## Tuesday, 3 July 2018

### Theories of Surplus Value, Part II, Chapter 17 - Part 5

The constant capital consumed in the production of means of consumption, represents only the revenue produced by workers in Department I, in other words, the value of the constant capital (intermediate goods) contains no value of constant capital at all. It only comprises the value produced by labour in Department I, and which is resolved into Department I wages, profits, rent and interest, which forms the value equivalent, and potential source of demand for the equivalent portion of final output, i.e. the equivalent portion of the consumption fund, produced by Department II.

In other words, as Marx sets out in Capital II, if we take Department I and II,

Department I

c 4000 + v 1000 + s 1000 = 6000.

It supplies Department II with 2000 of constant capital, and this value is equal to the new value created by Department I workers, i.e. it is equal only to the new labour they provide.  That value is then incorporated into Department II output as constant capital.

Department II

c 2000 + v 500 = s 500 = 3000

Equally, the workers and capitalists of Department I who obtain this 2000 of value as revenue (wages, profits etc.) use it to buy consumer goods from Department II.  The other 1,000 of value produced by Department II, is likewise consumed by Department II workers and capitalists with their revenues, equal to the new value created by Department II workers.  If we looked at the National Income/GDP figures for this economy, it would show it as being 3000, which is the sum of revenues and  new value created in Department I and II.

But, as Marx has demonstrated in Capital II, III, and previously in Theories of Surplus Value, there is another portion of output value that does not constitute revenue for anyone. It is a portion of output that must go simply to physically replace, on a like for like basis, all of that material, and all of the actually worn out fixed capital, consumed in Department I itself, in the production of means of production.  It is, here, the 4000 of constant capital consumed in Department I, as part of its own production.

“This part, as we have seen, is replaced in kind either directly out of the product of these spheres of production themselves—as in the case of seeds, livestock and to a certain extent coal—or through the exchange of a portion of the products of the various spheres of production manufacturing constant capital. In this case capital is exchanged for capital.” (p 472)

In other words, as seen previously, the farmer who grows corn, uses a portion of the corn they grow to replace the seeds that were used to grow the corn; a coal mine uses some of the coal it mines to replace the coal it burns in its steam engines, used to pump water etc. from the mine. None of this output is used for consumption. It forms no revenue for anyone; it is simply capital replacing capital. But, not all capital can be replaced by capital in this way, from within the same industry. The coal mine cannot replace the wood or steel used for pit props from its own production, or its steam engines. But, the steel producer, timber supplier and machine maker must also reproduce their constant capital in this way too, so that, in aggregate, all of the producers of means of production replace their own constant capital from their own aggregate production.

What Ricardo, like Smith, and economists down to today, fail to take account of is that this value of the constant capital adds to the value of output, whilst forming no part of revenue, or national income.

“The existence and consumption of this portion of constant capital increases not only the mass of products, but also the value of the annual product. The portion of the value of the annual product which equals the value of this section of the consumed constant capital, buys back in kind or withdraws from the annual product that part of it, which must replace in kind the constant capital that is consumed. For example, the value of the seed sown determines the portion of the value of the harvest (and thus the quantity of corn) which must be returned to the land, to production, as constant capital. This portion would not be reproduced without the labour newly added during the course of the year; but it is in fact produced by the labour of the year before, or past labour and—in so far as the productivity of labour remains unchanged—the value which it adds to the annual product is not the result of this year’s labour, but of that of the previous year.” (p 472-3)

And, the fact that Marx makes this point that “in so far as the productivity of labour remains unchanged” illustrates why the value of this constant capital must be determined by its current reproduction cost, and not by its historic cost. If the value of the consumed constant capital, and, on the basis of it, the rate of profit, were simply to be calculated using the historic cost of that capital, i.e. the money price paid for it, then Marx's comment about productivity would be irrelevant, and illogical, because whatever happened with productivity, the historic cost would be unchanged by it. But, as was seen, in the previous chapter, what happens with productivity, and, therefore, with the social labour-time currently required to reproduce that consumed capital, is of decisive importance in determining what portion of production must be set aside for that purpose, what represents released or tied up capital, what then constitutes the surplus product and surplus value, and, correspondingly, what constitutes the rate of profit for the total social capital.  Indeed, if productivity were to fall dramatically, say because of a catastrophic crop failure, rather than a surplus product, a negative product might result, so that the capital itself is diminished, and in place of a surplus value, a loss arises.

As Marx sets out shortly,

“At a given level of production, the constant capital which has to be replaced is a definite quantity in kind. If productivity remains the same, then the value of this quantity also remains constant. If there are changes in the productivity of labour which make it possible to reproduce the same quantity, at greater or less cost, with more or less labour, then similarly changes will occur in the value of the constant capital, which will affect the surplus-product after deduction of the constant capital.” (p 473-4)

Moreover, the greater the proportion of output that consists of constant capital, the greater the proportion of total output that must itself be consumed in the production of constant capital. In reality, this is what lies behind the rise in the organic composition of the total social capital, and thereby the tendency for the rate of profit to fall. In other words, the larger the component of the total social capital that consists of means of production that must be replaced in kind, out of that total output, the smaller the proportion of surplus product to it will become, even though the size of this surplus product will itself, as a result of this very process, and the rise in social productivity, become much larger in absolute terms.

“If this portion [of constant capital] grows, not only does the annual mass of products grow, but also their value, even if the annual labour remains the same.” (p 473)

This expansion in the volume of output is yet another manifestation of the real nature of the fall in the rate of profit, whilst the mass of profit expands, because what it represents is a considerably increased mass of profit, but spread out across an even more considerably increased quantity of commodities, so that the amount of profit contained in each unit, the profit margin, is thereby diminished, particularly as against its raw material content, which is, proportionally, continually increased.

The more accumulation proceeds, and social productivity rises, the greater the value of each commodity unit comprises proportionally more raw material, whilst the proportion of fixed capital (wear and tear) and of labour (paid and unpaid) declines. And this is true of the total social production too. So, Marx says, Ricardo is wrong, when he says,

““The labour of a million of men in manufactures, will always produce the same value, but will not always produce the same riches” (l.c., p. 320).” (p 473)

because, with a fixed working-day, these million men will produce very different quantities of commodities, depending upon that level of social productivity, which in turn, will be determined by the amount of technological development of instruments of labour they have at their disposal. That will not change the amount of new value created by that labour, but it will mean that a greater mass of dead labour is incorporated in that larger volume of output, as it is processed by this more productive labour. The more productive the labour, the greater the level of output per unit of labour, and so the lower the proportion of the value of output will comprise the new value created, whilst the greater the proportion of the value of output will comprise the value of the raw material constituted within it.