CHAPTER I.: COST PRICE AND PROFIT.↩

IN the first volume we analyzed the phenomena presented by the process of capitalist production, considered by itself as a mere productive process without regard to any secondary influences of conditions outside of it. But this process of production, in the strict meaning of the term, does not exhaust the life circle of capital. It is supplemented in the actual world by the process of circulation, which was the object of our analysis in the second volume. We found in the course of this last-named analysis, especially in part III, in which we studied the intervention of the process of circulation in the process of social reproduction, that the capitalist process of production, considered as a whole, is a combination of the processes of production and circulation. It cannot be the object of this third volume to indulge in general reflections relative to this combination. We are rather interested in locating [38] the concrete forms growing out of the movements of capitalist production as a whole and setting them forth. In actual reality the capitals move and meet in such concrete forms that the form of the capital in the process of production and that of the capital in the process of circulation impress one only as special aspects of those concrete forms. The conformations of the capitals evolved in this third volume approach step by step that form which they assume on the surface of society, in their mutual interactions, in competition, and in the ordinary consciousness of the human agencies in this process.

The value of every commodity produced by capitalist methods is represented by the formula: C = c + v + s. If we subtract the surplus-value s from this value of the product, there remains only an equivalent for the value of the capital c + v expended for the elements used in the production of this commodity.

Take it that the production of a certain article requires the expenditure of a capital of 500 p.st., of which 20 p.st. are consumed by the wear and tear of instruments of production, 380 p.st. spent for materials of production, and 100 p.st. for labor-power. And let the rate of surplus-value be 100%. In that case the value of this product is equal to 400 c + 100 v + 100 s, or 600 p.st.

After deducting the surplus-value of 100 p.st., we have a remaining commodity-capital of 500 p.st., which is only an equivalent for the consumed capital of 500 p.st. This portion of the value of the commodity, which makes good the price of the consumed means of production and the price of the employed labor-power, replaces only the amount paid by the capitalist himself for this commodity and represents, therefore, from his point of view the cost price of this commodity.

However, the cost of this commodity to the capitalist, and the actual cost of this commodity, are two vastly different amounts. That portion of the value of the commodity which consists of surplus-value does not cost the capitalist anything for the reason that it costs the laborer unpaid labor. But on [39] the basis of capitalist production, the laborer plays the role of an ingredient of productive capital as soon as he has been incorporated in the process of production. Under these circumstances the capitalist poses as the actual producer of the commodity. For this reason the cost price of the commodity to the capitalist necessarily appears to him as the actual cost of the commodity. If we designate the cost-price by k, we can transcribe the formula C = c + v + s into the formula C = k + s, that is to say, the value of a commodity is equal to the cost price plus the surplus-value.

In this way the classification of the various values making good the value of the capital consumed in the production of the commodity under the term 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 labor. The capitalist cost-price of the commodity, then, is a quantity different from its value, or its actual cost-price. It is smaller than the value of the commodity. For since C = k + s, it is evident that k = C - s. On the other hand, the cost-price of a commodity is by no means a mere heading in capitalist bookkeeping. The actual existence of this portion of value continually exerts its practical influence in the actual production of the commodity, because it must be ever reconverted from its commodity-form, by way of the process of circulation, into the form of productive capital, so that the cost-price of the commodity must always buy anew the elements of production consumed in its creation.

However, the cost-price as a heading in bookkeeping has nothing to do with the formation of the value of a commodity, or with the process of self-expansion of capital. When I know that five-sixths of the value of a commodity worth 600 p.st., or 500 p.st., represent but an equivalent for the capital consumed in its production and suffice only for the purchase of new material elements of the same capital, I know nothing as yet of the way in which these five-sixths representing the cost-price of the commodity are produced, nor do I know anything [40] about the production of the last sixth which constitutes its surplus-value. Nevertheless we shall see in the course of our analysis that the cost-price plays in capitalist economics the false role of a category in the actual production of values.

Let us return to our example. Take it that the value produced by one laborer in an average social working day is represented by 6 shillings in money. In that case the advanced capital of 500 p.st. consisting of 400 c + 100 v represents the values produced in 1666 2/3 working days of ten hours each. Of this amount 1333 1/3 working days are crystallized in the value of the means of production amounting to 400 p.st. (400 c), and 333 1/3 working days are crystallized in the value of labor-power amounting to 100 p.st. (100 v). Having assumed a rate of surplus-value of 100%, the production of the new commodity costs an expenditure of labor-power amounting to 100 v + 100 s, or 666 2/3 working days of ten hours each.

We know, then, as shown in volume I, chapter VII, that the value of the newly created product of 600 p.st. is composed, 1), of the reappearing value of the constant capital of 400 p.st. expended for means of production, and 2), of a newly produced value of 200 p.st. The cost-price of the commodity, or 500 p.st., comprises the reappearing 400 c and one-half of the newly produced value of 200 p.st., that is to say 100 v. In other words, it comprises two elements of the value of the commodity which are of widely different origin.

Owing to the appropriate character of the labor expended during 666 2/3 working days of ten hours each, the value of the means of production consumed in this process, to the amount of 400 p.st., is transferred to the product. This previously existing value thus reappears as an element of the value of the product, but is not created in the process of production of this commodity. It exists as an element of the value of this commodity only for the reason that it previously existed as an element of the invested capital. The expended constant capital, then, is replaced by that portion of the value of the commodity which this capital transfers to the commodity of its own accord in the labor-process. This element of the cost-price, therefore, has an ambiguous meaning. On the one [41] hand it passes into the cost-price of the commodity, because it is an element of that portion of the value of the commodity which replaces consumed capital. And on the other hand it forms an element of the value of the commodity only for the reason that it is the value of consumed capital, or because the means of production cost a certain sum.

It is different with the other element of the cost-price. The 666 2/3 working days expended in the production of the commodity create a new value of 200 p.st. One portion of this new value replaces only the advanced variable capital of 100 p.st., which is the price of the labor-power employed. But this advanced capital-value does not participate in the creation of the new value. So far as the advance of capital is concerned, labor-power counts as a value. But in the process of production, labor-power performs the function of creating value. The place of the mere value of labor-power in the advance of capital is taken in the actual process of productive capital by living labor-power which creates value.

This difference of the various elements of the value of a commodity which constitute the cost-price becomes evident whenever a change takes place either in the amount of the value of the expended constant capital or in that of the expended variable capital. For instance, let the price of the same means of production, or of the constant portion of capital, rise from 400 p.st. to 600 p.st., or fall to 200 p.st. In the first case it is not only the cost-price of the commodity which rises from 500 p.st. to 600 c + 100 v, or 700 p.st., but also the value of the commodity which rises from 600 p.st. to 600 c + 100 v + 100 s, or 800 p.st. In the second case, it is not only the cost-price which falls from 500 p.st. to 200 c + 100 v, or 300 p.st., but also the value of the commodity which falls from 600 p.st. to 200 c + 100 v + 100 s, or 400 p.st. Because the expended constant capital transfers its own value to the product, therefore the value of the product rises or falls with the absolute magnitude of that capital-value, other circumstances remaining the same. But on the other hand let us assume that, other circumstances remaining the same, the price of the same amount of labor-power rises from 100 p.st. [42] to 150 p.st., or falls from 100 p.st. to 50 p.st. In the first case, the cost-price rises indeed from 500 p.st. to 400 c + 150 v, or 550 p.st., and in the second case it falls from 500 p.st. to 400 c + 50 v, or 450 p.st. But in either case, the value of the commodity remains unchanged at 600 p.st. In the first case it is 400 c + 150 v + 50 s, in the second 400 c + 50 v + 150 s, but in either case it is 600 p.st. The advanced variable capital does not transfer its own value to the product. The place of its value is taken in the product by a new value created by labor. Therefore a change in the value of the absolute magnitude of the variable capital, to the extent that it expresses merely a change in the price of labor-power, does not alter the absolute magnitude of the value of the commodity in the least, because it does not alter anything in the absolute magnitude of the new value created by living labor. Such a change influences only the relative proportion of the magnitudes of the two elements of the new value, one of which forms surplus-value, and the other of which makes good the variable capital and passes into the cost-price of the commodity.

The two elements of the cost-price, in the present case 400 c + 100 v, have only this in common that they are both of them elements of the value of the commodity replacing advanced capital.

But this actual condition of things must necessarily look reversed from the point of view of capitalist production.

The capitalist mode of production is distinguished from a mode of production based on slavery by this fact among others that in the former the value, or the price, as the case may be, of labor-power assumes the form of the value, or price, of labor itself, that is to say, the form of wages. (Volume I, chapter XIX.) The variable portion of the advanced capital, therefore, presents itself as a capital advanced in wages, as a capital-value paying for the value, or price, of all labor expended in production. Take it, for instance, that an average social working day of ten hours is represented by 6 shillings of money. In that case the advance of a variable capital of 100 p.st. expresses in money [43] the value of a product created in 333 1/3 ten-hour days. But this value, being an element of the advance of capital for the purchase of labor-power, is not an element of the productive capital in the actual performance of its function. Its place in the process of production is taken by living labor-power. If the degree of exploitation of this labor-power is 100%, as it is in our illustration, then it is expended during 666 2/3 ten-hour days, and thereby adds to the product a new value of 200 p.st. On the other hand, the variable capital of 100 p.st. figures in the advance of capital as a capital invested in wages, or as the price of labor performed in 666 2/3 ten-hour days. Dividing 100 p.st. by 666 2/3, we obtain 3 shillings as the price of a working day of ten hours, equal in value to the product of five hours' labor.

Now, if we compare the advance of capital on one side with the value of commodities on the other, we find the following condition of things:

In this formula, the portion of capital invested in labor-power differs from that invested in means of production (such as cotton or coal) only by serving for the payment of a substantially different element of production. But it does not differ by serving in a different function in the process of creating the value of the commodities, and thereby in the process of self-expansion of capital. The price of the means of production reappears in the cost-price of the commodities, just as it figured in the advance of capital, and it does so for the reason that the means of production have been appropriately consumed. The cost-price of the commodities also contains the price, or wages, for the 666 2/3 working days consumed in the production of these commodities, which wages [44] figured also in the advance of capital, likewise for the reason that this amount of labor has been appropriately expended. We see only finished and existing values, representing portions of the value of advanced capital which have passed into the value of the product, but no element representing newly created values. The distinction between constant and variable capital has disappeared. The entire cost-price of 500 p.st. now has the ambiguous meaning that it is that portion of the value of commodities worth 600 p.st. which makes good the capital of 500 p.st. expended in the production of these commodities, and that it owes its existence as a portion of the value of these commodities only to the fact of having previously existed as the cost-price of the consumed elements of production, namely means of production and labor, in other words, of having existed as an advance of capital. The capital-value reappears as the cost-price of commodities, because it had been expended as a capital-value.

The fact that the various elements of the value of the advanced capital have been expended for substantially different elements of production, namely for instruments of labor, raw materials, auxiliary substances, and labor, requires only that the cost-price of the commodities should buy a new supply of these substantially different elements of production. So far as the formation of this cost-price is concerned, only one distinction is appreciable, namely that between fixed and circulating capital. In our example we had set down 20 p.st. for wear and tear of instruments of labor (400 c being composed of 20 p.st. for wear and tear of instruments of labor and 380 p.st. for materials of production). Supposing the value of those instruments of labor to have been 1200 p.st. before the productive process began, it will exist after the production of the commodities in two forms, one of them being represented by 20 p.st. of the value of the commodities, and the other by 1200—20, or 1180 p.st., the remaining value of the instruments of labor in the possession of the capitalist, in other words, an element of his productive, not of his commodity-capital. On the other hand, the materials of production and wages, differ from the instruments of labor by being entirely consumed [45] in the production of the commodities and transferring their entire value to that of the produced commodities. We have seen that the turn-over bestows upon these different elements of the advanced capital the forms of fixed and circulating capital.

The advance of capital, according to this, is 1680 p.st., consisting of 1200 p.st. of fixed capital plus 480 p.st. of circulating capital (380 p.st. of which are materials of production and 100 p.st. of which are wages).

