Sunday, 11 February 2018

Theories of Surplus Value, Part II, Chapter 13 - Part 7

[3. Smith’s and Ricardo’s Conception of the “Natural Price” of the Agricultural Product]

Marx quotes Ricardo,

““If the high price of corn were the effect, and not the cause of rent, price would be proportionally influenced as rents were high or low, and rent would be a component part of price. But that corn which is produced by the greatest quantity of labour is the regulator of the price of corn; and rent does not and cannot enter in the least degree as a component part of its price… Raw material enters into the composition of most commodities, but the value of that raw material, as well as corn, is regulated by the productiveness of the portion of capital last employed on the land, and paying no rent; and therefore rent is not a component part of the price of commodities” (l.c., p. 67).” (p 318) 

There is a great deal of confusion, in this statement, Marx says. It results from a jumbling together of “natural price” and value. Ricardo has adopted this confusion from Smith. Smith, as was seen, is himself muddled, because he departs from his labour theory of value, in places, to put forward a cost of production theory of value, whereby the value of all commodities resolves into factor incomes – wages, profits, rent and interest – and where the value of a commodity is then the summation of these respective costs.

“Neither rent nor profit nor wages form a component part of the value of a commodity. On the contrary, the value of a commodity being given, the different parts into which that value may be divided, belong either to the category of accumulated labour (constant capital) or wages or profit or rent. On the other hand, when referring to the natural price or cost-price, Smith can speak of its component parts as given preconditions. But by confusing natural price with value, he carries this over to the value of the commodity.” (p 318) 

Smith and Ricardo fall into this error, because they proceed on the basis of how things appear to the individual capitalist. If we take an industrial capitalist, they must buy materials and equipment. The value of these things appear to them to be fixed, i.e. they must buy them in the market at prices that are given to them. They are price takers. In the same way, they must buy labour-power, and the wages they pay equally appear fixed. On average, these wages will be equal to the value of labour-power. So, in determining what they see as the natural price of the commodities they sell, they have these costs of production, and on top of that they must add the average rate of profit. But, this average rate of profit also appears to them as something fixed and simply given to them.

Taking capital as a whole, the surplus value is the difference between the total value produced and the value of the constant capital and variable capital, laid out to produce it, i.e. c + d + v. The general annual rate of profit is the ratio of this surplus value to the advanced capital, i.e s x n/C, where s is the surplus value produced in one turnover period, n is the number of turnovers of the circulating capital, in a year, and C is the amount of capital (fixed and circulating) advanced for a turnover period. But, all the capitalist sees is this general annual rate of profit, without considering where it comes from. It simply appears that this is a natural rate of profit to be added, in just the same way that the capitalist has to accept natural prices for the constant capital they employ, or the natural price of wages they pay. To the capitalist, it appears that the natural price of commodities is simply a result of adding together these natural prices of constant capital, wages and profit.

“The total surplus-value which the total capital creates, forms the absolute amount of profit. The ratio of this absolute amount to the whole capital advanced determines the general rate of profit. Thus this general rate of profit too, appears—not only to the individual capitalist, but to the capital in each particular sphere of production—to be determined externally. The capitalist must add the general profit, say of 10 per cent, to the price of the raw material, etc., contained in the product, and the natural price of wages thus— as it must appear to him by way of addition of component parts, or by composition—to form the natural price of a given commodity.” (p 319) 

Whether the commodity sells at this natural price or not depends upon the fluctuations in demand and supply, which determines the market price. For the individual capitalist, the prices they pay for materials etc., may already contain rent. But, rent adds nothing to value. The price of raw material, for example, bought by the industrial capitalist, may include am amount equal to what has been paid in rent, but that rent itself was only a deduction from the surplus value already contained in the raw material.

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