Mill gets confused, Marx says, between surplus value and profit, because he confuses the cost of producing surplus value, and the cost of producing profit. The former depends only on wages, whereas the latter depends on the total capital advanced. On the basis of Mill's argument, Marx says, it would take longer for a worker to reproduce their wages, if the materials they process are more expensive than if they are cheap. But, the necessary labour-time depends on the value of the commodities they consume, not the commodities they produce. The capitalists are concerned with their rate of profit, which is why they are concerned to minimise the value of their constant capital, which forms a growing proportion of the value of their output.
“This analysis shows the importance of the cheapness or dearness of raw materials for the industry which works them up (not to speak of the relative cheapening of machinery), even assuming that the market price is equal to the value of the commodity, that is, that the market price of the commodity falls in exactly the same ratio as do the raw materials embodied in it.” (p 221-2)
Marx also comments in a note,
“By relative cheapening of machinery, I mean that the absolute value of the amount of machinery employed increases, but that it does not increase in the same proportion as the mass and efficiency of the machinery.” (Note *, p 221)
Marx says that Torrens is, therefore, correct when he says,
“In relation “… to a country in the condition of England, the importance of a foreign market must be measured not by the quantity of finished goods which it receives, but by the quantity of the elements of reproduction which it returns” (R. Torrens, A Letter to [the Right Honourable] Sir Robert Peel […] on the Condition of England etc., second ed., London, 1843, p. 275).” (p 222)
In other words, Britain sought to obtain cheap raw materials and foodstuffs as imports, in return for the high value manufactured goods it exported. The cheaper it could obtain those inputs, required for the reproduction process, the higher its rate of profit, the greater its potential for expansion, because a given mass of profit, thereby accumulated a greater mass of the physical components of capital.
But, Torrens' explanation of this, Marx says, is wrong. Torrens' explanation is based on supply and demand. So, Torrens argues that a more rapid growth in Britain, which produces cotton goods, than in the US, which supplies it with cotton, would result in an increased demand for cotton, and rise in cotton prices, so that the price of cotton goods would fall, relative to cotton. Marx sets out another argument here, also described in Capital III, Chapter 6. That is that where demand for cotton rises, as here described by Torrens, the market price of cotton may indeed rise, but this is a rise in the market price, above its exchange value/price of production, as a result of supply failing to increase to match demand. Furthermore, the rise in the price of cotton may be such that the textile producer cannot pass it on, because to do so would severely depress demand for their own output. So, the manufacturer must absorb some or all of the rise in the cotton price, out of their own profits, so that a profits squeeze arises. In effect, the cotton grower, by selling cotton above its value, appropriates some of the surplus value of the textile manufacturer. The same thing occurs where monopoly producers are able to appropriate surplus profits.
“The demand for raw materials—raw cotton, for example—is regulated annually not only by the effective demand existing at a given moment, but by the average demand throughout the year, that is, not only by the demand from the mills that are working at the time, but by this demand increased by the number of mills which, experience shows, will start operating during the course of the coming year, that is, by the relative increase in the number of mills taking place during the year, or by the surplus demand corresponding to this relative increase.” (p 222-3)
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