But the cost-price of the commodities is only 500 p.st., namely 20 p.st. for the wear and tear of the fixed capital, and 480 p.st. for circulating capital.

This difference between the cost-price of the commodities and the advance of capital merely proves that the cost-price of the commodities is formed exclusively by the capital actually consumed in their production.

In the production of the commodities, instruments of production valued at 1200 p.st. are employed, but only 20 p.st. of this advanced capital are consumed in production. The employed fixed capital, then, passes only partially into the cost-price of commodities, because it is consumed only by degrees in their production. The employed circulating capital passes entirely into the cost-price of commodities, because it is entirely consumed in production. But what else does this prove than that the consumed portions of fixed and circulating capital, in the ratio of the magnitude of their values, pass uniformly into the cost-price of the commodities, and that this portion of the value of commodities originates solely with the capital consumed in their production? If this were not the case, it would be inexplicable why the advanced fixed capital of 1200 p.st. should not add, aside from the 20 p.st. which it loses in the productive process, also the other 1180 p.st. which it does not lose therein.

This difference between fixed and circulating capital with reference to the calculation of the cost-price affirms, we repeat, the apparent origin of the cost-price in the expended capital-value, or in the price paid by the capitalist himself for the expended elements of production, including labor. [46] On the other hand, the variable portion of capital invested in labor-power is explicitly identified, under the head of circulating capital, with that portion of the constant capital which consists of materials of production, so far as the formation of value is concerned. And by this means the mystification of the process of self-expansion of capital is accomplished.1

Hitherto we have considered only one element of the value of commodities, namely the cost-price. We must now occupy ourselves also with the other element of the value of commodities, namely the excess over the cost-price, or the surplus-value. In the first place, then, surplus-value is an excess of the value of a commodity over its cost-price. But since the cost-price is equal to the value of the consumed capital, into whose substantial elements it is continually reconverted, the additional value is an accretion to the capital expended in the production of the commodities and returning by way of the circulation.

We have seen previously that the surplus-value s owes its origin in point of fact to a change in the value of the variable capital v and is, therefore, really but an increment of variable capital. Nevertheless it is also an increment of the expended total capital c + v after the process of production has been completed. The formula c + (v + s), which indicates that s is produced by the conversion of a definite capital-value v, a constant magnitude, into a fluctuating magnitude by means of the labor-power paid by it, may also be represented as (c + v) + s. Before production began, we had a capital of 500 p.st. After production is completed, we have the same capital of 500 p.st. plus an increment of value amounting to 100 p.st.2

[47]

However, the surplus-value is an increment, not only of that portion of the advanced capital which is assimilated by the process of production, but also of that portion which is not assimilated. In other words, it is an accretion, not only to the consumed capital which is made good by the cost-price of commodities, but also to the aggregate capital invested in production. Before the beginning of the production we had a capital valued at 1680 p.st., namely 1200 p.st. of fixed capital invested in instruments of production, only 20 p.st. of which are assimilated in the process by the commodities through wear and tear, plus 480 p.st. of circulating capital invested in materials of production and wages. At the close of the process of production we have 1180 p.st. remaining of the value of the productive capital plus a commodity-capital of 600 p.st. By adding these two amounts, we find that the capitalist now has values amounting to 1780 p.st. After deducting his invested total capital of 1680 p.st., the capitalist pockets a surplus of 100 p.st. In short, the 100 p.st. of surplus-value form as much an increment of the invested 1680 p.st. as of the 500 p.st., or that part of it which was assimilated by the production.

The capitalist understands well enough that this increment of value has its genesis in the productive manipulations of capital, that it is generated out of the capital. For this increment exists at the close of the productive process, while it did not exist at its beginning. So far as the capital assimilated in production is concerned, the surplus-value seems to arise equally from all its different elements consisting of means of production and labor. For all these elements contribute equally to the formation of the cost-price. All of them add their values, which are advanced as capital, to the value of the product, and they are not distinguished as constant and variable magnitudes. This becomes obvious, when we assume for a moment that all assimilated capital consisted either of wages exclusively, or of the values of means of production alone. In the first case, we should then have in place of the commodity-values 400 c + 100 v + 100 s the commodity-values 500 v + 100 s. The capital of 500, invested [48] in wages, represents the value of all labor assimilated in the production of the commodity-value of 600 p.st., and therefore it constitutes the cost-price of this entire product. But the way in which this cost-price is formed, and in which the value of the expended capital is reproduced as a portion of the value of the product, is the only process in the formation of the value of this product known to us. We do not know anything of the way in which its surplus-portion of 100 p.st. is formed. It is the same in the second case, in which the value of the commodities would be equal to 500 c + 100 s. We know in either case that the surplus-value arises from a given value, because this value was advanced in the form of productive capital, no matter whether in the form of labor or of means of production. On the other hand, this advanced capital-value cannot form any surplus-value for the sole reason that it has been expended and constitutes the cost-price of the commodities. For the fact that it forms the cost-price of the commodities accounts precisely for the circumstance that it constitutes no surplus-value, but merely an equivalent replacing the expended capital. To the extent that it forms surplus-value it does so not in its specific capacity of expended, but of advanced and invested capital. In short, the surplus-value arises as much out of that portion of the advanced capital which makes good the cost-price of the commodities as out of that portion which is not made up by the cost-price. In other words, it arises equally out of the fixed and circulating components of the invested capital. The total capital serves substantially as the creator of values, the instruments of labor as well as the materials of production and labor. The total capital passes substantially into the actual labor-process, even though only a portion of it is assimilated by the process of self-expansion. This is, perhaps, the very reason why it contributes only in part to the formation of the cost-price, but totally to the formation of the surplus-value. However that may be, the outcome is that surplus-value arises simultaneously from all portions of the invested capital. This deduction may be materially abbreviated, by saying pointedly and briefly in the words of Malthus: "The [49] capitalist expects equal returns on all parts of the capital advanced by him."3

In its alleged capacity of an offspring of the advanced total capital, the surplus-value assumes the change of form known as profit. Hence a certain value is capital when it is advanced with a view to generating profit,4 or profit results from the investment of a value as capital. If we designate profit by p, we may convert the formula C = c + v + s, or k + s, into the formula C = k + p, in other words, the value of a commodity is equal to the cost-price plus the profit.

The profit, such as it presents itself here, is the same as the surplus-value, only it has a mystified form, which is a necessary outgrowth of capitalist modes of production. The genesis of the mutation of values must be transferred from the variable portion of capital to the total capital, because no distinction is noticeable between the constant and variable capital in the assumed formation of the cost-price. Because the price of labor-power assumes on one pole the form of wages, surplus-value appears at the other pole in the form of profit.

We have seen that the cost-price of a commodity is smaller than its value. Since C equals k + s, it follows that k equals C - s. The formula C = k + s reduces itself to C = k, or commodity-value equal to cost-price, only when s is zero, a case which never occurs on the basis of capitalist production, although peculiar market combinations may reduce the selling price of commodities to the level of their cost-price, or even below it.

Hence, if a commodity is sold at its value, a profit is realized, which is equal to the excess of its value over its cost-price, or equal to the entire surplus-value incorporated in the value of the commodity. But the capitalist may sell a commodity at a profit even when selling it below its value. For so long as its selling price exceeds its cost-price, even though [50] it may be below its value, a portion of the surplus-value incorporated in it is always realized and thus a profit made. The value of the commodities in our illustration is 600 p.st., their cost-price 500 p.st. If the commodities are sold at 510, 520, 530, 560 or 590, p.st., they are sold respectively at 90, 80, 70, 40, or 10 p.st. below their value, and yet a profit of respectively 10, 20, 30, 60, or 90 p.st. is realized by their sale. It is evident that selling prices may fluctuate considerably between the value of a commodity and its cost-price. The greater the surplus-element of the value of commodities, the greater is the practical playroom of these fluctuating intermediate prices.

This explains such phenomena of daily occurrence in competition as underselling, abnormally low prices in certain lines of industry, etc.5 The fundamental law of capitalist competition, which political economy has not understood up to the present time, the law which regulates the general rate of profit and the prices of production determined by it, rests, as we shall see later, on this difference between the value and the cost-price of commodities, and on the resulting possibility to sell a commodity at a profit even below its value.

The minimum limit of the selling price of commodities is indicated by their cost-price. If they are sold below their cost-price, then the consumed elements of productive capital cannot be fully reproduced out of the selling price. If this sort of thing continues, then the value of the advanced capital disappears. This point of view is sufficient to incline the capitalist toward the opinion that the cost-price is essentially the inmost value of commodities, because it is the price required for the bare conservation of his capital. Furthermore, the cost-price of a commodity is the purchase price paid by the capitalist himself for its production, in other words, the purchase price determined by the process of production itself. For this reason, the surplus-value realized by the sale of a certain commodity appears to the capitalist as an excess of its selling price over its value, instead of an excess of its value over its cost-price, so that accordingly the surplus-value [51] incorporated in a commodity is not realized by its sale, but arises out of the sale itself. We have thrown more light on this illusion in volume I, chapter V, under the head of "Contradictions in the General Formula of Capital." We merely revert at this point to that form in which it was reaffirmed by Torrens, among others, as an advance of political economy beyond Ricardo.

In fact, the excess over a certain magnitude cannot form a part of this magnitude. Therefore the profit, the excess of the value of a commodity over the expenditure of the capitalist, cannot form a part of this expenditure. Hence, if no other element than the advance of the capitalist enters into the formation of the value of a commodity, it is inexplicable that more value should come out of production than went into it, for something cannot come out of nothing. Torrens, however, dodges this creation out of nothing only by transferring it from the sphere of commodity-production to that of commodity-circulation. Profit cannot come out of the production [52] of commodities, says Torrens, for otherwise it would already be contained in the cost of production, and that would not be a surplus over this cost. Profit cannot come out of the exchanges of commodities, replies Ramsay, unless it existed before this exchange. The sum of their values of the exchanged products is evidently not altered by their exchange. It remains the same as before this exchange. Incidentally we remark at this point, that Malthus invokes expressly the authority of Torrens,7 although he himself explains the sale of commodities above their value differently, or rather does not explain it, since all arguments of this sort ultimately amount to the same thing as the one-time famous negative weight of phlogiston.

In a society ruled by capitalist production, even the non-capitalist producer is dominated by capitalist conceptions. In his last novel, Les Paysans, Balzac, who is generally remarkable for his profound grasp of actual conditions, aptly describes how the little peasant, in order to retain the good will of his usurer, performs many small tasks gratuitously for him and fancies that he does not give him anything for nothing, because his own labor does not cost him any cash outlay. The usurer, on the other hand, thereby kills two flies at one stroke. He saves a cash outlay for wages and gets the farmer more and more tangled in the net of the spider of usury, by gradually ruining him through the deviation of his labor from his own fields.

