CAPITAL III. Chapters 1: Cost Price & Profit, 2: The Rate of Profit & 3: The Relationship Between the Rate of Profit & the Rate of Surplus-Value.

In these three chapters, Marx deals with the cost of production (c + v, or k), the commodity value produced (c + v + s, or C) and the way this distinction hides how value is valorised. In dicussing this dissembling he deals with the appearance of capitalism to the agents of production, particularly the capitalists. This is interesting for the tendency of Marxists to focus on the subjectivity of workers, whereas here Marx insists on looking at the subjectivity of capitalists.

Chapter 1: Cost Price & Profit

  • The value of any commodity is: C = c + v + s. If we subtract s we get the actual capital-value invested: C – s = c + v. A given commodity is made up of 400 constant and 100 variable capital with a rate of exploitation of 100 per cent. The value of its product Cc + v + s = 400 + 100 + 100 = 600. If we subtract the surplus-value from the commodity value produced we’re left with the sum of the constant and variable capital: C – s = c + v or 600 – 100 = 400 + 100 = 500.
  • This is the value advanced by the capitalist, the sum of variable and constant capital, c + v. It is the cost price of the commodity. Marx denotes this k, so c + v = k. The commodity value is C = k + s and the cost price is k = C – s This value simply replaces the capital advanced. The cost price is always smaller than the commodity value produced, which represents the labour that was spent producing it. k < C; or c + v < (c + v) + s.
  • Marx’s point here is that k is at a lower level of abstraction than c + v. The cost price appears more readily than the division of cost price into constant and variable capital. As far as capital is concerned surplus-value is returned on the capital they advance to produce a set of comodities, or their cost price: k. In CAPITAL II Marx introduced fixed and fluid capital to talk about the movement of value. Along with a small sum representing the depreciation of the total fixed capital, the fluid capital collapses together constant and variable capital into the cost price, thus dissembling the source of valorisation, v.

‘What the commodity costs the capitalist, and what it actually does cost to produce it, are two completely different quantities … The capitalist cost of the commodity is measured by the expenditure of capital, whereas the actual cost of the commodity is measured by the expenditure of labour’ (118).

‘The category of cost price has nothing to do with the formation of commodity value or the process of capital’s valorisation … [it is a] false semblance of an actual category of value production’ (119).

  • If the value composition of a capital is 400 + 100 and a working day is paid at $0.30; the commodity product contains 1666.6 social working days (500/0.3). The value of these days is 80 per cent constant and 20 per cent variable capital, or 1333.3 and 333.3 days. The new value is 600; 400c is dead labour, reappearing in the new product and 200(v + s) is newly produced value. k = C – s = 600 – 100 = 500. The constant capital that reappears in the product replaces that used up during production. It is both a component of the commodity value and simply how much the means of production cost the capitalist. While constant capital is replaced by an equivalent value in its product, variable capital is replaced by living labour.

‘Within the capital that is advanced labour-power counts as value,  but in the production process it counts as the creator of value‘ (120).

  • Marx distinguishes repeatedly between cost price and commodity value. If the cost of constant capital increases by 200 the cost price also increases to 600c + 100v = 700 and the commodity value is increased to 600c + 100v + 100s = 800; or visa versa for a decline in the cost of constant capital. But with a change in the cost of variable capital, the price of labour-power, things are different. If the cost rises by 50: 400c + 150v + 50s (the extra 50 coming from the surplus value produced) = 600; if the cost falls 50: 400c + 50v + 150s (the freed up 50 going in to the surplus value produced) = 600. This is presumably if the cost of labour-power in the subsequent period rises or falls.

‘A change in the absolute size of the variable capital . . . does not in the least change the absolute size of the commodity value, because it does not affect the absolute size of the new value which active labour-power creates’ (121).

  • Cost price vs. commodity value: capital advance = 400 + 100 = 500 vs. commodity value = 400 + 100 + 100 = 600. The distinction between constant and variable capital disappears when its is considered simply as different material inputs to production; as two sums of pre-existing value:

‘What we see here are only finished and existing values – the value portions of the capital advanced which enter the formation of the product’s value – and not an element that creates new value. The distinction between constant and variable capital has disappeared’ (122).

