Friday, 30 March 2018

Theories of Surplus Value, Part II, Chapter 15 - Part 2

In this chapter and the next, Marx lays the groundwork, in analysing Ricardo's theory of surplus value and profit, for his dismantling of the catastrophist/Ricardian/Mathusian theories of falling profits, and crisis, in Chapter 17

“Nowhere does Ricardo consider surplus-value separately and independently from its particular forms—profit (interest) and rent. His observations on the organic composition of capital, which is of such decisive importance, are therefore confined to those differences in the organic composition which he took over from Adam Smith (actually from the Physiocrats), namely, those arising from the process of circulation (fixed and circulating capital). Nowhere does he touch on or perceive the differences in the organic composition within the actual process of production. Hence his confusion of value with cost-price, his wrong theory of rent, his erroneous laws relating to the causes of the rise and fall in the rate of profit, etc.” (p 373) 

Marx's reference to the process of circulation here, in relation to fixed and circulating capital, might seem a bit odd, because, as he explained in Capital II, the terms “fixed” and “circulating” capital only applies to productive-capital. However, in that explanation, Marx also showed how Smith not only confuses the category of constant capital with fixed capital, but also confuses circulating capital with capital in circulation, i.e. commodity-capital, and money-capital. Ricardo inherits this confusion from Smith. 

As Marx says, 

“Profit and surplus-value are only identical when the capital advanced is identical with the capital laid out directly in wages. (Rent is not taken into account here since the surplus-value is, in the first place, entirely appropriated by the capitalist, [irrespective of] what portion he has subsequently to hand over to his co-partners. Furthermore, Ricardo himself presents rent as an item which is separated, detached from profit.) In his observations on profit and wages, Ricardo also abstracts from the constant part of capital, which is not laid out in wages. He treats the matter as though the entire capital were laid out directly in wages.” (p 373) 

But, no production involves only labour. An actor performs in a theatre, or on film. Even a street performer plays an instrument. The closest Adam Smith came to production without constant capital was Scottish pebble collectors, but Marx points out that even they used baskets to hold the pebbles. Surplus value, and the rate of surplus value relates to only the variable-capital, whereas profit, and the rate of profit relates to the total capital, constant and variable. Moreover, when talking of profit, here, Marx says, the question of rent, and the same applies to interest, does not arise, because the profit, and rate of profit here relates to the profit realised by the capitalist, prior to any payment of rent or interest they might have to subsequently have to deduct from it. 

Marx also makes this clear in Capital III, in setting out his Law of the Tendency for the Rate of Profit to Fall, prior to discussing rent and interest. This shows why the calculation of the rate of profit, given by Tony Northfield, here, is particularly bizarre. Tony calculates the rate of profit, there, not on the basis of the actual productive-capital, but only on the basis of the value of the productive-capital less the value of any money-capital it has borrowed! 

Tony says, 

“...the rate of profit will be affected by how much of the capital advanced is from the company’s owners and how much is borrowed from banks or other money capitalists providing it with extra investment funds. If we assume a given, annual rate of profit of 10% for the company, then the return on its total investment will also be 10%. But if it has borrowed half its investment funds from banks at a rate of just 5%, or issued bonds with a yield of 5%, then the rate of profit on the funds that the company’s owners have advanced will be higher. For example, for 200 invested at 10%, the annual return is 20. But if the company’s owners have invested only 100 of their own money plus an extra 100 they have borrowed, the company then gets as its profit the 20 total minus the 5 it needs to pay on its borrowings, etc. The result is that its rate of return will be higher: 15 (20 – 5) over the 100 invested, or 15%.” 

But, as I pointed out to Tony in comments to his blog, there is absolutely no basis in any of Marx's writings for calculating the rate of profit in this way. Tony's argument is particularly bizarre, for several reasons, but, in the case of the dominant capitals, i.e. of joint stock companies, a large part of the capital, is borrowed. It is money that shareholders have loaned to the company. So, if the calculation proceeded on Tony's basis, in a situation where the money-capital loaned to the company, by shareholders, is equal to the value of the advanced productive-capital, the capital advanced by the company itself would equal zero, so that whatever profit it made, would represent a rate of profit of infinity!!! As Marx also makes clear in discussing fictitious capital, money-capital, cannot independently self-expand. It's only the productive-capital that is capable of self expansion, and its only against the productive-capital advanced that the measurement of any such self-expansion can be meaningfully measured. In Theories of Surplus Value, Chapter 16, as we will see later, Marx writes, making this clear, 

"{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay."

And, in Capital III, Chapter 13, Marx says, 

“We intentionally present this law before going on to the division of profit into different independent categories. The fact that this analysis is made independently of the division of profit into different parts, which fall to the share of different categories of people, shows from the outset that this law is, in its entirety, independent of this division, and just as independent of the mutual relations of the resultant categories of profit. The profit to which we are here referring is but another name for surplus-value itself, which is presented only in its relation to total capital rather than to variable capital, from which it arises. The drop in the rate of profit, therefore, expresses the falling relation of surplus-value to advanced total capital, and is for this reason independent of any division whatsoever of this surplus-value among the various categories.” 

Marx makes this clear again here, in relation to Ricardo's confusion. 

“Rent is not taken into account here since the surplus-value is, in the first place, entirely appropriated by the capitalist, [irrespective of] what portion he has subsequently to hand over to his co-partners. Furthermore, Ricardo himself presents rent as an item which is separated, detached from profit.” (p 373)

Moreover, unless the rate of profit is calculated on this basis, i.e. against the value of the productive-capital advanced, and only then the deductions for rent, interest and taxes made, does Marx's further analysis of the rate of rent, rate of interest, and rate of profit of enterprise make any sense. 

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