The thoughtless conception that the cost-price of a commodity constitutes its actual value, and that surplus-value arises by selling the product above its value, so that commodities would be sold at their value, if their selling price were equal to their cost-price, that is to say, equal to the price of the means of production plus wages incorporated in them, has been heralded to the world as a newly discovered secret of socialism by Proudhon with his customary charlatanry in the guise of science. In fact, this reduction of the value of commodities to their cost-price constitutes the basis of his People's Bank. We have demonstrated in a preceding chapter [53] that the various elements of the value of the product may be materialized in proportional parts of the product itself. (Volume I, chapter IX, 2.) For instance, if the value of 20 lbs. of yarn is 30 shillings, containing 24 shillings of means of production, 3 shillings of labor-power, and 3 shillings of surplus-value, then this surplus-value may be represented by 1/10 of the product, or 2 lbs. of yarn. Now, if these 20 lbs. of yarn are sold at their cost-price, at 27 shillings, then the purchaser receives 2 lbs. of yarn for nothing, or the article is sold 1/10 below its value. But the laborer has performed the same amount of surplus-labor, only in this case it accrues to the benefit of the purchaser of the yarn, not to its capitalist producer. It would be a mistake to assume that if all commodities were sold at their cost-price the result would be the same as if they had all been sold above their cost-price, at their real value. For even if the value of labor-power, the length of the working day, and the degree of exploitation of labor were the same everywhere, the quantities of surplus-value contained in the values of the various kinds of commodities would be unequal, according to the different organic composition of the capitals advanced for their production.8

CHAPTER II.: THE RATE OF PROFIT.↩

THE general formula of capital is M—C—M'. In other words, a certain quantity of values is thrown into circulation for the purpose of drawing a larger quantity out of it. The process by which this larger quantity is produced is capitalist production. The process by which this larger quantity is realized is the circulation of capital. The capitalist does not produce a commodity on its own account, he does not [54] care for its use-value, nor does he consume it personally. The product in which the capitalist is really interested is not the tangible product itself, but the excess of the value of the product over the value of the capital assimilated by it. The capitalist advances the total capital without regard to the different roles played by its components in the production of surplus-value. He advances all these components uniformly, not merely for the purpose of reproducing the advanced capital, but rather with a view to producing a surplus-value in excess of it. He cannot convert the value of the variable capital advanced by him into a greater value except by its exchange for living labor and by the exploitation of this labor. But he cannot exploit this labor unless he advances at the same time the material requirements for the incorporation of this labor, namely instruments and materials of labor, machinery and raw materials. This he can do only by converting a certain amount of value in his possession into requirements of production. He could not be a capitalist at all, nor undertake to exploit labor, unless he enjoyed the privilege of owning the material requirements of production and finding at hand a laborer who owns nothing but his labor-power. We have already shown in the first volume that it is precisely the ownership of means of production by idlers which converts laborers into wage-workers and idlers into capitalists.

It is immaterial for the capitalist whether he is supposed to advance constant capital in order to make a profit out of his variable capital, or whether he advances variable capital in order to make a profit out of the constant capital; whether he invests money in wages in order to make his machinery and raw materials more valuable, or whether he invests money in machinery and raw materials in order to be able to exploit labor. Although it is only the variable portion of capital which creates surplus-value, it does so only on condition that the other portions, the material requirements of production, are likewise advanced. Seeing that the capitalist can exploit labor only by advancing constant capital, and that he can utilize his constant capital only by advancing variable [55] capital, he lumps them all together in his imagination, and he is all the more apt to do so as the actual rate of his gain is not calculated on its proportion to the variable, but on its proportion to the total capital, in other words, that it is calculated on the rate of profit, not on the rate of surplus-value. And we shall see that the rate of profit may remain unchanged and yet may express different rates of surplus-value.

The cost of the product includes all those elements of its value which the capitalist has paid, or for which he has thrown an equivalent into circulation. This cost must be made good in order that the capital may merely be preserved, or reproduced in its original magnitude.

The value contained in a certain commodity is equal to the labor-time required for its production, and the sum of this labor consists of paid and unpaid portions. But the expenses of the capitalist consist only of that portion of materialized labor which he paid for the production of the commodity. The surplus-value contained in this commodity does not cost the capitalist anything, while it cost the laborer his labor just as well as that portion for which he is paid, and although it creates value and is embodied in the value of the commodity quite as well as the paid labor. The profit of the capitalist is due to the fact that he offers something for sale for which he has not paid anything. The surplus-value, or the profit, consists precisely of the excess of the value of the commodity over its cost-price, in other words, it consists of the excess of the total amount of labor embodied in the commodity over the paid labor contained in it. The surplus-value, whatever be its genesis, is a surplus above the advanced total capital. The proportion of this surplus to the total capital is expressed by the fraction s/C, in which C stands for the total capital. Thus we obtain the rate of profit s/C = s/(c+v), as distinguished from the rate of surplus-value s/V.

The rate of surplus-value measured by the variable capital is called rate of surplus-value. The rate of surplus-value measured by the total capital is called rate of profit. These [56] two modes of measuring the same magnitude express different conditions or relations of this magnitude, owing to the difference of the two standards of measurement.

The transformation of surplus-value into profit must be deduced from the transformation of the rate of surplus-value into the rate of profit, not vice versa. And the rate of profit is indeed that from which historical research takes its departure. The surplus-value and the rate of surplus-value are, relatively, the invisible and unknown essence, while the rate of profit and the resulting appearance of surplus-value in the form of profit are phenomena which show themselves on the surface.

So far as the individual capitalist is concerned, it is evident that the only thing which interests him is the relation of surplus-value, of the excess of value at which he sells his articles, to the total capital advanced for the production of commodities. On the other hand, the definite relation of this surplus, and its internal connection, with the various components of capital does not interest him, for it is rather to his interest to indulge in vague notions relative to this definite relation and this internal connection.

Although the excess in the value of a commodity over its cost-price is created in the process of production, strictly so called, it is realized in the process of circulation. And it assumes so much more easily the semblance of arising from the process of circulation, as it depends in reality on the market conditions under competition whether any surplus is realized or not, or how much of it. It is not necessary to lose any words at this point about the fact that it is merely a different way of dividing the surplus-value, when a commodity is sold above or below its value, and that this different division, this change of proportions in which different persons share in the surplus-value, does not alter in the least the magnitude or the nature of that value. It is not alone the metamorphoses discussed by us in volume II which take place in the process of circulation, but they are accompanied by actual competition, the sale and purchase of commodities above or below their value, so that the surplus-value realized [57] by the individual capitalist depends as much on the outcome of the mutual endeavor to outwit one another as on the direct exploitation of labor.

Aside from the working time, the time of circulation exerts its influence in the process of circulation and limits the amount of surplus-value realizable within a certain period. Still other elements arise in the process of circulation and influence the strict process of production. Both the strict process of production and the process of circulation continually intermingle, interpenetrate one another, and thereby incessantly falsify their characteristic marks of distinction. The production of surplus-value, and of value in general, receives new directions in the process of circulation, as we have previously shown. Capital passes through the cycle of its metamorphoses. Finally it steps, so to say, forth out of the internal organism of its life and enters into external conditions of existence, into conditions in which the opposites are not capital and labor, but capital and capital in one case, and individual buyers and sellers in another. The time of circulation and the working time cross one another's paths and seem to determine equally the amount of surplus-value. The original form in which capital and wage-labor meet one another is disguised by the interference of conditions which seem to be independent of them. The surplus-value itself does not appear to be the result of the appropriation of labor-time, but an excess of the selling price of commodities over their cost-price, so that this last named price is easily regarded as their intrinsic value, while profit appears as an excess of the selling price of commodities over their immanent value.

It is true, that the nature of the surplus-value impresses itself incessantly upon the consciousness of the capitalist during the process of production. This is shown, among other indications, by his greed for the labor-time of others, to which we called attention in the analysis of surplus-value. But in the first place, the strict process of production is but a fleeting stage passing continually into the process of circulation, just as this does into it, so that the more or less vague inkling of [58] the source of the gains made in the process of production, the source of the surplus-value, stands at best on the same ground with the idea that the realized surplus is due to a movement of capital in the process of circulation and independent of the process of production, a movement of capital independent of its relation to labor. These phenomena of circulation are quoted by modern economists like Ramsay, Malthus, Senior, Torrens, etc., as direct proofs of the alleged fact that capital, in its mere material existence, independent of any social relation to labor which makes capital of it, may be a source of surplus-value quite as well as labor itself and without its help. In the second place, under the head of expenses, among which wages are classed the same as the price of raw materials, wear and tear of machinery, etc., the appropriation of unpaid labor figures only as a saving in the payment of an article added to the expense, only as a smaller payment for a certain quantity of labor. A saving is recorded in the same way, whenever raw materials are bought more cheaply, or the wear and tear of machinery decreases. In this way the appropriation of surplus-labor loses its specific character. Its characteristic relation to the surplus-value is obscured. And this is greatly facilitated, as shown in volume I, part VI, by the representation of the value of labor-power in the form of wages.

By posing equally as sources of an excess of value (profit), all elements of capital mystify the nature of the capitalist relation.

The way in which surplus-value is transformed into profit via the rate of profit is but a continued development of the perversion of subject and object taking place in the process of production. We have already seen that all subjective forces of labor in that process appeared as productive forces of capital. On the one hand, the value of past labor, which dominates living labor, is incarnated in the capitalist. On the other hand the laborer appears as materialized labor-power, as a commodity. This perverted relationship necessarily produces even under simple conditions of production certain correspondingly perverted conceptions, which represent [59] a transposition in consciousness, that is further developed by the transformations and modifications of the circulation process proper.

We can see by the example of the Ricardian school that it is a mistake to attempt a development of the laws of the rate of profit directly out of the laws of the rate of surplus-value, or vice versa. In the head of the capitalist they are naturally not distinguished. In the formula s/C the surplus-value is measured by the value of the total capital advanced for its production and partly consumed in it, partly merely invested in it. Indeed, the formula s/C expresses the degree of self-expansion of the total capital advanced, or, to state it in conformity with the conception of the internal organic connection and nature of surplus-value, it indicates the proportion of the variation of the variable capital to the magnitude of the advanced total capital.

The magnitude of the value of the total capital has no direct internal relation to the magnitude of the surplus-value. So far as its material elements are concerned, the total minus the variable capital, in other words, the constant capital, consists of the material ingredients, the instruments and materials of production, required for the materialization of labor. In order that a certain quantity of labor may be incorporated in commodities and thereby produce value, a certain quantity of instruments and materials of production is required. According to the peculiar character of the incorporated labor, a definite technical relation is established between the quantity of labor and the quantity of means of production in which this labor is to be incorporated. To that extent there is also a definite relation between the quantity of surplus-value, or surplus-labor, and the quantity of means of production. For instance, if the necessary labor for the production of wages amounts to 6 hours daily, then the laborer must work 12 hours in order to perform 6 hours of surplus-labor, or produces a surplus-value of 100%. He uses up twice as many means of production in 12 hours as he does in 6. But nevertheless the surplus-value incorporated by him in 6 hours is not directly related to the value of the means of production [60] used up in those 6, or in those 12 hours. This value is here immaterial. It is only the technically required mass which is important. It does not matter whether the raw materials or instruments of labor are cheap or dear, so long as they have the required use-value and are available in quantities proportioned to the technical demands of the labor to be incorporated in them. Now, if I know that x lbs. of cotton are consumed by one hour's spinning and cost a shillings, then I also know that 12 hours' spinning will consume 12 x lbs. of cotton costing 12 a shillings. And in that case I can calculate the proportion of the surplus-value to the value of the 12 as well as to that of the 6. But the relation of the living labor to the value of the means of production enters here only to the extent that a shillings serve as a name for x lbs. of cotton. For a definite quantity of cotton has a definite price, and therefore a definite price may also serve as an index to a definite quantity of cotton, so long as the price of cotton is not changed. If I know that I must let the laborer work for 12 hours, in order to appropriate for my own 6 hours of surplus-labor, and if I know the price of this quantity of cotton needed for 12 hours, then I have a circuitous means of determining the proportion between the price of cotton (as an index of the required quantity) and the surplus-value. But on the other hand, I can never make any conclusions from the price of the raw material as to the quantity that may be consumed by one hour's spinning, but not by 6 hours'. There is, then, no necessary internal connection between the value of the constant capital, nor the value of the total capital c + v, and the surplus-value.

