X – Profit Is Made By Selling a Commodity At Its Value
The idea is still put forward, by some, that profit arises by selling commodities above their value. But, as described earlier, that is impossible, because, if all commodities were sold above their values, so that sellers systematically cheat buyers, then, what every one gains as a seller they equally lose as a buyer. Its possible that, considered individually, some may be more effective cheaters than others, so that they make a profit, but, equally, others then must make a loss so that, in aggregate, profit would be impossible. The real basis of profit, the creation of surplus-value, in production, by the worker, has been described.
That does not mean that, in the same way an individual cheater might make profits by selling above value, or buying below value, a monopolist may not, also, be able to do so, for example. Marx describes that in Capital III, in relation to the division of total surplus value, and the formation of an average annual rate of profit. But, that simply means that less surplus value is available for all other capitals to divide amongst themselves. Nor does it mean, as Marx describes in Capital III, in relation to commercial profit, that, for example, merchant capital may not buy from productive-capital, commodities below their value, and, then sell them at their value, as the means by which they make their commercial profit. But, here, the commercial capitalist simply takes on the function that industrial capital must perform, in order to realise the produced surplus value as profit. By specialising in that function, the reduce the cost of realising profit, and, thereby, raise the amount and rate of realised profit itself. They form an essential part of the circuit of industrial capital, and so take part in the formation of, and obtain a share of the average, annual industrial rate of profit.
Colonialism was based on the antediluvian forms of capital, and their symbiotic relation to the existing ruling class, the landed aristocracy. The latter obtained additional lands, and so, rents. Merchant capital made commercial profits from unequal exchange, whilst money-lending capital derived interest from the loans made to finance the trade. But, as soon as industrial capital became dominant, in the second half of the 19th century, the days of colonialism, based upon these economic relations were also numbered. Industrial capital sought to extend its scope, and production of surplus value, which requires the industrialisation and expansion of the working-class across the globe. That is why the mercantilist ideas of the Stalinists and Third Worldists, as explanations of imperialism, based upon the concepts of “underdevelopment” and “super-exploitation”, and unequal exchange, are false.
Do monopolies derive monopoly profits, undoubtedly. Do merchants derive their profits from unequal exchange, of course. But, the basis of profit in the global economy is surplus value, created in production, which first assumes the form of industrial profit. The consequence of that is, then, not “underdevelopment” of pre-industrial economies, but their capitalist development, the production of surplus value, and its accumulation as industrial capital, via the process of combined and uneven development. Indeed, the dominance of industrial capital, and its manifestation, now, not as colonialism, but as imperialism, speeds up this process of equalisation. As Trotsky put it,
“Capitalism finds various sections of mankind at different stages of development, each with its profound internal contradictions. The extreme diversity in the levels attained, and the extraordinary unevenness in the rate of development of the different sections of mankind during the various epochs, serve as the starting point of capitalism. Capitalism gains mastery only gradually over the inherited unevenness, breaking and altering it, employing therein its own means and methods. In contrast to the economic systems which preceded it, capitalism inherently and constantly aims at economic expansion, at the penetration of new territories, the surmounting of economic differences, the conversion of self-sufficient provincial and national economies into a system of financial interrelationships. Thereby it brings about their rapprochement and equalizes the economic and cultural levels of the most progressive and the most backward countries. Without this main process, it would be impossible to conceive of the relative levelling out, first, of Europe with Great Britain, and then, of America with Europe; the industrialization of the colonies, the diminishing gap between India and Great Britain, and all the consequences arising from the enumerated processes upon which is based not only the program of the Communist International but also its very existence.”
(The Third International After Lenin)
Indeed, contrary to the claims of “underdevelopment”, many of those former colonies have now not only caught up, but have surpassed their former colonial masters.
Previously, I noted that the worker produces everything, but gets back only part of what they produced. This does not mean that the whole of the rest of what they produced is surplus product/value. A part of what they produced is the replacement of the constant capital (materials and wear and tear of fixed capital) consumed in that same production. Marx explains this in Capital III, and Theories of Surplus Value.
Suppose that, in a year, 1,000 tonnes of materials are consumed in production. The workers must reproduce this 1,000 tonnes, in their production, for the year, so that production can continue the next year. If we take the 1,000 tonnes consumed, it has a value of 1,000 hours of labour. Some of this material is used to produce consumption goods, let us say, 200 tonnes. Equally, 800 tonnes are used to produce the materials that replace it. For example, the seed used by a farmer, not only produces wheat that is consumed, but also produces seed to be planted for next year's crop. Coal is used to produce coal as well as steel, and so on. Steel is used to produce coal and steel, as well as machines and buildings. Machines and buildings are used to produce coal, steel, and machines, and other buildings.
So, all of the these things, buildings, machines, materials and so on, produced in the year, are the physical product of the labour used, during the year to produce them, but the greatest part of their value, is not attributable to that labour, but to the value of the previously produced machines, buildings, materials and so on, used in that production, a value that is simply preserved and transferred to current output. So, in the value of the 1,000 tonnes of material produced, by workers, in the current year, required to replace the 1,000 tonnes of material consumed this year, 800 hours of its value comes from the value of the 800 tonnes of material consumed in its production, value that was produced in the previous year, or year's before that, and only 200 hours of its value is new value added by labour, in current production.
In other words, although workers physically produce the whole 1,000 tonnes of material by their current labour, only 20% of its value is attributable to their current labour. The other 800 hours of its value is simply transferred to it from the value of the 800 tonnes of material used in its own production.
So, this 800 hours of value, now contained in the 1,000 tonnes of material, does not constitute a surplus value/product, but constitutes only a replacement of the value transferred to current production from the consumed constant capital, a value produced not this year, but in previous year's. If we take national output as a whole, it, similarly, comprises a value of constant capital consumed, a value created in past years, plus the new value created by labour in the current year. The new value divides into wages and profit, a necessary product and surplus product. It is only the surplus value that is available to capitalists to buy commodities for their personal consumption, and to accumulate as additional capital. It is the monetary equivalent of the surplus product.
The same applies to the individual commodity. Its value comprises the value of the constant capital consumed in its production plus the new value created by labour in processing the materials into the end product. Marx says, assume that the value created by an hour's labour is sixpence (£0.025). If the value of labour-power is six hour's labour, or 3 shillings (£0.15), but workers work for 12 hours, creating £0.30 of new value, they also create £0.15 of surplus value/profit. If the consumed materials have a value of 24 hours labour (£0.60), the value of the end product is 36 hours labour, (£0.90).
Assuming no change in the value of constant capital, or labour-power, resulting in a tie-up or release of capital, this value of £0.90 resolves, again, into £0.60 to replace the consumed constant capital, £0.15 to buy labour-power, leaving £0.15 as profit. The commodity is, then, sold, at its value, whilst producing this £0.15 of profit.
“He sells not only what has cost him an equivalent, but he sells also what has cost him nothing, although it has cost his workman labour. The cost of the commodity to the capitalist and its real cost are different things.
I repeat, therefore, that normal and average profits are made by selling commodities not above, but at their real values.” (p 65-6)
In fact, as Marx sets out in Capital III, in explaining the transformation of exchange-values into prices of production, this is not true for the individual capitalists. It is, however true for capital as a whole.
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