Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole
By Karl Marx
One of Econlib’s aims is to put online the most significant works in the history of economic thought, and there can be no doubting the significance of Marx’s influence on both economic theory in the late 19th century and on the creation of Marxist states in the 20th century. From the time of the emergence of modern socialism in the 1840s (especially in France and Germany), free market economists have criticised socialist theory and it is thus useful to place that criticism in its intellectual context, namely beside the main work of one of its leading theorists,
Karl Marx.In 1848, when Europe was wracked by a series of revolutions in which both liberals and socialists participated and which both lost out to the forces of conservative monarchism or Bonapartism,
John Stuart Mill published his
Principles of Political Economy. The chapter on Property shows how important Mill thought it was to confront the socialist challenge to classical liberal economic theory. In hindsight it might appear that Mill was too accommodating to socialist criticism, but I would argue that in fact he offered a reasonable framework for comparing the two systems of thought, which the events of the late 20th century have finally brought to a conclusion which was not possible in his lifetime. Mill states in
Book II Chapter I “Of Property” that a fair comparison of the free market and socialism would compare both the ideal of liberalism with that of socialism, as well as the practice of liberalism versus the practice of socialism. In 1848 the ideals of both were becoming better known (and there were some aspects of the ideal of socialism which Mill found intriguing) but the practice of each was still not conclusive. Mill correctly observed that in 1848 no European society had yet created a society fully based upon private property and free exchange and any future socialist experiment on a state-wide basis was many decades in the future. After the experiments in Marxist central planning with the Bolshevik Revolution in 1917, the Chinese Communists in 1949, and numerous other Marxist states in the post-1945 period, there can be no doubt that the reservations Mill had about the practicality of fully-functioning socialism were completely borne out by historical events. What Mill could never have imagined, the slaughter of tens of millions of people in an effort to make socialism work, has ended for good any argument concerning the Marxist form of socialism.Econlib now offers online two important defences of the socialist ideal, Karl Marx’s three volume work on
Capital and the
collection of essays on Fabian socialism edited by George Bernard Shaw. These can be read in the light of the criticism they provoked among defenders of individual liberty and the free market: Eugen Richter’s anti-Marxist
Pictures of the Socialistic Future, Thomas Mackay’s
2 volume collection of essays rebutting Fabian socialism,
Ludwig von Mises post-1917 critique of
Socialism. One should not forget that
Frederic Bastiat was active during the rise of socialism in France during the 1840s and that many of his essays are aimed at rebutting the socialists of his day. The same is true for Gustave de Molinari and the other authors of the
Dictionnaire d’economie politique (1852). Several key articles on communism and socialism from the
Dictionnaire are translated and reprinted in Lalor’s
Cyclopedia.For further reading on Marx’s
Capital see David L. Prychitko’s essay
“The Nature and Significance of Marx’s
Capital: A Critique of Political Economy“.For further readings on socialism see the following entries in the
Concise Encyclopedia of Economics:
Poor Law Commissioners’ Report of 1834,
edited by Nassau W. Senior, et al.
March 1, 2004
Frederick Engels, ed. Ernest Untermann, trans.
First Pub. Date
Chicago: Charles H. Kerr and Co.
First published in German. Das Kapital, based on the 1st edition.
The text of this edition is in the public domain. Picture of Marx courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Preface, by Frederick Engels
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part I, Chapter 7
- Part II, Chapter 8
- Part II, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part III, Chapter 13
- Part III, Chapter 14
- Part III, Chapter 15
- Part IV, Chapter 16
- Part IV, Chapter 17
- Part IV, Chapter 18
- Part IV, Chapter 19
- Part IV, Chapter 20
- Part V, Chapter 21
- Part V, Chapter 22
- Part V, Chapter 23
- Part V, Chapter 24
- Part V, Chapter 25
- Part V, Chapter 26
- Part V, Chapter 27
- Part V, Chapter 28
- Part V, Chapter 29
- Part V, Chapter 30
- Part V, Chapter 31
- Part V, Chapter 32
- Part V, Chapter 33
- Part V, Chapter 34
- Part V, Chapter 35
- Part V, Chapter 36
- Part VI, Chapter 37
- Part VI, Chapter 38
- Part VI, Chapter 39
- Part VI, Chapter 40
- Part VI, Chapter 41
- Part VI, Chapter 42
- Part VI, Chapter 43
- Part VI, Chapter 44
- Part VI, Chapter 45
- Part VI, Chapter 46
- Part VI, Chapter 47
- Part VII, Chapter 48
- Part VII, Chapter 49
- Part VII, Chapter 50
- Part VII, Chapter 51
- Part VII, Chapter 52
Part II, Chapter IX
FORMATION OF A GENERAL RATE OF PROFIT (AVERAGE RATE OF PROFIT) AND TRANSFORMATION OF THE VALUES OF COMMODITIES INTO PRICES OF PRODUCTION
THE organic composition of capital depends at each stage on two circumstances: First, on the technical relation of the employed labor-power to the mass of the employed means of production; secondly, on the price of these means of production. We have seen that this composition must be considered according to its percentages. We express the organic composition of a certain capital, consisting of four-fifths of constant, and one-fifth of variable capital, by the formula 80 c + 20 v. We furthermore assume in this comparison that the rate of surplus-value is unchangeable. Let it be, for instance, 100%. The capital of 80 c + 20 v then produces a surplus-value of 20 s, and this is equal to a rate of profit of 20% on the total capital. The magnitude of the actual value
