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Theories of Surplus Value, Part III, Chapter 19 - Part 26

10. Malthus’s Theory of Value [Supplementary Remarks] 

Adam Smith fails to distinguish between labour as the essence and measure of value, and the use value labour-power, which is sold as a commodity by the wage labourer. All commodities, be it corn, salt, gold or labour-power have an exchange value, and as such can function as money. An exchange-value is an equivalent form of value, the means by which the value of the commodity is expressed in an equivalent form, i.e. in the form of a quantity of some other use value. Money is simply a universally accepted equivalent form of value. In other words, a money commodity is simply some single commodity that has been chosen to act as the universal equivalent of all other values. 

But, all such money commodities can only ever act as a measure of value as exchange-value. They cannot be a measure of value itself. Only labour acts as a measure of absolute value in that sense. That is really what Smith meant, when he talked about the value of labour being unchanging. It is only because products themselves have value, i.e. that they are the products of labour, and each contains different amounts of social labour, that they can be compared, on the basis of this value, and exchange-values be determined. 

The failure to distinguish between labour and labour-power, therefore, leads to all kinds of problems and contradictions. Labour is the only measure of value, but labour-power, as a commodity, can act, as with any other commodity, as a measure of exchange-value. In other words, to establish an exchange-value what is required is two commodities, both of which contain different amounts of value. If commodity A represents five hours labour, and B represents ten hours labour, then 1B = 2A. If A is designated the money commodity, and 1A is given the name £1, then 1B = £2. But, labour-power is also a commodity. Its value is determined by the labour-time required for its reproduction, as with any other commodity. So, A could then be one day's labour-power. In which case, the value of B can still be expressed as 2A, or 2 days labour-power. 

If the normal working-day is 10 hours, then during this 1 day of labour, 1B is produced, but this 1B is equal to 2A, or 2 day's labour-power. Put another way, the value of 1 day's labour is equal to, or commands, 2 days of labour-power. The value of labour-power, as with any other commodity, rises or falls in accordance with the labour required for its reproduction, and consequently the exchange value of any such commodity also rises or falls. If gold is the money commodity, its value rises or falls dependent on the labour required for its production. If a gram of gold has a value of 10 hours labour, and a coat has a value of 20 hours labour, then 1 coat equals 2 grams of gold, or put another way, the gold, or money price of a coat is 2 grams of gold. This concept of a "money price", which could also be a "corn price", or a "cotton price", i.e. a price of a commodity measured in a quantity of some other commodity, is important for Marx's later discussion on this topic.  But, if the value of gold rises to 20 hours of labour, then 1 coat = 1 gram of gold, or the price of a coat falls to 1 gram of gold, even though the value of the coat has not changed. It remains 20 hours of labour. Exchange value can only exist because value already exists, and is presupposed in the products whose values are being compared. Money can only act as a measure of value, because both the money commodity and the commodities whose exchange value it measures, already are values, representatives of quantities of social labour. 

So, using the commodity labour-power, or wages, as a measure of exchange values is not the same thing as measuring the value of products or commodities, according to the labour required for their production. The failure to recognise this leads Smith and others, like Malthus here, into irreconcilable contradictions. 

“Mr. Malthus believes that the capitalist pays sometimes more shillings, sometimes less, for the same labour. He does not see that the worker, correspondingly, performs either less or more labour for a given amount of produce.” (p 39) 

Marx quotes from the anonymously published “Observations on Certain Verbal Disputes etc.” 

““… giving more produce for a given quantity of labour, or getting more labour for a given quantity of produce, are one and the same thing in his”(Malthus’s) “‘view’; instead of being, as one would have supposed, just the contrary” (Observations on Certain Verbal Disputes in Political Economy, Particularly Relating to Value, and to Demand and Supply, London, 1821, p. 52).” (p 39) 

The anonymous author, Marx says, correctly also points out that labour (power) in the sense that Malthus borrows the term from Smith, could, like any other commodity, be a measure of value, but would, in fact, not be such a good measure as money already is. 

“Here it would be in general a question only of a measure of value in the sense in which money is a measure of value. 

In general, it is never the measure of value (in the sense of money) which makes commodities commensurable (see Part I of my book, p. 45). 

“On the contrary, it is only the commensurability of commodities as materialised labour-time which converts gold into money.” 

Commodities as values constitute one substance, they are mere representations of the same substance—social labour. The measure of value (money) presupposes them as values and refers solely to the expression and size of this value. The measure of value of commodities always refers to the transformation of value into price and already presumes the value.” (p 40) 

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Forward To Part 27

Interpreting US Profits (11) - A Fall In The Marxian Rate of Profit?

A Fall In the Marxian Rate of Profit? 

In the first ten posts in this series, I have tried to clarify the Marxist theory, in relation to the rate of profit, Marx's law of a falling rate of profit compared to that of his predecessors, Marx's explanation of the process of social reproduction, and from it his definition of the circuit of industrial capital, because without a correct understanding of that, it's impossible to understand the basis of the self-expansion of capital, or to correctly measure the extent of that expansion. I have, therefore, also attempted to clarify Marx's definition of the turnover period of capital, because without a correct determination of the rate of turnover, it is impossible to determine the annual rate of surplus value, or annual rate of profit, which is the true measure of the potential for capital accumulation. I will now look in closer detail at the headline conclusions that Michael Roberts has presented in his blog post, before later examining his analysis in more detail. 

What I have noticed, in the past, in looking at the mass of data that Michael provides, is how frequently that data actually contradicts the basic argument he presents. Michael Roberts in the data he presents writes, 

“There has been a fall in the rate of profit in 2017 from 24.4% in 2016 to 23.9% in 2017. Indeed, the US rate of profit on this measure has now fallen for three consecutive years from a post-crash peak in 2014. This suggests that the recovery in profitability since the Great Recession low in 2009 is over. The AK measure confirms Marx’s law in that there has been a secular decline in the US rate of profit since 1946 (25%) and since 1965 (30%).” 

But, he makes no distinction, here, between a fall in the rate of profit due to a fall in the rate of surplus value, or rise in the value composition of capital, i.e. a Smithian/Ricardian squeeze on profits, as opposed to a fall, in the rate of profit, due to rising productivity, which results in a rise in the rate of surplus value, a decline in the value composition, but a rise in its organic composition, due to a sharp rise in its technical composition. In other words, he does not distinguish between the Smithian/Ricardian theory of a falling rate of profit and the Marxian theory. But, it's precisely that distinction of these different causes of a fall in the rate of profit that Marx highlights in distinguishing his law of a falling rate of profit from those of his predecessors! If you don't distinguish between these different causes of a fall in the rate of profit, you can't claim that any such fall is attributable to Marx's Law, rather than the Smithian/Ricardian law, or indeed the Malthusian Law; its like not distinguishing between parasols and umbrellas. It means being unable to correctly understand the economic weather, and what the outlook for it is. That is why, for as long as I can remember, Michael, on his blog, has been predicting that, as a result of a falling rate of profit, investment was going to sink, and a new crisis was at hand, if not this year, next year, and as each year has passed, without the predicted crisis arising, so it is simply deferred to the next year. 

