Profit and Surplus Value
One of the problems of Paul's book, and perhaps its a problem that flows from trying to present complex ideas in a popular style, for a large audience, is that it uses lax formulations and language. Its then not clear whether this reflects an underlying lack of grasp of the concept, or simply an attempt at popularisation. But, given that Marx himself was keen to make some distinctions clear, I think that, in those areas, we also ought to attempt to retain that clarity. For example, Paul says,
“Here's why I like the labour theory of value. It treats profit as if it were made somewhere central within capitalism: the workplace, not the marketplace.” (p 154)
Now, is this simply an attempt at popularistion, because people are familiar with the term profit, as opposed to surplus value, or does it reflect a lack of grasp of the important distinction between the two? In Theories of Surplus Value, Marx is at pains to make that distinction, as against Smith and Ricardo, who fail to do so. As Marx points out, in relation to Ricardo and his followers, it is precisely the failure to make the distinction between surplus value and profit, and between the rate of surplus value and rate of profit that led them into a dead end, and a dissolution of the Ricardian School.
It is the case that surplus value is produced in the workplace, and surplus value is the basis of profit. Even if, following Marx, we consider profit in its form as first obtained by the industrial capitalist, prior to them making the subsequent disbursements from it, of rent, interest and taxes, it is quite clear that profit is not the same thing as surplus value. Before the produced surplus value can be turned into profit, for example, a whole series of costs are incurred, to sell the commodity, and these costs are a deduction from the surplus value. It's why the producers of commodities resort to the use of merchants – including money-dealing capitalists who deal with the transmission of payments etc. - who are able to minimise these costs. The merchants do not produce surplus value, but, as Marx points out, by reducing the extent of these overhead costs, they do increase the amount of realised profit. Moreover, by speeding up the rate of turnover of capital, they enable productive-capital to set in motion more labour, for any mass of advanced capital, which itself results in an increase in surplus value and rate of profit.
Surplus value is produced in the workplace, but, unless commodities are sold in the market place, that surplus value cannot assume the form of profit. Moreover, as Marx sets out, in opposition to Ricardo, it is precisely this distinction between profit, which relates to the whole capital advanced (constant and variable), as opposed to surplus value, which relates only to the variable-capital, that is distinctive for capitalism, and the basis of the formation of an average rate of profit, and prices of production, rather than exchange values. Taken at a level of capital in general, the total surplus value is produced in the workplace, but that is certainly not the case for the profit of any individual capital.
And, this is also important for the central part of Paul's argument. If we take some capital, where production is wholly automated, and where no labour is employed, it will produce no surplus value, but it will still expect to obtain the average annual rate of profit. If it cannot do so, in the price it obtains for its output, it will move its capital elsewhere, so that supply of that commodity will fall, and its price then rise, until it does produce the average rate of profit. So, for these capitals, it's clear that their profit is immediately produced in circulation rather than in their particular workplace.
And, that is true for all capitals, because the profit they obtain is not the same as the surplus value they produce. Some get more profit, and some less profit than the surplus value they produce, because some capitals employ a greater proportion of constant capital than others, and whilst the constant capital produces no surplus value, unless it receives the average rate of profit, it will not be put to work.
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