But, the contradiction that Mill faces is obvious. Like Ricardo, Mill insists that exchange-value remains the locus around which the market price fluctuates, in response to short-term changes in supply and demand. The prices of these commodities appears to be higher, but, although this is obviously related to this extended production time, it contradicts the labour theory of value, because, during this time, no labour is being expended, so how can any additional value be created?
“Mill remarks that “time as such” (i.e. not labour-time, but simply time) produces nothing, consequently it does not produce “value”. How does this fit in with the law of value according to which capital, because it requires a longer time for its returns [to the manufacturer], yields, as Ricardo says, the same profit as capital which employs more immediate labour but returns more rapidly?” (p 85-6)
Mill's comment reads,
““… time does nothing. How then can it create value? Time is a mere abstract term. It is a word, a sound. And it is the very same logical absurdity, to talk of an abstract unit measuring value, and of time creating it” (Elements of Political Economy, second ed., London, 1824, p. 99).” (p 86)
And, of course, this is correct. Mill cannot resolve this contradiction, because the passage of time does create no additional value or surplus value. So long as the problem is viewed in terms of commodities exchanging according to their values, rather than their price of production, there is no solution. The commodities produced by capitals that turn over more slowly do not acquire more value, or surplus value, as a consequence merely of this passage of time. They sell at higher prices, because, unless they do so, then, in terms of the annual rate of profit, they would make less than the average.
In that case, capital would leave these spheres and move into the production of other commodities, where the rate of turnover of capital is higher than the average, and where, therefore, the annual rate of profit is higher. It is because capital leaves the former areas (or, in reality, accumulates in them more slowly) that supply in these areas falls (does not rise proportionately to demand) so that prices rise, until they reach a level where capitals employed there obtain the average annual rate of profit. And, in those areas where turnover is faster than the average, the opposite is true. Supply, in these areas, rises, relative to demand, pushing down prices, until they reach the price of production, and only average annual rates of profit are enjoyed.
“If, however, it is to be explained directly from the law of value without any intermediate link, that is, if the profit which a particular capital yields in a particular branch of production is to be explained on the basis of the surplus-value contained in the commodities it produces, in other words on the basis of the unpaid labour (consequently also on the basis of the labour directly expended in the production of the commodities), this is a much more difficult problem to solve than that of squaring the circle, which can be solved algebraically. It is simply an attempt to present that which does not exist as in fact existing. But it is in this direct form that Mill seeks to solve the problem. Thus no solution of the matter is possible here, only a sophistic explaining away of the difficulty, that is, only scholasticism. Mill begins this process. In the case of an unscrupulous blockhead like McCulloch, this manner assumes a swaggering shamelessness.” (p 87)
And, because Ricardo's supporters simply tried to reconcile these contradictions within the confines of the theory, without recognising the need to challenge the fundamental flaws in the theory itself, they simply opened the door to those such as Malthus, Chalmers et al, and subsequently to the proponents of theories of subjective value, such as Bailey and the marginalists, to attack the labour theory of value itself.
Mill's solution is to treat these variations as essentially exceptions. He treats it as one of those cases where the capitalist has “grounds for compensating”, as discussed by Marx in Capital III, and in part in Capital II. In Capital II, Marx discusses situations in relation to the costs of circulation, for example. A farmer who must construct barns, or grain silos, in which to store produce, adds no value to that produce by doing so. However, if they do not build this storage, the produce will suffer depreciation, which represents a capital loss for the farmer, and a destruction of social wealth, for society. The produce will be depreciated as a result of being spoiled by exposure to the elements, or being eaten by vermin etc.
In order to avoid these greater costs, the farmer then builds the silos and storage. This adds nothing to value, but, if the farmer does not recover the cost, they will then make less than average profit. So, the price of their output recompenses them for this cost, which means that a transfer of surplus value from elsewhere arises to cover it. The expenditure on the barns etc. is like an insurance cost. The same is true where businesses, such as in shipping, have to take out higher than average amounts of insurance to cover losses from high risk activity. Again the insurance cost adds no value, but the price reflects this cost as valid grounds for compensation, so that capital involved in these spheres is still able to make average profits, despite bearing these additional expenses.
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