In this can be seen Marx's analysis and explanation of the tie-up and release of capital, in response to the error of Ramsay, and the illusion created of an increase or fall in profit, which was nothing but, on the one hand, a capital gain/loss, or on the other, a release/tie-up of capital. Ramsay, and the TSSI makes the same error, saw a rise in corn prices, during the year, which results in a capital gain for the given farmer, as being a “profit”, arising simply from the constant capital, i.e. the the seed corn, whose price rose relative to its “historic cost”. The farmer bought seed corn at the “historic cost” of of £10 a ton, and sells it at £12 a ton, a “profit” of £2 a ton that mysteriously appears from nowhere.
But, as Marx points out, the illusion of this “profit” from nowhere depends on us viewing matters in the purely isolated terms that Ramsay and the TSSI do. If, like Ramsay and the TSSI, we take the individual farmer and just this one year, then, yes, if they stopped production at the end of the year, they would have, say, 1,000 tons of corn, with a value of £12,000, for which they had only paid £10,000, leaving them with a £2,000 “profit”. But, Marx points out that this static picture, a snapshot in time, is not the end of the matter, in reality.
If the farmer did not discontinue production, and mostly farmers do not cease production after one year, then, rather than having to advance £10,000 for seed corn, they have to advance £12,000. The apparent £2,000 of profit has immediately disappeared, and is not available to them either to increase their personal consumption or to accumulate capital. Indeed, in terms of the rate of profit, and so the ability to accumulate capital, it would have been diminished.
Suppose the farmer starts with the seed corn amounting to 1,000 tons, with an historic price of of £10 per ton, i.e. £10,000. The above illustration simply assumed that, at the end of the year, this same 1,000 tons has a monetary value of £12,000, producing a “profit” of £2,000. This is the same logic that fuels speculative asset price bubbles, in which a simple rise in asset prices – shares, bonds, houses – is seen as magically producing a “profit” that can be taken by the owner of the asset. Wealth from thin air. It has been the basis of the economic model of conservative social-democracy (neoliberalism) from the 1980's until the global financial crash of 2008, and which it is still desperately trying to sustain. The importance of Marx's analysis, and of the labour theory of value is to show why this is a dangerous delusion. It is a delusion at the heart of the TSSI, and also within MMT, though in different forms.
The situation facing the farmer was not only that they laid out £10,000 for seed corn (1,000 tons) but, also, that they laid out, let us say, £10,000 for wages. Here we come back to the error of the Physiocrats. The Physiocrats saw 1,000 tons of seed corn, and 1,000 tons of corn as wages/labour, resulting in an output of 3,000 tons of corn, a surplus of 1,000 tons. They attributed the surplus to the land, but, as Smith and the Classical Economists showed, this surplus product was not, in fact, some mysterious product of the land but of labour.
In fact, although Smith et al set this out, they did not fully draw out the reality of what they had discovered. In Capital I, Marx explains it, by reference to a group of primitive people who were able to meet their requirements by labouring for only a small number of hours per week. They could reproduce their labour-power by just this expenditure of labour.
“But consider, for example, an inhabitant of the eastern islands of the Asiatic Archipelago, where sago grows wild in the forests.'When the inhabitants have convinced themselves, by boring a hole in the tree, that the pith is ripe, the trunk is cut down and divided into several pieces, the pith is extracted, mixed with water and filtered: it is then quite fit for use as sago. One tree commonly yields 300 lbs., and occasionally 500 to 600 lbs. There, then, people go into the forests, and cut bread for themselves, just as with us they cut fire-wood.'” [F. Schouw: “Die Erde, die Pflanze und der Mensch,” 2. Ed. Leipz. 1854, p. 148. ]
But, that did not limit the amount of labour they could undertake, the amount of new value they could, thereby, create. This new value, also, thereby, takes the form of a surplus product, in excess of what is required to reproduce their labour-power. It is not the land or some magical property of it that creates the surplus product, but the surplus labour undertaken. An error of the TSSI is, also, that they confuse this new value produced by labour, which is always positive, with surplus value, which is usually positive, but is so only because the new value created is greater than the value of labour-power.
Similarly, as Marx points out, if the agricultural labourer/farmer only undertook sufficient labour as to produce the 2,000 tons of corn required to reproduce the seed corn consumed, and their own labour-power, their would be no surplus product/value. There would be no possibility of rent, profit, interest or taxes, either in the form of use-values or their money equivalent. The surplus product of 1,000 tons is not the consequence of some mystical property of the land, but of the fact that surplus labour has been undertaken. In order to ensure that this surplus labour is undertaken, the labourer must be denied access to the means of production, unless they do so, by the owner of those means of production. The amount of labour performed in excess of the necessary labour, surplus labour, is the real basis of the surplus-value.
It is not the only basis of the surplus product. As Marx describes in Capital and elsewhere, the basis of the surplus product is both Labour and Nature. Nature provides use-values as free gifts, labour utilises them and transforms them into products that have value. The more bountiful Nature is, in the provision of these free gifts, the more productive is labour, i.e. the more products/use-values it is able to create in a given amount of time. In other words, the lower the unit value of each product. Again, here, we see the constant presence and influence of The Law of Value, as a Natural Law.
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