Smith understood that these factors, such as land and capital contributed no new value. He realised that the surplus value is created in production, by labour, and is merely the excess of labour undertaken above what is required to reproduce the employed labour-power. “Capital” did not create any new value or surplus value, it is only that its ownership, in the hands of capitalists, enables them to appropriate the surplus value produced by the labourer. It is able to do this, Smith says, because the labourer must have access to this capital to work. The capital is scarce, so has a high price, whereas labour is abundant, and so is sold at a price below its value.
“Capital, insofar as it is considered in the production process, still continues to a certain extent to be regarded as an instrument for acquiring the labour of others. This may be treated as “right” or “wrong”, as justified or not justified, but here the relation of the capitalist to the worker is always presupposed and assumed.” (p 454)
Smith assumed that capital would accumulate faster than the labour supply, so the price of capital would fall, relative to labour, i.e. the rate of profit would be squeezed until profits ceased to exist. Ricardo, on the basis of a more developed capitalism, saw that the labour supply could be increased to meet the needs of capital accumulation, and that machines could be introduced to replace labour. By the time of the vulgar economists, it appears natural that labour must be employed by capital.
In addition to productive-capital, the other form of capital that is confronted is commercial capital. The worker confronts the industrial capitalist in the labour process, and the commercial capitalist in the circulation process. But, in the latter case, in reality, the worker as consumer confronts the commercial capitalist in the same way as any other consumer, and the commercial capitalist confronts all consumers not as a capitalist, but as merely the owner of commodities for sale. That is not the case where the wage-worker confronts the industrial capitalist.
The worker, as with any consumer, is the owner of money, which they can use to buy commodities, and they can buy whichever commodities they want from any seller, with that money. Competition between sellers means that these commodities are sold at their exchange value/price of production. But, the worker must sell their labour-power to the industrial capitalist, in order to live. The capitalist confronts them not as the owner of commodities, but the owner of capital, and this capital only acts as capital if it gets something for nothing. In other words, the condition for the worker being able to work is that they provide the owner of capital with unpaid labour.
Yet, although it is actually here, in the sphere of production, that the surplus value is created and appropriated, by capital, the appearance is that it is in the realm of exchange that this profit arises, by some kind of unequal exchange, of buying low and selling high.
“Capital, insofar as it appears in the circulation process, confronts the ordinary observer mainly in the form of merchant capital, that is, a kind of capital which is engaged only in this operation, hence profit in this field is in part linked with a vague notion of general swindling, or more specifically, with the idea that the merchant swindles the industrial capitalist in the same way as the industrial capitalist swindles the worker, or again that the merchant swindles the consumer, just as the producers swindle one another. In any case, profit here is explained as a result of exchange, that is, as arising from a social relation and not from a thing.” (p 454)
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