Marx, then, moves on to deal with the point I set out earlier of the difference between the Labour Theory of Value, and a cost of production theory of value, of the difference between the value of the commodity resolving into these different funds, or the value of its different components constituting its value. It is the difference between the current reproduction cost model, and historic pricing model. Marx also sets out the difference between the resolution of the value into revenues and capital, in the process of reproduction.
“That part of the value of the commodity which represents only the value of the raw materials, the machinery, in one word, the value of the means of production used up, forms no revenue at all, but replaces only capital. But, apart from this, it is false that the other part of the value of the commodity which forms revenue, or may be spent in the form of wages, profits, rent, interest, is constituted by the value of wages, the value of rent, the value of profits, and so forth.” (p 68)
To illustrate this, Marx ignores wages and looks just at the resolution of the surplus value into profit of enterprise, rent, interest and taxes.
“But it would be quite the reverse of the truth to say that its value is composed of, or formed by, the addition of the independent values of these three constituents.” (p 69)
This concept remains a significant element of bourgeois economics and ideology, today. As Marx describes it, in Capital III, and Theories of Surplus Value, for bourgeois ideology, it is as though land produces rent and capital produces interest just as naturally as a pear tree produces pears, as though this fruit were to spring forth on its own account. On that basis, the landlord will always demand a given amount of rent, and the lender of money-capital a given amount of interest. These costs of production are, then, seen as feeding into the price of the commodity.
Similarly, the rise in asset prices, for example of shares and bonds, particular as part of pension funds, is seen as producing greater revenues in interest/dividends, as though this is automatic, rather than, actually, being determined by the amount of profit produced by the use of the underlying assets, i.e. the industrial capital. In fact, if industrial profits do not rise, whilst share prices do – a function of capitalisation – then the reality is that dividend yields must fall, or else a growing proportion of profits must be allocated to dividends, and smaller proportion to capital accumulation, thereby, undermining the reproduction of capital itself, in the longer-term. That is what has been seen, in the last forty years, and, particularly, the last twenty, with, as Haldane indicated, the share of dividends from profit accounting for 10% in the 1970's, and 70%, today.
We have, previously, described that, if an hour's labour produces a value equal to sixpence (£0.025), a working day of 12 hours produces £0.30 of new value, of which £0.15 resolves into wages, and £0.15 into surplus value/profit.
“This surplus value of three shillings constitutes the whole fund which the employing capitalist may divide, in whatever proportions, with the landlord and the money-lender. The value of these three shillings constitutes the limit of the value they have to divide amongst them. But it is not the employing capitalist who adds to the value of the commodity an arbitrary value for his profit, to which another value is added for the landlord, and so forth, so that the addition of these arbitrarily fixed values would constitute the total value. You see, therefore, the fallacy of the popular notion, which confounds the decomposition of a given value into three parts, with the formation of that value by the addition of three independent values, thus converting the aggregate value, from which rent, profit, and interest are derived, into an arbitrary magnitude.” (p 69)
If total profit is £100, and the total capital advanced is £500, then, the rate of profit is 20%. However, this total advanced capital comprises both constant capital – say £400 – and variable-capital/wages – say £100. It is only labour that produces new value – here £200 – divided into wages and profit. If we compare the profit/surplus value to the wages, then, its clear that this ratio is 100%, and not the 20% that is the rate of profit. The ratio of surplus value to wages is the rate of surplus value, which shows the real extent of the exploitation of labour.
In Capital II, Marx and Engels show that, because the capital advanced, as wages, turns over many times, during the year - Engels assumed an average of 8 times, in 1865 – the actual degree of exploitation, the annual rate of surplus value, was much higher. In his Capital III, Chapter 4, Engels calculates an average annual rate of surplus value of over 1,300%. In the further 150 years since then, not only has a massive rise in productivity reduced the value of labour-power, and so raised the rate of surplus value, but the rate of turnover of capital has also risen significantly, to probably at least 50, so that the annual rate of surplus value, is now probably well over 20,000%!
Marx says that, in his further comments, he will use profit to mean the whole surplus value, and rate of profit to mean rate of surplus value, i.e. profit relative to wages.
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