Sunday, 19 April 2015

Capital III, Chapter 1 - Part 1

Cost-Price and Profit 

Volume I dealt with the production of capital at the level of the individual capital, and in isolation from anything outside that production process. Volume II examined the circulation of capital outside the process of production, first at the level of the individual capital (many capitals) and then at the level of the circulation of the total social capital (capital in general). The conclusion of this was that capital could only be understood as a fusion both of the production and circulation processes.

The analysis, although referring to actual capitals, as examples, had been conducted at a level of abstraction, to focus on the actual laws that governed these processes, free from any disturbances to those laws that might have obscured them. Having analysed the underlying mechanism, Marx now turns to the way this is represented at the level of society, in the shape of concrete capitals, and the relations between them, and how these produce concrete social relations.

“The various forms of capital, as evolved in this book, thus approach step by step the form which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves.” (p 25)

The value of commodities, C, is equal to c+v+s. This can be divided into two parts, and is done so by the capitalist. If we deduct s, the surplus value, we are left with c+v, which is the value of the capital laid out to produce the commodity, and so appears to the capitalist as its cost price. But, in reality, this is not the cost price. If we totalled up the labour-time required for production, it would be equal to c+v+s. It only appears to the capitalist that the cost price is c+v, because that is indeed what it has cost them, what they have paid for. But, their gain in that regard is the worker's loss. The worker has provided a certain number of hours labour, but only been paid for a part of them, even though that payment is equal to the value of the worker's labour power.

On the basis of this division, the cost price can be designated k, and so this value of the commodity resolves into k+s.

“The grouping of the various value portions of a commodity which only replace the value of the capital expended in its production under the head of cost-price expresses, on the one hand, the specific character of capitalist production. The capitalist cost of the commodity is measured by the expenditure of capital, while the actual cost of the commodity is measured by the expenditure of labour.” (p 26)

But, the cost price of the commodity is important, because it continually has to be reproduced in the sale of the commodity, so that the productive capital can be reproduced, so that production can continue on at least the same scale.

“The category of cost-price, on the other hand, has nothing to do with the formation of commodity-value, or with the process of self-expansion of capital.” (p 28)

The value of the commodity does not arise out of the cost price, but out of the labour-time required for its production, which in turn can be divided into that transferred from the constant capital, and that newly created by the variable capital. The self-expansion of the capital arises only from the latter as, in the process of production, it transforms what is an absolute quantity, the value of the labour-power, into a variable quantity, the value created by that labour-power.

But, the cost price, in combining the constant capital and the variable capital, into one amount, obscures this reality, so then it appears that the surplus value arises from the capital advanced as a whole.

“The investigation will show, however, that in capitalist economics the cost-price assumes the false appearance of a category of value production itself.” (p 28)

Saturday, 18 April 2015

Northern Soul Classics - The Zoo - The Commodores

I was tempted to put this early Commodores classic in the Friday Night Disco category, but it was a biggie in the early Wigan days around 1974.

Capital III, Introduction - Part 6

Finally, Engels turns to the solution provided by George C. Stiebeling, from the US. Stiebeling's solution seemed simple, but rested on a straightforward mathematical error. His model provides two enterprises with different organic compositions of capital. He designates total capital in each case (c+v), y, and the difference in the organic composition x. The rate of profit in the first is then s/(c+v), and in the second s/(c-x) + (v+x) = s/(c+v),

The obvious error is that he has assumed that the value of s in both cases is the same! But, the whole point is that the value of s will be higher in the second firm, where the organic composition of capital is lower.

The controversies and misunderstandings surrounding Marx's theories, on the tendency of the rate of profit to fall, and on the transformation problem, have continued to this day. Many of those who treat, for example, the falling rate of profit as some kind of philosopher's stone, to unlock the key of capitalist crises, repeat half understood ideas, put forward by Marx, as though they were in some way fixed and frozen laws. In doing so, they trample on the grave of Marx's scientific method. They would do well, rather than repeating those mantras, to follow Engels' advice.

“No doubt Dr. Stiebeling has the best intentions, but when a man wants to deal with scientific questions he should above all learn to read the works he wishes to use just as the author had written them, and above all without reading anything into them that they do not contain.” (p 21) 

Friday, 17 April 2015

Friday Night Disco - Kool and the Gang - Kool and the Gang

First contact with the gang, from back in 1969.

Capital III, Introduction - Part 5

In his response to Peter Fireman, Engels gave a sharp warning to those dogmatic Marxists of today who want to find in Marx cut and dried definitions and answers good for all time, because of their 'objectivity'.

