Tuesday, 24 April 2018

Theories of Surplus Value, Part II, Chapter 15 - Part 27

Marx quotes Ricardo's comment, in Chapter XVII of The Principles

““Raw produce is not at a monopoly price, because the market price of barley and wheat is as much regulated by their cost of production, as the market price of cloth and linen. The only difference is this, that one portion of the capital employed in agriculture regulates the price of corn, namely, that portion which pays no rent; whereas, in the production of manufactured commodities, every portion of capital is employed with the same results; and as no portion pays rent, every portion is equally a regulator of price” (l.c., pp. 290-91).” (p 394-5) 

This assertion “that every portion of capital is employed with the same results and that none pays rent (which is, however, called excess profit here) is not only wrong, but has been refuted by Ricardo himself as we have seen previously.” (p 395) 

In other words, Ricardo himself has previously stated that the market value of industrial commodities is determined ““by the most unfavourable circumstances, the most unfavourable under which the quantity of produce required , renders it necessary to carry on the production” {l.c., pp. 60-61}” (p 203) 

In which case, its clear that those producers, in each industry, who produce under more favourable conditions, will obtain surplus profits. In fact, as Marx sets out, in Capital III, it is only where supply fails to meet demand that, in industry, the market value is determined by the least efficient producer. Generally, the market value will be determined by the average producer. If competition drives towards an average rate of profit for one industry as compared to another, then it follows that within any single industry, where different capitals operate at different levels of efficiency, and therefore, different rates of profit, the rate of profit obtaining in this industry – also the general annual rate of profit – cannot sustainably be determined by the least efficient capital. 

Suppose the general annual rate of profit for the economy is 10%. So, the rate of profit obtaining in industry A must be 10%. However, if market values in industry A are determined by its least efficient producer A1, who sells at the price of production, including a 10% profit, A2 will also sell at this market-value, but their lower cost of production will provide them with a profit of 10% + x. Producer A3 will obtain a profit of 10% + x`, and so on. In which case, it is obvious that the average rate of profit in industry A could not be 10%, i.e. the general rate of profit. All firms other than A1 would enjoy surplus profits, and the industry, as a whole, would enjoy surplus profits, causing an influx of capital, a rise in supply of commodity A, and a fall in its price. 

The same would be true in reverse, if it was the most efficient producers in any industry that determined the market value. In that case, only they would make the average profit, and all other firms would make less than 10%, so the rate of profit for the industry would be below 10%. Capital would flow out to other industries, the supply of commodity A would fall, and its price would rise. Only if the mean average producer determines the market value, does it result in them obtaining the average profit of 10%, with as much capital in the industry operating at higher levels of efficiency, and making above average profits, as there is capital producing at lower levels of efficiency and making below average profits, so that capital overall, in the industry, makes the general annual rate of profit of 10%.

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