Value, Price and Profit, Introduction - Part 1 of 7

Value, Price and Profit

Introduction

This pamphlet, never published in Marx and Engels' lifetimes, is comprised of a paper, presented by Marx, in 1865, to the conference of the General International Congress. It is important to understand the background to it.

From 1843, a new long-wave uptrend had taken place. This uptrend led to a large expansion of capital, and, as Marx states, in Capital and elsewhere, expansion of capital is synonymous with expansion of the working-class, capital being not a thing, but a social relation. Capital only acts as capital in so far as it produces profit, and, to produce additional profit, it sets in motion additional labour.

It was this large increase in the size of the working-class that created the additional social weight, which began to be expressed, industrially and politically, by workers, in the following decades, in the expansion of trades unions, and formation of political parties. Nevertheless, as Engels commented, later, it was only in Britain, in 1848, that the working-class formed a large enough section of society that it could have carried through the process of bourgeois-democratic revolution to a proletarian revolution, via permanent revolution. Elsewhere, as Marx describes in The Critique of The Gotha Programme, in relation to Germany, the workers were in a minority, the peasantry still forming the majority, and with a still sizeable group of petty-bourgeois, independent commodity producers, artisans etc.

As Marx and Engels describe, in Capital III, 1847 and 1857 saw severe crises, but these crises were not, primarily, crises of overproduction of commodities or capital, as had been the case with the crisis of 1825, which Marx identified as the first such crisis. They were, rather, financial crises, arising from speculation and asset price bubbles that burst when interest rates rose, and a credit crunch ensued, much as happened in 2007/8. (See my book – Marx and Engels' Theories of Crisis)

The rapid expansion, after 1843, created a huge rise in realised profits/supply of money-capital, not all of which could be used for real capital investment, despite the huge amount of such investment undertaken. Again, this is similar to the background to the global financial crisis of 2007/8. As the supply of money-capital rose, relative to the demand, interest rates fell, pushing up asset prices, and encouraging speculation. This same process arose in the late 1980's, and through the 1990's. In the 1840's, this came at a time when the monopoly of private capital, as Marx described it, in Capital I, had become a fetter on the expansion of capital, and was being superseded by the huge socialised capitals, in the form of joint stock companies and cooperatives – the expropriation of the expropriators.

One of the clearest examples of that was the railway companies, which, from the start, had taken the form of joint stock companies that obtained their financing by selling shares to the public on the stock market. The rates of interest/yields on these shares, as Marx notes in Capital III, Chapter 14, were low, much lower than the average rate of profit, but the shareholders did not have to take any part in the business, and, as share prices rose, could obtain significant capital gains. In addition, although they did not own the capital of the company, the bourgeois laws enabled them to exercise control over it, via the appointment of their own Directors that sat above the day to day professional managers of the companies, who actually ran them.

As with all such speculation frenzies, such as The South Sea Bubble, John Law's Mississippi Scheme, Tulipmania and so on, up to the Tech Bubble, Bitcoin and so on, they feed on themselves up to the point they burst. That was the case with the Railway Mania. There was, indeed, a large expansion in the amount of railway investment, and track laid. However, a large amount of the money that went into the purchase of railway shares did not fund such investment, but simply pushed up the price of those shares, creating a bubble. Nor was it just railway shares that saw such inflated prices. Other asset prices rose.

Money-capital flows from the sale of commodities, and is used to buy the replacements for the consumed productive-capital (materials and equipment, plus labour-power).  In addition, the sale of those commodities realises the surplus value created by labour in the production process, as profits.  Part of those profits are used to accumulate additional capital, and part to fund the personal consumption of capitalists, and other exploiters, including the state.  All of that is encompassed in the circuit of capital, red lines, plus green line from Bank Deposits to C`.  But, not all the realised profit need be used in that way.  Some can go to the purchase of existing assets (shares, bonds, property), which means the prices of these assets then rise, which leads to asset price bubbles.

But, in addition, as Marx and Engels describe, in Capital, in such conditions, as economic activity expands, so all forms of credit expand. Commercial credit between firms expands, which means that the amount of additional currency required for circulation of those commodities does not rise proportionately, thereby, facilitating a rise in prices, as the standard of prices tends to be reduced due to excess currency in circulation. In addition, firms engage in obtaining additional bank credit, or the discounting of bills, so as to speed up their turnover of capital, and that is facilitated as interest rates fall. In these conditions, speculation in the purchase of commodities, by merchants, using credit, in the expectation of being able to sell these commodities at higher prices, increases.

Forward To Part 2