Its no wonder that the URL for Michael's blog is “thenextrecession”, because that is what underlies his approach. It starts from a mistaken belief that having failed to convince workers of the desirability of Socialism, the best hope is that they should become so disenchanted with capitalism that almost anything can be seen as an improvement. It starts from a view not of Socialism as a development of human society beyond what capitalism has made possible, as an uplifting, aspirational view of Socialism that is progressive, and forward looking, but on the basis of a crude “Anti-Capitalism”, so that even a retreat from the advances that capitalism has made possible is seen as a way forward, so long as it provokes workers into expressing hostility to it. Rather than being Marxist in outlook, it is actually Sismondist, and thereby shares all of the Malthusian, catastrophist deficiencies of Sismondism. The trouble is that the “anti-capitalist” hostility expressed under such conditions, always assumes the form of reaction, such as in the form of Trump, Orban, Brexit, Le Pen, and so on. 

It's no wonder then that these sections of crude socialists share the same catastrophist dreams as the reactionaries on the right, as both see the onset of some crisis as the only credible means they can see of winning over the masses to their ideas. The reactionaries have history on their side in such dreams, the crude socialists do not. 

Michael, also says, 

“Marx’s law is also confirmed because the driver of changes in US profitability depends on the relative movement of the two Marxian categories in the accumulation process: the organic composition of capital and the rate of surplus value (exploitation). Since 1965 there has been the secular rise in the organic composition of capital of 21%, while the main ‘counteracting factor’ in Marx’s law, the rate of surplus value, has fallen over 4%. Conversely, in the neo-liberal period from 1982 to 1997, the rate of surplus value rose 16%, more than the organic composition of capital (7%), so the rate of profit rose 9.5%. Since 1997, the US rate of profit has fallen over 5%, because the organic composition of capital has risen over 14%, outstripping the rise in the rate of surplus value (5.4%).” 

If we unpick that, it shows, yet again, that the reality is the opposite of what Michael wants to suggest. Firstly, Michael, here, again, makes no distinction between a rise in the value composition and a rise in the technical composition of capital, resulting in a rise in the organic composition. Yet, Marx makes clear that when he refers to changes in the organic composition of capital, what he really means is a change in deriving from the technical composition. 

“Between the two there is a strict correlation. To express this, I call the value composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital. Wherever I refer to the composition of capital, without further qualification, its organic composition is always understood.” 

Capital I, Chapter 25

It is that, which is the basis of his law of a falling rate of profit, i.e. rising social productivity, causes the technical composition to rise, more material (circulating constant capital) to be processed by the same amount of labour, so that c:v rises. This occurs, because new technological innovations raise labour productivity, and these innovations are introduced most notably following periods of crisis, when labour shortages have created a limit for the expansion of absolute surplus value, and when rising wages also reduce relative surplus value. 

Marx notes that his law of a falling rate of profit is not a consequence of labour being exploited less, but of it being exploited more! 

“The rate of profit does not sink because the labourer is exploited any less, but because generally less labour is employed in proportion to the employed capital.” 

(Capital III, Chapter 15) 

Examining Michael's statement, therefore, what do we see? It is clear from the chart he provides. After 1965, there is a secular rise in the “organic composition of capital”, but Michael does not analyse whether this rise in the organic composition is, as Marx says, due to a rise in its technical composition, due to rising productivity, and a concomitant rise in the rate of surplus value, as a given amount of labour processes an increased quantity of material, or whether it is due to a rise in the value composition of capital, whereby slowing or declining productivity, causes the value of the material components of constant capital to rise. 

Source: Michael Roberts

In the period 1965-82, the period described by Glyn and Sutcliffe, in Workers and the Profits Squeeze, we find their thesis upheld by the data presented in Michael's chart. According to Michael's chart, during this period, the rate of surplus value fell by 21.9%. The rate of surplus value falls either because, in Ricardian terms, social productivity falls, causing the value of wage goods, and thereby of labour-power/wages to rise, or else because, in Smithian terms, the demand for labour exceeds the supply, at current wages, so wages rise. Given that Marx's law of the tendency for the rate of profit to fall is premised upon a rising rate of surplus value, due to sharply rising levels of productivity, it's clear that, during this period, there is no support for the thesis that the rate of profit fell due to the Marxian Law. Rather, what we see is the rate of surplus value declining sharply, as, first, limitations on the extension of the social working-day begin to appear, which limits the expansion of absolute surplus value, and then, as labour shortages become more acute, wages rise, squeezing relative surplus value, reducing the rate of surplus value, and thereby squeezing profits, and the rate of profit. 

That is also what Marx predicts will happen at that stage of the cycle, but his prediction of that has nothing to do with his law of the tendency for the rate of profit to fall. Rather, its the situation that Marx describes in Capital III, Chapter 15. 

“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.” 

Its that, which leads to increasing crises of overproduction, in the Marxian sense, that increases in capital accumulation, no longer result in an increase in surplus value, because the additional labour employed no longer produces additional absolute surplus value, and instead puts a further demand on tight labour markets, causing wages to rise further, and thereby causes relative surplus value also to then fall. Its in response to these repeated crises in the crisis phase of the long wave that capital searches out new labour-saving technologies, that replace labour, create a relative surplus population, reduce wages, and thereby raise the rate of surplus value, but which also reduces the value of wage goods, thereby reducing the value of labour-power, and so again raises the rate of surplus value. It is those conditions that lead to the application of Marx's law of a falling rate of profit, along with rising rates of surplus value, a rise in the technical composition of capital, and consequent rise in the organic composition, which in turn creates the conditions for ending the crises of overproduction, and of creating the conditions for a new rise in the rate and mass of profit, as the basis of the new upswing in the long wave cycle. 

In other words, in response to the repeated crises, labour-saving technologies are introduced. Labour is made redundant, and the unemployed workers push down on wages, causing the rate of surplus value to rise. This does not mean that absolutely fewer workers are employed. The labour force grows each year due to population growth. It means only that out of this larger workforce, a greater proportion of workers are unemployed, and that with higher productivity, a given increase in output requires fewer workers to achieve. That means that the lower wages causing a higher rate of surplus value, brings about a higher rate of profit, and in so far as more labour is employed, absolutely, the mass of profit also rises. However, the rise in productivity means that a given amount of labour now processes a greater quantity of material. Although the mass of profit rises, therefore, it rises by a smaller proportion than the rise in the mass of material processed, so that the ratio of c:(v + s) rises,(the technical and thereby organic composition) and that results in a fall in the rate of profit, even where the ratio of s:v, i.e. the rate of surplus value also rises. This is the opposite of the conditions that apply in that phase where crises of overproduction arise due to falls in the rate of surplus value, and a consequent squeeze on profits. 

In this period 1965-82, therefore, as we see, in Michael's chart, the rate of surplus value declines sharply. As would be expected, its concomitant is not a sharp rise in the technical composition of capital, but a modest decline in the value composition of capital. The same fall in productivity that causes the rate of surplus value to fall, is also manifest in a stagnation or fall in the technical composition of capital. In fact, in Michael's chart, we see exactly the same kind of process that Marx describes in Theories of Surplus Value, Chapters 12-18. His chart shows a modest fall in the organic composition, which under Marx's law of a falling rate of profit, should result in a rise rather than a fall in the rate of profit. Marx's law is that the rate of profit falls as the organic composition of capital rises, and rises where the organic composition of capital falls. But, to understand why that is, you have to understand Marx's definition of the organic composition as being determined by the technical composition, not the value composition. As Marx describes in Theories of Surplus Value, Chapter 12-18, changes in the value composition of capital, have completely different effects on the rate and mass of profit as compared to changes in the technical composition of capital. 

