According to the Labour Theory of Value, it is only labour that creates new value, and it is the excess of this new value over the value of labour-power/wages of the labourers that create this new value, which is the source of surplus value. In turn, taking capital as a whole, it is this surplus value, alone, which is the source of profit, which is merely distributed, on a proportional basis, to each individual capital, via an average rate of profit, and prices of production.
Yet, in this case, it appears that there is no change in the amount of new value produced by labour, or, therefore, in the amount of of surplus value produced, whilst the amount of profit, and rate of profit has risen. Ramsay, mistakenly, concluded from this that labour is not the sole creator of value and surplus value, and, if the TSSI were consistent, it would have to do so too. For Ramsay, he saw that a rise in the value of corn arose from a rise in the value of one or more components of the constant capital, used in the production of the corn, such as seed, fertiliser, or of the fixed capital etc.
In other words, the rise in the value/price of these inputs, over the historic price paid for them, results in the creation of additional profit, and, if profit is equated with surplus value, we have to conclude that more profit equals more surplus value, which, with constant wages, can only mean more new value produced, despite the fact that no additional labour was employed. The new value must, then, have come from somewhere other than labour! But, as Marx points out, this higher profit, seen by Ramsay and the TSSI, is an illusion. It is not, in fact, a profit at all, but, simply, a capital gain. If the farmer were to stop trading, at the end of the year, and sell everything, they would, indeed, reap the benefit of this capital gain. They would be able to treat this year, and their activity, as a discrete period of time in doing so.
But, Marx notes, this does not, at all, represent the reality of capitalist production. Generally, capitalist farmers do not operate on the basis of stopping production at the end of a year, just because they have benefitted from capital gains reflected in higher prices for their output. They operate on the basis of continuous production, in which case they are already buying in the inputs for the next year's production, at the same time as selling this year's production.
Assume that the reason that the value of corn rises, during the year, is because fertiliser prices rise. Having paid, say, £10 per kilo for fertiliser, the farmer sees its price rise to, say, £20 per kilo, and, this additional £10 per kilo is reproduced in the price of the corn, giving the farmer a capital gain of £10 per kilo, which, over, say, 1,000 kilos is equal to a £10,000 capital gain, which, superficially, appears as additional profit. Assume that the capital advanced, on the basis of these historic prices was £100,000, with surplus value produced being £20,000, giving a rate of profit of 20%. Now, with the capital gain of £10,000, the profit appears as £30,000, giving a rate of profit of 30%.
But, Marx notes, the illusion is shattered as soon as we step outside the abstraction of this world comprised of discrete periods of time. The farmer, must, now, replace the fertiliser consumed in this year's production – in reality they would be replacing it, even during the year. Where, last year, it cost them £10,000, it, now, costs them £20,000. So, the £10,000 of capital gain, that superficially appeared as profit/surplus value, is now wholly consumed just to replace the consumed fertiliser, which is why Marx notes that what is significant is not the historic costs of production of commodities, but their current reproduction cost. So, rather than £100,000 of capital being advanced, £110,000 of capital must now be advanced. The corn continues to sell at its higher value of £130,000, but, this year, there is no capital gain, only profit equal to the surplus value of £20,000. Consequently, the rate of profit, rather than having risen, is seen to have fallen to 20/110 = 18.18%.
That, of course, would not affect a farmer, as an individual, who ceased production at the end of the first year, but that does not represent the reality of capitalist production. Even if the farmer sold up, the capitalist who buys the farm from them does so on the basis of these new higher values. It is, then, they that must advance this greater amount of capital, and who suffer the resulting lower rate of profit. Indeed, as Marx sets out, in Theories of Surplus Value, Chapter 22, because seed is a cost of production, and the amount of it required is determined by use-value, not exchange value, the higher value of corn, also, means a higher value of seed, because a portion of the corn forms the seed to be sown for the next year. In other words, as Marx sets out in Capital III, Chapter 6, what we have is a portion of surplus-value/profit that would have been available for capital accumulation, which must, now be used, simply to ensure reproduction on the same scale – a tie-up of capital – so that what appeared, taken in the abstract world of discrete periods, and, mathematical models, as additional profit, and a rise in the rate of profit, is, in reality, just an illusion of greater profit, and a fall in the rate of profit.
If 10% of the corn is required as seed, the value of seed, used as constant capital, rises from £12,000 to £13,000, meaning a further fall in the rate of profit. As Marx notes, this is the case where the value of output rises, and is realised in its sale, so that this value resolves into these component parts for its reproduction. Again, this indicates the difference between, and significance of the Labour Theory of Value, as against the cost of production theory of value!
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