of the product of this capital depends on the magnitude of the fixed part of the constant capital, and on the amount of it passing by wear and tear over to the product. But as this circumstance is immaterial so far as the rate of profit and the present analysis are concerned, we assume for the sake of simplicity that the constant capital is transferred everywhere uniformly and entirely to the annual product of the capitals named. It is further assumed that these capitals realise equal quantities of surplus-value in the different spheres of production, proportional to the magnitude of their variable parts. In other words, we disregard for the present the difference which may be produced in this respect by the different lengths of the periods of turn-over. This point will be discussed later.
Let us compare five different spheres of production, and let the capital in each one have a different organic composition, as follows:
Here we have considerably different rates of profit in different spheres of production with the same degree of exploitation, corresponding to the different organic composition of these capitals.
The grand total of the capitals invested in these five spheres of production is 500; the grand total of the surplus-value produced by them is 110; the total value of all commodities produced by them is 610. If we consider the amount of 500 as one single capital, and capitals I to V as its component parts (about analogous to the different departments of a cotton mill which has different proportions of constant and variable capital in its carding, preparatory spinning, spinning, and weaving rooms, on the basis of which the average proportion for the whole factory is calculated), then we should put down the average composition of this capital of
500 as 390 c + 110 v, or, in percentages, as 78 c + 22 v. In other words, if we regard each one of the capitals of 100 as one-fifth of the total capital, its average composition would be 78 c + 22 v; and every 100 would make an average surplus-value of 22. The average rate of profit would, therefore, be 22%, and, finally, the price of every fifth of the total product produced by the capital of 500 would be 122. The product of each 100 of the advanced total capital would have to be sold, then, at 122.
But in order not to arrive at entirely wrong conclusions, it is necessary to assume that not all cost-prices are equal to 100.
With a composition of 80 c + 20 v, and a rate of surplus-value of 100, the total value of the commodities produced by the first capital of 100 would be 80 c + 20 v + 20 s, or 120, provided that the whole constant capital is transferred to the product of the year. Now, this may happen under certain circumstances in some spheres of production. But it will hardly be the case where the proportion of c to v is that of four to one. We must, therefore, remember in comparing the values produced by each 100 of the different capitals, that they will differ according to the different composition of c as to fixed and circulating parts, and that the fixed portions of different capitals will wear out more or less rapidly, thus transferring unequal quantities of value to the product in equal periods of time. But this is immaterial so far as the rate of profit is concerned. Whether the 80 c transfer the value of 80, or 50, or 5, to the annual product, whether the annual product is consequently 80 c + 20 v + 20 s = 120, or 50 c + 20 v + 20 s = 90, or 5 c + 20 v + 20 s = 45, in all of these cases the excess of the value of the product over its cost-price is 20, and in every case these 20 are calculated on a capital of 100 in ascertaining the rate of profit. The rate of profit of capital I is, therefore, in every case 20%. In order to make this still plainer, we transfer in the following table different portions of the constant capital of the same five capitals to the value of their product.
Now, if we consider capitals I to V once more as one single total capital, it will be seen that also in this case the composition
of the sums of these five capitals amounts to 500, being 390c + 110 v, so that the average composition is once more 78 c + 22 v. The average surplus-value also remains 22%. If we allot this surplus-value uniformly to capitals I to V, we arrive at the following prices of the commodities:
Summing up, we find that the commodities are sold at 2 + 7 + 17 = 26 above, and 8 + 18 + 26 below their value, so that the deviations of prices from values mutually balance one another by the uniform distribution of the surplus-value, or by the addition of the average profit of 22 per 100 of advanced capital to the respective cost-prices of the commodities of I to V. One portion of the commodities is sold in the same proportion above in which the other is sold below their values. And it is only their sale at such prices which makes it possible that the rate of profit for all five capitals is uniformly 22%, without regard to the organic composition of these capitals. The prices which arise by drawing the average of the various rates of profit in the different spheres of production and adding this average to the cost-prices of the different spheres of production, are the
prices of production. They are conditioned on the existence of an average rate of profit, and this, again, rests on the premise that the rates of profit in every sphere of production, considered by itself, have previously been reduced to so many average rates of profit.