  • The fixed capital is 1200, of which 20 goes to the product as a value component and 1180 remains. The capital advanced to production is 1680; the fixed capital of 1200 plus the circulating capital, 480. The former value is fixed capital, the latter is fluid. If the cost price is 500, 20 of this is derived from the depreciation of means of labour. 20depreciation + 380c + 100v = 500k. Fixed capital only enters the product partially, circulating capital entirely. The only value contribution of fixed and circulating capital is what is actually consumed during production. This distinction, fixed and circulating, shows that cost price is made up only of what the capitalist has advanced. But it also mystifies the source of valorisation; the distinction between variable and constant capital are dissolved in the notion of circulating capital.
  • Perhaps here Marx is differentiating the actual total capital advanced, which includes the fixed capital and the circulating capital, and cost price, which includes the circulating capital but only the depreciation on the fixed capital. He isn’t consistent in making this differentiation clear, he sometime calls the cost price the total capital advanced. Here he is clearly saying that they are not the same thing.
  • Surplus-value appears as a sale price in excess of the value of a commodity but is actually an excess of value over the cost price. We can either view this as c + (v + s), where s is an increment to v, or (c + v) + s, where s is an increment to the cost price. It is further an increment to the means of labour, 1180. After production the capitalist has the value of means of labour 1180fixed capital and the value of the product 600commodity value, so a total value of 1780. If we subtract the capital advanced, as it goes out to re-acquire the components of circulating capital, we are left with a value of 1280. The surplus value appears to be formed from the cost price. The entire capital contributes only in part towards cost price, but in full towards surplus-value. Thus the capital expects a profit on all aspects of capital (Malthus). Profit is surplus value in a mystified form. Value creativity is displaced, from variable capital, onto capital as a whole.

‘The entire capital is materially involved in the labour process, even if only a part of it is involved in the process of valorisation… As this supposed derivative of the total capital advanced the surplus-value takes on the transformed form of profit” (126).

‘If we call profit p, the formula C = c + v + s = k + s is converted in the formula C = k + p, or commodity value = cost price + profit‘ (127).

  • C = k + s can only be reduced to C = k if s = 0, which can never happen in capitalism, ‘even if certain special market conditions may cause the sale price of commodities to fall to their cost or below’ (127):

‘An indefinite series of sale prices is evidently possible between the value of a commodity and its cost price. The greater the element of commodity value consisting of surplus-value, the greater the practical room for these intermediate prices’ (127).

‘The basic law of capitalist competition, which political economy has so dar failed to grasp, the law that governs the general rate of profit and the so-called prices of production determined by it, depends, as we shall see, on this difference between the value and the cost price of commodities, and the possibility of deriving this of selling commodities below their value at a profit’ (128).

  • The capitalist does not need to sell as the full commodity value to make a profit. See CAPITAL I, Chapter 12, p 343-5. Profit appears to the capitalist as an excess value over the ‘inner value’ of the commodity, its cost price. It appears as thought the surplus-value ‘derives from the sale itself’ (128). An example from Torrens, An Essay on the Production of Wealth, 1821: the farmer plants 100 corn, receives 120 back; the 20 profit can’t be seen as part of the expenditure; likewise in manufacture the greater exchangeable value of the product of the cost of production can’t be part of the latter. The conclusion is the profit derives from fiddling prices. The attempt to avoid something coming from nothing in production is to move to exchange; but exchange is of equal values and the question of profit is sent back to production.

Chapter 2: The Rate of Profit

  • The ‘greater sum’ (132): created in production, realised in exchange. Surplus value is produced when the capitalists transform a sum of value into the conditions of production. The appearance of capital is that it is a homogenous mass, not split into constant and variable parts. The cost of the product is the total of what the capitalist has paid for.

‘the actual degree of profits is determined in relation not to variable capital but to total capital, not by the rate of surplus value but by the rate of profit… The capitalists profit, therefore, comes from the fact that he has something to sell for which he has not paid’ (133).

  • The rate of profit is p’ = s / k.
  • The rate of surplus-value is s’ = s/v

“The rate of surplus-value, as measured against the variable capital, is known as the rate of surplus-value; the rate of surplus-value, as measured against the total capital is known as the rate of profit. These are two different standards for measuring the same quantity, and as a result are able to express the different relations in which the same quantity may stand” (133-4).

