The idea that capitalist production ceases at the end of each discrete circuit is itself absurd. Even if individual capitalists sell up to retire, their productive-capital is bought up by other capitals, and production continues. As Marx demonstrates, in Capital III, Chapter 6, and in the next chapter, here, contrary to the arguments of the proponents of historic pricing, if the value of constant capital falls, the rate of profit rises. The released capital creates the illusion of an increased amount of profit, only in so far as capital is converted into revenue. It can only result in an actual increase in the mass of profit, as opposed to rate of profit, if the released capital is then used to expand production, to employ additional labour, and thereby create additional surplus value.
And, if the value of variable-capital falls (because the value of wage goods falls) that raises the rate of profit because less capital is advanced, but it also increases the mass of surplus value, because the rate of surplus value rises. Moreover, if the released variable-capital is used to expand output, it increases the mass of surplus value, because it means that more labour is employed, and so produces more surplus value.
If capital is released, either constant or variable, but is not used to expand output, the mass of profit does not increase. The illusion is created that it does, only because capital is converted into revenue. In other words, an amount of money-capital that would have been needed to metamorphose into productive-capital is released, and is instead used as money revenue – i.e. to fund unproductive consumption.
For the owners of money-capital, this appears as a capital gain, because £10 now buys more means of production than it did before, whereas, for the owners of elements of productive-capital, whose value has fallen, it appears as a capital loss. The two cancel out. In neither case does it increase or reduce the mass of profit.
As Marx sets out in Capital II, the circuit of industrial capital is not M – C … P … C` - M`, but P … C` - M`. M – C … P. The former is only the circuit of newly invested money-capital, or, as Marx describes, capital that is leaving production, and so where the productive-capital does not have to be reproduced. The failure to make this distinction, and so to recognise the significance of the physical reproduction of the productive-capital, on the basis of a like for like replacement, at current reproduction costs, is what leads to the errors of Ramsay, and to the proponents of historical pricing.
“The whole part of the annual product which, as variable capital, constitutes the revenue of the workers and as surplus product constitutes the consumption fund of the capitalist, therefore consists of newly added labour, whereas the remaining part of the product, which represents constant capital, consists merely of old labour which has been retained and simply replaces constant capital.
Consequently, just as it is correct to say that the whole portion of the annual product which is consumed as revenue, wages and profits (together with the branches of profit, rent, interest, etc., as well as the wages of the unproductive labourers) consists of newly added labour, so it is false to assert that the total annual product resolves itself into revenue, wages and profits and thus merely into portions of newly added labour. A part of the annual product resolves itself into constant capital, which regarded as value does not comprise newly added labour and, as regards use does not form part of either wages or profits. Its value represents accumulated labour in the real sense of the word, and its use-value, the utilisation of this accumulated past labour.” (p 249-50)
Marx also notes that not all of the new value created by labour is represented by wages and profits either. A tailor who repairs clothes receives neither wages nor profits. They are paid for the labour they provide as a service, by those for whom they provide this service. For example, a worker who has their trousers mended, pays for it out of their own wages. The tailor creates new value by their labour, in repairing the trousers, but that new value is not represented in either wages or profit. The same is true in relation to the service provided by a prostitute, a singer, actor, or a private tutor, all of whom create new value by their labour, but who do not receive wages nor profit for having done so.
“For these wages and profits also buy services, that is, labour which does not enter into the product of which wages and profit form [a part]. These services are labour which is used up in the consumption of the product and does not enter into its immediate production.” (p 250)
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