These special rates of profit are equal to s/C in every sphere of production, and they must be deduced out of the values of the commodities, as shown in volume I. Without such a deduction an average rate of profit (and consequently a price of production of commodities), remains a vague and senseless conception. The price of production of a commodity, then, is equal to its cost-price plus a percentage of profit apportioned according to the average rate of profit, or in other words, equal to its cost-price plus the average profit.
Since the capitals invested in the various lines of production are of a different organic composition, and since the different percentages of the variable portions of these total capitals set in motion very different quantities of labor, it follows that these capitals appropriate very different quantities of surplus-labor, or produce very different quantities of surplus-value. Consequently the rates of profit prevailing in the various lines of production are originally very different. These different rates of profit are equalised by means of competition into a general rate of profit, which is the average of all these special rates of profit. The profit allotted according to this average rate of profit to any capital, whatever may be its organic composition, is called the average profit. That price of any commodity which is equal to its cost-price plus that share of average profit on the total capital invested (not merely consumed) in its production which is allotted to it in proportion to its conditions of turn-over, is called its price of production. Take, for instance, a capital of 500, of which 100 are fixed capital, and let 10% of this wear out during one turn-over of the circulating capital of 400. Let the average profit for the time of this turn-over be 10%. In that case the cost-price of the product created during this turn-over will be 10 c (wear) + 400 (c + v), circulating capital, or a total of 410, and its price of production will be 410 (cost-price) plus 10% of average profit on 500, or a total of 460.
While the capitalists in the various spheres of production recover the value of the capital consumed in the production of their commodities through the sale of these, they do not secure the surplus-value, and consequently the profit, created
in their own sphere by the production of these commodities, but only as much surplus-value, and profit, as falls to the share of every aliquot part of the total social capital out of the total social surplus-value, or social profit produced by the total capital of society in all spheres of production. Every 100 of any invested capital, whatever may be its organic composition, draws as much profit during one year, or any other period of time, as falls to the share of every 100 of the total social capital during the same period. The various capitalists, so far as profits are concerned, are so many stockholders in a stock company in which the shares of profit are uniformly divided for every 100 shares of capital, so that profits differ in the case of the individual capitalists only according to the amount of capital invested by each one of them in the social enterprise, according to his investment in social production as a whole, according to his shares. That portion of the price of commodities which buys back the elements of capital consumed in the production of these commodities, in other words, their cost-price, depends on the investment of capital required in each particular sphere of production. But the other element of the price of commodities, the percentage of profit added to this cost-price, does not depend on the mass of profit produced by a certain capital during a definite time in its own sphere of production, but on the mass of profit allotted for any period to each individual capital in its capacity as an aliquot part of the total social capital invested in social production.
A capitalist selling his commodities at their price of production recovers money in proportion to the value of the capital consumed in their production and secures profits in proportion to the aliquot part which his capital represents in the total social capital. His cost-prices are specific. But the profit added to his cost-prices is independent of his particular sphere of production, for it is a simple average per 100 of invested capital.
Let us assume that the five different investments of capital named I to V in the foregoing illustrations belong to one
man. The quantity of variable and constant capital consumed for each 100 of the invested capitals in the production of commodities would be known, and these portions of the value of the commodities of I to V would make up a part of their price, since at least this price is required to recover the consumed portions of the invested capital. These cost-prices would be different for each class of the commodities I to V, and the owner would therefore mark them differently. But the different masses of surplus-value, or profit, produced by capitals I to V might easily be regarded by the capitalist as profits of his aggregate capital, so that each 100 would get its proportional quota. The cost-prices of the commodities produced in the various departments I to V would be different; but that portion of their selling price which comes from the addition of the profit for each 100 of capital would be the same for all these commodities. The aggregate price of the commodities of I to V would be equal to their aggregate value, that is to say, it would be equal to the sum of the cost-prices of I to V plus the sum of the surplus-values, or profits, produced in I to V. It would actually be the money-expression of the total quantity of past and present labor incorporated in the commodities of I to V. And in the same way the sum of all the prices of production of all commodities in society, comprising the totality of all lines of production, is equal to the sum of all their values.