  • Profit is the phenomenal appearance of surplus value, an “invisible essence” (134). The rate of profit is the only concern for the individual capitalist. While a surplus-value is generated in production it can only be realised in circulation. There is given magnitude of surplus-value in society. This is distributed through circulation; ‘as far as the individual capitalist is concerned, the surplus value that he realises depends just as much on his mutual cheating as on the direct exploitation of labour’ (134). Though in aggregate this mutual cheating changes nothing, it is the nature of competition.
  • The circulation process blurs what is happening; here profit seems to be the sale of a commodity above its intrinsic value. On the one hand, the capitalist is aware of the nature of surplus-value, as is seen in his appetite for other people’s labour. But the immediate process of production and circulation form ‘evanescent moments’ (135) and blur into each other; at one moment capital is exploiting labour at the next it is denying its surplus is has any relation to labour; that valorisation is a power it possesses independently of labour. The ‘mere material existence’ of capital is given this power, rather than its social existence.
  • The inclusion of labour-power as a cost blurs the source of surplus-value further; reducing the cost of labour is like reducing any other cost of production. When all aspects of the capital relation appear as sources of surplus-value, capital is mystified. A transposition of consciousness occurs; an inverted conception of the situation: dead labour as living, worker as commodity.

‘Yet the way that surplus-value is transformed into the form of profit, by way of the rate of profit, is only a further extension of that inversion of subject and object which already occurs in the production process itself’ (136).

  • The rates of surplus value and of profit are not interchangeable; though they are in the mind of capital. s / c + v, rather is the ratio of the surplus to the cost price, while s/v is the ratio of the surplus to variable capital. There is no internal relation between the surplus and cost price, though in a ’roundabout’ way there is a technical connection. There is a definite mass of constant capital necessary for the valorisation of definite mass of labour. The rate of profit is simply an alternative measure of surplus-value; viz. against the cost price rather than the variable capital. The problem is that the profit rate doesn’t disclose the source of surplus value. Profit is simply the difference between the sale price and the cost price, and as such the rate of profit appears as the ratio of the surplus-value to the cost price.
  • When the excess is derived from the rate of profit, its relation to the total capital is a relation to itself, as it appears that it is the product of this total capital. Marx:

‘We might say in the Hegelian fashion that the excess is reflected back into itself from the rate of profit… capital appears as a relationship to itself‘ (139).

Chapter 3: The Relationship Between the Rate of Profit & the Rate of Surplus-Value.

  • The investigation begins with mathematics. Marx reintroduces his notation. He reassigns C to the cost price, where it had previously been assigned to the produced commodity value (see page 117). So we have: C = total capital; c = constant capital; v = variable capital; s = surplus-value = s’v; s’ = rate of surplus value = s / v; p = profit; p’ = rate of profit = s / C = s / c + v = s’v / C = s’v / c + v; p’ : s’ = v / C = rate of profit is to rate of surplus-value is in the same proportionality as variable capital is to total capital. It follows from this that p’ is always smaller than s’. The only exception would be the equality of variable and total capital, v = C; but this is impossible in practice.
  • There are six factors that affect the values of c, v and s: (1) The value of money is constant throughout; (2) The turnover is ignored; (3) The productivity of labour can exert a direct influence on the p’ of an individual capital. An increase in productivity means that a capital can produce at an individual value below its social value, still charge the social sale price and, thus, make an extra profit. But in this chapter it is assumed that productivity is constant and commodities sell at their values; (4) the length of the working day; (5) the intensity of labour; (6) the wage.  (4), (5) and (6) are all assumed to be constant.
  • An example capital-value of 100 with variable capital of 20: 80 + 20 + 20; s’ = 100 per cent; p’ = 20 per cent. If the working day is extended from 10 hours to 15 hours; the new value increases proportionally from 40 to 60. So: 80 + 20 + 40; s’ = 200 per cent; p’ = 40 per cent. If, rather, the variable capital falls from 20 to 12 the surplus increases from 20 to 28, given that the same work is done: 80 + 12 + 28; s’ = 233.33 per cent; r’ = 30.43 per cent. The change in v does not increase or decrease the quantity of labour performed but only the value of labour-power. Changes in the working day, intensity of labour and wages change s’ and thus p’. Changes in s’ suggest a change in the working day, intensity of labour and/ or wages.
  • The special organic relationship between s’ and r’ and variable capital is emphasised here. The important ratio is that between the total labour set in motion and the labour expressed in the value of labour power; the former always being greater than the latter. A reduction of the necessary labour doesn’t reduce the the value produced, but changes its distribution between v and s. The materiality of the constant capital, its embodiment, doesn’t impact the production of value (though it is a condition on it).

‘The quantity of actual material in which its value is expressed is completely unimportant for the formation of value and the rate of profit, which varies in the opposite direction to the value of the constant capital, irrespective of what relationship the increase of decrease in this value has to the mass of material use-values that it represents’ (144).

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