It is true, as Mill says, that,
““…if any portion of the profits which the last producer has to make good to previous producers can be economised, the cost of production of the article is diminished” [loc. cit., p. 102].” (p 194)
But, what Mill says, here, in respect of profits, applies equally to wages, because what Mill is really saying here is that there is a rise in productivity, which reduces the labour-time required for the production of the particular commodity. For example, if we discount the value of the constant capital, in the value of yarn, its value might be equal to 2 days labour (say for 100 kilos), and is divided into 1 day for wages and 1 day for profit. If it becomes possible to produce 100 kilos of yarn in 1 day, its value halves, and although this means that 100 kilos now only represents 0.5 days of profit, it equally contains only 0,5 days of wages, assuming there has been no change in the value of labour-power, or rate of surplus value.
Having argued that the rate of profit is calculated not only on wages, but also on the constant capital, and recognising that the value of the constant capital itself comprises profits and wages, Mill then says,
““It is, therefore […] true, that the rate of profits varies inversely as the cost of production of wages” [loc. cit., p. 103].” (p 195)
Marx comments,
“Although it is false, it is nevertheless true.” (p 195)
The argument that Mill then presents, in defence of this position, “can serve as a classical example of the way in which economists use illustrations, and it is all the more astonishing since its author has also written a book about the science of logic.” (p 195)
Marx gives a long quote from Mill, which sets out his argument. In the example that Mill provides, what he actually does is to assume away the problem. The problem, for Mill, in arguing that it is always changes in wages, and thereby the rate of surplus value, which affects the rate of profit, is the problem of constant capital. Mill has accepted that the rate of profit must be calculated not just on the variable capital (wages), but also on the constant capital (machinery, materials etc.). What Mill actually does, in his example, however, is to assume away the existence of this constant capital in production.
His example is this. He assumes that 60 agricultural workers are each paid 1 quarter ( I will use kilos) of corn as wages. So, v = 60 kilos. They use a further 60 kilos of corn as constant capital, in the shape of fixed capital and seed. So, c = 60 kilos. The output of these workers is 180 kilos, which represents a surplus product/profit of 60 kilos. So, we have c 60 + v 60 + s 60 = 180 kilos. The rate of surplus value is 100%, and rate of profit 50%. On the basis of this 50% rate of profit, Mill argues that the seed, tools and so on, that comprises the constant capital, with a value of 60 kilos of corn, must have been the product of 40 labourers paid 40 kilos of corn, as wages, producing a 50% rate of profit, i.e. 20 kilos, which then gives the 60 kilos value of c.
The problem here can immediately be seen. The 60 kilos of surplus corn represents a 50% surplus over the 120 kilos of capital in total advanced, but that 120 kilos comprises not just wages, but also constant capital. It represents a 100% surplus over what was advanced as wages. In defining the value of the 60 kilos of corn comprising constant capital (seeds, tools etc.) only as wages and profits, he fails to account for the fact that part of the its value is, in turn, attributable to seed, wood etc.
If we follow the example that Marx gave in Theories of Surplus Value, Part I, we might here argue that, if the composition of these other capitals were the same as for the corn producer, they too would comprise an equal amount of constant and variable capital, so that we would have:
c 20 + v 20 + s 20 = 60 kilos.
In that case, rather than 40 workers involved in the production of c, there would be only 20, paid 20 kilos of corn.
Mill argues that the 180 kilos, therefore, are the product of 100 workers – 60 employed in producing the 180 kilos, and 40 producing the constant capital consumed in its production.
Mill then says, assume that the 180 kilos can be produced without constant capital, i.e. without any seeds, manure or tools.. He assumes, however, that the 100 workers (60 v + 40 v) are still required, and paid 100 kilos of corn as wages. Consequently, he says, the 180 kilos can now be produced with the advance of only 100 kilos of corn, rather than the 120 kilos previously required. Mill says,
“The produce (180 quarters) is still the result of the same quantity of 1abour as before […], the labour of 100 men.” (p 195)
But, of course, it isn't, because he has assumed away the value of the labour contained in the constant capital, which he says is no longer required. In other words, the value of the seeds, tools etc. was 60 kilos. Mill assumed that comprised 40 kilos for wages and 20 kilos for profit, whereas it actually comprised 20 kilos for constant capital, 20 kilos for wages, and 20 kilos for profit. If we were, in turn, to examine this 20 kilos of constant capital, it would comprise 6.66 kilos for constant capital, 6.66 kilos for wages, and 6.66 kilos of profit, and so on.
Mill assumes that the reduction in the value of a kilo of corn is attributable to a reduction in the amount of profit, because he assumes that the amount of labour and wages remains constant. But, of course, the actual reduction in the cost of production from 120 kilos to 100 kilos is a direct result of the fact that Mill has assumed away the value of seeds and tools, and the labour required for their production. Mill equates here the revenue profit with the value of constant capital, reproduced in the value of the commodity, and replaced, in kind, out of current production.
Mill also demonstrates his confusion, in relation to both value and use value, and in relation to labour and labour-power; i.e. in relation to the value of labour-power and the value created by labour. So, he says,
““Assuming, therefore, that the labourer is paid in the very article he produces, it is evident that, when any saving of expense takes place in the production of that article, if the labourer still receives the same cost of production as before, he must receive an increased quantity, in the very same ratio in which the productive power of capital has been increased.”” (p 196)
But, clearly, this is not true. The value of labour-power is determined by the quantity of use values that the worker must consume to reproduce their labour-power, and by the value of those use values. The quantity of use values the worker must consume does not vary according to the value of those use values, because it is a physiologically, culturally, and historically determined minimum. If the value of corn falls, due to a rise in productivity, that does not mean that workers must consume more corn, so as to consume the same value of corn. It means that the value of labour-power falls, so that the amount of surplus value rises.
Mill continues,
““But, if so, the outlay of the capitalist will bear exactly the same proportion to the return as it did before; and profits will not rise. The variations, therefore, in the rate of profits, and those in the cost of production of wages, go hand in hand, and are inseparable. Mr. Ricardo’s principle […] is strictly true, if by low wages be meant not merely wages which are the produce of a smaller quantity of labour, but wages which are produced at less cost, reckoning labour and previous profits together” (loc. cit., p.104).” (p 196)
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