If the rate of surplus-value is known and its magnitude given, then the rate of profit expresses nothing else but what it actually is, namely a different way of measuring surplus-value, this being measured by the value of the total capital, instead of the value of that portion of capital from which surplus-value directly originates by way of an exchange with labor. But in reality, in the world of phenomena, the conditions are reversed. Surplus-value is given, but only as an excess of the selling price of commodities over their cost-price. [61] And it remains a mystery where this surplus is originated, whether it is due to the exploitation of labor in the process of production, or to overcharging the purchaser in the process of circulation, or to both. There is also given the proportion of the surplus-value to the value of the total capital, or the rate of profit. The calculation of this excess of the selling price over the cost-price of commodities on the value of the advanced total capital is very important and natural, because by its means the ratio is actually determined in which the total capital has been expanded, the ratio of its self-expansion. If the rate of profit is made the point of departure, there is no basis on which to make any conclusions regarding the specific relations between the surplus and the variable capital invested in wages. We shall see in a subsequent chapter what funny somersaults Malthus made in trying to get in this way at the secret of the surplus-value and of its specific relation to the variable capital. What the rate of profit actually shows is a uniform relation of the surplus to equal portions of the total capital, which from this point of view does not show any internal differences at all, unless it be that between fixed and circulating capital. And this difference is shown only because the surplus is calculated in two ways. In the first place it is calculated as a simple magnitude, as an excess of the selling price over the cost-price. In this form, the entire circulating capital enters into the cost-price, while of the fixed capital only the wear and tear enters into it. In the second place, the relation of this excess in value to the total value of the advanced capital is calculated. In this case, the value of the fixed capital is taken into the calculation entirely, the same as that of the circulating capital. In other words, the circulating capital enters both times in the same way, while the fixed capital enters the first time in a different, the second time in the same way as the circulating capital. Under these circumstances, the difference between the fixed and circulating capital is the only one which obtrudes itself.

The excess in value, then, if determined by the rate of profit, appears as a surplus generated annually, or during a [62] definite period of circulation, by the total capital above its own value.

While the rate of profit differs numerically from the rate of surplus-value, the profit and the surplus-value are actually the same thing and numerically equal. However, the profit is a transformed kind of surplus-value, a form in which its origin and the secret of its nature are obscured and extinguished. Profit is, therefore, that disguise of surplus-value which must be removed before the real nature of surplus-value can be discovered. In the surplus-value, the relation between capital and labor is laid bare. But in the relation of capital and profit, that is to say, the relation between capital and that form of surplus-value which appears on one hand as an excess over the cost-price of commodities realized in the process of circulation, and on the other hand as a surplus determined by its relation to the total capital, the capital appears as a relation to itself, a relation in which it, as the original amount of value, is distinguished from a new value generated by itself. It is dimly recognized, that capital generates this new value by its movement in the processes of production and circulation. But the way in which this is done is surrounded by mystery, and thus surplus-value seems to be due to hidden qualities inherent in capital itself.

To the extent that we follow up the process of self-expansion of capital, the nature of the relation of surplus-value to capital becomes more and more mystified, and it becomes increasingly difficult to discover the secret of its internal organism.

In this first part, we shall consider the rate of profit as numerically different from the rate of surplus-value, while profit and surplus-value will be treated as the same numerical magnitude having only a different form. In the second part we shall see that the transformation continues and that profit presents itself as a magnitude differing also numerically from surplus-value.

CHAPTER III.: THE RELATION OF THE RATE OF PROFIT TO THE RATE OF SURPLUS-VALUE.↩

WE have stated at the conclusion of the preceding chapter, and repeat it here, that we consider in this entire first part the amount of profit made by a certain capital to be equal to the full amount of surplus-value produced by means of this capital during a certain period of circulation. In other words, we leave aside for the present the fact that this surplus-value is split up into various secondary forms, such as interest on capital, ground-rent, taxes, etc., and that surplus-value is not identical, as a rule, with profit as appropriated on the basis of an average rate of profit, which will be discussed in part II.

So far as the quantity of profit is assumed to be equal to that of surplus-value, its magnitude, and that of the rate of profit, is determined by the relations of simple numerical magnitudes given or ascertainable in every individual case. The analysis, therefore, is first carried on purely on the field of mathematics.

We retain the terms used in volumes I and II. The total capital C consists of constant capital c and variable capital v, and produces a surplus-value s. The ratio of this surplus-value to the advanced variable capital, or s/v, is called the rate of surplus-value and designated by s'. Therefore s/v = s', and s = s'v. If this surplus-value is calculated on the total capital instead of the variable capital, it is called profit, p, and the ratio of the surplus-value s to the total capital C, or s/C, is called the rate of profit, p'. Accordingly, p' = s/C = s/(c+v). Now, substituting for s its equivalent s'v, we find p' = S'v/C = S'v/(c+v). And this equation may be expressed by the proportion p' : s' = v : C, or in words, the [64] rate of profit is proportioned to the rate of surplus-value as the variable capital is to the total capital.

This proportion shows that the rate of profit, p', is always smaller than the rate of surplus-value, s', because the variable capital, v, is always smaller than the total capital, C, which is the sum of v + c, the variable plus the constant capital. The only exception to this rule is the practically impossible case, in which v = C, that is to say, in which no constant capital, no means of production, are advanced by the capitalist, but only wages.

However, our analysis must take into account a few other elements, which have a determining influence on the magnitude of c, v, and s. We shall mention them briefly.

There is, first, the value of money. We may assume this to be constant, throughout our analysis.

In the second place, there is the turn-over. We leave this element entirely out of consideration for the present, since its influence on the rate of profit will be treated later on in a special chapter. [We anticipate here only one point, namely that the formula p' = s' v/C is strictly correct only for one period of turn-over of the variable capital. But we may make it correct for an annual turn-over by substituting for s', the simple rate of surplus-value, the factor s'n, meaning the annual rate of surplus-value. The factor n in this term expresses the number of turn-overs of the variable capital during one year. (See chapter XVI, I, volume II.)—F. E.]

In the third place, the productivity of labor must be considered. Its influence on the rate of surplus-value has been thoroughly discussed in volume I, part V. The productivity of labor may also exert a direct influence on the rate of profit, at least of an individual capital. It has been demonstrated in volume I, chapter XII, that an individual capital may realize an extra profit, if it operates with a greater productivity than that of the social average and thereby produces its commodities at a lower value than the social average value of the same commodities. However, this case will not be considered for the present, since our premise in this part of the work [65] is that the commodities are produced under normal social conditions and sold at their values. Hence we assume in each case that the productivity of labor remains constant. Under these circumstances the composition of the values of any capital invested in any line of industry, in other words, the proportion between the variable and constant capital, expresses a definite degree in the productivity of labor. As soon as this proportion is altered by other means than a mere change in the value of the material elements of the constant capital, or a change in the value of wages, it follows that the productivity of labor must likewise undergo a corresponding change. We shall see frequently, for this reason, that alterations affecting the factors c, v, and s imply also changes in the productivity of labor.

The same applies to the three remaining factors. namely the length of the working day, the intensity of labor, and the wages. Their influence on the mass and rate of surplus-value has been discussed in detail in volume I. It will be understood, therefore, that notwithstanding our assumption that these three factors remain constant there may be changes in v and s which may imply changes in the magnitude of these determining elements. In this respect we have but to remember that wages influence the quantity of surplus-value and the degree of the rate of surplus-value inversely from the length of the working day and the intensity of labor; that an increase of wages reduces the surplus-value, while a prolongation of the working day and an increase in the intensity of labor add to it.

Take it that a capital of 100 produces with 20 laborers by a working day of 10 hours and a total weekly wage of 20 a surplus-value of 20. Then we have 80 c + 20 v + 20 s, which implies that s' equal 100% and p' 20%.

Now let the working day be prolonged to 15 hours without an increase of wages. The total value produced by the 20 laborers is thereby increased from 40 to 60, since 10 : 15 = 40: 60. Seeing that v, the wages paid to the laborers, remains the same, the surplus-value rises from 20 to 40, and we have 80 c + 20 v + 40 s, implying that s' equals 200% [66] and p' 40%. If, on the other hand, the working day remains unchanged at 10 hours, while wages fall from 20 to 12, the total value produced amounts to 40, but it is differently distributed. For v falls to 12, leaving a remainder of 28 for s. Then we have 80 c + 12 v + 28 s, whereby s' is raised to 233 1/3%, while the rate of profit, p', is as 28 to 92, or 30 10/23%.

We see, then, that both a prolongation of the working day (or a corresponding increase in the intensity of labor) and a fall in wages increase the mass, and thus the rate, of surplus-value. On the other hand, a rise in wages, other circumstances remaining the same, would lower the rate of surplus-value. Hence, if v rises through an increase of wages, it does not mean a greater, but only a dearer quantity of labor, and in that case s' and p' do not rise, but fall.

This indicates that a change in the working day, in the intensity of labor, and in wages cannot take place without at the same time altering v and s and their proportion, and therefore also p', which expresses the proportion of s to the total capital c + v. And it is also evident that a change in the proportion of s to v implies a corresponding change in at least one of the three determining elements of labor.

It is precisely this fact which reveals the specific organic relationship of variable capital to the movement of the total capital and its self-expansion, and also its difference from the constant capital. So far as it is a question of the generation of value, the constant capital is significant only for its value. It is immaterial for this question, whether a constant capital of, say, 1,500 p.st. represents 1,500 tons of iron at 1 p.st. each, or 500 tons of iron at 3 p.st. each. The quantity of the actual material, in which the value of the constant capital is incorporated, is immaterial for the question of the formation of value and the rate of profit. This rate varies inversely to the value of the constant capital, no matter what may be the proportion of the increase or decrease of the value of constant capital to the mass of its material elements.

[67]

It is different with the variable capital. Not its own value, not the labor incorporated in this capital, are of prime importance, but the fact that its own value implies the setting in motion of a grand total of labor whose quantity it does not express. This grand total of labor differs from the labor expressed in the value of the variable capital and paid by it in that it contains a certain amount of surplus-labor, which is so much greater, the smaller the value of the labor contained in the variable capital. Take it that a working day of 10 hours is equal to 10 shillings. If the necessary labor, which pays for the wages, or makes good the variable capital, is worth 5 shillings, then the surplus-labor amounts to 5 hours, or the surplus-value to 5 shillings. If the necessary labor amounts to 4 hours and is worth 4 shillings, then the surplus-labor is 6 hours and the surplus-value 6 shillings.

Hence, as soon as the value of the variable capital ceases to be an index of the amount of labor actually set in motion by it, as soon as the measure of this index is altered, the rate of surplus-value will vary inversely and at an inverse ratio.

Now let us pass on and apply the previously found equation of the rate of profit, p' = s' v/C, to the various cases possible. We shall change the value of the individual factors of s' v/C one after another and ascertain the effect of these changes on the rate of profit. In this way we obtain a number of different cases, which we may regard either as successively altered determinants of one and the same capital, or as different capitals existing side by side and compared with one another, no matter whether they exist in different lines of industry or different countries. In cases where the conception of some of our examples as successive conditions of the same capitals seems forced or impracticable, this objection is set aside by regarding them as illustrations of independent capitals.

We now separate the product s' v/C into its two factors s' and v/C. In the first place, we treat s' as a constant factor and analyze the effects of the possible variations of v/C. After that we treat the fraction v/C as constant and let s' go through [68] its possible variations. Finally we treat all factors as variable magnitudes and thereby exhaust all cases from which rules concerning the rate of profit may be derived.

CHAPTER IV.: THE EFFECT OF THE TURN-OVER ON THE RATE OF PROFIT.↩

THE effect of the turn-over on the production of surplus-value, and consequently of profit, has been discussed in volume II. It may be briefly summarized in the statement that the entire capital cannot be employed all at once in production, because the turn-over requires a certain lapse of time; for this reason a portion of the capital is always lying fallow, either in the form of money-capital, of a supply of raw materials, of finished but still unsold commodity-capital, or of outstanding bills not yet due; hence the capital active in the production and appropriation of surplus-value is always short by this amount, and the production and appropriation of surplus-value is curtailed to that extent. The shorter the period of turn-over, the smaller is the fallow portion of capital as compared with the whole, and the larger will be the appropriated surplus-value, other conditions remaining the same.

It has been shown explicitly in the second volume to what extent the mass of the produced surplus-value is augmented by the reduction of the period of turn-over, or of one of its two sections, the time of production and the time of circulation. But it is evident that any such reduction increases the rate of profit, since this rate expresses but the mass of surplus-value produced in proportion to the total capital employed in production. Whatever has been said in the second part of the second volume in regard to surplus-value, applies just as well to profit and the rate of profit, and requires no repetition at this place. We shall touch only upon a few of the principal points.

