Part 10

The distinction between the Marxian theoretical and the commercial empirical conception is, however, not so simple: it arises from the different conceptions of the influence of capital and labour in the economic process. Let us explain it more distinctly.

As is known, Marx divided the capital embarked in industrial enterprise into two parts: into constant (technical means of production) and variable (living labour power, wages). He assumed that only the living labour power (wage labour) creates surplus value, whilst the constant capital only adds its own value to the new products.

The capitalist divides his capital outlay otherwise: into fixed (buildings and machines) and circulating (raw materials and wages) capital. The fixed capital is only used up slowly and only passes entirely into production during a series of years--let us say 15 years: thus of a fixed capital of £75,000, £5,000 would each year be consumed in the production of commodities, and written off in the balance sheet. On the other hand, the circulating capital (raw materials and wages) are wholly consumed in every period of production, and must be renewed at the beginning of a new period of production.

Suppose an industrial undertaking about to be started requires a capital expenditure of £105,000: £75,000 fixed capital (for buildings and machinery), £20,000 for raw materials, £10,000 for wages. For convenience sake, we will suppose that the period of production lasts a year, and that the rate of surplus value amounts to 100 per cent., that is, the labour power receives a payment of £10,000, and produces a value of £20,000. At the end of the year, the capitalist reckons an expenditure of £5,000 on account of fixed capital, and £30,000 of circulating capital: the commodities produced cost, therefore, a net outlay of £35,000. This is the cost price, without adding profit. According to Marx, cost price signifies (c) and (v), therefore without (s), (surplus value).

But the capitalist knows that the manufactured commodities represent a greater value than the cost price. According to Marx, the surplus value amounts to £10,000 (as the variable capital of £10,000 creates surplus value at the rate of 100 per cent.); but the capitalist adds to the cost price a profit which includes the gains of the enterprise and interest on the capital outlay. If the capitalist were alone in the market, his profit might suck up the whole of the surplus value of £10,000; but he has to reckon with competition and the state of the market. The cost price, plus profit, is the production price as established by the capitalist. But according to Marx, that is, in pure theory, the production price is equal to the cost price, plus surplus value. There is thus a quantitative distinction--a difference in the amount of money--between the theoretical and practical production price, as well as a qualitative distinction between the notions of the capitalist and Marx respecting the source of profit. The capitalist believes that profit is the result of the portion of capital which he has put into the process of production, combined with his own commercial ability. On the other hand, Marx asserts that the capitalist can only extract a profit because the wage workers (the living labour power) create a surplus value in the process of production for which they receive no payment.

We assumed that the surplus value amounted to 100 per cent. measured with variable capital, and that £10,000 expended on wages produced £20,000. The annual balance sheet, however, would show the percentage of profit to the total outlay. Consequently, we must spread the £10,000 surplus value over the £35,000 which have been expended. The surplus value of an undertaking spread over the total capital (c) Marx calls the rate of profit, or shortly, s/c = 10000/35000 = 28.58 per cent.

As a rule, the capitalist cannot sell under cost price without becoming bankrupt, but he can quite easily sell under the production price, and mostly does so. In the example already given, his rate of profit amounts to over 28 per cent. According to the degree of competition, or by reason of other circumstances which we will examine in the next chapter, he can content himself with a rate of profit of 10, 15, or 20 per cent., which will serve him partly as an income and partly be expended in the development of his enterprise. The 28 per cent. profit generally forms a circle within which he fixes his manufactured price. Under favourable circumstances he can add the whole 28 per cent, to the price; under less favourable, only 20, 15, or 10 per cent. Accordingly, several portions of surplus value remain in the commodities which are not yet realised. What happens to them? The remaining portions of profit or of surplus value fall to the large or small traders who are interposed between producer and consumer, or go in the form of interest to the banking institutions, in the event of the capitalist operating with borrowed money. As the profit is only realised in the process of circulation (in commerce and exchange) and there divided amongst the various economic classes and sections, most people believe that profit arises in commercial transactions. They do not know that the price of a commodity can only be increased in trade because its manufactured price was fixed below its price of production or its value, that is, because the commodities contain surplus value which is only gradually realised in the process of circulation.

The social significance of this doctrine is far-reaching. If it is correct, then all the social sections which are not engaged as manual and brain workers in the process of production, or in the transport of raw material, lead a parasitical life and consume the surplus value which is squeezed by the capitalist class out of the proletariat and appropriated without payment.