It is precisely the rise in the technical composition, which means that relatively less immediate labour is employed, compared to the mass of processed material, that causes the rate of profit to fall. If the composition of capital rises, because the same quantity of material is processed by the same amount of labour, but wages fall, then, rather than falling, the rate of profit will rise, because this is a change in the value composition of capital, not a change in its technical composition. If the composition of capital falls, not because more living labour is employed, relatively, thereby producing more surplus value, but rather because the same amount of labour is employed on higher wages, then, rather than rising, the rate of profit will fall, because the rise in wages (v), means that c + v will rise, causing the rate of profit to fall, and further, because v rises, s falls, so that the rate of profit falls for this further reason, of a fall in the rate of surplus value. 

Its precisely, because this fall in the organic composition, shown in Michael's chart, between 1965-1982, is due to changes in the value composition rather than the technical composition that the result is a fall rather than a rise in the rate of profit. This change in the relation here, is due to the fact that whilst the technical composition does not change much, a rise in wages, causes the relation between c:v to fall. That is precisely what would be expected to occur according to Marx's actual theory, because during this period, of extensive accumulation, there is no large rise in productivity, more of the same technology is simply rolled out, along with more labour, and more materials. As Marx says, 

“Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.” 

(Capital III, Chapter 15) 

This is confirmed in the rest of the data presented in Michael's chart. In the period 1982-97, which is the period which covers the tail-end of the crisis phase of the long-wave cycle (1974-87) and most of the stagnation phase of the cycle (1987-1999) we see the rate of surplus value rise sharply by 16%, as all of this new technology is introduced in a period of intensive accumulation, which replaces labour, and causes productivity to rise. In the period of intensive accumulation between 1982-97, we see the organic composition of capital rise by 7%, along with a rise in the rate of profit of 9.5%.

What this again illustrates is that the rise in the organic composition is driven by a rise in its technical composition, which is itself driven by the same rise in productivity that causes the rate of surplus value to have risen by 16%.  Some of the rise in the rate of surplus value, here is due to the fact that wages, which were inflated in the previous period, due to labour shortages, fall back, due to excess labour supplies.  But, as Marx sets out in Theories of Surplus Value, the major effect is that as productivity rises, the value of wage goods falls, causing the value of labour-power to fall.  If most of this 16% rise in the rate of surplus value is attributable to rising productivity, it might be expected to cause a similar percentage rise in the technical composition of capital.  The fact that the organic composition rises, by only 7%, suggests that a 16% increase in the mass of material processed, is offset by a fall in the unit value of the material itself, due again to rising social productivity, reducing the value of inputs, and of fixed capital.

The rate of profit rises here, because although the conditions that underlie Marx's Law apply, i.e. new labour saving technologies replace labour, and thereby reduce the potential for expanding the mass of surplus value, relative to the mass of capital employed, that same rise in productivity, raises the rate of surplus value, because wages are reduced, and relative surplus value rises, and the value of constant capital is itself depreciated by that rise in social productivity.  It shows the point referred to earlier, that as Marx says, the fall in the rate of profit due to the long-term tendency is much less than it is said to be, and is offset by its concomitant factors, such as the fall in the value of the commodities that comprise the constant capital.  Once the factor of a rising rate of surplus value comes into play, enhanced by the development of new higher profit spheres of production, the result is a rise in the rate, as well as the mass of profit.

Moreover, the data provided by Michael refers only to the ordinary rate of surplus value, i.e. the amount of profit in the year in proportion to the laid-out variable-capital/wages for the year.  But, as I have described in the first ten posts, this ordinary rate of surplus value is misleading.  What is determinant is the annual rate of surplus value.  Because, the rate of turnover of capital rises, more or less proportionately to the rise in social productivity, not only does this cause the ordinary rate of surplus value to rise, but it causes the annual rate of surplus value to rise even more.  It means less variable-capital need be advanced to produce a given annual amount of profit.  That means that, the annual rate of profit rises, but also as Marx describes in Theories of Surplus Value, Chapter 22, it results in a release of variable-capital, which can be used as revenue, or for accumulation.  This large release of capital, flows initially into the money markets, which causes interest rates to fall, and thereby also stimulates the fantastic asset price bubbles, which were seen to inflate in the 1980's, and after.

What we see in this 7% rise in the organic composition of capital is the effect of this sharp rise in social productivity. On the one hand, the value of materials used in production falls – during that period the prices of copper, oil and other materials fell, in real terms – and, technological developments also means that materials are used more efficiently. For example, oil consumption rose by only a seventh of the rise in global GDP, between the 1980's, and 2006. 

Global oil consumption rose from 63 million barrels per day in 1980, to 85 million barrels per day in 2006. That is an increase of 35%. But, between 1980 and 2012, Global GDP increased from $18.8 Trillion to $71.8 Trillion (1990 dollars). That is an increase of 282%! Even allowing for the 6 years difference in periods that means that global GDP rose by around seven times the increase in oil consumption. That is also despite the huge growth in the number of cars in places like China, which is now the biggest car market in the world. The reason that oil consumption has increased by only a fraction of the increase in global economic growth is because huge advances have been made in the efficiency of oil use.

The value composition of capital thereby falls, as productivity rises. These new technologies, in microchips, wireless communications and so on, also massively depreciated fixed capital, and the fixed capital stock. But, this rise in productivity means that a greater mass of materials are consumed, and this rise in the mass of materials outweighs the fall in their unit value. Alongside that, the increase in service industries, means that large amounts of fixed capital are introduced in infrastructure, such as the laying down of fibre optic cables, telecommunications routers and switches etc., particularly during the 1990's, that created the basis for the expansion of the Internet, and all of its related service industries in the subsequent period. 

Finally, looking at the period 1997-2017, this is again a period of long wave expansion, after 1999. Already, by 2007, wages had started to rise notably, squeezing profits, and caused interest rates to rise, which provided the spark for the 2008 financial crash. As the demand for raw materials spiked in 1999, including demand for food, as the global working-class increased massively in size, and the wages of workers in developing economies spiked by the most of all, that caused a sharp increase in the value composition of capital, witnessed in Michael's chart showing that the organic composition of capital rose by 14.5%, whereas productivity/rate of surplus value rose by only 5.4%. As Paul Mason notes,

“It is this that prompted the British economist Douglas McWilliams, in his Gresham lectures, to nominate the last 25 years as the 'greatest economic event in human history'. World GDP rose by 33% in the hundred years after the discovery of the Americas, and GDP per person by 5%. In the fifty years after 1820, with industrial revolution underway in Europe, and the Americas only, world GDP grew by 60%, and GDP per person by 30%. But, between 1989 and 2012 world GDP rose from $20 trillion to $71 trillion – 272% - and as we have seen, GDP per person increased by 162%. On both measures, the period after 1989 outpaces the long postwar boom.” (Postcapitalism, p 101)

Since 1980, the global workforce has more than doubled, and most of the increase has been in Asia. According to the ILO, the world labour force has grew by around a third in the first decade of this century alone. The number of workers employed in industry has risen by around 30% and the number employed in services has risen by 35%. This incessant demand for labour-power pushed up nominal and real wages significantly, at a global level. That was manifest in a sharp rise in global food demand, as the higher living standards of these workers was first translated into a better diet. The start of the new long wave boom after 1999 enhanced this process. In 2005, Chinese consumption of meat was 2.4 times what it was in 1990, milk 3 times, fruit 3.5 times, vegetables 2.9 times, fish 2.3 times, whilst its consumption of cereals, mostly rice, fell by 20%. The large rise in demand from China, and other developing economies, was part of the reason for the spike in global food prices, at the end of 2007 and beginning of 2008.

