## Tuesday, 17 April 2018

### Theories of Surplus Value, Part II, Chapter 15 - Part 20

Marx then sets out a table in which four capitals of varying organic compositions are analysed, demonstrating how an average rate of profit is calculated on the basis of an average composition, and how this then determines the price of production for each capital, and its variance with the value of the output for each capital.
 [the price of the] product [must be:] Difference between value and cost-price I. 80 c + 20 v In order to 110 (value = 110) 0 II. 60 c + 40 v sell at the 110 (value = 120) -10.00 III. 85 c + 15 v same cost- 110 (value = 107.50) +2.50 IV. 95 c + 5 v prices 110 (value = 102.50) +7.50 Thus the average capital = 80c + 20v

This is the same as the argument presented in Capital III, setting out the basis for the transformation of exchange values into prices of production. Taking the total of the four capitals, the total social capital is 400, and the surplus value is 40. So, for the total social capital the rate of profit is 10%, and this, by definition, is the average rate of profit. Any capital that receives less than this average rate would migrate to those spheres where the rate was higher than the average, so that a process is put in place whereby each capital moves closer to this average rate. The means by which this happens is that as capital moves from low profit areas to high profit areas, the supply of commodities in these latter spheres increases, so that the market prices of these commodities fall. Similarly, as capital migrates from low profit areas, the supply of commodities in these areas declines, so that market prices rise.

So, the market prices in each sphere increasingly diverge from their exchange values. In high profit areas, prices fall below the exchange value, as supply in those areas rises. And in low profit areas, prices rise above exchange value, because supply of commodities in these areas declines. As these prices adjust, so the profit is also adjusted until each sphere produces only the average profit. In fact, as I've set out in relation to Marx's exposition, this process, described by Marx, of the way prices and profits adjust, is not reflected in this table, or some of the other tables he produces, which continue to show the mass of capital, in each sphere, remaining the same. This is clearly not possible, because the very process of transformation requires that the capital employed in spheres III and IV is reduced below 100, whereas the capital employed in sphere II, which has a higher than average rate of profit rises above 100.

Marx's explanation of this is that the figures for the capital in each sphere are percentage figures not absolute quantities, but this use of percentages acts to hide the actual process of capital reallocation involved in the transformation of exchange values into production prices. The basis of the reallocation, and the reason that the rate of profit is higher than the average, in some sectors, is clear from the table. In Sector II, the organic composition of capital is lower than the average. It employs proportionately more labour. So, assuming a single rate of surplus value, this greater mass of labour produces proportionately more surplus value than in the other areas, and so the rate of profit is higher than in other areas. Sphere IV employs proportionately less labour than the other sectors, and so produces the least surplus value, and has the lowest rate of profit. Sphere I has an organic composition of capital equal to the average, and so employs the average proportion of surplus value, and so average rate of profit.