This statement seems to be contradicted by the fact that under capitalist production the elements of productive capital are, as a rule, bought on the market, so that their prices include profits which have already been realised. Accordingly, the price of production of one line of production passes, with the profit contained in it, over into the cost-price of another line of production. But if we place the sum of the cost-prices of the whole country on one side, and the sum of its surplus-values, or profits, on the other, it is evident that the calculation must come out right. For instance, take a certain commodity A. Its cost-price may contain the profits of B, C, D, etc., or the cost-prices of B, C, D, etc., may contain the profits of A. Now, if we make our calculation, the
profits of A will not be included in its cost-price, nor will the profits of B, C, D, etc., be figured in with their own cost-prices. No one figures his own profit in his own cost-price. If there are
n spheres of production, and every one of them makes a profit of p, then the aggregate cost-price of all of them is equal to k-
np. Taking the calculation as a whole we see that the profits of one sphere which pass into the cost-prices of another have been placed on one side of the account showing the total price of the ultimate product, and so cannot be placed a second time on the profit side. If any do appear on this side, it can be only because this particular commodity was itself the ultimate product, so that its price of production did not pass into the cost-price of some other commodity.
If an amount equal to p, expressing the profits of the producers of means of production, passes into the cost-price of a commodity, and if a profit equal to p’ is added to this cost-price, then the aggregate profit P is equal to p + p’. The aggregate cost-price of a commodity, after deducting all amounts for profit, is in that case its own cost-price minus P. If this cost-price is called k, then it is evident that k + P = k + p + p’. We have seen in volume I, chapter IX, 2, that the product of every capital may be treated as though a part of it reproduced only capital, while the other part represented only surplus-value. Applying this mode of calculation to the aggregate product of society, it is necessary to make some rectifications. For, looking upon society as a whole, it would be a mistake to figure, say, the profit contained in the price of flax twice. It should not be counted as a portion of the price of linen and at the same time as the profit of the producers of flax.
To the extent that the surplus-value of A passes into the constant capital of B, there is no difference between surplus-value and profit. It is quite immaterial for the value of the commodities, whether the labor contained in them is paid or unpaid. We see merely that B pays for the surplus-value of A. But the surplus-value of A cannot be counted twice in the total calculation.
The essential difference is this: Aside from the fact that
the price of a certain product, for instance the product of capital B, differs from its value, because the surplus-value realized in B may be greater or smaller than the profit of others contained in the product of B, the same fact applies also to those commodities which form the constant part of its capital, and which indirectly, as necessities of life for the laborers, form its variable part. So far as the constant part is concerned, it is itself equal to the cost-price plus surplus-value, which now means cost-price plus profit, and this profit may again be greater or smaller than the surplus-value in whose place it stands. And so far as the variable capital is concerned, it is true that the average daily wage is equal to the values produced by the laborers in the time which they must work in order to produce their necessities of life. But this time is in its turn modified by the deviation of the prices of production of the necessities of life from their values. However, this always amounts in the end to saying that one commodity receives too little of the surplus-value while another receives too much, so that the deviations from the value shown by the prices of production mutually compensate one another. In short, under capitalist production, the general law of value enforces itself merely as the prevailing tendency, in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations.
Since the average rate of profit is formed by the average of the various rates of profit for each 100 of the invested capital during a definite period of time, say one year, it follows that the difference brought about by the various periods of turn-overs of different capitals is also effaced by this means. But these differences play a leading role in the different rates of profit of the various spheres of production whose average forms the average rate of profit.
In the preceding illustration we assumed each capital in every sphere of production helping to make up the average rate of profit to be equal to 100, and we did so in order to show the differences in the rates of profit by percentages and incidentally the difference in the values of commodities produced by equal amounts of capital. But it is understood that
the actual masses of surplus-value produced in each sphere of production depend on the magnitude of the invested capitals, since the composition of each capital is determined by each sphere of production. But the particular rate of profit of any individual sphere of production is not affected by the circumstance that a capital of 100, or m times 100, or xm times 100 may be invested. The rate of profit remains 10%, whether the total profit is as 10 to 100, or 1,000 to 10,000.
However, since the rates of profit differ in the various spheres of production, seeing that considerably different masses of surplus-value, or profit, are produced in them according to the proportion of the variable to the total capital, it is evident that the average profit per 100 of the social capital, and consequently the average, or general, rate of profit, will differ considerably according to the respective magnitudes of the capitals invested in the various spheres. Take, for instance, four capitals A, B, C, D. Let the rate of surplus-value be 100% for all of them. Let the variable capital for each 100 of total capital be 25 in A, 40 in B, 15 in C, and 10 in D. In that case every 100 of the total capital would make a surplus-value, or profit, of 25 in A, 40 in B, 15 in C, and 10 in D. This would make a total of 90, and if these four capitals are of the same magnitude, the average rate of profit would be 90/4, or 22.5%.