The fall in the rate of profit, shown, of 5.3% (taking into consideration all of the criticisms of that rate previously outlined) is not a fall consistent with the Marxian law of a falling rate of profit, as Michael suggests, but is a fall due to a squeeze on profits, due to a stagnation of productivity, and a rise in the value composition of capital, alongside a rise in wages.  The latter may not be apparent in the US, UK or in the EU, as after 2008, the implementation of austerity, to restrict economic growth was also used to once again press down on wages.  And, as Paul Mason shows in his data, the big increase in living standards came in that huge swathe of new workers in China, Asia, Africa, and in former Stalinist states in Eastern Europe.  Yet, just as prior to 2008, even in the US, UK, and Europe, rising economic activity, is causing the demand for labour to rise, with labour shortages already appearing in a range of industries - e.g. there is a shortage of around 45,000-50,000 lorry drivers in the UK - and this is starting to push through into higher wages.

Back To Part 10

Forward To Part 12 

Theories of Surplus Value, Part III, Chapter 19 - Part 25

9. Constant and Variable Capital [According to Malthus] 

Marx quotes Malthus' comments in regards to constant and variable-capital, though Malthus never uses those actual terms. 

““Accumulated labour”. (It should really be called materialised labour, objectified labour.) “The labour worked up in the raw materials and tools applied to the production of other commodities” (op. cit., p. 13). 

In speaking of the labour worked up in commodities “… the labour worked up in the capital necessary to their production were designated by the term accumulated labour, as contra-distinguished from the immediate labour employed by the last capitalist” (op. cit., pp. 28-29).” (p 36) 

Malthus, however, never goes anywhere from having made this crucial distinction. Like Ricardo, Malthus confuses surplus value and the rate of surplus value, with profit, and the rate of profit. But, where Ricardo never attempts to identify the source of surplus value, Malthus' attempt to do so takes him back to the theories of the Mercantilists, and his theory of value is also, thereby, a step backwards, compared to Ricardo's labour theory of value. So, although Malthus attempts to relate the rate of surplus value to the variable-capital, his theory of value prevents this attempt from going anywhere. 

Marx gives a long quote from Malthus, where he attempts to demonstrate this relation between the rate of profit and wages, but, in it, Malthus sets out nothing but a series of mathematical tautologies. Malthus begins by assuming that all capital is variable-capital, in which case it would be true that surplus value and profit are the same, and that the rate of profit and rate of surplus value is the same. 

He assumes a 10% rate of profit, so that, if wages are £100, the value of the product is £110, with £10 being profit. 

“In relation to the total, 10 per cent profit can be so expressed that the part of the value of the total product which is not made up of profit amounts to 10/11 of the total product; or, a product of 110 which includes 10 per cent profit consists of 10/11 outlay, on which the profit is made. This brilliant mathematical effort amuses him so much that he repeats the same calculation using a profit of 20 per cent, 30 per cent, etc. But so far we have merely a tautology. The profit is a percentage on the capital expended, the value of the total Product includes the value of the profit and the capital expended is the value of the total product minus the value of the profit. Thus 110-10=100. And 100 is 10/11 of 110.” (p 37-8) 

Malthus then proceeds to outline the case where part of the capital is constant capital, in addition to the variable capital. If surplus value is determined by wages, then this is clearly in contradiction to the idea also propounded by Malthus that the capitalist expects to receive the average rate of profit on all of their capital. Malthus sets out an example where a capital of £2,000 consists of £1500 constant capital and £500 variable capital. He assumes a 20% rate of profit, so that profit of £400 is added to the £2,000, giving a product of £2,400. 

Now Malthus argument is that it is the proportional relation to wages that is determinant of the rate of profit. So, he says, if the total capital is £2,000 and wages are a quarter of this total, a quarter of the total product of £2,400 is £600. This £600 represents the £500 spent on wages plus 20% profit. This £100 of profit is 25% of the total profit, proportional to wages as a portion of total capital. 

“And this is supposed to prove that “the profits of the capitalist will vary with the varying value of this one-fourth of the produce compared with the quantity of labour employed”. It proves nothing more than that a profit of a given percentage, e.g. of 20 per cent, on a given capital—say of £4,000— yields a profit of 20 per cent on each aliquot part of the capital, that is a tautology, But it proves absolutely nothing about a definite, special, distinguishing relationship of this profit to the part of the capital expended on wages.” (p 38) 

It could just as easily have been said that 75% of the total capital comprises constant capital and that 75% of the total product is £1800, which is £300 more than the value of the constant capital, and £300 is 75% of the total profit. 

Marx says, if you take not ¼ but 1/24 of the total product, £100, it too contains 20% profit, i.e. the capital would be £83.33 and profit £16.66. 

“If the 83⅓ were equal, for instance, to a horse which was employed in production, then it could be demonstrated according to Malthus’s recipe that the profit would vary with the varying value of the horse or the 28 4/5 part of the total product. 

Such are the wretched things Mr. Malthus comes out with when he stands on his own feet and cannot plagiarise Townsend, Anderson or anyone else. What is really remarkable and pertinent (apart from what is characteristic of the man) is the inkling that surplus-value must be calculated on the part of capital expended on wages.” (p 38-9) 

If the rate of profit is given, the mass of profit then depends on the mass of capital advanced, because the average annual rate of profit is measured against the advanced capital, not the laid out capital. But, Marx says, this is the gross profit, before rent, interest or taxes have been deducted, and before the personal consumption needs of the capitalist have been met. Only after all these deductions have been made is the amount available for accumulation determined. 

“But this part, since it is equal to the gross profit minus the revenue consumed by the capitalist, will depend not only on the value of the total profit, but on the cheapness of the commodities which the capitalist can buy with it; partly on the cheapness of the commodities which he consumes and which he pays for out of his revenue, partly on the cheapness of the commodities which enter into his constant capital. Wages here are assumed as given—since the rate of profit is likewise assumed as given.” (p 39) 

Back To Part 24

Forward To Part 26

The Value of Trump

Donald Trump is an invaluable asset to socialists.  In one single, highly visible person, he personifies all of socialists critique of capitalism.  By the hour, he exposes all of the humbug spouted by the apologists of capitalism.

Marx quoting Shakespeare says something like money turns every dimwit into a genius.  Is there any clearer, more visible expression of that truth than Donald Trump.  Here is an example, of a totally ignorant, boorish, buffoon who inherited billions, and with that wealth was able to buy the brains he required to run his business empire.  Even then, he managed to go bankrupt four times, with the source of his money used to finance his current business operations open to doubt, and investigation by Robert Mueller and others, as Trump refuses to publish his accounts, and relations with Russia.  But, the truth as Marx indicates is that with the billions he inherited, there was no need for Trump even to have risked that wealth in any business activity to have appeared a genius.