A reduction of the time of production is mainly due to an increase in the productivity of labor, a thing commonly called the progress of industry. If this does not require at once a [86] considerable extra-outlay of capital for expensive machinery, etc., and thus a reduction of the rate of profit, which is calculated on the total capital, this rate must rise. And this is decidedly the case with many of the latest improvements in metallurgy and chemical industry. The recently discovered methods of making iron and steel, such as the processes of Bessemer, Siemens, Gilchrist-Thomas, etc., shorten formerly tedious processes to a minimum with relatively small expense. The making of alizarin, a red coloring substance extracted from coal-tar, produces in a few weeks, by the help of already existing installations for the manufacture of coal-tar colors, the same results which formerly required years. It took at least one year to mature the plants from which this coloring matter was formerly extracted, and it was customary to let them grow a few years before the roots were used for the purpose of making color.

The time of circulation is reduced principally by improved means of communication. In this respect the last fifty years have brought about a revolution, which can be compared only with the industrial revolution of the last half of the eighteenth century. On land the macademized road has been displaced by the railroad, on sea the slow and irregular sailing vessel by the rapid and regular steamboat line, and the entire globe has been circled by telegraph wires. The Suez Canal has fully opened Eastern Asia and Australia for steamer traffic. The time of circulation of a shipment of commodities to Eastern Asia was at least twelve months as late as 1847, and it has now been reduced to almost as many weeks. The two large centers of commercial crises, 1825-1857, America and India, have been brought from 70 to 90 per cent. nearer to Europe by this revolution of the means of communication, and have thereby lost a good deal of their explosive nature. The period of turn-over of the world's commerce has been reduced to the same extent, and the productive capacity of the capital engaged in it has been doubled or trebled. It goes without saying that this has not been without effect on the rate of profit.

In order to view the effect of the turn-over of the total [87] capital on the rate of profit in its purest form, it is necessary to assume all other conditions of two compared capitals as equal. Aside from the rate of surplus-value and the working day it is especially the percentages of composition which we assume to be the same. Now let us select a capital A composed of 80 c + 20 v = 100 C. Let this have a rate of surplus-value of 100%, and let it be turned over twice per year.

The annual product is then 160 c + 40 v + 40 s. But for the purpose of ascertaining the rate of profit we do not calculate the 40 s on the turned-over capital-value of 200. We calculate it on the advanced capital of 100, and we obtain thus a rate of profit of 40%.

Now let us compare this with a capital B composed of 160 c + 40 v = 200 C, which has the same rate of surplus-value, 100%, but which is turned over only once a year.

The annual product of this capital is the same as that of A, namely 160 c + 40 v + 40 s. But the 40 s in this case are to be calculated on an advance of capital amounting to 200, so that the rate of profit of B is only 20%, or one-half that of A.

We find, then, that with capitals with equal percentages of composition, equal rates of surplus-value, and equal working days, the rates of profit are proportioned inversely as their periods of turn-over. If either the composition, or the rates of surplus-value, or the working day, or the wages, are unequal in the two compared cases, then other differences are naturally produced in the rates of profit. But these are not directly dependent on the turn-over, and do not concern us at this point. They have already been discussed in chapter III.

The direct effect of a reduced period of turn-over on the production of surplus-value, and consequently of profit, consists in the increased effectiveness given thereby to the variable portion of capital, as shown in volume II, chapter XVI, The Turn-Over of Variable Capital. It was demonstrated in that chapter that a variable capital of 500, which is turned over ten times per year, produces during this time as much surplus-value as a variable capital of 5,000 with the same [88] rate of surplus-value and the same wages, turned over once a year.

Take a capital (I) consisting of 10,000 fixed capital, with an annual wear and tear of 10%, or 1,000, furthermore of 500 circulating constant and 500 variable capital. Let the rate of surplus-value be 100%, and let the variable capital be turned over ten times per year. For the sake of simplicity we assume in all following examples that the circulating constant capital is turned over in the same time as the variable, which is generally the case in practice. Then the product of one such period of turn-over will be

And the product of one entire year, with ten such turn-overs, will be

Then C is 11,000, s is 5,000, p' is 5000/11000, or 45 5/11%.

Now let us take another capital (II), composed of 9,000 fixed capital, with an annual wear and tear of 1,000, circulating constant capital 1,000, variable capital 1,000, rate of surplus-value 100%, number of annual turn-overs of variable capital 5. Then the product of each one of these turn-overs of the variable capital will be

And the annual product (of all five turn-overs) will be

Then C is 11,000, s is 5,000, and p' is 5000/11000, or 45 5/11%.

Take furthermore a third capital (III) with no fixed capital, 6,000 circulating constant capital, and 5,000 variable capital. Let the rate of surplus-value be 100%, and let there be one turn-over per year. Then the total product of one year is

C is 11,000, s is 5,000, and p' is 5000/11000, or 45 5/11%.

In other words, we have in all three of these cases the same annual mass of surplus-value, namely 5,000, and since the total capital is likewise the same in all three cases, namely 11,000, the rate of profit is also the same, namely 45 5/11%.

But now let us assume that capital (I) has only 5 instead [89] of 10 turn-overs of its variable capital per year. In that case the outcome is different. The product of one turn-over is then 200 c (wear) + 500 c + 500 v + 500 s = 1,700. And the product of one year is

C is 11,000, s is 2,500, p' is 2500/11000, or 22 8/11%. The rate of profit has fallen by one-half, because the time of turn-over has been doubled.

The amount of surplus-value appropriated during one year is therefore equal to the mass of surplus-value appropriated during one turn-over of the variable capital multiplied by the number of such turn-overs per year. If we call the surplus-value, or profit, appropriated during one year S, the surplus-value appropriated during one period of turn-over of the variable capital s, the number of turn-overs of the variable capital in one year n, then S = sn, and the annual rate of surplus-value S' = s'n, as demonstrated in Volume II, chapter XVI, I.

It is understood that the formula p' = s' v/c = s' v/c+v is correct only so long as the v of the numerator is the same as that of the denominator. In the denominator v stands for the entire portion of the total capital used on an average as variable capital for the payment of wages. In the numerator, v is determined in the first place by the fact that a certain amount of surplus-value s is produced and appropriated by it. The proportion of this surplus-value to the variable capital, s/v, constitutes the rate of surplus-value. It is only in this way that the formula p' = s/c+v is transformed into p' = s' v/c+v. Now the v of the numerator is more definitely described by stating that it must be equal to the v of the denominator, that is to say equal to the entire variable capital of C. In other words, the equation p' = s/C can be transformed into the equation p' = s' v/c+v only in the case that s stands for the surplus-value produced in one turn-over of the variable capital. If s stands for only a portion of this surplus-value, then s = s'v is still correct, but this v is then smaller than the v in C = c + v, because less than the entire variable capital has been [90] employed in the payment of wages. On the other hand, if s stands for more than the surplus-value of one turn-over of v, then a portion of this v, or perhaps the whole, serves twice, namely in the first and in the second turn-over, and eventually it may serve in the subsequent turn-overs. The v which produces the surplus-value, and which represents the sum of all paid wages, is then greater than the v in c + v and the calculation becomes wrong.

In order that the formula for the annual rate of profit may be exact, we must substitute the annual rate of surplus-value for the simple rate of surplus-value, we must substitute S' or s'n for s'. In other words, we must multiply the rate of surplus-value, s', or, what amounts to the same, the variable capital v contained in C, with n, the number of turn-overs of this variable capital in one year. Thus we obtain p' = s'n v/C, which is the formula for the calculation of the annual rate of profit.

In most cases the capitalist himself does not know the amount of variable capital invested in his business. We have seen in chapter VIII of volume II, and shall see further along, that the only distinction which forces itself upon the capitalist within his capital is that of fixed and circulating capital. From the cash-box containing the money-part of the circulating capital in his hands, so far as it is not deposited in a bank, he takes the money to pay wages, and from the same cash-box he takes the money for raw and auxiliary materials. And he credits both expenditures to the same cash account. And even if he should keep a separate account for wages, it would show at the end of the year the amounts paid out for wages, that is vn, but not the variable capital v itself. In order to ascertain this, he would have to make a special calculation, of which we propose to give an illustration.

We select for this purpose the cotton spinnery of 10,000 mule spindles described in volume I. We assume that the data there given for one week of April, 1871, are in force during the whole year. The fixed capital incorporated in the machinery was valued at 10,000 p.st. The circulating capital was not given. We assume it to have been 2,500 p.st. [91] This is a rather high estimate, but it is justified by the assumption, which we must always make in this discussion, that no credit was in force, in other words, no permanent or temporary employment of other people's capital. The value of the weekly product was composed of 20 p.st. for wear of machinery, 358 p.st. of circulating constant capital (rent 6 p.st., cotton 342 p.st., coal, gas, oil, 10 p.st.), 52 p.st. of variable capital paid out for wages, and 80 p.st. of surplus-value. The formula was, therefore

The weekly advance of circulating capital consisted therefore of 358 c + 52 v = 410, and its percentages of composition were 87.3 c + 12.7 v. Calculating the entire circulating capital of 2,500 p.st., on this basis, we obtain 2,182 p.st. of constant and 318 p.st. of variable capital. Since the total expenditure for wages in one year was 52 times 52 p.st., or 2,704 p.st., it follows that the variable capital of 318 p.st. was turned over almost exactly 8½ times in one year. The rate of surplus-value was 80/52, or 153 11/13%. We calculate the rate of profit from these elements by inserting the above values in the formula p' = s'n v/C. Since s' is 153 11/13, n is 8½ v is 318, and C is 12,500, we have

We test this result by means of the simple formula p' = s/C. The total surplus-value or profit, of one year amounts to 52 times 80 p.st., or 4,160 p.st. Dividing this by the total capital of 12,500, we obtain 33.28%, or almost the identical result. This is an abnormally high rate of profit, due to the extraordinarily favorable conditions of the moment (very low prices of cotton and very high prices of yarn). In reality this rate was certainly not maintained throughout the year.

The term s'n in the formula p' = s'n v/c stands for the same thing which was called the annual rate of surplus-value in volume II. In the above case it is 153 11/13% multiplied by 8½, or in exact figures 1,307 9/13%. A certain brave soul was shocked to the point of speechlessness over the abnormity of an annual rate of profit of 1,000%, which had been used as [92] an illustration in that volume. Perhaps he will now settle down peacefully and contemplate this annual rate of surplus-value of more than 1,300% taken from the practical life of Manchester. In times of greatest prosperity, such as we have not seen for a long time, a similar rate is by no means rare.

By the way, this is an illustration of the actual composition of capital in modern great industry. The total capital is divided into 12,182 p.st. of constant and 318 p.st. of variable capital, a total of 12,500 p.st. In percentages this is 97½ c + 2½ v = 100 C. Only one-fortieth of the total capital serves for the payment of wages, but it is turned over eight times during the year.

Since very few capitalists take the trouble of making similar calculations with reference to their own business, the science of statistics is almost completely silent regarding the proportion of the constant portion of the total social capital to its variable portion. Only the American Census gives what is possible under modern conditions, namely the amount of wages paid in each line of business and the profits realized. These data are, of course, very doubtful, because they are based on uncontrollable statements of the capitalists, but they are nevertheless very valuable, and the only records available on this subject. In Europe we are far too delicate to expect such revelations from our great capitalists.—F. E.]

CHAPTER V.: ECONOMIES IN THE EMPLOYMENT OF CONSTANT CAPITAL.↩

CHAPTER VI.: THE EFFECT OF FLUCTUATIONS IN PRICE.↩

[131]

CHAPTER VII.: ADDITIONAL REMARKS.↩

TAKE it, in accordance with the assumption on which this section is based, that the mass of profit appropriated in any particular sphere of production is equal to the sum of the surplus-values produced by the total capital invested in this sphere. Nevertheless the bourgeois will not consider his profit as identical with the surplus-value, that is to say, with unpaid surplus-labor. And he will do so, for the following reasons.

1) He forgets the process of production in the process of circulation. He is of the opinion that surplus-value is made by his realisation on the value of commodities, which includes realisation on their surplus-value. [There is a blank at this place, indicating that Marx intended to dwell in detail on this point.—F. E.]