“They rest upon the false assumption that Marx wishes to define where he only investigates, and that in general one might expect fixed, cut-to-measure, once and for all applicable definitions in Marx’s works. It is self-evident that where things and their interrelations are conceived, not as fixed, but as changing, their mental images, the ideas, are likewise subject to change and transformation; and they are not encapsulated in rigid definitions, but are developed in their historical or logical process of formation. This makes clear, of course, why in the beginning of his first book Marx proceeds from the simple production of commodities as the historical premise, ultimately to arrive from this basis to capital — why he proceeds from the simple commodity instead of a logically and historically secondary form — from an already capitalistically modified commodity.” (p 13-14)

Fireman hits upon the right answer, but without providing all of the necessary logical development of the solution provided by Marx. Profit, says Fireman, is just a “conventional phenomenon”, specific to capitalism. Capitals make profits under this system, and how much profit is determined by the size of the capital. An average rate of profit arises only because capital moves from where profits are low to where they are high. But, profit, determined by the size of capital, is also comprised of surplus value, which depends on the rate of surplus value. How then is the latter transformed into the former? It can only be by selling commodities above their value where the organic composition of capital is high and vice versa.

Does this discrepancy invalidate the Law of Value? No says Fireman.

“For since the prices of some commodities rise above their value as much as the prices of others fall below it, the total sum of prices remains equal to the total sum of values ... in the end this incongruity disappears."” (p 14)

Engels comments,

“On comparing the relevant passages in Chapter IX with the above, it will be seen that Fireman has indeed placed his finger on the salient point.” (p 15)

But, far more work would be needed, “even after this discovery to enable Fireman to work out a full and comprehensive solution.” (p 15)

Engels briefly deals with the attempt by Professor Julius Wolf, before moving on to attack Achille Loria. Wolf thought he had resolved the issue, by pointing out that as constant capital rises, so productivity rises, and so relative surplus value rises. This is, of course, true, and forms one of the elements of the countervailing forces to the falling rate of profit. But, it is then a question of a struggle between the rate of surplus value, and the absolute quantity of surplus value produced. The rate of surplus value may rise, but if the quantity of labour exploited falls more, the amount of surplus value produced may fall, in which case the rate of profit will fall.

Engels is vehement against Loria, who attacked Marx soon after his death, claiming, in the process, that he, not Marx, had developed the materialist conception of history. Loria attacked Marx's theory that the surplus value is produced only by the variable capital, saying that, in practice, it depends on the whole capital. He points to Marx's statement in Volume I, Chapter 13, where Marx himself says this is the way it seems on the surface. He accuses Marx of being in an irreconcilable contradiction, and suggesting that Marx's statement that the resolution to it would be given in a future volume, was merely a ruse to get out of it.

Having declared the problem to be insoluble, in the 1880's, Loria then, in a review of Schmidt's article, comes forward with his own solution. Schmidt had set out, in the same way as Marx, where merchant's profit comes from, sharing in the surplus value produced of industrial capital, as set out in this volume. Loria seized upon this idea to provide his own solution to the formation of an average rate of profit. All it required was for some unproductive capital, like merchant's capital, to be able to charge 'interest' against the various industrial capitals, variable according to how much profit they made, so they were all reduced to the same level, a level that miraculously this unproductive capital then also achieves.

But, of course, Loria is unable to indicate why this commercial capital would be able to force productive capitalists to hand over this tribute, let alone why those that made the highest profits would hand over a larger proportion than their competitors.

Thursday, 16 April 2015

Capital III, Introduction - Part 4

Engels then summarises the section from Volume III, where Marx describes this historical process, back from the times of primitive communism, up to capitalism, where the producers own the means of production themselves. They produce use values, whose value is determined by the labour-time required for their production, and in so far as these use values are exchanged, and become commodities this value is subsumed in, and assumes the form of, a social value, a social average labour-time required for their production. These commodities would exchange at values, which produce a range of different rates of profit, because of different proportions of means of production and labour-power required in their production. The individual producer is not bothered by this, because they are only concerned to get back in exchange an equivalent for the value they have expended, and in some societies demanding, or paying, anything other than that carried with it penalties.

Engels outlines some of this in his Supplement,

“Had Marx an opportunity to go over the third volume once more, he would doubtless have extended this passage considerably. As it stands, it gives only a sketchy outline of what is to be said on the point in question. Let us, therefore, examine it somewhat closer.” (p 896)

Engels sets out clearly the period during this operation of the Law of Value, by which commodities exchange at their values is then specified clearly by Engels.