$1 million, simply deposited at interest, even with today's low rates of interest, will provide you with $10,000 a year in revenue.  A billion dollars, however, will provide you with $10 million a year of revenue, risk free!  It's why those social-democrats who criticise Labour's decision not to impose heavier taxes on train and lorry, drivers, or head teachers and so on, earning moderately higher wages than the average, of £50,000 a year or more, act as defenders of workers' real enemies amongst the ruling class.  On the one hand, they undermine the solidarity of the working-class, by setting one group of poorly paid workers against other groups of better paid workers, thereby falling for the oldest trick in the capitalists playbook, of divide and rule, whilst giving the false impression that the route to a sustainable improvement in workers' condition, can come from bureaucratically taxing one group of workers, that has managed to improve its situation, and then handing over their money to another group of workers that has paid poorly, in the process, thereby subsidising all of those inefficient, poorly paying bosses, who get away with paying low wages for a while longer.

Its like those backward sections of workers who attack civil service and local government workers for having what the Tory media tell them are "gold-plated pensions".  They seem to think that because they have failed themselves to join trades unions, or to fight in those unions to keep or obtain, final salary scheme pensions, that their position would somehow be ameliorated, by demanding that other groups of workers that have fought to defend such pensions, should also lose them!  But, someone like Trump exposes the totally shortsighted, and wrong-headed character of such thoughts.  A billionaire like Trump, or even someone with $100 million or above, not only obtains an income way above any wages that any actual worker, who sells their labour-power, might obtain, but because that income does not in any way depend on doing one minute of labour, they are ensured to continue to receive it, for as long as they live, blowing out of the water, even the best pension that any worker might obtain.

Trump exposes in glaring orange colours the reality stated by Marx 150 years ago that the road to socialism lies not in the realm of distribution, of taxing one group of workers only to transfer it to another group of workers, but in the realm of production.  It resides not in dividing ourselves between poorly paid workers and better paid workers, but between workers per se, and capitalists, like Trump.  Indeed, Trump exposes that division even more glaringly than most.  The apologists for capitalism have always been able to point to the small amount of actual labour performed by entrepreneurs as the basis of the capitalists revenue.  The reality is, of course, that those firms although numerically dominant, are economically subordinate to the big socialised capitals.  Moreover, the profits of those companies are derived, as with any other from the capital itself, on the basis of the average rate of profit, not from any unique characteristic of the particular entrepreneur, whose contribution to any such differences is always marginal.  But, not even that excuse can be claimed for Trump.  When he has got involved in actually using his inherited wealth, he has gone bankrupt, often as with his exploits in Atlantic City, causing economic chaos in his wake.  But, Trump need perform no labour to enjoy $10 million a year in interest off a billion dollars of savings.  In fact, with even a moderately good financial advisor, a billion dollars could bring in a lot more than $10 million a year in risk free, interest and dividends.

And another example of this same principle that money can turn a dimwit like Trump into a genius applies in other ways too.  We heard Trump's claims, for example, that he could freely walk up and grab hold of women's pussies, because they just allowed him to get away with it.  And, of course for those that don't, his money can also be used to simply pay them off.  Not only does money turn a dimwit into a genius, but it also turns a boorish, ignorant and unpleasant oaf into a Casanova.  Does anyone think that this man whose facial expressions vary between that of someone who has just been Tangoed practising for a gurning competition and total vacuity of mind, whose head looks as though a passing wind has just dropped a bird's nest on top of it, whose every word shows not only the extent of his stupidity, but also of his self-obsession, would have attracted the women he has, other than for his billions of dollars?

Trump exposes the fundamental lie at the heart of capitalism that wealth is obtained by hard work, or the application of some special skill, talent or knowledge, because Trump has none of those things, and yet has billions, and thereby the ability to have billions more simply flow into his pockets.  The fact, that Trump despite his idiocy, and abhorrent views, despite his record of bankruptcy, could be elected President of the United States also says a lot.  It says a lot about a United States democracy, where only billionaires, or those with access to them, can be in a position to be able even to stand for that office, and where money buys all of the support, media and other things required to get elected.  It also says a lot about how that situation created politicians such as Hillary Clinton, who couldn't get elected, because even against such a distasteful person as Trump, they are seen as part of the problem not the solution, as par of the same old corrupt system, especially after it was shown how Bernie Sanders bid for the nomination had been undermined.

Trump exposes all of those lies at the heart of capitalism simply by being.  The large number of backward elements that voted for Trump might, in the short term, be moved to vote for him, out of ignorance, and as simply an unthinking means of lashing out at their condition, in the same way that similar elements supported Trump's equivalents such as Bojo and Farage, over Brexit, but at the same time, Trump has acted to vitalise many of those more advanced sections of the US working-class that mobilised as part of the Occupy Movement, into organised political action, mobilising within the grass roots of the Democrat Party, swelling the ranks of the Democratic Socialists of America, and its activity within the Democrat Party, bringing democratic socialist candidates on to the political stage, and into Congress, and State legislatures across the country, for the first time in decades.  And, they are doing that now, not by appeals to those same old billionaires, but as with the movement behind Corbyn in Britain, by mobilising large numbers of grass roots activists that go out, and recruit even larger numbers by activity within their communities.

But, Trump exposes the lies that are at the heart of capitalism also by his own stupidity.  I have written in the past about the fact that lying is central to the continuation of capitalist rule, and bourgeois politics.  But, the lies at the heart of bourgeois ideology work because they are subtle, and wrapped in layers of false consciousness, which itself derives from a superficial appearance of reality as it presents itself to individuals.  The idea of "A Fair Day's Work for a Fair Day's Wage". for example, appears superficially fine, and morally defensible, until you analyse the reality that workers wages never amount to anything like the new value that workers create by their labour, and that the difference between those two things, which gets ever wider, as capitalism develops, is the basis for capitalists like Trump to obtain their large profits without working, and that it allows similar capitalists to receive huge amounts of income purely as interest payments, even without giving any semblance of taking any part in the productive process, or of risking their wealth in any way.

The lies at the heart of bourgeois ideology rely upon a modicum of truth, and a careful weaving of a narrative that appears believable.  But, Trump, is such an idiot that he is unable to see that.  He makes the lying at the heart of capitalism apparent, because his lies, which he produces on an industrial scale, every day, in his inane tweets, and via his press statements, whenever he goes off script, are so obvious, and ridiculous.  But, Trump's real damage to capitalism is not when he lies, which merely makes him an object of derision and contempt, comes rather from when he tells the truth!

For decades, bourgeois ideology claimed the moral high ground, particularly after it was not so apparently supporting apartheid in South Africa, dropping megatons of bombs and napalm on men, women and children in Vietnam, Cambodia and Laos, or supporting death squads in El Salvador.  Bourgeois ideology attempted to have us forget all of that side of its activities, as bourgeois democratic regimes emerged in Latin America, and the Vietnamese, Cambodians, and Laotians joined in with their Chinese brethren in adopting the capitalist road.  The bourgeoisie was able instead to point to immorality, and cruelty of communism, as Stalin, then Mao caused the deaths of millions by starvation, and outright murder.