2) Assuming a uniform degree of exploitation, we have seen that the rate of profit may differ considerably according to the relative cheapness or dearness of raw materials and the experience of the buyer, according to the relative productivity, efficacy, and cheapness of the machinery employed, according to the greater or lesser perfection of the general equipment of the various stages of the productive process, the simplicity and effectiveness of the management, etc.; all this without reference to any modifications due to the credit-system, to the mutual cheating of the capitalists among themselves, to any favorable choice of the market. In short, given the surplus-value for a certain capital, it depends still very much on the individual business ability of the capitalist, or of his managers and salesmen, whether this same surplus-value realises a greater or smaller rate of profit and thus yields a greater or smaller mass of profit. The same surplus-value of 1,000 [164] p.st., a product of 1,000 p.st. of wages, may be calculated in the business of A on 9,000 p.st., in the business of B on 11,000 p.st. of constant capital. In the case of A we have then p' = 1000/10,000, or 10%. In the case of B we have p' = 1000/12,000, or 8 1/3%. The total capital produces relatively more profit in the business of A than in that of B, although the variable capital advanced in either case is 1,000 p.st., and the surplus-value produced by it likewise 1,000 p.st., so that there is in both cases the same degree of exploitation of the same number of laborers. This difference in the materialisation of the same mass of surplus-value, or the difference in the rates of profit, may also be due to other causes. Still, it may be due wholly to a difference in business ability in both establishments. And this fact leads the capitalist to the conviction that his profits are due, not to the exploitation of labor, but at least, in part, to other circumstances independent of that exploitation, particularly to his individual activity.

The analyses of this part of the work demonstrate the erroneousness of the view (Rodbertus) according to which (in distinction from ground-rent, in the case of which the area of real-estate is said to remain the same and yet to produce a higher rent) a change in the magnitude of a certain capital is said to have no influence on the proportion of profit to capital, and thus on the rate of profit, on the assumption that the mass of capital, on which profits are calculated, grows simultaneously with the mass of profits, and vice versa.

This is true only in two cases. In the first place, it is true, assuming all other circumstances, especially the rate of surplus-value, to remain unchanged, if there is a change in the value of that commodity which is a money-commodity. (The same occurs in the case of a merely nominal change of value, the rise or fall of mere tokens of value while other circumstances remain the same.) Take it that the total capital amounts to 100 p.st., with a profit of 20 p.st., so that the rate of profit is 20%. Now, if gold rises or falls by 50%, the same capital, in the first eventuality, will be worth 150 p.st., which was previously worth only 100 p.st., and the profit [165] will be worth 30 p.st., that is to say, it will be worth that much in money instead of 20 p.st., as before. In the second eventuality, the capital of 100 p.st. will be worth only 50 p.st., and the profit will be represented by the value of 10 p.st. But in either case 150 : 30 = 50 : 10 = 100 : 20 = 20%. But in all these cases there would have been no actual change in the magnitude of capital-value, but only in the money-expression of the same value and the same surplus-value. For this reason s/C, or the rate of profit, could not be affected.

The second case is that in which an actual change of magnitude takes place in the value, but without being accompanied by a change in the proportion of v to c, in other words, when the rate of surplus-value remains the same and the proportion of the variable capital invested in labor-power (considered as an index of the amount of labor-power set in motion) to the constant capital invested in means of production remains the same. Under these circumstances, we may have C, or nC, or C/n, for instance 1,000, or 2,000, or 500. If the rate of profit is 20%, the profit will be 200 in the first case, 400 in the second, and 100 in the third. But 200 : 1,000 = 400 : 2,000 = 100 : 500 = 20%, that is to say the rate of profit remains unchanged, because the composition of capital remains the same and is not effected by its change of magnitude. An increase or decrease in the mass of profit shows therefore merely an increase or decrease in the magnitude of the invested capital.

In the first case, then, there is but seemingly a change in the magnitude of the employed capital, while in the second case there is an actual change of magnitude, but no change in the organic composition of the capital, that is to say, in the relative proportions of the variable and constant portions. With the exception of these two cases, a change in the magnitude of the employed capital is either the result of a preceding change of value in one of the components of capital, and therefore of a change in the relative magnitudes of these components (unless the surplus-value itself varies with the variable capital); or, this change of magnitude (for instance in the [166] case of enterprises on a large scale, the introduction of new machinery, etc.) is the cause of a change in the relative magnitudes of the organic components of capital. In all these cases, other circumstances remaining unchanged, a change in the magnitude of the employed capital must be accompanied simultaneously by a change in the rate of profit.

An increase in the rate of profit is always due to a relative or absolute increase of the surplus-value in proportion to its cost of production, for instance to the advanced total capital, or to a decrease in the difference between the rate of profit and the rate of surplus-value.

Fluctuations in the rate of profit, independently of changes in the organic components of capital, or of the absolute magnitude of the capital, may occur through a rise or fall of the value of the advanced capital, whether it be fixed or circulating, caused by a prolongation or reduction of the working time required for its reproduction, this change in the working time taking place independently of already existing capital. The value of every commodity, including the commodities of which capital consists, is determined, not by the necessary labor-time contained in it individually, but by the social labor-time necessary for its reproduction. This reproduction may take place under aggravating or under propitious circumstances, which differ from the conditions of original production. If it takes under altered conditions double the time, or half as much time, to reproduce the same material capital, and if the value of money remained unchanged, then a capital formerly worth 100 p.st. would be worth 200 p.st. or 50 p.st. If this appreciation or depreciation were to affect all parts of capital uniformly, then the profit would also be expressed correspondingly in double, or half, the amount of money. But if appreciation or depreciation imply a change in the organic composition of capital, if they imply a raising or lowering of the proportion between the variable and constant portions of capital, then the rate of profit, other circumstances remaining the same, will grow with a relatively growing, and fall with a relatively falling, variable capital. If only the [167] money-value of the advanced capital rises or falls (in consequence of a change in the valuation of money) then the money-value of the surplus-value rises or falls in the same proportion. The rate of profit remains unchanged.

CHAPTER VIII.: DIFFERENT COMPOSITION OF CAPITALS IN DIFFERENT LINES OF PRODUCTION AND RESULTING DIFFERENCES IN THE RATES OF PROFIT.↩

IN the preceding part we demonstrated among other things that the rate of profit may vary, may rise or fall, while the rate of surplus-value remains the same. In the present chapter we assume that the intensity of exploitation, and therefore the rate of surplus-value and the length of the working day, are the same in all spheres of production into which the social labor of a certain country is divided. Adam Smith has already shown explicitly that many differences in the exploitation of labor in different spheres of production balance one another by many actual causes, or causes regarded as such by prevailing prejudices, so that they are mere evanescent distinctions and are of no moment in this calculation. Other differences, for instance those in the scale of wages, rest largely on the difference between simple and complicated labor, mentioned in the beginning of volume I, which do not affect the intensity of exploitation in the different spheres of production, although they render the conditions of the laborers in those spheres very unequal. For instance, if the labor of a goldsmith is paid better than that of a day-laborer, the surplus-labor of the goldsmith produces correspondingly more surplus-value than that of the day-laborer. And while the compensation of wages and working days, and thereby of the rates of surplus-value, between different spheres of production, or even different investments of capital in the same [169] sphere of production, is checked by many local obstacles, it is nevertheless accomplished at an increasing degree with the advance of capitalist production and the subordination of all economic conditions under this mode of production. The study of such frictions, while quite important for any special work on wages, may be dispensed with as being accidental and unessential in a general analysis of capitalist production. In such a general analysis it is always assumed that the actual conditions correspond to the terms used to express them, or, in other words, that actual conditions are represented only to the extent that they are typical of their own case.

The difference in the rates of surplus-value in different countries, and consequently in the degree of national exploitation of labor, is immaterial for our present analysis. For we desire to analyse precisely the way in which a general rate of profit is brought about in a certain country. It is evident, however, that a comparison of the various national rates of profit requires but a collation of previous analyses with that which is to follow. First consider the differences in the national rates of surplus-value, then compare on this basis the differences in the national rates of profit. Those differences which are not due to differences in the national rates of surplus-value, must be due to circumstances in which the surplus-value is assumed to be universally the same, constant, as it is in the analysis of this chapter.

We demonstrated in the preceding chapter that, assuming the rate of surplus-value to be constant, the rate of profit may rise or fall in consequence of circumstances which raise or lower the value of one or the other parts of constant capital, and so affect the proportion between the variable and constant components of capital in general. We observed, furthermore, that circumstances which prolong or reduce the time of turn-over of a certain capital may also influence the rate of profit in a similar manner. Since the mass of profits is identical with the mass of surplus-value, the surplus-value itself, it was also seen that the mass of profits, in distinction from the rate of profits, was not touched by the aforementioned fluctuations of value. These fluctuations modified merely the rate through [170] which a certain surplus-value, and therefore a profit of a given magnitude, express themselves, in other words, they indicate the relative magnitude of surplus-value, or profits, as compared with the magnitude of the advanced capital. To the extent that capital was released or tied up by such fluctuations of value, it was not only the rate of profit, but the profit itself, which could be affected by this indirect route. However, this always applied only to such capital as was already engaged, not to new investments about to be made. Besides, the increase or reduction of profit always depended on the extent to which the same capital could set in motion more or less labor in consequence of such fluctuations of value, in other words, the extent to which the same capital, with the same rate of surplus-value, could obtain a larger or smaller amount of surplus-value. So far from contradicting the general rule, or being an exception from it, this seeming exception was really but a special case in the application of the general rule.

It was seen in the preceding part, that the rate of profit varied, when the degree of exploitation was constant while the value of the component parts of constant capital, and the time of turn-over of capital, changed. The obvious conclusion from this was that the rates of profit of different spheres of production existing simultaneously side by side had to differ, when, other circumstances remaining unchanged, the time of turn-over of the invested capitals differed, or when the proportions of the values of the organic components of these capitals were different in the different lines of production. That which we previously regarded as changes occurring successively in the same capital will now be considered as simultaneous differences of contemporaneous investments of capital in different spheres of production.

Under these circumstances we shall have to analyse: 1) The differences in the organic composition of capitals. 2) The differences in their times of turn-over.

The natural premise in this entire analysis is that, in speaking of the composition, or of the turn-over, of a capital in a certain line of production, we always mean the average [171] normal proportions of the capital invested in this line, or, more generally, of the average of the total capital invested in this sphere, not of the temporary differences of the individual capitals in it.

Since our assumption is, furthermore, that the rate of surplus-value and the working day are constant, and since this assumption implies also the constancy of wages, it follows that a certain quantity of variable capital expresses a definite quantity of exploited labor-power and therefore a definite quantity of materialised labor. In other words, if 100 p.st. represent the weekly wages of 100 laborers, indicating 100 actual labor-powers, then n times 100 p.st. indicates the labor-powers of n times 100 laborers, and 100/n p.st. those of 100/n laborers. The variable capital serves here, as is always the case when the wages are given, as an index of the amount of labor set in motion by a definite total capital. Differences in the magnitude of the employed variable capitals serve, therefore, as indices of the differences in the amount of labor-power set in motion. If 100 p.st. indicate 100 laborers per week, representing 6,000 working hours, if the weekly working time is 60 hours, then 200 p.st. indicate 12,000, and 50 p.st. indicate 3,000 working hours.

By the composition of capital we mean, as we have stated in volume I, the proportions of its active and passive parts, of variable and constant capital. Two proportions require consideration under this heading. They are not equally important, although they may produce the same effects under certain circumstances.

The first proportion rests on a technical basis, and must be considered as existing at a certain stage of development of the productive forces. A definite quantity of labor-power, represented by a definite number of laborers, is required for the purpose of producing a definite quantity of products, for instance in one day, and thereby to consume productively, by setting in motion, a definite quantity of means of production, machinery, raw materials, etc. A definite number of laborers corresponds to a definite quantity of means of production, so that a definite quantity of living labor corresponds [172] to a definite quantity of materialised labor in means of production. This proportion differs a great deal in different spheres of production, and frequently even in different branches of one and the same industry. On the other hand, it may occasionally be entirely or approximately the same in widely separated lines of industry.

