Marx explores Smith's absurd dogma at greatest length in Theories of Surplus Value. He deals with the differences between surplus product and surplus value, as well as the illusions created by the use of historic pricing, rather than current reproduction cost, as the means for determining value, and analysing the process of social reproduction. Again the basis of Marx's analysis of the process of social reproduction is the requirement to replace material balances, or as he put it in Capital III, Chapter 49, to replace them “on a like for like basis”.
In Theories of Surplus Value, Marx examines the process, already having analysed the division of surplus value into profit, interest, rent and profit of enterprise. Profit is merely the phenomenal form first assumed by surplus value, before its division into these other revenues. The profit can only be increased if surplus value increases, or if the cost of realising it is reduced, as a result of the action of commercial capital, hence its inclusion in the calculation of the general, annual rate of industrial profit.
The issues involved, here, take in not just Smith's absurd dogma, but also the debate over the Temporal Single System Interpretation, and use of historic pricing as against current reproduction cost. It has relevance to the analysis of the changes that arose during the 1980's, and calculation of the rate of profit, involving an understanding of the role of the tie-up and release of capital, resulting from changes in social productivity.
Surplus value can only increase if either a) the rate of surplus value increases, or b) the mass of simultaneously employed labour increases – increase in the social working-day. For example, 100 hours labour with a 100% rate of surplus value produces 100 hours of surplus value, whilst 200 hours of labour with an 80% rate of surplus value gives 160 hours of surplus value. As Marx puts it in Capital III, Chapter 15,
“Given the necessary means of production, i.e., a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e., the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.”
Ramsay sees rising productivity creating a release of capital, and misinterprets it as an increase in profit. It is, in reality, only a release of capital, which is then converted to revenue. There has been no increase in surplus value. But, this illusion leads him into error, and a view that constant capital can also be a source of surplus value. His use of historic prices, rather than current reproduction costs, and a failure to recognise that what has to be reproduced are the material balances at those current reproduction costs. For the proponents of the TSSI, and historic pricing, a rise in productivity results in a fall in the current value of capital relative to its historic cost. They translate this capital loss into a reduction in profit, (this is seen most clearly when they discuss capital gain/losses on financial assets, and interpret them as profit or loss), which forms the basis of many of their claims that the rate of profit fell during the 1980's, or did not rise by as much as others have shown, but also from the fact that they measure the profit against the higher historic cost, rather than the lower reproduction cost. Both fail to recognise Marx's point that what has to be replaced are the material balances, and they are replaced at current reproduction cost, not historic prices.
The effect is most notable during periods of rapid technological development, such as the 1980's. During such periods, one new machine replaces 2, 3 or 4 older machines. The new machine may cost more than one old machine (or not), but is cheaper than the 2, 3 or 4 older machines it replaces. That is like a spinning wheel replacing a hand-held spindle, or a spinning machine with 100 spindles replacing 100 spinning wheels. The result is that the value of fixed capital, per unit of output, wear and tear – dechet – falls significantly, as Marx sets out in Capital III, Chapter 6. It means the value of spinning wheels suffers a massive moral depreciation. That is what happens to fixed capital in the 1980's.
Marx describes the difference between the wear and tear of fixed capital, and depreciation. The former is a function of production, and the value is recovered from production; the latter is a function of time, and changes in value outside the production process, which are not recovered from production. The importance of that in terms of the process of reproduction is set out by Marx in Theories of Surplus Value, Chapter 23. When technological development is very rapid, the fixed capital stock does not have time for its value to be recovered in wear and tear. In Capital I, Marx set out the examples of periods in which some machines had to be scrapped even before they were put into production, because they had become out of date, as a result of new inventions. Some capitals, where fixed capital was bought with borrowed money, go bust, but, as Marx sets out in Capital III, Chapter 6, the real basis is then revealed, because these capitals, or their fixed capital is bought up by other capitals at prices based upon current reproduction cost, not the historic price, and it is that, which forms the basis of their calculation of the rate of profit.
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