They were helped in that by those sections of the fake left, who themselves gave credence to the socialist credential of the Stalinist butchers, and who worse gave left cover for all of those reactionary nationalists, and clerical-fascists, such as the Iranian regime, Hezbollah, or Hamas, as well as those like Chavez and so on, solely on the basis of their supposed "anti-imperialism".  The reality was always that capital uses democracy and fascism only as means to an end.  Wherever it can it prefers the former, because it has lower overhead costs, and ensures a greater degree of control.  Fascist regimes are always bureaucratic and inefficient, as they preside over what is essentially slave labour, and the fascist rules in such regimes have a tendency to also want to line their own pockets rather than those of the ruling class.  But, whenever capital has to it is just as at home dealing with fascists as with bourgeois democrats.

US capital had no trouble dealing, via its links with the Saudi regime, with Osama Bin Laden, building up his resources through the intermediary of the dictatorship in Pakistan, to be able to establish the Afghan Mujaheddin to fight the Soviets.  And, it used Bin Laden as intermediary to build up the criminal gangs that comprised the Kosovan Liberation Army, also to undertake attacks on Kosovan Serbs, so as to provoke a civil war, and create the conditions for attacking Serbia, as NATO pressed ever eastwards, surrounding the former USSR, and positioning it strategically on China's western flank.  But, the bourgeoisie, and its political representatives have always undertaken such activities under cover of carefully constructed narratives, of intervention on humanitarian grounds etc., with the lies that underpin those narratives carefully hidden.  But, Trump is an idiot, he sees no need for such lies.  He understands the actual truth about capitalism and its money making endeavours, acts upon, it and when asked explains how and why he is acting upon it.

So, for decades capitalist regimes, despite all of their moralising have been happy to sell arms to any tinpot dictator anywhere in the world, in order to make money.  Many Labour MP's have adopted that stance too.  Instead of standing with workers, and creating alternative workers plans for production, as for example the Lucas Aerospace workers did, in the 1970's, they accept all of the lies of capitalism, and the right of capital to produce what it wants unimpeded, and so conclude that capital has to be allowed to sell arms to South Africa's apartheid regime, or to the feudal regimes in Saudi Arabia, and the other Gulf States, and so on, "because jobs depend on it."  These are the same bourgeois politicians who praise the decision to abolish the slave trade in the 19th century, but of course, that is now safely in the past.  If it were today, those politicians would be arguing that it would have to continue, because the supply of slaves, and of cheap cotton, sugar and other products from the Caribbean, and the Southern US states, was vital to maintaining British jobs, and living standards.

Some of those politicians, like Theresa May, make the same kinds of arguments in relation to selling arms to Saudi Arabia today, despite its murder of Kashoggi, and its daily slaughter of hundreds of Yemenis, and its barbaric rule over its own people.  But, May couches her support for Saudi in nuanced terms.  It is necessary to counter Iran, Saudi provides intelligence against terrorism (despite the reality that it is Saudi that has financed the jihadists in Syria, Libya and elsewhere, and which fosters clerical-fascist ideologies across the globe by its financing and support of a network of Madrassas, promoting Wahabism.  Trump has no truck with such niceties.  He is openly prepared to sanction the Saudis murder of Kashoggi, a US citizen, simply because he is not going to let a small thing like morality get in the way of capitalist money-making.  Trump says openly his position is "America First", by which he means American capitalism, and the interests of American capitalists like himself first.  To that end, he will deal with any butcher, murder, tinpot dictator if it means making money.  he thereby destroys the whole ideology of the bourgeoisie built up in recent decades about the moralistic nature of capitalism and imperialism.  Lenin, of course, knew the reality long ago, and said that the imperialists in their drive for profits would sell them the machines required to surpass the capitalist states, and the weapons with which to fight them when the time came.

But, Trump gave another example of that the other day that was closer to home.  The reality has always been that Brexit is a dangerous illusion, again built upon a series of lies that are exposed on closer inspection, or on contact with reality.  The idea that the UK could walk away from the 70% of its trade that it does with the EU or with other states covered by EU negotiated trad deals, was absurd.  But, the idea was promoted not just by the Brextremists, but also by Theresa May, with her appointment of Liam Fox as International Trade Secretary that Britain could somehow have a deal with the EU that provided it with frictionless access to the EU single market, and Customs UNion, whilst simultaneously negotiating its own trade deals with countries such as the USA, China, India and so on.  But, of course, it can't, in reality.

Firstly, the EU is not going to give the UK effective membership of the Customs Union and Single market, without taking on the other conditions that come with it.  But, secondly, as Trump has pointed out now, the US is not going to do a trade deal with a Britain that is also covered by the restrictions, rules and regulations of the Single Market, because the US has its own competing sets of restrictions rules and regulations that it seeks to impose on its trading partners, so as to maximise US advantage in those relations.  Some other, more subtle bourgeois politician would not have simply stated that openly.  Trump is invaluable in that respect, because his lies are so palpably ridiculous that they simply bring forth scorn, and discredit on the capitalist system upon which Trump sits atop, and his stupidity leads him, when he does speak openly, to expose all of that nasty underbelly of capitalist self-serving, and immorality that the bourgeoisie would rather have remained hidden. 

Theories of Surplus Value, Part III, Chapter 19 - Part 24

8. Malthus on Productive Labour and Accumulation 

[a)] Productive and Unproductive Labour 

Marx cites a number of definitions of productive and unproductive labour and consumption, provided by Malthus. 

“… Revenue […] is expended with a view to immediate support and enjoyment, and […] capital […] is expended with a view to profit” (op. cit., p. 86). 

A labourer and a menial servant are “two instruments […] used for purposes distinctly different, one to assist in obtaining wealth, the other to assist in consuming it” (op. cit., p. 94). 

The following is a good definition of the productive labourer. 

The productive labourer directly “increases his master’s wealth” (Principles of Political Economy, [second ed., London, 1836], p. 47, note). 

In addition the following passage should be noted. 

“The only productive consumption, properly so called, is the consumption or destruction of wealth by capitalists with a view to reproduction… The workman whom the capitalist employs certainly consumes that part of his wages which he does not save, as revenue, with a view to subsistence and enjoyment; and not as capital, with a view to production. He is a productive consumer to the person who employs him and to the state, but not, strictly speaking to himself” (Definitions, ed. by Cazenove, p. 30).” (p 34-5) 

[b)] Accumulation 

The following quotes by Malthus relating to accumulation are given by Marx. 

““No political economist of the present day can by saving mean mere hoarding; and beyond this contracted and inefficient proceeding, no use of the term in reference to the national wealth can well be imagined, but that which must arise from a different application of what is saved, founded upon a real distinction between the different kinds of labour maintained by it” (Principles of Political Economy, [London, 1836,] pp. 38-39). 

“Accumulation of Capital. The employment of a portion of revenue as capital. Capital may therefore increase without an increase of stock or wealth” (Definitions, ed. by Cazenove, p. 11). 

“Prudential habits with regard to marriage carried to a considerable extent, among the labouring classes of a country mainly depending upon manufactures and commerce, might injure it” (Principles of Political Economy, [London, 1836,] p. 215).” (p 35) 

In this next quote, Malthus reveals why he thinks that workers are led to engage in the production of luxuries consumed by other classes. 

““It is the want of necessaries which mainly stimulates the labouring classes to produce luxuries; and were this stimulus removed or greatly weakened, so that the necessaries of life could be obtained with very little labour, instead of more time being devoted to the production of conveniences, there is every reason to think that less time would be so devoted” (op. cit., p. 334).” (p 35) 

Malthus, the high priest of the theory of overpopulation, however, slips into a Smithian view of capital expanding faster than the working population. 