Quite otherwise are capitalist ideas. According to them, profit is the result both of the spirit of the enterprise and the ability of the capitalist, added to that portion of the capital which is put into the process of production: the machines and buildings and raw materials which are used up, and the labour power, all of which are bought at their proper exchange value. It is only fit and proper that the trader and moneylender should receive a portion of the profit so created, for they assist in realising the exchange value by bringing the commodities to the consumer, and thus rendering possible the process of production.

Surplus value or profit? Labour or Capital? Behind this question lurks the great class struggle of the modern social order. No wonder the Marxian doctrine of value and surplus value was the occasion for an extensive controversy, in which the famous problem of the average rate of profit played a great part.

6. _The Average Rate of Profit._

According to Marx's doctrine of value and surplus value only variable capital creates fresh value and surplus value. An industrial undertaking of a lower organic composition, which thus employs much variable capital and little constant capital, must consequently create a greater surplus value or more profit than an industrial undertaking of higher composition which may employ the same total capital, but composed of greater constant and smaller variable portions than the former. Let us take two industrial capitals of £35,000 each. One expends £15,000 on the constant elements (machinery, raw materials) and £20,000 on the variable element (wages of labour). The other shows £20,000 constant part and £15,000 variable part. With an equal rate of surplus value--100 per cent.--the first capital would produce £20,000 surplus value (profit) and the other only £15,000 profit. Experience shows, however, that equal amounts of capital--in spite of temporary differences in profits--tend to produce equal profits. From this, it would appear that it is actually the capital expended and not the labour employed which determines the magnitude of the surplus value (profit), that the concrete results of the capitalist process of production do not confirm the Marxian theory of value, that the facts directly contradict the theory. It was Marx himself who drew attention to this problem. After he had constructed his theory of surplus value in the form of a scientific law, he continued: "This law clearly contradicts all experience based on appearance. Everyone knows that a cotton spinner, who, reckoning the percentage on the whole of his applied capital, employs much constant capital and little variable capital, does not, on account of this, pocket less profit or surplus value than a baker, who relatively sets in motion much variable and little constant capital."

How, then, can the equal rate of profit in the case of capitals of different organic composition be harmonised with the theory of surplus value?

Marx concedes that equal capital sums whose organic parts are unequally employed give an equal rate of profit, although the volumes of surplus value created are different. Two capital sums of £50,000 each, one of which, for example, represents £40,000 constant and £10,000 variable capital, and with a rate of surplus value of 100 per cent. gives £10,000 surplus value, while the other is composed of £10,000 constant and £40,000 variable capital, and with an equal rate of surplus value gives an amount of £40,000 surplus value, will nevertheless yield an equal rate of profit, although theoretically they would be unequal if the rate of surplus value directly determined the rate of profit. In the first case, the rate of profit would amount to 20 per cent. and in the second to 80 per cent. In reality both undertakings yield an equal rate of profit.

How is this explained, according to Marx? By means of competition, the different rates of profit are levelled to a general rate of profit, which is the average of all the various rates of profit. Thus the capitalists do not realise the surplus value as it is created in any particular factory, but in the form of average rate of profit as it is produced by the operations of the total capital of society. The average rate of profit may be lower or higher than the individual rate of profit, for the "various capitalists," as Marx explains, "so far as profits are concerned, are so many stockholders in a stock company in which the shares of profits 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 of them in the social enterprise, according to his investment in social production as a whole, according to his shares."

While thus the individual rates of profit do not proportionately coincide with the rates of surplus value, i.e., while the degree of exploitation of the worker in the individual factory, and the volume of surplus value thus individually created, do not directly determine the individual rate of profit, it is the total mass of social surplus value which is the source of the average rate of profit. If the mass of the surplus value be large, the average rate of profit will also be great. Marx says: "It is here just the same as with average rate of interest which a usurer makes who lends out various portions of his capital at different rates of interest. The level of his average rate depends entirely on how much of his capital he has lent at each of the different rates of interest." The higher the various individual rates of interest, the higher will be the average rate of interest at which his capital has been put out.

The individual price of production signifies, therefore, cost price plus the average rate of profit, and not plus surplus value: it does not necessarily correspond with the total amount of the constant and variable portions of capital employed in an individual enterprise, plus the mass of the surplus value: the prices and magnitudes of value of commodities are not manifestly equal, as Marx has often pointed out. Of course, the total profits of the capitalist class coincide with the total surplus value extracted from the working class, provided, of course, that the supply of commodities corresponds with the social needs.