“In a word: the Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity production — that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production. Up to that time, prices gravitate towards the values fixed according to the Marxian law and oscillate around those values, so that the more fully simple commodity production develops, the more the average prices over long periods uninterrupted by external violent disturbances coincide with values within a negligible margin. Thus, the Marxian law of value has general economic validity for a period lasting from the beginning of exchange, which transforms products into commodities, down to the 15th century of the present era. But the exchange of commodities dates from a time before all written history — which in Egypt goes back to at least 2500 B.C., and perhaps 5000 B.C., and in Babylon to 4000 B.C., perhaps to 6000 B.C.; thus, the law of value has prevailed during a period of from five to seven thousand years.” (p 899 - 900) 

The commencement of capitalist production, then, from around the fifteenth century, though only on a minor scale, begins to transform these exchange values into prices of production, through a long historical process. Capital invades those areas first where a low organic composition of capital means that a high rate of profit prevails, typically agriculture. The more capital invades such an area, the more supply is increased, and consequently prices are forced down below exchange values, and profits along with it, providing an incentive for capital to turn its attention to some other area of production with a low organic composition of capital. But, now capital has not only brought about prices of production in agriculture that differ from exchange values, it has had a ripple effect.

Every producer that consumes the products of agriculture now buys those products not at their exchange value, but at their new lower price of production. These lower price inputs, now reduce the exchange value of their own commodity, even if it is still being produced by a direct producer, not capitalistically. As Marx puts it,

“The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from 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 the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point.” 

Increasingly then, it is impossible to identify exchange values, because, even non-capitalistically produced commodities' cost prices, are comprised, themselves, of prices of production, of the commodities used in their production.  Marx and Engels not only were conscious that transformed output prices were at the same time input prices, for other commodities, it was a central aspect of their theory of how exchange values are historically superseded by prices of production! Marx and Engels knew that input prices had to be transformed simultaneously with output prices, and Marx says so above, but, as with so much of Marx's explication, he deals with the core idea first, before moving on to its further elaboration. Unfortunately, he did not live long enough to provide that further elaboration.

Although, Schmidt had been led astray by his desire to provide this mathematical solution, he had clearly learned invaluable lessons from the first two volumes of Capital, Engels says.

“His is the honour of independently finding the correct explanation developed by Marx in the third part of the third volume for the hitherto inexplicable sinking tendency of the rate of profit, and, similarly, of explaining the derivation of commercial profit out of industrial surplus-value, and of making a great number of observations concerning interest and ground-rent, in which he anticipates ideas developed by Marx in the fourth and fifth parts of the third volume.” (p 13)

Wednesday, 15 April 2015

Capital III, Introduction - Part 3

Engels then turns to the solution put forward by Dr. Conrad Schmidt. He argues that the capital laid out by the capitalist represents the socially necessary labour required for production considered from the standpoint of the capitalist. So,

“...the labour necessary for the manufacture of the surplus-product happens to be past labour accumulated in his capital, it follows that surplus-products are exchanged in proportion to the sums of capital required for their production, and not in proportion to the labour actually incorporated in them. Hence the share of each unit of capital is equal to the sum of all produced surplus-values divided by the sum of the capitals expended in production. Accordingly, equal sums of capital yield equal profits in equal time spans, and this is accomplished by adding the cost-price of the surplus-product so calculated, i.e., the average profit, to the cost-price of the paid product and by selling both the paid and unpaid product at this increased price. The average rate of profit takes shape in spite of average commodity-prices being determined, as Schmidt holds, by the law of value.” (p 12) 

The construction, says Engels, is Hegelian, “like the majority of Hegelian constructions it is not correct.” (p 12). It is not correct because it makes no difference if we are considering the paid or unpaid part of labour. It is not the socially necessary labour required only to produce the surplus product that is relevant, but the socially necessary labour required to produce the whole product – necessary and surplus. 

But, Engels also provides an interesting aside that I think is relevant to more recent debate over the Transformation Problem. He says,

“Schmidt strayed into this bypath when quite close to the solution, because he believed that he needed nothing short of a mathematical formula to demonstrate the conformance of the average price of every individual commodity with the law of value.” (p 13)

I think that is true of many of the more recent solutions, which have focussed on the desire to provide a mathematically exact and consistent solution, at the expense of analysing the reality of how exchange values were, and are, transformed, in the real world, as a process. I have written, in the past, that Marx's own explication of that process, consistent with his approach throughout Capital, is first to describe it as an historical process, and only then to reduce that to a logical structure. The historical process of the transformation of exchange values into prices of production begins long before the dominance of capitalism. According to Engels,

“Sombart, as well as Schmidt, — I mention the illustrious Loria merely as an amusing vulgar-economist foil — does not make sufficient allowance for the fact that we are dealing here not only with a purely logical process, but with a historical process, and its explanatory reflection in thought, the logical pursuance of its inner connections.” (The Law Of Value and Rate of Profit, p 895)