““… from the nature of a population, an increase of labourers cannot be brought into the market, in consequence of a particular demand, till after the lapse of sixteen or eighteen years, and the conversion of revenue into capital by saving, may take place much more rapidly; a country is always liable to an increase in the quantity of the funds for the maintenance of labour faster than the increase of population” (op. cit., pp. 319-20).” (p 35) 

Marx cites a note from Cazenove, the editor of Malthus' Definitions, who rightly says, 

““When capital is employed in advancing to the workman his wages, it adds nothing to the funds for the maintenance of labour, but simply consists in the application of a certain portion of […] funds already in existence, to the purposes of production” (Definitions, ed. by Cazenove, p. 22, note).” (p 36) 

Back To Part 23

Forward To Part 25

Interpreting US Profits (10) - The Illusion of Profit, Historic Prices, Depreciation and Wear and Tear

The Illusion of Profit, Historic Prices, Depreciation and Wear and Tear 

It is clear in these examples, and from what Marx says elsewhere, that he believes that the calculation based upon the current reproduction cost, is the correct basis for calculating the rate of profit, and not the historic cost, because he assumes that capitalist production is continuous and ongoing, rather than that every capitalist ceases production, and liquidates their capital at the end of each year! The basis for the circuit of the advanced capital, which determines the period of turnover, and for the calculation of the rate of profit is P...C`-M`. M – C...P. As Marx puts it, 

“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) 

It is expressed in Marx's expanded formula for the circuit of industrial capital.

Note Marx's terminology here. Firstly he begins by making clear that what he is talking about is “the advanced productive capital”. To make clear it is not the advance of the money-capital which metamorphoses into productive capital, that Marx is talking of. He then says that what he is doing is only to “fix all its elements in the money-form”. Finally, to make clear that his analysis here is one based on the actual capital-value advanced, i.e. the value/current reproduction cost of the commodities that comprise the elements of the productive capital, and not on the money-capital advanced, he makes clear that the use of money here, is merely a convenience of calculation, and that he is using it essentially only in its role as “money of account”.

The reason for this, as Marx sets out is that the commodities that constitute the productive-capital engaged in the productive process "P" are use values, for example 100 kilos of yarn, and 10 hours of labour-power, whereas the commodities that result from this productive process C`, are totally different use values, for example, 10 metres of linen.  There is no rational means of expressing the expansion in value of the latter in terms of the former, because it is like comparing apples and oranges.  Similarly, the final C (L + MP) is merely the physical replacement of C, the yarn, and labour-power consumed in the prior productive process, but this cannot be rationally compared with the 10 metres of linen, which is metamorphosed into it.  It's only by reducing these use values down to their common feature as values, and thereby down to their monetary equivalents, measured at current values, i.e. their current reproduction cost - so as to remove any distortion in the expansion of the capital due to changes in prices/values from outside the labour process - that the real expansion of capital, arising from the production of surplus value, can be measured.

Marx makes clear that the situation described in Parts 8 and 9, whereby a fall in the value of the constant capital results in a release of capital, and rise in the rate of profit, does not just apply to those situations where, as with the farmer, the constant capital, or a part of it, is reproduced, in kind, out of the capitalist's own production. It applies to every such fall in the value of constant capital, and, in a similar way, to falls in the value of variable-capital, as described in Capital III, Chapter 6. He describes the situation of a producer of cotton goods, the same as that described in Capital III, Chapter 6, where Marx gives further such examples, of where an appreciation of capital causes a tie-up of capital, and depreciation of capital causes a release of capital. 

The cotton goods producer lays out £80 for cotton twist and £20 for other capital, and makes £20 profit. The product sells for £120. Having sold the cotton goods, the price of cotton falls, so that he now only needs to spend £40 on cotton, and £20 on other capital. His profit remains £20. It now represents 33.3% rather than 20%. £40 of capital has been released, as revenue, which can be consumed or accumulated. But, if we assume that the value of cotton falls, prior to him selling his output, the value of his output also, thereby falls by £40, so he does not obtain this release of £40 of capital, but he does still obtain the second effect of the rise in his rate of profit. In other words, the value of his output would fall by £40, to £80. But, the value of the capital laid-out is calculated on its current reproduction cost of £60, and not its historic cost of £100. So, his rate of profit is still 33.3% up from the initial 20%. 

Marx says, of the £40 of capital released as revenue, due to the fall in the value of cotton, 

“If he invests it, he will lay out [an additional] £26⅔ on cotton and £13⅓ on labour, etc., on the new scale. The profit [will amount to] £13⅓ The total product will now be 60+40+33⅓, or £133⅓.” 

(Theories of Surplus Value, Chapter 22) 

The situation also becomes clear, Marx says, if we consider the situation of a new producer, who faces the current reproduction costs of the capital. In the case of the farmer, they use 20 kilos of seed, plus 40 kilos to cover other constant capital, plus 40 kilos to cover wages, or, in money terms, £100 in total. 

“Formerly he needed £120 to enter the business: £40 to buy 20 quarters of seeds, £40 to buy the other ingredients of constant capital, and £40 to pay wages. And his profit was £80. 80 on 120 is equal to 8 on 12, or 2 on 3, or 66⅔per cent. 

He now has to advance £20 to buy 20 quarters of seed, £40 as previously [to buy the other elements of constant capital], £40 to pay wages, so that his outlay of capital amounts to £100. His profit is [£]80, that is, 80 per cent. The amount of profit has remained the same, but the rate of profit has increased by 20 per cent. Thus one can see that the fall in the value of seed (or of the price which has to be paid to replace the seed) has in itself nothing to do with the increase in [the amount of] profit, but implies merely an increase in the rate of profit.” 

(ibid) 

And, this also demonstrates that even where an individual capitalist does liquidate all of their capital, and cease trading, thereby selling also their seed corn, this does not change the situation for the actual capital itself. If our first farmer sold up, then individually they would not obtain the release of capital from the fall in the value of seed, and their rate of profit would also fall accordingly, in relation to the money prices paid out for their capital. That is the other exceptional case discussed by Marx, where the circuit of capital is M – C … P … C` - M`, rather than its normal circuit P … C` - M`. M – C … P, i.e., 

“... it is the form of capital that is newly invested, either as capital recently accumulated in the form of money, or as some old capital which is entirely transformed into money for the purpose of transfer from one branch of industry to another.” 

(Capital II, Chapter I) 

But, their loss in this respect is the new farmer's gain. The new farmer who buys the farm, and all of its productive-capital, from them, does so at these current values, and their rate of profit is accordingly 80%. If we view things in terms of the actual capital, rather than from the subjective perspective of the two capitalists, one selling up, and the other employing newly invested money-capital, nothing has changed, so that its circuit continues to be P … C` – M`.M – C ... P. In other words, the value of the productive-capital, as it continues in operation, is equal to £20, not £40, but this £20 represents 20 kilos of seed, whereas previously it would have represented only 10 kilos. The old farmer suffers a capital loss equal to £20, but the new farmer obtains a capital gain of £20, i.e. £20 of their money-capital now buys twice as much grain as previously, releasing for them this £20 of capital, and, at the same time, providing them with a correspondingly higher rate of profit than when the price of seed was £40. This is the situation, in general, with capital gains and losses. A capital gain for one is cancelled by an equal capital loss for someone else. That is Marx's basis for his statement that falls in the prices of shares, bonds, property etc. have no necessary consequence for the real economy, because they represent merely a transfer of wealth out of the hands of one group of speculators into the hands of another. 