Now take it that the amounts of the total capitals are as follows: A equals 200, B, 300, C, 1,000, D, 4,000. The profits produced in that case would be 50, 120, 150, and 400. Lumping these four capitals together into one total capital of 5,500, its profit would be 720, and its average rate of profit 13 1/11%.
The masses of the total value produced differ according to the magnitudes of the total capitals invested in A, B, C, D, respectively. The question of the formation of an average rate of profit is therefore not merely a matter of drawing simply the average of the different rates of profit in the various spheres of production, but quite as much one of the relative weight which these different rates of profit carry in the formation of the average. This depends on the relative magnitude
of the capital invested in each particular sphere, or on the aliquot part which the capital invested in each particular sphere forms in the aggregate social capital. There will naturally be a very great difference according to whether a large or a small part of the total capital yields more or less of a rate of profit. And this, again, depends on the fact whether much or little capital is invested in those spheres in which the variable capital is relatively small or large compared to the total capital. It is the same with the average interest which a usurer draws who lends different amounts of capital at different rates of interest; for instance at 4, 5, 6, 7%, etc. The average rate of his interest will depend entirely on the relative magnitudes of the various capitals put out by him at different rates of interest.
We see, then, that the average rate of profit is determined by two factors:
1) By the organic composition of the capitals in the different spheres of production, and consequently by the different rates of profit of the individual spheres.
2) By the allotment of the social total capital to these different spheres, in other words, by the relative magnitude of the capitals invested in each particular sphere and the special rate of profit attendant to it; or, to express it still differently, by the relative share of the total social capital absorbed by each sphere of production.
In volumes I and II we were dealing only with the
values of the commodities. Now we have dissected this value on the one hand into a
cost-price, and on the other we have developed out of it another form, that of the
price of production of commodities.
Take it that the composition of the average social capital is 80 c + 20 v, and that the annual rate of surplus-value, s’, is 100%. In that case the average annual profit for a capital of 100 would be 20, and the average annual rate of profit 20%. Whatever may be the cost-price k of the commodities annually produced by a capital of 100, their price of production will be k + 20. In those spheres of production, in which the composition of capital would be (80-x) c +
(20 + x) V, the actually produced surplus-value, or the annual profit produced in this sphere, would be 20 + x, that is to say greater than 20, and the value of the produced commodities k + 20 + x, that is to say greater than k + 20, greater than their price of production. On the other hand, in those spheres, in which the composition of the capital would be (80 + x) c + (20-x) v, the annually produced surplus-value, or profit, would be 20-x, or smaller than 20, and consequently the value of the commodities k + 20-x, smaller than the price of production, which is k + 20. Aside from eventual differences in the periods of turn-over, the price of production of the commodities would be equal with their value only in those spheres, in which the composition would happen to be 80 c + 20 v.
The specific development of the social productivity of labor varies more or less in each particular sphere of production in proportion as the quantity of means of production set in motion in a given working day by a given number of laborers is large, and consequently the quantity of labor required for a definite quantity of means of production small. Hence we call
capitals of higher composition such capitals as contain a larger percentage of constant and a smaller percentage of variable capital than the average social capital; and vice versa,
capitals of lower composition those capitals which give relatively more room to the variable, and relatively less to the constant capital, than the average social capital. Finally, we call
capitals of average composition those capitals which have the same composition as the average social capital. If the average social capital is composed of 80 c + 20 v, then a capital of 90 c + 10 v stands above, and a capital of 70 c + 30 v below the social average. Generally speaking, if the composition of the average social capital is mc + nv, m and n being constant magnitudes and m + n being equal to 100, the formula (m + x) c + (n-x) v represents the higher composition, and (m-x) c + (n + x) v the lower composition, of some individual capital or group of capitals. The following tabulation shows the way in which these capitals perform their functions after an average rate of profit has been
established, assuming one turn-over per year. In this tabulation, I shows the average composition, in which the average rate of profit is 20%.
I). 80 c + 20 v + 20 s. Rate of profit 20%. Price of product 120. Value of product 120.
II). 90 c + 10 v + 10 s. Rate of profit 20%. Price of product 120. Value of product 110.
III). 70 c + 30 v + 30 s. Rate of profit 20%. Price of product 120. Value of product 130.
The value of the commodities produced by capital II would, therefore, be smaller than their price of production, while the price of production of the commodities of III would be smaller than their value. Value and price of production would be equal only in the case of capital I and others like it in the various lines of production. By the way, in applying these terms to any particular cases it must be borne in mind whether a deviation of the proportion between c and v is not due simply to a change in the value of the elements of constant capital, instead of a difference in the technical composition.
