Thursday 31 August 2017

Theories of Surplus Value, Part II, Chapter 8 - Part 3

Marx repeats a point made in his discussion of rent in Capital III, which may be historically accurate, but which I'm not sure is theoretically valid. He writes,

“Quite apart from the variation in rent according to the fertility of the land, the very existence of rent—i.e., the modern form of landed property—is feasible because the average wage of the agricultural labourer is below that of the industrial worker. Since, to start with, by tradition (as the farmer turns capitalist before capitalists turn farmers) the capitalist passed on part of his gain to the landlord, he compensated himself by forcing wages down below their level. With the labourers’ desertion of the land, wages had to rise and they did rise. But hardly has this pressure become evident, when machinery etc. is introduced and the land once more boasts a (relative) surplus population. (Vide England.)” (p 17)

There is no doubt that capitalist farmers sought to compensate for the payment of rent by reducing wages below the value of labour-power, but the same can be said about the less efficient capitalist producers in general, who seek to compensate for their lower profits, arising from that inefficiency, by paying lower wages, and imposing poorer conditions.

Marx also describes the response to that in agriculture, with the movement off the land into the towns, and consequent rise in agricultural wages. Again, yes, historically, the response over time was to introduce labour-saving machines, which recreated a relative surplus population on the land, but its not clear how this is different to the position labour faces in general, when such new technology is introduced to remedy a relative shortage of labour. Marx's argument, related to this, in Capital III, was that it reflects the fact that productivity in agriculture is always lower than in industry, but it is not clear that this must always be the case or that the basis of rent would disappear if it were not the case.

The basis of Marx's argument is that the difference between agriculture and industry is that increased surplus value in industry arises from cheaper production, whereas in agriculture it arises from more expensive production. Marx sets out the situation in industry. But, his argument is rather lax.

He takes the price of production of yarn, and then examines the situation of a producer that produces with a lower individual value, due to the use of fixed capital, which allows more efficient production, on a larger scale. So, if the price of production of 1 kg. of yarn is £2, this producer may be able to produce it at £1, including the average profit. Because this lower cost is the result of producing on a larger scale, say 10,000 kg. rather than 8,000 kg., this represents increased supply of 2,000 kg., a place for which must be found on the market.

Marx makes a slight error, because he says that the lower cost is only achieved because the fixed capital cost is spread over this larger output, so that if only 8,000 kg. were sold, the price would be 20% higher. In fact, of course, the fixed capital raises productivity so that also the cost of wages in each kg. of output falls.

In order to sell this 10,000 kg., therefore, the producer reduces the selling price, so as to create additional demand. However, in reality, it depends on the relative proportion of total output which this producer accounts for. If the total production of yarn is say 1 million kg., the additional 2,000 kg., of this producer, will not be significant. They would, in reality, continue to sell their output at the existing price of production of £2 per kg., making £1 per kg. of surplus profit.

But, Marx assumes that this 10,000 kg. is sufficient to require the producer to reduce their price so as to sell it. If they reduce their price to £1.50 to do so, this will be below the previous market price and price of production, but above the individual value/price of production for this 10,000 kg. thereby still providing a surplus profit of £0.50 per kg.

Marx does not pursue the ramifications of the argument, however, For example, if this 10,000 kg. represents a significantly large proportion of total output as to require a fall in the market price of yarn, to create the demand to absorb the additional supply, it must also be large enough to also affect the market value/price of production of yarn itself. It is not just this producer alone who then must sell at £1.50 per kilo, but all other producers of yarn. But, other yarn producers may produce with a price of production equal to the previous level of £2 per kg. which means that they now make profit below the average, to the extent of £0.50 per kg. Others may produce at prices of production even above the old level who now see their profit disappear, leading them to withdraw their capital.

Turning to the situation in agriculture, Marx argues that the supplier would sell, not at £1.50 per kg., but at £2 per kg, because “... if I had sufficient fertile land, the less fertile would not be cultivated.” (p 18)

But, if we assume no change in demand, in both cases, that is what would happen. In the case of industry, some of those businesses that produced at costs of production above the new price of production, of £1.50 per kg., would cease production, reducing supply. If the supply of corn rises by 2,000 kg., because some new technique raises productivity, this additional 2,000 kg. of supply can only be absorbed by the market if demand rises, and assuming no change in the demand conditions for corn, that can only happen if the market price of corn falls accordingly.

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