Thus the law of surplus value, in spite of all deviations and refractions, holds good in the last resort. "In theory," observes Marx, "it is assumed that the laws of the capitalist mode of production develop freely. In reality, there is always only an approximation."

And the more capitalist production develops, the greater will be the degree of approximation in particular cases, for the progress of Capitalism signifies a continuous increase of constant capital, a more mechanical character being given to industrial processes, and a reduction of variable capital to the necessary minimum, so that the differences in the organic composition of capitalist undertakings become less, thus bringing the average rate of profit and the rate of surplus value nearer to each other.

This indirect and difficult method of realising profits involves the fact that the capitalist does not distinctly observe the exploitation of wage labour practised by him, but he believes that the profit is owing to his own commercial ability.

This difficult section of the outlines of the economic doctrines of Marx can be most fitly concluded by quoting the comprehensive observations of Marx himself upon this subject, which he gives at the end of his book.--("Capital" (German), Vol. III., 2, pp. 355-6.)

"In a capitalist society, this surplus value or this surplus product (leaving aside accidental fluctuations in its distribution and considering only the regulating law of these fluctuations) is divided among the capitalists as a dividend in proportion to the percentage of the total social capital held by each. In this shape the surplus value appears as the average profit, which in its turn is separated into profits of enterprise and interest, and which in this way may fall into the hands of different kinds of capitalists. Just as the active capitalist squeezes surplus labour, and with it surplus value in the form of profit out of the worker, so the landlord in his turn squeezes a portion of this surplus value from the capitalist in the shape of rent. Hence when speaking of profit as that portion of surplus value which falls to the share of capital, we mean average profit.... Profits of capital (profits of enterprise plus interest) and ground rent are merely particular constituents of surplus value.... If added together, these parts form the sum of the social surplus value. A large part of profits is immediately transformed into capital." In this way, capital grows, or, as Marx says, accumulates.

7. _Surplus Value as Social Driving Force._

It has been said already that capital is that portion of wealth which is devoted to the object of increasing wealth, of gain, the extraction of profit or surplus value. This object dominates the capitalist class; the desire for surplus value is the leading impulse and principle motive of their activity. Goaded by this desire and exclusively occupied with their special interests, this class unconsciously and unintentionally develops the entire capitalist system and leads it to ever higher and more comprehensive stages.

Surplus value is thus the driving force of the history of modern capitalist society. This principle is rigidly followed out by Marx in his theoretical system, which aims at showing the rise and growth of Capitalism.

The capitalist is no scientific investigator: he is not clear himself whether profit is created by a portion of the capital, or is the result of personal productive forces, but he knows one thing--without living labour power, without the wage worker, his whole capital remains dead and does not increase; all the fixed capital and raw materials are of no use to him so long as they are not set in motion by living labour power and transformed into commodities. His efforts are, therefore, primarily directed to making proper use of the living labour power. Historically considered, little constant and relatively much variable capital was employed in the primitive stage of the large scale industry: there was as yet little machinery, and the chief thing was the living labour power. The workers were not yet factory proletarians in the modern sense, but artisans who had lost their independent existence.

The capitalist harnessed them and utilised their labour power and special ability. Consequently, he strives to lengthen the working day, in order that as many commodities and as much profit as possible may be produced.

If previously the wage worker had laboured ten hours, of which five were devoted to the production of the value of his wages and five to surplus value, he is now obliged to work for twelve hours, which increases the period for surplus labour to seven hours. The surplus value which is extracted through the lengthening of the working day is called by Marx "absolute surplus value."

Meanwhile, the capitalist learns by experience that if the workers are so organised as to co-operate with one another, the productivity of labour increases. From this arises the mode of labour which Marx calls Co-operation, or a reorganisation of the workplace, which raises the entire production of commodities to a higher level. The co-operation of the workers in the process of production soon leads to the discovery that, if the worker does not himself create the whole product, but only a part thereof, he loses less time and becomes quicker and more skilful in his work and produces more than previously. This discovery leads to the "division of labour," which indeed reduces the worker to the position of an automaton, or a living machine, but considerably augments commodity wealth. Division of labour again demands finer tools; mechanical problems arise to be solved by mechanicians and engineers. This favours the progress of mechanics. The growing commodity wealth, and the pressure to realise it profitably, renders necessary more extensive markets; the need for extension comes up against transport difficulties; transport problems arise, to be solved by road and canal engineers. The increasing variety of the labour process and the categories of commodities which are produced results in new metallurgical, physical, and chemical problems. Natural science flourishes.