The foregoing statements are indeed a modification of our original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity is equal to the value of the commodities consumed in its production. Now, the price of production of a certain commodity is its cost-price for the buyer, and this price may pass into other commodities and become an element of their prices. Since the price of production may vary from the value of a commodity, it follows that the cost-price of a commodity containing this price of production may also stand above or below that portion of its total value which is formed by the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error, if we assume that the cost-price of the commodities of any particular sphere is equal to the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this
point. It remains true, nevertheless, that the cost-price of a commodity is always smaller than its value. For no matter how much the cost-price of a commodity may differ from the value of the means of production consumed by it, a previous mistake in this respect is immaterial for the capitalist. The cost-price of a certain commodity has been previously determined, it is a premise independent of the production of our capitalist, while the result of his production is a commodity containing surplus-value, which is an addition to its cost-price. For all other purposes, the statement that the cost-price is smaller than the value of a commodity is now practically changed into the statement that the cost-price is smaller than the price of production. So far as the total social capital is concerned, in the case of which the price of production is equal to the value, this statement is still identical with the former, namely that the cost-price is smaller than the value of a commodity. And while this state of things is modified in the individual spheres of production, still the fundamental fact always remains that, from the point of view of the total social capital, the cost-price of the commodities produced by it is smaller than their value, or smaller than their price of production, which in the case of the total mass of social commodities is identical with their value. The cost-price of a commodity refers only to the quantity of paid labor contained in it, while its value refers to all the paid and unpaid labor contained in it. The price of production refers to the sum of the paid labor plus a certain quantity of paid labor determined by conditions which are independent of the individual sphere in which this particular commodity was produced.
The formula that the price of production of a commodity is equal to k + p, equal to its cost-price plus profit, is now more precisely modified by the explanation that p equals kp’ (p’ meaning the average rate of profit), so that the price of production is equal to k + kp’. If k is 300 and p’, 15%, then the price of production, being k + kp’, is 300 + 300 × 15/100, or 345.
1) If the average rate of profit is changed through conditions which are independent of this particular sphere, assuming the value of commodities to remain the same (so that the same quantities of dead and living labor are consumed in their production as before).
2) If there is a change of value, either in this particular sphere in consequence of technical changes, or in consequence of a change in the value of the commodities which form elements of the constant capital of this sphere, while the average rate of profit remains unchanged.
3) If the two aforementioned eventualities combine their effects.
In spite of the great changes occurring continually, as we shall see, in the rates of profit of the individual spheres of production, there is on the other hand no rapid change in the average rate of profit, unless it is brought about exceptionally by extraordinary economic events. A change in the average rate of profit is as a rule the belated work of a long series of fluctuations extending over very long periods of time, fluctuations which require much time before they will consolidate and compensate one another so as to bring about a change in the average rate of profit. In all short periods of time (quite aside from fluctuations of market prices), a change in the prices of production is, therefore, always traceable to actual changes in the value of commodities, that is to say, to changes in the total amount of labor-time required for their production. As a matter of course, mere changes in the money-expression of the same values are not at all considered here.
On the other hand it is evident that, from the point of view of the total social capital, the value of the commodities produced by it (or, expressed in money, their price) is equal to the value of the constant capital plus the value of the variable capital plus the surplus-value. Assuming the degree of labor-exploitation to be constant, the rate of profit cannot change so long as the mass of surplus-value remains the same, unless either the value of the constant capital changes, or the
value of the variable capital, or the value of both, so that C is changed and thereby s/C, the general rate of profit. In every event, then, a change in the average rate of profit is conditioned on a change in the value of the commodities which form the elements of the value of the constant, or variable capital, or of both.
Or, the average rate of profit may change, if the degree of labor-exploitation changes, while the value of the commodities remains the same.
Or, if the degree of labor-exploitation remains the same, the average rate of profit may change through a relative change in the labor employed in comparison to the constant capital, as a result of technical changes in the labor-process. But such technical changes must always find expression in a change of value of the commodities, and be accompanied by it, since their production will then require either more or less labor than before.
