## Sunday, 23 December 2018

### Theories of Surplus Value, Part III, Chapter 20 - Part 2

Referring to the fact that capitals of equal size produce equal profits, Marx notes,

“They can only do this inasmuch as the commodities they produce—although they are not sold at equal prices (one can, however, say that their output has equal prices provided the value of that part of constant capital which is not consumed is added to the product)—yield the same surplus-value, the same surplus of price over the price of the capital outlay.” (p 69-70)

In other words, individual commodities do not sell at the same prices of production, because different commodities are produced in widely different quantities. A car does not sell for the same price as a bar of chocolate, for example, because the amount of capital required to produce a car will produce thousands of chocolate bars, so the price of each individual bar of chocolate is correspondingly smaller. However, say £10,000 of capital is required to produce a car, and the annual rate of profit is 50%, so the car sells at £15,000, then assuming that everything, including the rate of turnover of capital remains the same, the same £10,000 of capital might produce 100,000 chocolate bars, and if this capital produces the same 50% annual rate of profit, then the total value of the output of chocolate bars will also be £15,000, with each bar selling for £0.15.

But, Marx, in the above quote, also notes that some of the capital involved in this production is fixed capital, which does not enter into the actual cost of production directly, in the way that the cost of materials or wages does. It only enters it piecemeal, via the wear and tear. Yet, the owner of this capital will require the average rate of profit on all the capital they advance, not just on that which is laid out, and which forms their immediate cost of production. If £2,000 of the £10,000 of capital, above, in car production, consisted of fixed capital, which loses 10% p.a. in wear and tear, his capital would still need to produce £5,000 of profit in order to return the 50% average rate of profit. However, now the cost of production of a car, i.e. the capital laid out for its production, as opposed to advanced for production, is £8,000 plus £200 wear and tear, plus £5,000 profit equals a price of production of £13,200.

In terms of the rate of profit, i.e. the profit margin, as opposed to the annual rate of profit, it is measured against the cost of production, or laid-out capital, not the advanced capital. Where the annual rate of profit is 50%, the rate of profit, or profit margin is, 61%. This demonstrates the difference between the rate of profit/profit margin, and the annual rate of profit, which is the basis of the average or general rate of profit, and the role of the rate of turnover of capital, in its determination, and the determination of prices of production. Ricardo also notes the effect of fixed capital and the rate of turnover, which he seizes on to try to reconcile the law of value with the average rate of profit. In so doing, he also hits upon the role of the organic composition of capital, but does not do so in relation to constant and variable-capital, but only in terms of fixed and circulating capital.

“Ricardo moreover is the first to draw attention to the fact that capitals of equal size are by no means of equal organic composition. The difference in this composition he defined in the way traditional since Adam Smith, namely as circulating and fixed capital, that is, he saw only the differences arising from the process of circulation.” (p 70)

But, Ricardo does not draw the obvious conclusion that where capitals of different organic composition produce commodities of different values, because they contain different amounts of surplus value, and yet sell these commodities at the same price, because they obtain the same amount of profit, this is a contradiction of the law of value.

“On the contrary he begins his investigation of value by assuming capital and a general rate of profit. He identifies cost-price with value from the very outset, and does not see that from the very start this assumption is a prima facie contradiction of the law of value.” (p 70)

Ricardo only approaches this question indirectly, in considering the effect of changes in wages in relation to businesses that use a lot of fixed, relative to circulating, capital. In Capital III, Marx shows that a general rise in wages results in a general fall in profit, and so a fall in the general annual rate of profit. The price of production is equal to the cost of production (k), or (c + v plus wear and tear of fixed capital) plus the average profit (p). For commodities produced using the average composition their price of production is equal to their exchange-value, because the surplus value they produce is equal to their share of total profit. If wages rise, this has no effect on their price of production, because v, and so (c + v) rises by the same amount that p falls. For capitals of higher than average organic composition, the effect is to cause a fall in their price of production. They employ relatively little labour, and so a rise in v causes c + v to rise by a smaller amount than the fall in p, caused by the fall in the general rate of profit. For capitals of lower than average composition, the opposite is the case.

The means by which this change in the price of production is effected is via, a reallocation of capital. A general rise in wages causes the actual rate of profit in those spheres with a higher than average organic composition to rise above that average, so that capital moves out of the (generally) smaller capitals with a lower organic composition, and into the (generally) larger capitals, with a higher organic composition of capital. It reduces the supply of the former commodities, causing their prices to rise, up to their new price of production, and increases the supply of the latter, so that their prices fall to their new price of production. It generally means that the latter also thereby appropriate larger masses of capital. This is one means by which the general progress of capital, brings about a greater concentration and centralisation of capital, and why the main opposition to a higher general level of wages is to be found amongst the small capitalists, rather than the big capitalists.