The significance of surplus product as against surplus value, and replacement of material balances can be seen when the question of expanded reproduction rather than simple reproduction is considered. Take one of Marx's corn models, and assume a change in productivity does not affect labour-power, and so the mass or rate of surplus value. We may have, in physical terms,
100 c (seed) + 100 v + 100 s (all in kilos). A rise in productivity means that, instead of 300 kilos being produced 600 are produced. Assuming no change in the rate of surplus value, we now have the 100 kilos of seed reproduced and the 100 kilos for wages, but, this now leaves a surplus product of 400 kilos. Previously, the 100 kilos was required for the capitalist's consumption, but now 300 kilos exist as surplus above this. As Marx says, in relation to this release of capital, it can be used for increased consumption or increased accumulation. For example, now the amount of seed can be increased to 250 kilos, and 250 kilos can be allocated to wages, so that 25 rather than 10 workers are employed. That means that the increased mass of labour, even with the same rate of surplus value now produces 2.5 times as much surplus value as was previously the case.
But, assume that the workers and capitalists must sell the grain they obtain as revenues – wages and profit – and, because, in value terms, the value of a kilo of grain has halved, the workers now require 200 kilos, as does the capitalist, to buy the consumption goods they need. That means that 100 kilos is set aside to reproduce seed, 200 kilos for wages, and 200 kilos profit – 500 in total. That still leaves a surplus of 100 kilos compared to the prior situation. It means that 33.3 kilos can go to accumulate seed, and 66.6 kilos to accumulate labour, meaning the capital is expanded, and a greater mass of value and surplus value is produced.
The reason for this, as Marx explains, is that it is the difference between use value and value, which Ramsay and the proponents of the TSSI and historic pricing fail to take into account. When it comes to replacing the seed (constant capital), it is not its historic price that must be replaced, but its use value, i.e. as Marx puts it in Capital III, it must be physically replaced “on a like for like basis”. Its not the historic price of the seed that must be replaced but its use value as 100 kilos of seed, and that is replaced at its current value/reproduction cost, not its historic price. Marx points out that this additional 100 kilos, and its value equivalent is not “additional” profit, or surplus value, but is merely a release of capital, a release of a proportion of total social labour-time previously required to physically replace that quantity of seed. It is social labour-time that can now be used as revenue. Marx demonstrates this by also showing that, although this “additional” profit is an illusion, the change in the rate of profit is real. If the additional 100 kilos of grain is ignored, so that the profit is just 200 kilos, then, in physical terms we have 200/100 + 200 = 66.6%, whereas originally it was 100/100 + 100 = 50%. In value terms, let 100 kilos of grain equal 100 hours or £100, the rate of profit was 100/100 + 100 = 50%, whereas now 100 kilos equals 50 hours of labour, so that we have 100/50 + 100 = 66.6%.
If, on the other hand, we calculated the rate of profit on the basis of historic prices, we would not calculate on the above basis, as Marx does, in Theories of Surplus Value, Chapter 22, but as follows £100 (seed) + £100 wages + £100 profit, and so £100/£100 + £100 = 50%. But, its on this basis that the proponents of the TSSI and historic pricing calculate the rate of profit, and so systematically understate the rise in the rate of profit, or even claim it to be falling, particularly in periods of rapid technological innovation and moral depreciation of the fixed capital stock, such as the 1980's and 90's.
In Theories of Surplus Value, Marx gives an example of this, in relation to a machine maker. Marx says that, in Capital I, it had been shown how the value of a commodity could be broken down into c, v and s, by apportioning physical quantities of the output to these categories. This is the same as done above in relation to grain. The machinery maker, Marx says, produces 12 machines, and of this 8 represent constant capital. The other 4 then divide into 2 representing wages, and 2 representing profit. Assuming they only use machines to produce machines, if productivity rises, and they produce 20 machines, they still only require 8 to replace the ones that have worn out in their own production, leaving 2 to cover wages, meaning that 10 now form the revenue available to the capitalist. This is precisely what happened in the 1980's and 90's, as a technological revolution meant that fixed and circulating constant capital was massively devalued, because it could be produced on a like for like basis using much less social labour-time. That released social labour-time to be used for additional consumption and accumulation.
The change in productivity did not change the need to replace material balances on a like for like basis. It merely changed the relative proportions in which social labour-time had to be allocated to achieve that, and so raised the rate of profit. But, the same rise in productivity also reduced the social labour-time required to replace the material balances constituting the variable-capital, i.e. wage goods. In doing so, it reduced the value of labour-power, and increased the rate of surplus value, thereby raising the rate of profit for this second reason.
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