We saw in part I that the mass of profit and surplus-value were identical. But the rate of profit was from the first distinguished from the rate of surplus-value, and this appeared to be due, at first sight, to a mere difference of calculation. But at the same time this way of looking at the question served from the outset to obscure and mystify the actual origin of surplus-value, since the rate of profit could rise or fall, while the rate of surplus-value remained the same, and vice versa, and since the capitalist had a practical interest only in the rate of profit. But there was an actual difference of magnitude only between the
rates of surplus-value and of profit, not between the
masses of surplus-value and of profit. Since the surplus-value was calculated on the total capital in figuring up the rate of profit, and this total capital was regarded as the standard of measurement, the surplus-value itself seemed to have its origin in the total capital and to proceed from all its parts uniformly, so that the organic difference between constant and variable capital was obliterated. In its disguise of profit, the surplus-value had actually concealed its origin, lost its character, and become unrecognizable. However, hitherto the distinction between profit and
surplus-value referred only to a change of quality, or form, and there was no real difference of magnitude between the masses of surplus-value and profit, but only between the rates of surplus-value and profit, in this first stage of their metamorphosis.
But this is changed, as soon as a general rate of profit, and, by means of it, an average mass of profit corresponding to the magnitude of the capitals invested in the various spheres of production, have been established.
After that it is but accidentally that the surplus-value actually produced in any particular sphere of production, and thus the profit, is identical with the profit contained in the selling price of the commodities. It then becomes the rule, that not only the
rates of surplus-value and profit are the expression of different magnitudes, but also the
masses of surplus-value and of profit. Assuming a certain degree of exploitation to exist, the mass of the surplus-value produced in any particular sphere of production is now more important for the average profit of the total social capital, and thus for the capitalist class in general, than for the individual capitalist in any individual line of production. It has any importance for the individual capitalist only to the extent
*24 that the quantity of surplus-value produced in his line plays a determining role in regulating the average profit. But this is a process which takes place behind his back, which he does not see, nor understand, and which indeed does not interest him at all. The actual difference of magnitude between profit and surplus-value—not merely between the rate of profit and of surplus-value—in the various spheres of production now conceals completely the true nature and origin of profit, not only for the capitalist, who has a special interest in deceiving himself on this score, but also for the laborer. By the transformation of values into prices of production, the basis of the determination of value is itself removed from direct observation. Finally, seeing that the mere transformation of surplus-value into profit separates that portion of the
value of commodities which forms the profit from that portion which forms the cost-price of commodities, it is natural that the capitalist should lose the meaning of the term value at this juncture. For he is not confronted with the total labor put into the production of the commodities, but only with that portion of the total labor which he has paid in the shape of means of production, whether they be alive or dead, so that his profit appears to him as something outside of the immanent value of the commodities. And now this conception is fully endorsed, fortified, and ossified by the fact that, from the point of view of his particular sphere of production, the profit is not determined by the limits drawn for the formation of value within his own circle, but by outside influences.
The fact that the actual state of things is here revealed for the first time; that political economy up to the present time, as we shall see in the following and in volume IV, made either forced abstractions of the distinctions between surplus-value and profit, and their rates, in order to be able to retain the determination of value as a basis, or gave up the determination of value and with it all safeguards of scientific procedure, in order to cling to the obvious phenomena of these differences—this confusion of the theoretical economists demonstrates most strikingly the utter incapacity of the capitalist, when blinded by competition, to penetrate through the outward disguise into the internal essence and the inner form of the capitalist process of production.
In fact, all the laws concerning the rise and fall of the rate of profit, as analysed in part I, have the following double meaning:
1) On the one hand, they are the laws of the average rate of profit. In view of the many different causes which bring about a rise or a fall in the rate of profit, one would think that the average rate of profit would change every day. But a certain movement in one sphere will counterbalance that of another, their effects cross and paralyze one another. We shall examine later on toward which side these fluctuations gravitate ultimately. But they are slow. The suddenness, multiplicity, and different duration of the fluctuations in the
individual spheres of production tend to compensate them mutually in the order of their succession in time, so that a fall in prices follows after a rise, and vice versa, limiting these fluctuations to local, individual, spheres. As a result, the various local fluctuations ultimately neutralise one another. Changes take place within each individual sphere of production, deviations from the average rate of profit, which on the one hand, balance one another after a certain time and thus do not react upon the average rate of profit, and which, on the other hand, do not react upon it, because they are balanced by other simultaneous fluctuations in other local spheres. Since the average rate of profit is determined, not only by the average profits of each sphere, but also by the allotment of the total social capital to the different individual spheres, and since this allotment is continually changing, this is another continuous cause of changes in the average rate of profit. But it is a cause of changes which largely paralyzes itself, owing to its interrupted and many sided nature.
2) Within each sphere, there is a certain playroom for a space of time in which the local rate of profit may fluctuate, before this fluctuation of rise and fall consolidates sufficiently to gain time for exerting an influence on the average rate of profit and assuming more than a local importance. Within these limits of space and time, the laws of the rate of profit, as developed in Part I of this volume, likewise remain applicable.
