As described earlier, one reason for viewing the production cost of a commodity as being what it costs society, as opposed to what it costs the capitalist, is that, unless the capitalist obtains the average profit, they will not produce it, and so it will not be brought to market. For each commodity, its production costs to society are the labour required to produce the means of production consumed in its production, plus the immediate labour.
“This is the pre-condition for its emergence out of the process of production as a product, as a commodity and even as a use-value. And no matter how profit and wages may vary, these immanent production costs of the commodity remain the same so long as the technological conditions of the real labour process remain the same, or, what amounts to the same thing, as long as there is no variation in the existing development of labour productivity. In this sense, the production costs of a commodity are equal to its value. The living labour expended upon the commodity and the living labour paid by the capitalist are two different things. From the outset, therefore, the production costs of a commodity to the capitalist (his advances) differ from the production costs of the commodity itself, its value.” (p 80-1)
And, this remains true, under capitalism, where commodities exchange at their price of production, rather than their exchange-value. That is why the Law of Value, in its more fundamental definition, continues to operate under capitalism, even though, in its more restricted sense, of commodities exchanging in proportion to their values, (used by Engels in his Supplement to Capital III), it does not. Unless it remains the case that the law of value determines the value of products, and thence commodities, it is impossible to derive either exchange-values of commodities, or prices of production.
“Further, it is clear that whatever the relation between the value and the cost-price of a commodity, the latter will always change, rise or fall, in accordance with the changes of value, that is to say, the quantity of labour required for the production of the commodity. It is furthermore clear that part of the profit must always represent surplus-value, unpaid labour, embodied in the commodity itself, because, on the basis of capitalist production, every commodity contains more labour than has been paid by the capitalist putting that labour in motion.” (p 82)
But, as Marx illustrates in Capital III, when the phenomenon of prices is viewed in its superficial appearance, and through the reversing lens of competition, profit becomes completely separated from surplus value, and prices become separated from values.
“At the same time one perceives how economists who, on the one hand, observe the actual phenomena of competition and, on the other hand, do not understand the relationship between the law of value and the law of cost-price, resort to the fiction that capital, not labour, determines the value of commodities or rather that there is no such thing as value.” (p 83)
The surplus value, which is appropriated directly by the capitalist as profit, is also the source of interest for the money-lending capitalist, and rent for the landlord. But, these are also thereby seen as necessary expenses, or costs of production, just as the average profit is a cost of production that must be met before the commodity will be produced and brought to market. The productive-capitalist who uses his own capital, rather than borrowing money-capital, will still see the interest as a cost of production. In other words, if a capitalist borrows £1,000, to buy a machine, they will see the interest they pay, on the £1,000, as a cost of production. But, if they provide this capital themselves, they will still see the interest as a cost of production, because they will view it as though, had they loaned out this £1,000, they would have earned interest on it.
“At the same time, this reveals the significance of the distinction between the phenomena of production and of distribution. Profit, a phenomenon of distribution, is here simultaneously a phenomenon of production, a condition of production, a necessary constituent part of the process of production. How absurd it is, therefore, for John Stuart Mill and others to conceive bourgeois forms of production as absolute, but the bourgeois forms of distribution as historically relative, hence transitory.” (p 84)
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