Thursday, 14 June 2018

Theories of Surplus Value, Part II, Chapter 16 - Part 21

This same relation described in agriculture applies to all other industries. 

“These same two elements [are present] in all excess profit, for instance, if as a result of new machinery etc., a cheaply produced product is sold at a higher market-value than its own value. A part of the surplus-labour of the workers appears as surplus-product (excess profit) instead of as profit. And a part of the product which—if the product were sold at its own lower value—would have to replace the value of the capitalist’s constant capital, now becomes free, has not got to replace anything, becomes surplus-product and therefore swells the profit.” (p 453) 

Depending on conditions this may also result in a form of rent. For example, the firms that often enjoy such competitive advantages are the big capitals that enjoy economies of scale, and which can afford to introduce machinery that boosts productivity. As a result, Engels pointed out, even at the latter end of the 19th century, it becomes important for these big capitals to keep production running smoothly, and constantly. They have less need of the penny-pinching methods of the smaller capitalists. So, they are prepared to pay higher wages to their workers, to provide better working conditions, the relative cost of which falls the larger the scale of operation and so on. The higher levels of productivity achieved enable higher wages to be paid, whilst the rate and mass of surplus value continues to expand. That was the basis for Fordism. Lenin also makes the same point in his “The Development of Capitalism in Russia”, where he shows that, contrary to the Sismondist notions of the Narodniks, it was in the traditional village commune production where wages and conditions were worst, and that they gradually improved as the production of larger units was considered, with the best wages and conditions being in the larger, often foreign owned, capitalist enterprises. 

Marx here also makes clear his definition of the rate of profit as being the ratio of the surplus value to the cost of production, i.e. the laid-out capital (d + c + v), as opposed to the annual rate of profit, which is the total surplus value as a ratio to the advanced capital for one turnover period. He also makes clear that the rate of profit/profit margin he is talking about is the surplus value as a ratio to the laid-out productive-capital, irrespective of whether the money-capital that was metamorphosed into it belonged to the productive-capitalist or not. There was a very confused article by Tony Northfield in that regard some time ago, which 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.

For example, Marx says,

“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)


“The rate of profit must be calculated by measuring the mass of produced and realised surplus-value not only in relation to the consumed portion of capital reappearing in the commodities, but also to this part plus that portion of unconsumed but applied capital which continues to operate in production. However, the mass of profit cannot be equal to anything but the mass of profit or surplus-value, contained in the commodities themselves, and to be realised by their sale.”

Capital III, Chapter 13

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. Its 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. 

Marx, here, as he does in Capital III, makes clear that his rate of profit, is one prior to any question of the deduction of rent or interest

“ {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. The rate of profit in this sense may fall, although, for instance, the industrial profit rises proportionately to interest or vice versa, or although rent rises proportionately to industrial profit or vice versa. If P is the profit, P` the industrial profit, I interest and R rent, then P=P`+I+R. And it is clear, that whatever the absolute magnitude of P—P`, I, R can increase or decrease as compared with one another, independently of the magnitude of P or the rise and fall of P. The reciprocal rise of P`, I and R only represents an altered distribution of P among different persons. A further examination of the circumstances on which this distribution of P depends but which does not coincide with a rise or fall of P itself, does not belong here, but into a consideration of the competition between capitals. That, however, R can rise to a level higher even than that of P, if it were only divided into P`and I, is therefore—as has already been explained—due to an illusion which arises from the fact that a part of the product whose value is rising, becomes free and is converted into rent instead of being reconverted into constant capital.}” (p 453-4) 

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