The fact that a release of capital, resulting from a fall in the value of constant capital, results in capital being converted into revenue, gives the illusion that additional profit has arisen without any change in surplus value. The opposite occurs when the value of constant capital rises. This caused confusion for Ramsay, who conflated this release or tie-up of capital with the rise or fall in the rate of profit itself. As set out, the rate of profit does rise where the value of constant capital falls, and vice versa, but this has nothing to do with the apparent rise or fall in the mass of profit resulting from the release or tie-up of capital.
Where capital is released, as a result of a fall in the value of the commodities that comprise constant capital, this capital can be used as revenue, or it can be accumulated, or thrown into the money market, where it can be used to accumulate capital in some other sphere. If we take the example of the farmer whose output rose from 100 tons to 200 tons, they required 20 tons to replace seed, 20 tons to cover other constant capital, and 20 tons to pay wages, leaving a surplus of 40 tons. Now, with the value of corn halved, they require 40 tons to pay for constant capital, 40 tons to pay for wages, and 20 tons still to be reproduced as seed. That leaves a surplus of 100 tons, with a value of £100, whereas previously the surplus was 40 tons with a value of £80.
So, £20 of capital, equal to 20 tons has been released. A proportion of this 20 tons can be planted as seed (4 tons), with the rest being sold, which provides £16, which is divided £8 for additional constant capital and £8 for additional wages. Alternatively, the whole 20 tons could be sold, producing revenue of £20. The farmer might simply spend this £20, or invest it in some other line of business, or save it in the bank, settling for interest on it, and for use in some future year when the harvest is poor, and they require additional capital to buy seed, or they might use it unproductively for financial speculation, or gambling in some other form at the casino or race track..
This is separate from the question of the rise in the rate of profit arising from the fall in the value of the seed, or, in the case of the manufacturer, of cotton. Marx sets out an example to demonstrate this, which is most easily seen, he says, if we take the situation of a new capital entering production. In this case, the issue of the release of capital does not arise. They take the price of the components of productive-capital as they first find them.
Previously, a farmer required £120 of capital to enter the business. They needed £40 to buy 20 tons of seed, £40 to buy fertiliser, and £40 to pay wages. Now they only need £100, because the price of seed has fallen, and requires only £20 to buy it. Originally, the profit amounted to £80, which is equal to a rate of profit of 66.6%. Now the profit is still £80, but represents a rate of profit of 80%. Again, here, Marx makes clear that the rate of profit must be calculated on the basis of the current reproduction cost of the seed, and not its historic price. That is because what is determinant is the current cost of physically replacing the seed consumed in the production that produces the profit.
“The amount of profit has remained the same, but the rate of profit has increased by 20 per cent. Thus one can see that the fall in the value of seed (or of the price which has to be paid to replace the seed) has in itself nothing to do with the increase in [the amount of] profit, but implies merely an increase in the rate of profit.” (p 346)
As Marx says, the appearance of additional profit is merely an illusion resulting from the conversion of capital into revenue. But, even setting aside this “illusory” profit, the rate of profit itself actually does rise, precisely because the current reproduction cost of seed has fallen. The opposite would occur where the value of elements of constant capital rise.
“Moreover, the farmer in the one case—or the manufacturer in the other—will not consider that he has obtained a larger profit, but that a portion of the capital previously tied up in production has been freed. And his view will be based on the following simple calculation. Previously, the amount of capital advanced in production was £120; now it is £100, and £20 is now in the hands of the farmer as free capital, money which can be invested in any way he likes. But in either case the capital amounts to £120 only, its size has therefore not been increased. The fact, however, that a sixth of the capital has been divested of the form in which it is inseparable from the production process does indeed have the same effect as an additional investment of capital.” (p 346)
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