Ramsay, however, falls into confusion is his analysis, here, because, on the one hand, he calculates using historic prices, rather than current reproduction cost, and because he sees the aforementioned release of capital as itself a source of profit, whereas, as Marx shows, it is merely an illusion. This illusion arises because of a failure to analyse the process of social reproduction as one of continuity.
Ramsay says,
““… be the [amount of gross] return small or great, the quantity of it required for replacing what has been consumed in these different forms, can undergo no alteration whatsoever, This quantity must be considered as constant, so long as production is carried on on the same scale. Consequently, the larger the total return, the less must be the proportion of the whole which the farmer must set aside for the above purposes” (loc. cit., p. 166).
The more easily the farmer who produces food and raw materials such as flax, hemp, wood, can reproduce them, [the more] his profit will increase.
The farmer’s profit [increases] as a result of the increase in the quantity of his produce, the total value of which remains the same, but “a smaller proportion of this sum total, and consequently of its value, is required for restoring the various elements of fixed capital, with which the farmer can supply himself;” while the manufacturer would benefit because his product would have a greater purchasing power (loc. cit., pp. 166-67).” (p 339-40)
From what has already been said, it should be clear that this is correct in respect of only one part of the farmer's capital, and that is that part of their capital which they replace in kind from their own output. Marx sets out, in detail, why this is the case.
Assume that the harvest amounts to 100 tons, and seed corn is 20 tons. In the following year, with the same 20 tons of seed, and same quantity of labour, the harvest rises to 200 tons. The value of output, therefore, is the same in both cases. Let's say its money equivalent is £200. In that case, in the first year, the value of a ton of grain is £2, and falls to £1 in the second year. Because Marx is only focusing on the effect of a change in the value of constant capital, here, he says assume that the money wages are £40. In the first year, that was equal to 20 tons of grain, but in the second year, it is equal to 40 tons of grain, because the value of a ton has halved from £2 to £1. It could be considered that the workers are handed these 40 tons to sell, to obtain the wage goods they require, or, as is actually the case, that the farmer must now sell 40 tons of grain to obtain the £40 they need to pay the workers' wages.
Finally, Marx says, assume the farmer requires other elements of constant capital; we will identify that as fertiliser. Again, assume that this amounts to £40. In the first year, the farmer only had to sell 20 tons of grain to obtain the £40 required to buy fertiliser; now, with the price of grain halving to £1 per ton, they must sell 40 tons. So, the situation in the two years can be compared. In tons of corn, we have:-
Year
|
Output
|
Seed
|
Fertiliser
|
Wages
|
Profit
|
1
|
100
|
20
|
20
|
20
|
40
|
2
|
200
|
20
|
40
|
40
|
100
|
The money
equivalents are
Year
|
Output
|
Seed
|
Fertiliser
|
Wages
|
Profit
|
1
|
200
|
40
|
40
|
40
|
80
|
2
|
200
|
20
|
40
|
40
|
100
|
The money value of profit in Year 1 is £80 (40 tons), whereas, in Year 2 it is £100 (100 tons). So, it appears that, in Year 2, there is an additional profit of £20 (20 tons). Yet, the labour employed remains constant, as does the rate of surplus value, so that the same amount of surplus value is produced (£80). If the the value created by labour remains the same £120, thereby reproducing the £40 value of labour-power, and creating a surplus value of £80, where does the additional £20 of profit come from? It appears from this that labour is not the only source of new value and of profit after all, thereby destroying the labour theory of value! But, in fact, as Marx has previously demonstrated, this additional £20 of profit is an illusion. What it actually represents is a release of £20 of capital, which is thereby transformed into revenue. The origin of this £20 of released capital, can be seen by simply looking at the tables above. The additional £20 of profit is the other side of the fact that the value of seed has fallen from £40 to £20. £20 of capital that was previously required to replace, on a like for like basis, the 20 tons of seed corn, has now been released. This is due to the fact that the seed used as seed corn (20 tons), is the same seed, that results from the output.
Whereas, the fall in the unit value of corn from £2 per ton to £1 per ton, means that twice as much quantity of corn must be sold to cover the cost of Fertiliser and Wages, that is not the case for the seed itself. In other words, 20 tons of corn still buys 20 tons of corn as seed. The farmer does not need to take twice as much corn from their output to cover the replacement of seed, and that means that 20 tons of output (£20) is thereby released as capital, and is now available as revenue. It is the quantity of seed, as use value, that has to be replaced, not the value, i.e. not its historic cost. The historic cost of the seed, i.e. the price of the seed when it was planted, was £40, but to replace this 20 tons of seed, only the same 20 tons needs to be taken from current production, but the value of this 20 tons of seed, i.e. its current reproduction cost is now only £20. As Marx sets out, this creates the illusion that £20 of additional profit has been created, but it is only an illusion resulting from the release of capital. The actual surplus value produced, and the new value created remains exactly as it was before.
“Thus not [only] the rate of profit, but also the amount of profit, would have increased here, as a result of a change in the value of constant capital. Although wages remained the same in both 1 and 2, the ratio of profit to wages, that is, the rate of surplus-value, would have risen. But this is only an illusion.” (p 340)
The historic cost of the 20 tons of seed was £40, and is now only £20.
“Anyhow, the rise in the rate of profit is not due to the value remaining unchanged, as Ramsay supposes. Since one part of the labour expended, i.e., the part contained in the constant capital (in seeds in this case), has diminished, the value of the product falls if production continues on the same scale, just as the value of 100 lbs. of twist falls if the cotton it is made of becomes cheaper. But the ratio of variable to constant capital increases (without the value of the variable capital increasing). In other words, the ratio of the total capital outlay declines in relation to the surplus. Hence the rate of profit rises.” (p 342)
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