Meanwhile, things are not so peaceful in the places of manufacture. The lengthening of labour the closer strain on their nerves and muscles, as well as the arrangement of the work, cause the workers to combine and struggle for improved conditions of labour. This struggle, together with the progress of natural science, of technology, and the expansion of markets, result in the discovery of machine technology, of steam and electricity, the foundation of large-scale industry.

The capitalist is impelled, on the one hand, to make himself as independent as possible of living labour-power; on the other hand, to increase the volume of his profits. The means thereto are offered him by the new technical discoveries. Those workers who still possessed some pride in handicraft, or as expropriated small peasants were not able to submit to factory discipline, and showed themselves rebellious, were partly replaced by the labour of women and children, and partly curbed and made pliable. The labour time is repeatedly lengthened, and the exploitation of the labour of women and children assumes terrible proportions. The wage worker, who entered into the manufacturing premises of the employer full of the pride of his calling and often with his own tools, became then a small cog in a gigantic, relentless piece of working machinery.

In this extensive and hitherto unprecedented social transformation the old forms of handicraft disappear: whole sections of society, which are the representatives of the disappearing forms of handicraft, sink into poverty, and augment the class of proletarians. The progress of the industrial revolution extends also to agriculture: the greed for surplus value (ground rent) leads to enclosure of common lands by the great landlords, the independent yeomanry is decimated, the small proprietor and small tenant are made proletarians. A transmutation of social classes takes place; the urban population grows rapidly, the country districts are depopulated: out of the revolutionary process the outlines of two classes become more and more distinct: Capitalist and Proletarian.

Both the factory proletariat and the other social sections which adopt a hostile attitude towards Capitalism react against the health-destroying exploitation, and struggle for a normal working day.

The working time is curtailed and bounds are set to the efforts of the capitalist to lengthen the working day and obtain surplus value, but soon the progress of machine technique compels the worker to labour more intensely in the shorter working time: the accelerated movement of the machine determines the pace and necessitates a sharper straining of the nerves. Henceforth, the worker must compress into a working hour as much effort as was previously expended in an hour and a half. The surplus value which is extracted in this way Marx calls "relative surplus value." The struggle of the workers to secure a shorter working day is a powerful incentive to the manufacturers to perfect their machinery, in order to increase the amount of relative surplus value. The intensification of work or the creation of relative surplus value is one of the most immediate effects and one of the most striking features of advanced Capitalism. The understanding of this new phase is a preliminary condition to the comprehension of the Marxian system. In this matter, Marx goes considerably beyond the anti-capitalist theoreticians who followed upon Ricardo.

What happens when the capitalist observes that the extraction of absolute surplus value comes up against an insurmountable obstacle? He sets himself to fit up his enterprise with the newest and most costly machinery, in order to supplant living labour-power and to work more intensively the living labour-power which he employs.

As, however, less living labour-power brings forth less exchange value and less surplus value, he is obliged to multiply production, in order to cover the fall in surplus value by a larger mass of commodities: if the single commodity brings him less profit, he produces it in such large quantities that the profit thereon is the same, or even greater, than formerly. The more complicated machinery, the greater quantities of raw materials consumed, and the relatively smaller amount of labour-power signify obviously an alteration in the organic composition of capital: the constant portion (machinery, raw materials) preponderates more and more over the variable portion. If, previously, the composition was 50 per cent. constant and 50 per cent. variable, it becomes now something like 80 per cent.: 20 per cent. At the same time, the initial capital is also increased greatly, as machines and large quantities of raw and auxiliary materials demand such increase of capital. If, for example, the initial capital previously amounted to £100,000, divided into £50,000 constant and £50,000 variable capital, it would now amount to £500,000, comprising £400,000 constant and £100,000 variable. This organic composition signifies: that relatively smaller masses of labour set in motion large masses of technical means of production; labour is more productive because more intense; the sum total of commodities is increased; the profit on single articles is smaller, but the total profit is greater; the reconversion of profits into capital proceeds rapidly.