Saturday, 26 May 2018

Theories of Surplus Value, Part II, Chapter 16 - Part 3

Marx then turns to another element of Ricardo's argument, which also illustrates the difference between Marx's approach using current reproduction costs, and the approach of those who argue for the use of historic prices. Marx quotes Ricardo from Chapter XXXII of his “Principles”

““The raw produce of which commodities are made, is supposed to have fallen in price, and, therefore, commodities will fall on that account. True, they will fall, but their fall will not be attended with any diminution in the money income of the producer. If he sell his commodity for less money, it is only because one of the materials from which it is made has fallen in value. If the clothier sell his cloth for £900 instead of £1,000, his income will not be less, if the wool from which it is made, has declined £100 in value” (l.c., p. 518).” (p 428) 

Marx points out that a sudden fall in, say, wool prices would affect adversely the money income of all those clothiers who had a large stock of clothes to sell, or as work in progress that used wool at its previously higher price, i.e. at its historic cost. The fall in wool prices, as Ricardo suggests, would cause the price of woollen garments to fall in price, correspondingly. Compared to the historic price paid for the wool, the clothiers would suffer a capital loss on their sale of woollen clothes at their current lower price. However, as Marx points out, in Capital III, the proportion of materials held in the form of finished product, or work in progress is small compared to the total value of materials processed during the year. The faster the rate of turnover of capital, the more so is that the case, and with modern Just In Time systems of production and stock control, that is even more the case. The capital loss suffered, is, in reality, only a paper loss, because what is more significant is the fall in the material price, for the rate of profit

The wool, as with any other material, or component of the constant capital, is physically replaced, “on a like for like basis”. This is the significance of Marx's analysis in Capital II, that for all existing industrial capital, the circuit is P...C` – M`.M – C...P. In other words, it begins with a quantity of productive-capital and, in the production process, a surplus value is created, which is embodied in the commodity-capital C`. When this is sold, it produces potential money-capital, M`. In effect, here, M` divides into M + m. 
In simple reproduction, m is consumed unproductively, and in expanded reproduction it is consumed productively, but thereby starts a new circuit of its own. In either case, M is the current money equivalent of the value of the previously consumed elements of the productive-capital, P, and consequently, it is metamorphosed into their physical replacement, C, prior to them once more engaging in production.

“In calculating the aggregate turnover of the advanced productive capital we therefore fix all its elements in the money-form, so that the return to that form concludes the turnover. We assume that value is always advanced in money, even in the continuous process of production, where this money-form of value is only that of money of account. Thus we can compute the average.”

(Capital II, p 187)

 So, if previously 100 kilos of wool were bought at a price of £100, and took part in production, but, in the meantime, fall in value to only £90, only this £90 would be recovered in the value of the final output. However, this £90 is now able to replace exactly, in kind, the 100 kilos of wool, at its new lower value. 

But, as Marx points out, for any capital that has £100 to spend on the purchase of wool, in other words, any new money-capital, entering into production, this lower value of wool means that instead of only being able to buy 100 kilos, it can buy 111 kilos. That is the case, for example, in relation to the m, which split from M`, when the original M continued on its circuit. M, in relation to the wool, would only have been £90, and thereby able only to reproduce the 100 kilos of consumed wool. But, let us assume that m, the surplus value, is £10. In that case, at the previous price of wool, it would have bought 10 kilos. Now, however, it buys 11.11 kilos. This is the real foundation of the rate of profit based upon the relation to the capital value, calculated on the basis of current reproduction costs, as opposed to the historic price. It provides the real basis of the self-expansion of the capital

As Marx puts it, 

“... it is clear that their “money income” taken in absolute terms, “will not be less” but their rate of profit will be greater than previously; for—say it was 10 per cent, i.e., £100—the same amount as before would now have to be reckoned on £900 instead of £1,000. In the first case the rate of profit was 10 per cent. In the second it is 1/9 or 11 1/9 per cent.” (p 429) 

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