Tuesday, 28 January 2020

Theories of Surplus Value, Part III, Addenda - Part 49

[5. Essential Difference Between Classical and Vulgar Economy. Interest and Rent as Constituent Elements of the Market Price of Commodities. Vulgar Economists Attempt to Give the Irrational Forms of Interest and Rent a Semblance of Rationality] 

Classical economy identifies value with labour. The value of a commodity is equal to the quantity of labour-time required for its reproduction. For classical economy, therefore, all revenues, whatever their outward appearance, as wages, profits, rent, interest and taxes, are reducible to one single source – labour. This is in contrast to the later critical economic analysis, represented by neoclassical economists who see each factor of production – land, labour and capital – as all equally being sources of value, which, combined, produces the value of the commodity, and, likewise, from the value of the commodity is divided up accordingly in proportion to these contributions, to provide the revenues received by the owners of these respective factors, i.e. capital – interest, land – rent, labour – wages. 

For the classical economist, most clearly expressed by Adam Smith, labour is the source of all value; the value of a commodity is determined by the quantity of labour required for its production. The surplus value is then nothing more than surplus labour, i.e. labour in excess of the labour required for the reproduction of the labourer. Smith's problem, here, arising from his analysis, is why does this surplus labour accrue to the capitalist, as profit, rather than the worker as wages. If The Law of Value requires that commodities exchange at their values, why is it that the worker sells 10 hours of labour to the capitalist, but is paid for only 6, for example? After all, the same labourer, as an independent labourer, if they expended 10 hours of labour, producing a commodity, would get back this 10 hours of value, when they sold the commodity. 

The answer to this riddle, provided by Marx, is that the wage worker does not sell their labour, or the product of their labour, to capital, in the way that an independent labourer sells their products or a labour service to a buyer, but rather sells their labour-power, their ability to perform labour. Smith, like the other classical economists does not make this distinction between labour and labour-power. Consequently, Smith resolves this contradiction, arising from his theory, by concluding that, as soon as landed property and capital arises, The Law of Value ceases to operate. He concludes that, although the value of commodities is determined by the quantity of labour required for their production, capital is able to appropriate the surplus value, because labour is abundant whilst capital is scarce. The price of labour, thereby, falls below its value, whilst the price of capital rises above its value. 

Similarly, classical economy sees rent and interest as similarly deriving from surplus labour, and so, merely, as divisions of the profit. It analyses rent as surplus profit, and for Smith, in particular, interest is only a secondary revenue, derived from profits and rent, as the price paid for borrowing money. For Smith, therefore, he arrives at his cost of production theory of value, which he slips into, whereby the value of commodities is determined by the prices of the factors of production. Each of these factors has a “natural price”, which must be paid to ensure its owner brings it to market. If any factor, such as labour, is in excess supply, then its market price will fall below its natural price. Its on this basis that Smith believed that the supply of capital would rise faster than the supply of labour, so that, eventually, wages would rise and profits would disappear. 

But, the basis can be seen here, in Smith's cost of production theory, for the later conclusions of critical economy, and formulated by neoclassical economy, that each factor of production is itself an independent source of value. Smith never gets away from his initial labour theory of value, that the value of commodities is determined by the quantity of labour required for their production, and his concept of natural price for these factors is really reduced to the question of how this value is distributed amongst them. Ricardo, himself, never followed Smith in abandoning The Labour Theory of Value, and deals with the contradiction Smith faced, in relation to the question of surplus value, by simply ignoring it, assuming that surplus value exists, in the form of the average rate of profit, but never bothering to enquire into its source. Ricardo, instead, focuses on the way an average profit implies also surplus profit, and, thereby, the potential for rent. 

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