period, both firms may have laid out the same amount of capital, but because the ball-bearing producer turns over their capital each week, the amount of capital they advance will be only a small fraction of that advanced by the shipbuilder.

The average profit is calculated on the advanced capital, and, so, because the capital advanced is much smaller, for the ball-bearing producer, the amount of profit is correspondingly smaller than for the shipbuilder. But, this mass of profit, when then spread across the total laid-out capital, necessitates that although both capitals obtain the same average rate of profit on their advanced capital, the profit margin/rate of profit for the ball-bearing producer is a small fraction of that of the shipbuilder, with a consequent effect on their respective prices of production.

In a similar manner, these variations affect the social capital, in one country, compared to another, and the same country, over time. A more developed economy, with a higher than average organic composition of capital, will sell its output, internationally, on average, at prices of production higher than exchange-values, whereas a less developed economy, with a low organic composition of its social capital will sell at prices of production lower than values. Equally, as every economy becomes more productive, as it employs more and better machines, and continually improves transport and communications, so the rate of turnover of its social capital rises. Whilst this leads to a rise in the annual rate of profit, the processes discussed, which lead to an average rate of profit, equalise it with other economies, and so leads to lower average rates of profit, and profit margins.

The mechanism here is quite simply that a more developed, more productive economy increases the rate of turnover of its capital, and thereby raises the annual rate of profit within the economy. Some of this is due to the availability of higher specification equipment, some to better infrastructure, that speeds up the circulation period of capital. Foreign capital then migrates to this country in search of these higher annual rates of profit. As a consequence, the supply of commodities, in the economy rises, and so prices of commodities in the economy fall, until only the average global rate of profit is obtained. This is one reason that capital from developed economies tends to be invested in other developed economies rather than less developed economies, where wages may be lower, and profit margins higher, but where the average rate of profit is lower.

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