It now appears that price is unrelated to value, or the labour required for production. Price is merely the expression of the production cost. That production cost now comprises the cost of the capital laid out for buildings, machines, materials and labour-power. It also comprises the rent that must be paid. Finally, it comprises the profit. Initially, the profit appears as the natural return to capital, just as rent is the natural return to land, and wages to labour. However, because capital, as loanable money capital can be advanced and obtain a return apparently divorced from the production process, it then appears that the return to capital is interest not profit. The more capitalist production is production by capitalists who borrow this money-capital, rather than using their own capital, the more this appears obviously to be the case. What the money-lending capitalist sell is the temporary use of their capital as capital; just as the landowner sells the temporary use of their land. The latter obtains rent, as the price of that use value, whereas the former obtains interest as the price of the use value of capital.
Interest, like rent, then appears to the industrial capitalist as merely a part of the production cost of commodities. It is a payment to the owner of capital for the use value of capital. The profit then is reduced to being the profit of enterprise, which now assumes the form of only the payment of a special kind of wages. Surplus value, as a component of the value of commodities, has, thereby, been eradicated, and we are left with a factor cost theory of value.
There is an obvious flaw in this theory, as even bourgeois economists such as Walras and Baumol, and others have noted. If wages are paid to labour, and the price of this labour is reduced by competition to its own production cost, this should equally apply to all the other factors. If profit of enterprise is only a special form of wages – and, as Marx points out, as the functioning capitalists do, indeed, increasingly constitute only skilled workers drawn from the working-class, this is how their actual wages should be seen – then presumably competition should reduce these wages also to the production cost of that labour. But, what about land? It has no production cost; the cost of drainage, buildings etc., is due to capital not the land. Moreover, what about the capital itself?
If we take a piece of capital such as, say, a machine, whose production cost is £1,000, how can it be that the owner of this machine obtains £1,050 for it, by loaning it for a year? As Walras and Baumol point out, if competition means that the returns to all factors of production are reduced to their own production cost, then the owner of the £1,000 of capital (be it a machine or its money equivalent) should only be able to obtain £1,000 for it. Anything above that is surplus and should provoke others into supplying capital, so as to get this surplus over production cost, so that competition would reduce it to zero. This is the same point that Adam Smith made, that profit arises, because capital is scarce and labour abundant, so that capital sells at a price above its value, and labour at a price below its value, until that situation is reversed.
But, on that basis, with profit of enterprise merged simply into wages, and interest on capital competed away to zero, all profit disappears, and along with it capital itself! Rent becomes merely a monopoly price for land, justifying the nationalisation of all land, and the rents collected by the state then being used to defray its expenses, and so reduce taxes.
“It is clear that, as soon as surplus-value [is split up] into different, separate parts, related to various production elements—such as nature, products, labour—which only differ physically, that is, as soon as in general surplus-value acquires special forms, separate from one another, independent of one another and regulated by different laws, the common unit—surplus-value—and consequently the nature of this common unit, becomes more and more unrecognisable and does not manifest itself in the appearance but has to be discovered as a hidden mystery. This assumption of independent forms by the various parts—and their confrontation as independent forms—is completed as a result of each of these parts being related to a particular element as its measure and its special source; in other words, each part of surplus-value is conceived as the effect of a special cause, as an adjunct of a particular substance. Thus profit is related to capital, rent to land, wages to labour.” (p 485)
Each of these factors of production that are created by capitalism, also then appear as the precondition for capitalist production. They all appear as different independent forms of property, and become ossified as such.
“... thus this state, separated from its inner essence by a mass of invisible intermediate links, reaches an even more externalised form, or rather the form of absolute externalisation, in interest-bearing capital, in the separation of interest from profit in interest-bearing capital as the simple form of capital, the form in which capital is antecedent to its own reproduction process. On the one hand, this expresses the absolute form of capital M—M', self-expanding value. On the other hand, the intermediate link C, which still exists in genuine merchant capital whose formula is M—C—M', has disappeared. Only the relation of M to itself and measured by itself remains. It is capital expressly removed, separated from the process, as an antecedent it stands outside the process whose result it is and through which alone it is capital.” (p 486)
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