This proportion forms the technical composition of capital and is the primary basis of its organic composition.

However, it is possible that this first proportion may be the same in different lines of industry, provided that the variable capital is merely an index of labor-power, and the constant capital merely an index of the mass of means of production set in motion by the labor-power. For instance, certain work in copper and iron may be conditioned on the same proportional composition between labor-power and the mass of means of production. But since copper is more expensive than iron, the proportion of value between variable and constant capital may be different in either case, and then the composition of the value of the total capitals is, of course, likewise different. The difference between the technical composition and the composition of values is manifested by each branch of industry by the fact that the proportion of the values of the two parts of capital may vary while the technical composition is constant, and the proportion of values may remain the same while the technical composition varies. This last eventuality will, of course, be possible only if the change in the proportion of the employed masses of means of production and labor-power is compensated by an opposite change in their values.

The composition of the values of capital, which is determined by, and reflects, its technical composition, is called the organic composition of capital.20

We assume, then, that the variable capital is the index of a definite quantity of laborers, or of labor-power, or a definite quantity of living labor set in motion. We saw in the preceding [173] part that a change in the magnitude of the value of variable capital might eventually indicate nothing but a higher or lower price of the same mass of labor. But here, where the rate of surplus-value and the working day have been assumed to be constant, and the wages for a definite working time are given, this is out of the question. On the other hand, a difference in the magnitude of the constant capital may likewise be an index of a change in the mass of means of production set in motion by a definite quantity of labor-power. Still, it may also be due to a difference in value between the means of production set in motion in one sphere and those of another. Both points of view must be considered here.

Finally, the following essential facts must be taken into account:

Take it that 100 p.st. are the weekly wages of 100 laborers. Take it that the working hours are 60 per week. Take it, furthermore, that the rate of surplus-value is 100%. In that case, the laborers work 30 of the 60 hours for themselves, and 30 hours gratis for the capitalist. In fact, those 100 p.st. of wages represent only 30 working hours of those 100 laborers, or a total of 3,000 working hours, while the other 3,000 hours worked by the laborers are incorporated in the 100 p.st. of surplus-value, or as profit, pocketed by the capitalist. Although the wages of 100 p.st. do not express the value in which the weekly labor of those 100 laborers is materialised, still they indicate (since the length of the working day and the rate of surplus-value are given) that this capital set in motion 100 laborers for 6,000 working hours. The capital of 100 p.st. indicates this, first, because it indicates the number of laborers set in motion, since one pound sterling stands for one laborer per week, and 100 p.st. for 100 laborers per week; and in the second place, because every laborer set in motion performs twice the work for which his wages pay, at the given rate of surplus-value of 100%, so that one pound sterling, his wages, the expression of half a week of labor, actually set in motion one whole week's labor, and in the same way 100 p.st., although they pay only for 50 weeks of labor, set in motion 100 weeks of labor. There is, then, an essential [174] difference between variable capital so far as its value, invested as a wages-capital, represents a certain sum of wages, a definite quantity of materialised labor, and variable capital so far as its value is a mere index of the quantity of living labor set in motion by it. This last-named labor is always greater than that incorporated in the variable capital, and is, therefore, represented by a greater value than that of the variable capital. This greater value is determined on one hand by the number of laborers set in motion by the variable capital, and on the other by the quantity of surplus-labor performed by them.

This mode of looking upon variable capital leads to the following conclusions:

When a capital invested in the sphere of production A expends only 100 in variable capital for each 700 of total capital, leaving 600 for constant capital, while a capital invested in the sphere of production B expends 600 for variable and only 100 for constant capital, then the capital of 700 in A will set in motion only 100 of labor-power, or, in terms of our previous assumption, 100 weeks of labor, or 6,000 hours of living labor, while the same amount of capital in B will set in motion 600 weeks of labor or 36,000 hours of living labor. The capital in A would then appropriate only 50 weeks of labor, or 3,000 hours of surplus-labor, while the same amount of capital in B would appropriate 300 weeks of labor, or 18,000 hours. The variable capital is the index, not only of the labor embodied in it, but also, when the rate of surplus-value is known, of the labor set in motion over and above that embodied in itself, in other words, of the surplus-labor. With the same intensity of exploitation, the profit in the first case would be 100/700, or 1/7, or 14 2/7%, and in the second case 600/700, or 6/7, or 85 5/7%, six times the rate of profit of the first. In this case, the profit itself would actually be six times that of A, 600 in B as against 100 in A, because the same capital set in motion six times the quantity of living labor, which, with the same degree of exploitation, means six times as much surplus-value and thus six times as much profit.

[175]

If the capital invested in A were not 700, but 7,000 p.st., while that invested in B were only 700 p.st., and the organic composition of both were to remain the same, then the capital in A would expend 1,000 p.st. of the 7,000 as variable capital, that is to say, it would employ 1,000 laborers per week at 60,000 hours of living labor, of which 30,000 would be surplus-labor. But yet each 700 p.st. of the capital in A would continue to set in motion only one-sixth of the surplus-labor of the capital in B, and produce only one-sixth of the profit of this capital. If we consider the rate of profit, then 1000/7000, or 100/700, or 14 2/7%, would be the rate of the capital in A, compared with 600/700, or 85 5/7%, of the capital in B. Taking equal amounts of capital for comparison, the rates of profit differ here, because the masses of surplus-value, and thus of profits, differ, although the rates of surplus-value are the same, owing to the different masses of living labor set in motion.

The same result follows, if the technical conditions are the same in both spheres of production, while the value of the elements of constant capital is greater or smaller in the one than in the other. Let us assume that both invest 100 p.st. in variable capital and employ 100 laborers per week, which set in motion the same quantity of machinery and raw materials. But let the last-named elements of production be more expensive in B than in A. For instance, let the 100 p.st. of variable capital in A set in motion 200 p.st. of constant capital, and in B 400 p.st. of constant capital. With the same rate of surplus-value, 100%, the surplus-value produced is in either case 100 p.st. Hence the profit is also 100 p.st. But the rate of profit in A is 100/200 c 100 v, or 1/3, or 33 1/3%, while in B it is 100/400 c 100 v, or 1/5, or 20%. In fact, if we select a certain aliquot part of the total capital from either side, we find that every 100 p.st. in B sets aside only 20 p.st., or one-fifth, for variable capital, while every 100 p.st. in A sets aside 33 1/3% p.st., or one-third, for this purpose. B produces less profit to each 100 p.st., because it sets in motion less living labor than A. The difference [176] in the rates of profits resolves itself once more, in this case, into a difference of the masses of surplus-value, and thus masses of profit, produced per each 100 of capital invested.

The difference of this second example from the first is just this: The compensation between A and B, in the second case, would require only a change in the value of the constant capital of either A or B, provided the technical basis remained the same. But in the first case, the technical basis itself is different, and would have to be revolutionised in order to consummate a compensation.

The different organic composition of various capitals, then, is independent of their absolute magnitude. It is always but a question of what part of every 100 is variable and what part constant.

Capitals of different magnitude, calculated in percentages, or, what amounts to the same in this case, capitals of the same magnitude, working with the same working time and the same degree of exploitation, may produce considerably different amounts of surplus-value, and thus of profit, for the reason that a difference in the organic composition of capital in different spheres of production implies a difference in their variable parts, and thus a difference in the quantities of living labor set in motion by them, which implies a difference in the quantities of surplus-labor appropriated by them. And this surplus-labor is the substance of surplus-value and of profit. Equal portions of the total capital in the various spheres of production comprise the sources of unequal portions of surplus-value, and the only source of surplus-value is living labor. With the same degree of labor-exploitation the mass of labor set in motion by a capital of 100, and consequently the mass of surplus-value appropriated by it, depend on the magnitude of its variable component. If a capital, consisting of percentages of 90 c + 10 v, produced as much surplus-value, or profit, with the same degree of exploitation, as a capital consisting of percentages of 10 c + 90 v, then it would be as plain as daylight that the surplus-value, and value in general, must have an entirely different source than labor, and that political economy would then be without [177] a rational basis. If we assume continually that one pound sterling stands for the weekly wages of a laborer working 60 hours, and that the rate of surplus-value is 100%, then it is evident that the total product in values which one laborer can supply in one week, is 2 p.st. Then 10 laborers cannot supply more than 20 p.st. And since 10 p.st. of the 20 reproduce the wages, those 10 laborers cannot produce any more surplus-value than 10 p.st. On the other hand the 90 laborers, whose total product is 180 p.st., and whose wages amount to 90 p.st., produce a surplus-value of 90 p.st. The rate of profit in the one case would be 10%, in the other 90%. If matters were different, then value and surplus-value would be something else than materialised labor. Seeing, then, that capitals in different spheres of production, calculated in percentages—or capitals of equal magnitude—are differently divided into variable and constant capital, so that they set in motion unequal quantities of living labor and produce different surplus-values, and profits, it follows that the rate of profit, which consists precisely of the calculation of the percentage of surplus-value on the total capital, must also differ.

Now, if capitals in different spheres of production, calculated in percentages, in other words, capitals of equal magnitude, produce unequal profits in different spheres of production, in consequence of their different organic composition, then it follows that the profits of unequal capitals in different spheres of production cannot be proportional to the magnitude of their respective capitals, or, in slightly different words, profits in different spheres of production are not proportional to the magnitude of the respective capitals invested in them. For if profits were to grow at the rate of the investment of capital, it would mean that the percentage of profits was the same, so that capitals of equal magnitude in different spheres of production would have equal rates of profit, in spite of their different organic composition. Only within the same sphere of production, in which the organic composition of capital is known, or in different spheres of production with the same organic composition of capitals, do the masses of profits stand in direct ratio to the masses of capitals invested. [178] To say that the profits of capitals of different magnitude are proportional to their magnitudes is only another way of saying that capitals of equal magnitude yield equal profits, or that the rate of profits is the same for all capitals, whatever may be their organic composition and their magnitude.

These statements hold good on the assumption that the commodities are sold at their values. The value of a commodity is equal to the value of the constant capital contained in it, plus the value of the variable capital reproduced in it, plus the increment of this variable capital, which increment is the surplus-value. With the same rate of surplus-value, its mass evidently depends on the mass of the variable capital. The value of the product of a capital of 100 is in the one case 90 c + 10 v + 10 s, or 110, in the other 10 c + 90 v + 90 s, or 190. If the commodities are sold at their values, then the first product is sold at 110, of which 10 represent surplus-value, or unpaid labor; the second product is sold at 190, of which 90 represent surplus-value, or unpaid labor.

This is especially important when international rates of profit are compared with one another. Let us assume that the rate of surplus-value in some European country is 100%, so that the laborer works one-half of the working day for himself and the other half for his employer. Let us assume, furthermore, that the rate of profit in some Asiatic country is 25%, so that the laborer works four-fifths of the working day for himself, and one-fifth for his employer. Let the composition of the national capital in the European country be 84 c + 16 v, that of the national capital of the Asiatic country, where little machinery, etc., is used, and a given quantity of labor-power consumes relatively little raw material productively in a given time, 16 c + 84 v. Then we have the following calculation:

In the European country: Value of product 84 c + 16 v + 16 s, or 116; rate of profit 16/100, or 16%.

In the Asiatic country: Value of product 16 c + 84 v + 21 s, or 121; rate of profit 21/100, or 21%.

The rate of profit in the Asiatic country is higher by more than 25% than in the European country, although the rate [179] of surplus-value is four times smaller in the former than in the latter. Men like Carey, Bastiat, and others, would come to the opposite conclusion.

By the way, different national rates of profit will generally be based on different national rates of surplus-value. But we compare in this chapter unequal rates of profit resting on the same rate of surplus-value.

Aside from differences of organic composition of capitals, which imply different masses of labor, and consequently, other circumstances remaining the same, of surplus-labor, which set in motion capitals of the same magnitude in different spheres of production, there is still another source for the inequality of rates of profit. This is the different length of the time of turn-over of capital in different spheres of production. We have seen in chapter IV that, other circumstances being the same, the rates of profits of capitals of the same organic composition are proportioned inversely as their times of turn-over. We have also seen that the same variable capital, if turned over in different periods of time, produces unequal masses of annual surplus-value. The difference of the times of turn-over, then, is another reason why capitals of the same magnitude in different spheres of production do not produce equal profits in equal times, and why the rates of profit in these different spheres differ.

