Theories of Surplus Value, Part II, Chapter 10 - Part 26

A capitalist farmer, Ricardo says, will not invest their capital unless they can return the average profit on it. The price of wheat must then be high enough that capital invested on this marginal land, to meet the additional demand, can make the average profit. This land, this marginal production, thereby determines the market price. On this basis, Ricardo develops his Theory of Differential Rent, because the production on all of the more fertile land thereby produces surplus profits, and these surplus profits are absorbed by the landlords as rent.

For Marx, however, it is the average conditions of production which determine the value, not the best or worst conditions. As he sets out, it is only in conditions where demand is not met by existing supply that the production under the worst conditions becomes determinant, and similarly, only where there is a glut that the best conditions become determinate.

“The thesis set out above can be expressed in general terms as follows: The value of the commodity—which is the product of a particular sphere of production—is determined by the labour which is required in order to produce the whole amount, the total sum of the commodities appertaining to this sphere of production and not by the particular labour-time that each individual capitalist or employer within this sphere of production requires. The general conditions of production and the general productivity of labour in this particular sphere of production, for example in cotton manufacture, are the average conditions of production and the average productivity in this sphere, in cotton-manufacture, The quantity of labour by which, for example, [the value of] a yard of cotton is determined is therefore not the quantity of labour it contains, the quantity the manufacturer expended upon it, but the average quantity with which all the cotton-manufacturers produce one yard of cotton for the market.” (p 204)

Once again, the difference between Smith and Ricardo's embodied labour theories of value, and Marx’s theory of value based on socially necessary labour becomes apparent. In any industry, there will be producers who produce above, below or at the average conditions of production. If 10,000 metres of linen is produced, and requires 1,000 hours of labour to produce, then each metre requires 0.10 hours to produce on average. But, in reality, no actual metre of linen may have required 0.10 hours for its production. If there are five producers, each of which produce 2,000 metres, the times they require to produce their 2,000 metres may be as follows:- A 100; B 150; C 200; D 250; E 300. A total of 1,000 hours is expended, and 10,000 metres is produced, but the individual value produced by each is different. The individual value embodied in A's production is 100 hours, but in E's production is 300 hours, although both produce 2,000 metres of linen. It is only producer C, who produces at the average level, here, so that the individual value of their production, 200, is equal to the social value of their production, 2000 x 0.10 = 200. The social value of production is 200, for each producer, but this necessarily means that some producers, in selling at this value, will sell their output either above or below its individual value.

A will sell their output at 100 above its value, B 50 above its value, D 50 below its value, and E 100 below its value. The importance of this, as Marx describes, is that there are two contradictions that are resolved by opposite means, and it is surprising that Ricardo does not recognise this. The contradictions are these. Firstly, within a particular sphere, there are a multiplicity of individual values, because every individual capital produces under different conditions of production.

“If, for example, they sell the yard of cotton at 2s.—the average value—then they sell it at the value which the yards they produce represent in natura. Another category produces under better than average conditions. The individual value of their commodities is below their general value. If they sell their commodities at the general value, they sell them above their individual value. Finally, a third category produces under conditions of production that are below the average.” (p 204) 

Within the particular sphere, competition brings about a single market value, or social value of the production, and each producer must sell their output at this price. But, the consequence of the formation of this single market price is that the amounts and rates of profit of the individual capitals within this sphere must vary. Capital A, which sells its 2,000 metres of output at £2,000, but whose individual price of production was only £1,000, thereby makes £1,000 of surplus profit. By contrast, E sells its 2,000 metres for £2,000, but its price of production was £3,000, so it makes £1,000 less than the average profit.

Now, contrast this with the other contradiction, which is the situation not within spheres, but between them. The situation here is rather that capital will leave those spheres of production where the rate of profit is low, and accumulate in those where it is high. But, the consequence of this is that, as supply rises in one sphere, prices are pushed down, below exchange values, within it, and in other spheres, where supply contracts, prices rise above exchange values. In other words, on the one hand, in order to bring about a single market price, different rates of profit must exist, within spheres, but to create a general rate of profit, across spheres, prices must diverge from exchange values. Yet, Ricardo fails to notice this.

Marx's terminology in this section is very slightly confusing. He defines market value as this average or social value, and refers to market price as the money equivalent of this market value. This is, of course, perfectly reasonable, on the basis of the definition of price as being the monetary expression of value. However, because the market value is the central locus around which the actual market price of the commodity moves, as a result of short term fluctuations in supply and demand, it becomes slightly confusing, because it means there are several contending definitions.

“This common value is the market-value of these commodities, the value at which they appear on the market. Expressed in money, this market-value is the market-price, just as in general, value expressed in money is price. The actual market-price is now above, now below this market-value and coincides with it only by chance. Over a certain period, however, the fluctuations equal each other out and it can be said that the average of the actual market-prices is the market-price which represents the market-value.” (p 205) 

I prefer to refer to the market value as being that central locus, and to refer to the market price as that price actually applying to the commodity at any time. The problem is removed where the market value is the price of production, because then its possible to refer to the market price simply rotating around the price of production.

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