As Marx sets out in Theories of Surplus Value, Part 1, this was Smith's error. It is, indeed, the case that the individual commodity producer buys 10 hours labour with 10 hours labour, whether that labour they buy is in the form of wine, some other commodity or labour-service, for example, 10 hours labour on their land, or cooking their food. These are exchanges of revenue with revenue or labour. But, that is not at all the case where the capitalist buys labour-power. Here, commodity/money acts as capital, and the value of this capital is greater than the value of the wage goods/money that comprises it. It is variable-capital, precisely because its value is capable of self-expansion. Wage goods, with a value of 8 hours labour, now buys labour-power, and the contract between the worker and capitalist requires the worker to perform not 8 hours labour, but 10. That is an exchange of capital with labour. The value of capital, as capital, is greater than the value of the commodities that comprise that capital, by an amount equal to the average rate of profit.
“If a quarter of corn cost two days' labour instead of one, it would have twice its original value; but it would not set in operation double the quantity of labour because it would contain no more nutritive matter than before. Thus the value of the corn, measured by the quantity of labour used to produce it, would have doubled; but measured either by the quantity of labour it can buy or the quantity of labour with which it can be bought, it would be far from having doubled.” (p 53)
This also goes to the heart of the fallacy of using historic prices, as against current reproduction cost, as the basis for calculating profit and the rate of profit, as well as being the basis of Marx's explanation of the tie-up and release of capital, as set out in Capital III, Chapter 6, and Theories of Surplus Value, Chapter 22. For Smith and Ricardo, it is a consequence of confusing labour and labour-power, but, at its root, is the confusion of value with use-value, and the need to replace physical use-values “on a like for like basis”, for social reproduction to continue, on the same scale. As Marx put it in Capital III, Chapter 49,
“In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness. If the productiveness of labour remains the same, then this replacement in kind implies replacing the same value which the constant capital had in its old form. But should the productiveness of labour increase, so that the same material elements may be reproduced with less labour, then a smaller portion of the value of the product can completely replace the constant part in kind. The excess may then be employed to form new additional capital or a larger portion of the product may be given the form of articles of consumption, or the surplus-labour may be reduced. On the other hand, should the productiveness of labour decrease, then a larger portion of the product must be used for the replacement of the former capital, and the surplus-product decreases.”
If we take the variable-capital that Marx describes, here, the capitalist who employs 10 workers, who work 10 hours each, needs to continue to employ labour this scale, because their production is based upon it, and the more that production involves large amounts of fixed capital, the more that is the case. It would be uneconomic to employ only 8 workers, for example, if, then, 2 machines stood idle, and depreciated. But, besides that, these 8 workers would only produce 80% of the surplus value/profit that 10 workers produce, in the same conditions, and producing surplus value/profit is why the capitalist advances their capital.
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