The theoretical conception, referring to the first transformation of surplus-value into profit, according to which every part of the capital yields uniformly the same profit,
*25 expresses a practical fact. Whatever may be the composition of the industrial capital, whether it sets in motion one quarter of dead labor and three quarters of living labor, or three quarters of dead labor and one quarter of living labor, whether it absorbs three times as much surplus-labor, or produces three times as much surplus-value, in one case than in another, it yields the same profit in either case, always assuming the degree of labor-exploitation to be the same, and
leaving aside individual differences, which disappear for the reason that we are dealing in either case with the average composition of the entire sphere of production. The individual capitalist, whose outlook is limited, or even all the capitalists in each individual sphere of production, justly believe that their profits are not derived solely from the labor employed in their own individual sphere. This is quite true so far as their average profit is concerned. To what extent this profit is due to the universal exploitation of labor by means of the total social capital, that is to say, by all his capitalist colleagues, this connection of things is a complete mystery for the individual capitalist. And it is all the more so, since no bourgeois economist has so far cleared it up for him. A saving of labor—not only of labor necessary for the production of a certain product, but also of the number of laborers employed—and the employment of more dead labor (constant capital), appear as very correct operations from an economic point of view, and do not seem to exert the least influence on the average rate of profit and the average profit. How, then, could living labor be the exclusive source of profit, seeing that a reduction in the quantity of labor required for production does not only seem to exert no injurious influence on profit, but even seems, under certain circumstances, to be the first cause for an increase of profits, at least for the individual capitalist?
If there is a rise or fall, in any particular sphere of production, in that portion of the cost-price which represents the value of the constant capital, it is a portion coming out of the circulation and passes from the outset into the process of production of the commodities in its enlarged or reduced state. If, on the other hand, the same number of laborers produces more or less in the same time, so that the quantity of labor required for the production of a definite quantity of commodities varies while the number of laborers remains the same, it may be that that portion of the cost-price, which represents the value of the variable capital, may remain the same and contribute the same amount to the cost-price of the total product. But every individual commodity, whose sum makes
up the total product, shares in more or less labor (paid and unpaid), and shares therefore in the greater or smaller outlay for this labor, a larger or smaller portion of the wages. The total wages paid by the capitalist remain the same, but the calculation for each individual commodity is different. To that extent there would be a change in the cost-price of the commodities. But no matter whether the cost-price of the individual commodities rises or falls, either as a result of such changes of value in this same commodity, or of changes of value in its elements (or, perhaps, the cost-price of the total amount of commodities produced by a capital of a given magnitude), if the average profit is, say, 10%, it remains 10%. Still, 10%, from the point of view of the individual commodity, may represent very different amounts, according to the change of magnitude in the cost-price of the individual commodities called forth by such changes of value as we have assumed.
So far as the variable capital is concerned—and this is the more important, because it is the source of surplus-value, and because anything which conceals its relation to the accumulation of wealth by the capitalist serves to mystify the entire system—the matter assumes a coarser form. It appears to the capitalist in this light: A variable capital of 100 p.st. employs, perhaps, 100 laborers per week. If these 100 laborers produce 200 pieces of commodities or 200 C, per week in a given working time, then 1 C—leaving aside the question of that portion of its cost-price which is added by the constant capital, costs 10 shillings, for 100 p.st. pay for 200 c, and therefore 1 C costs 100/200 p.st. Now take it that a change takes place in the productive power of labor. Perhaps it is doubled, so that the same number of laborers now produces twice 200 C in the same time in which they used to produce once 200 C. In that case 1 C costs 5 shillings (always speaking only of that portion of the cost-price which consists of wages), for since 100 p.st. now pay for 400 C, 1 C costs 100/400 p.st. On the other hand, if the productive power were to decrease by one-half, then the same labor would produce
only (200/2) C. And since 100 p.st. pay for (200/2) C, 1 C would cost 200/200 p.st., or 1 p.st. The changes in the labor-time required for the production of the commodities, and thus the changes in their values, thus appear with reference to the cost-price and the price of production as different allotments of the same wages to more or fewer commodities, according to the greater or smaller quantity of commodities produced in the same working time for the same wages. The capitalist, and consequently his political economist, see that the aliquot part of the paid labor falling to the share of each individual commodity changes with the productivity of labor, and that the value of these commodities also changes accordingly. But they do not see that the same is true of the unpaid labor contained in every individual commodity, and they see it so much less since the average profit is but accidentally determined by the unpaid labor absorbed in the sphere of the individual capitalist. Only in this vague and meaningless form are we still reminded of the fact that the value of the commodities is determined by the labor contained in them.
Part II, Chapter X.