Marx then goes on to show that the same thing applies to the depreciation in the value of machinery and other fixed capital, whether that depreciation arises from a rise in productivity, in its production, that reduces the value also of the existing machines, in the same way that a fall in the value of cotton causes the value of cotton goods, cotton held in stock, to also be retroactively reduced in value, or whether it arises from moral depreciation, as technological development means that the new machinery is more productive than that it replaces. 

Again, Marx's use of this depreciated value of fixed capital evidences his use of current reproduction costs, rather than historic prices, as the basis for calculating the rate of profit. Marx illustrates that in Theories of Surplus Value, Chapter 23, where he shows that the rate of profit rises, each year, where the current value of fixed capital falls, each year, due to wear and tear. This is one means by which producers offset loss of competitiveness against new producers who enter production with new fixed capital with a lower value, or greater degree of productivity.  This also illustrates the difference between wear and tear and depreciation.  The value of the former is recovered in the value of output, the value of the latter is not.

He takes the example of a coal producer with a capital of £100, divided £50 of fixed capital, and £50 of variable-capital, producing £50 of profit. The rate of profit is then 50%. But, the fixed capital loses 10%, or £5, each year in wear and tear, so that in Year 2, the capital is £95, and the £50 profit now represents a rate of profit of 52.63%. 

“The rate of profit would have risen, because the value of the fixed capital would have declined by one tenth as a result of wear and tear during the first year. Thus there can be no doubt that in the case of all capitals employing a great deal of fixed capital—provided the scale of production remains unchanged—the rate of profit must rise in proportion as the value of the machinery, the fixed capital, declines annually, because wear and tear has already been taken into account. If the coal producer sells his coal at the same price throughout the ten years, then his rate of profit must be higher in the second year than it was in the first and so forth.” 

(Theories of Surplus Value, Chapter 23) 

But, as well as capital losing value due to wear and tear, which is transferred to, and thereby reproduced in, the value of output, it also loses value due to depreciation, which is not transferred to or recovered in the value of output. The depreciation can come from a simple physical depreciation of the capital (extreme examples being damage from fire, flood or other aspects of Nature, or vandalism etc., or simple passage of time) or from a reduction in the current labour-time required for its reproduction, or from the introduction of some new technology that makes existing machines outdated, and thereby devalues them via moral depreciation.

Suppose a new coal producer enters production with a new more efficient machine. If it is twice as efficient as the original machine, it will cause the value of the original machine to halve. The consequence then depends, obviously, on the age of the original machine, and how much of its original value has already been written down, and recovered as wear and tear, in the value of its output. If its Year 1, its value has fallen from £50 to £45, due to wear and tear, but moral depreciation would reduce its value to £25. The actual loss from depreciation is thereby reduced from £25 to £20. If the machine is 5 years old, its value has already been written down by £25 of wear and tear, during that period, so when the new machine is introduced, this has little effect on its current value. If its Year 10, all of its original value has been recovered in wear and tear, the coal producer, has an amortisation fund of £50, with which he can now replace the old machine with its new, more efficient alternative. He will have suffered no capital loss due to depreciation. The annual reduction in the value of fixed capital from wear and tear, means that producers using this older fixed capital can enjoy a rising rate of profit, based on its current value, or, in order to remain competitive with other producers, using newer lower value fixed capital, they can reduce their selling price, and thereby forego the higher rate of profit. 

“This extra profit may be equalised also as a result of the fact that—apart from wear and tear—the value of fixed capital falls in the course of time, because it has to compete with new, more recently invented, better machinery. On the other hand this rising rate of profit, which results naturally from wear and tear, makes it possible for the declining value of the fixed capital to compete with newer, better machinery, the full value of which has still to be taken into account. Finally, the coal producer sold his coal more cheaply [at the end of the second year], on the basis of the following calculation: 50 on 100 means 50 per cent profit, 50 per cent on 95 comes to 47½; if therefore he sold the same quantity of coal [not for 105 but] for 102½ —then he would have sold it more cheaply than the man whose machinery, for example, began to operate only in the current year. Large installations of fixed capital presuppose possession of large amounts of capital. And since these big owners of capital dominate the market, it appears that only for this reason their enterprises yield surplus profit (rent).” 

(ibid) 

In Capital III, Chapter 6, Marx also demonstrates the effect of cheapening of variable-capital, both in releasing capital, and in raising the rate of profit. But, he also shows that it raises the rate of surplus value, and thereby raises the rate of profit for this second reason too. 

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Theories of Surplus Value, Part III, Chapter 19 - Part 23

The value of a commodity is not a function of the value of the labour-power used in its production, but merely the quantity of labour-time. The amount and rate of surplus value are a function of the relation of the value of labour-power to the new value created, i.e. to the quantity of labour-time expended. 

“The concept of relative wages is one of Ricardo’s greatest contributions. It consists in this—that the value of the wages (and consequently of the profit) depends absolutely on the proportion of that part of the working-day during which the worker works for himself (producing or reproducing his wage) to that part of his time which belongs to the capitalist. This is important economically, in fact it is only another way of expressing the real theory of surplus-value. It is important further in regard to the social relationship between the two classes.” (p 33-4) 

But, Malthus objects to this idea that wages should be considered as in any way relative, or a proportion of something. He writes, 

““No writer that I have met with, anterior to Mr. Ricardo, ever used the term wages, or real wages, as implying proportions.”” (p 34) 

Malthus has no problem with the idea that profits are relative, because it is consistent with his notion of a rate of profit, though he can never explain exactly what profits are proportional to. He says, 

““Profits, indeed, imply proportions; and the rate of profits has always justly been estimated by a percentage upon the value of the advances.”” (p 34) 

But, as Marx points out, 

“According to him, the value of a commodity is equal to the advances contained in it plus profit. Since the advances, apart from the immediate labour, also consist of commodities, the value of the advances is equal to the advances in them plus profit. Profit thus equals profit upon the advances plus profit. And so on, ad infinitum.” (p 34) 

And, Malthus' own definition of wages then also contradicts his definition of the value of commodities being equal to wages, because he says, 

““But wages had uniformly been considered as rising or falling, not according to any proportion which they might bear to the whole produce obtained by a certain quantity of labour, but by the greater or smaller quantity of any particular produce received by the labourer, or by the greater or smaller power which such produce would convey, of commanding the necessaries and conveniences of life” (Definitions etc., London, 1827, pp. 29-30).” (p 34) 

The immediate aim of capitalist production is the increase in exchange-value of the capital advanced. In that case, says Marx, its important to know how to measure it. It's also clear here that, for Marx, the capital advanced is the productive-capital, not the money-capital. He makes this clear elsewhere, in discussing the turnover of the productive-capital, where he says clearly that money values only signify the use of money as unit of account, a money equivalent of the actual capital values, required in order to perform rational calculations. 

“Since the production of exchange-value—the increase of exchange-value—is the immediate aim of capitalist production, it is important [to know] how to measure it. Since the value of the capital advanced is expressed in money (real money or money of account), the rate of increase is measured by the amount of capital itself, and a capital (a sum of money) of a certain size—100—is taken as a standard.” (p 34) 

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