On the other hand, the proportional composition of capitals as to fixed and circulating capital does not in itself affect the rate of profit. It can affect this rate only in the case that this difference in composition either coincides with a different proportion of the variable and constant parts so that the difference in the rate of profit is due to this difference in organic composition, and not to the different proportions between fixed and circulating capital; or, if the difference in the proportion of fixed and circulating capital is responsible for a difference in the time of turn-over, during which a certain profit is realised. If capitals are divided into fixed and circulating capital in different proportions, it will, of course, always have an influence on the time of turn-over and cause differences in it. But this does not imply that the time of [180] turn-over, in which the same capitals realise certain profits, is different. For instance, A may have to convert the greater part of its product continually into raw materials, etc., while B may use the same machinery, etc., for a longer time, and need less raw material, but both A and B have a part of their capital engaged so long as they are producing; the one in raw materials, that is to say circulating capital, the other in machinery, etc., or fixed capital. The capitalist in A continually converts a portion of his capital from commodities into money, and this into raw materials, while the capitalist in B employs a portion of his capital for a longer time as an instrument of labor without any such conversions. If both of them employ the same amount of labor, they will sell masses of products of unequal value during the year, but both masses of products will contain the same amount of surplus-value, and their rates of profit, calculated on the entire capital invested, will be the same, although their proportional composition of fixed and circulating capital, and their times of turn-over, are different. Both capitals realise equal profits in equal times, although they are turned over in different periods of time.21 The difference in the time of turn-over has in itself no importance except so far as it affects the mass of surplus-value which may be appropriated and realized by the same capital in a certain time. Seeing that a different distribution of the fixed and circulating capital of A and B does not necessarily imply a different time of turn-over, which would in its turn imply a different rate of profit, it is evident, if there is such a difference in the rates of profit of A and B, that it is not due to a difference in the proportions of [181] fixed and circulating capital as such, but rather to the fact that these different proportions indicate an inequality in the times of turn-over affecting the rates of profit.

It follows, then, that a difference in the composition of capitals in various lines of production, referring to their fixed and circulating portions, has in itself no bearing on the rate of profit, since it is the proportion between the constant and variable capital which decides this question, and since the value of the constant capital, and its relative magnitude as compared to that of the variable, is quite independent of the fixed or circulating nature of its components. But it will be found—and this is one of the causes of wrong conclusions—that whenever fixed capital is considerably developed, it is but an expression of the fact that production is carried on at a large scale, so that the constant capital far outweighs the variable, or the living labor-power employed is trifling compared to the mass of the means of production set in motion by it.

We have demonstrated, that different lines of industry may have different rates of profit, corresponding to differences in the organic composition of capitals, and, within the limits indicated, also corresponding to different times of turn-over; the law (as a general tendency) that profits are proportioned as the magnitudes of the capitals, or that capitals of equal magnitude yield equal profits in equal times, applies only to capitals of the same organic composition, with the same rate of surplus-value, and the same time of turn-over. And these statements hold good on the assumption, which has been the basis of all our analyses so far, namely that the commodities are sold at their values. On the other hand there is no doubt that, aside from unessential, accidental, and mutually compensating distinctions, a difference in the average rate of profit of the various lines of industry does not exist in reality, and could not exist without abolishing the entire system of capitalist production. It would seem, then, as though the theory of value were irreconcilable at this point with the actual process, irreconcilable with the real phenomena of production, [182] so that we should have to give up the attempt to understand these phenomena.

It follows from the first part of this volume that the cost-prices are the same for the products of different spheres of production, in which equal portions of capital have been invested for purposes of production, regardless of the organic composition of such capitals. The cost-price does not show the distinction between variable and constant capital to the capitalist. A commodity for which he must advance 100 p.st. in production cost him the same amount, whether he invests 90 c + 10 v, or 10 c + 90 v. He always spends 100 p.st. for it, no more, no less. The cost-prices are the same for investments of the same amounts of capital in different spheres, no matter how much the produced values and surplus-values may differ. The equality of cost-prices is the basis for the competition of the invested capitals, by which an average rate of profit is brought about.

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 [183] 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 [184] 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 [185] 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. [186] 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 [187] 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.22

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 [188] 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 [189] 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 [190] 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 [191] 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 [192] 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:

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 + [193] (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 [194] established, assuming one turn-over per year. In this tabulation, I shows the average composition, in which the average rate of profit is 20%.

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 [195] 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.

The price of production of the commodities in any particular sphere may alter its magnitude in the following cases:

[196]

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.23

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 [197] 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 [198] 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 extent24 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 [199] 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 [200] 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 [201] 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 [202] 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.26

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 [203] 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.

CHAPTER X.: COMPENSATION OF THE AVERAGE RATE OF PROFIT BY COMPETITION. MARKET PRICES AND MARKET VALUES. SURPLUS-PROFIT.↩

ONE portion of the spheres of production has an average composition of their capitals, that is to say, their capitals have exactly or approximately the composition of the average social capital.

In these spheres of production, the price of production of the produced commodities coincides exactly or approximately with their values as expressed in money. If there is no other way of reaching a mathematical limit, this would be the one. Competition distributes the social capital in such a way between the various spheres of production that the prices of production of each sphere are formed after the model of the [204] prices of production in these spheres of average composition, which is k + kp', cost-price plus the average rate of profit multiplied by the cost-price. Now, this average rate of profit is nothing else but the percentage of profit in that sphere of average composition, in which the profit is identical with the surplus-value. Hence the rate of profit is the same in all spheres of production, for it is apportioned according to that one of the average spheres of production in which the average composition of capitals prevails. Consequently the sum of the profits of all spheres of production must be equal to the sum of surplus-values, and the sum of the prices of production of the total social product equal to the sum of its values. But it is evident that the balance between the spheres of production of different composition must tend to equalise them with the spheres of average composition, no matter whether this average composition is exact or only approximate. Again, there are tendencies toward equalisation between the more or less similar spheres, and these tendencies seek to bring about the ideal average, which does not really exist, so that there is a trend toward crystallisation around the ideal. In this way the tendency necessarily prevails to make of the prices of production merely changed forms of value, or to make of profits but mere portions of surplus-value, which are assigned, however, not in proportion to the surplus-value produced in each special sphere of production, but in proportion to the mass of capital employed in each sphere of production, so that equal masses of capital, whatever may be their composition, receive equal aliquot shares of the total surplus-value produced by the total social capital.

In the case of capitals of average, or approximately average, composition, the price of production coincides exactly, or approximately with the value, and the profit with the surplus-value produced by them. All the other capitals, of whatever composition, tend toward this average under the pressure of competition. But since the capitals of average composition are of the same, or approximately the same, structure as the average social capital, all capitals have the tendency, regardless of the surplus-value produced by them, to realise in the prices of [205] their commodities the average profit, instead of their own surplus-value, in other words, to realise the prices of production.

On the other hand it may be said that whenever an average profit, and a general rate of profit, are brought about, no matter by what means, such as average profit cannot be anything else but the profit on the average social capital, the sum of these average profits being equal to the sum of surplus-values produced by the average social capitals, and that the prices brought about by adding this average profit to the cost-prices cannot be anything else but the values transformed into prices of production. It would not alter matters, if certain capitals in certain spheres of production would not submit to the process of equalisation for some reason or other. In that case the average profit would be computed on that portion of the social capital which takes part in the process of equalisation. It is evident that the average profit cannot be anything else but the total mass of surplus-values allotted to the various masses of capital in the different spheres of production in proportion to their magnitudes. The average profit is the total amount of realised unpaid labor, and this total mass of unpaid labor, the same as the paid, dead or living, labor, is materialised in the total mass of commodities and money falling to the share of the capitalists.

The real difficulty lies in the question: How is this equalisation of profits into an average rate of profit brought about, seeing that it is evidently a result, not a point of departure?

It is obvious that an estimate of the values of the commodities, for instance in money, can not be made until they have been exchanged. If we assume such an estimate, we must regard it as the outcome of an actual exchange of commodity-value for commodity-value. But how should such an exchange of commodities at their real values have come about?

Let us assume that all commodities in the different lines of production are sold at their real value. What would be the outcome? According to our foregoing analyses, the rates of profit in the various spheres of production would differ considerably. It is quite obvious that we are dealing with two different things, whether on the one hand commodities [206] are sold at their values (that is to say, sold in proportion to the value contained in them, or exchanges with one another at the price of their values), or whether, on the other hand, they are sold at such prices that their sale yields equal amounts of profits on equal masses of the respective capitals advanced for their production.

If capitals employing unequal amounts of living labor are to produce unequal amounts of surplus-value, it must be assumed, at least to a certain degree, that the intensity of exploitation, or the rate of surplus-value, are the same, or that any existing differences in them are balanced by real or imaginary (conventional) elements of compensation. This would presuppose a competition among the laborers and an equilibration by means of their continual emigration from one sphere of production to another. Such a general rate of surplus-value—as a tendency, like all other economic laws—has been assumed by us for the sake of theoretical simplification. But in reality it is an actual premise of the capitalist mode of production, although it is more or less obstructed by practical frictions causing more or less considerable differences locally, such as the settlement laws for English farm laborers. But in theory it is the custom to assume that the laws of capitalist production evolve in their pure form. In reality, however, there is always but an approximation. Still, this approximation is so much greater to the extent that the capitalist mode of production is normally developed, and to the extent that its adulteration and amalgamation with remains of former economic conditions is outgrown.

The whole difficulty arises from the fact that commodities are not exchanged simply as commodities, but as products of capitals, which claim equal shares of the total amount of surplus-value, if they are of equal magnitude, or shares proportional to their different magnitudes. And this claim is to be satisfied by the total price realised by a certain capital on the commodities produced by it within a certain space of time. This total price, again, is but the sum of the prices of the individual commodities produced by this capital.

The essential point will become most visible, when we look [207] upon the matter in this way: Let us assume that the laborers themselves are in possession of their respective means of production and exchange their commodities with one another. In that case these commodities would not be products of capital. The value of the various instruments of labor and raw materials would differ according to the technical nature of the labors performed in the different lines of production. Furthermore, aside from the unequal value of the means of production employed by them, they would require different quantities of means of production for given quantities of labor, according to whether a certain commodity can be finished in one hour, another in one day, and so forth. Let us assume, also, that these laborers work on an average equal lengths of time, allowing for compensations due to different intensities of labor. In that case, two laborers, both working one day, would have in the commodities produced by them, first, an equivalent for their outlay, the cost-prices of the means of production consumed by their labor. These would differ according to the technical nature of their lines of production. In the second place, both of them would have created equal amounts of new value, namely the working day added by them to the means of production. This would comprise their wages plus the surplus-value, the last representing surplus-labor exceeding their necessary wants, the product of which would belong to them. If we were to use capitalist terms, we should say that both of them receive the same wages plus the same profit, or the same value expressed, say, by the product of a working day of ten hours. But in the first place, the values of their commodities would differ. The commodities of I, for instance, might contain more value for each portion of the consumed means of production than the commodities of II. And, to introduce all possible differences, we may assume right now that the commodities of I absorb more living labor, and consequently require more labor-time for their production, than the commodities of II. Then the value of the commodities of I and II, we repeat, differs considerably. So do the sums of the values of their commodities, which represent the product of the labor performed by laborers I and II in a certain [208] time. The rates of profit would also differ considerably for I and II, assuming that we call rate of profit, in this case, the proportion of the surplus-value to the total value of the invested means of production. The means of subsistence daily consumed by I and II during production, which take the place of wages, will form that part of the invested capital which we would call variable capital under different circumstances. But the surplus-values would be the same for I and II, or, to express it more accurately, since both I and II receive the value of the product of one day's labor, both of them receive equal values after the value of the invested "constant" capital has been deducted, and we may regard one portion of this remaining value as an equivalent for the means of subsistence consumed during production, and the other as surplus-value. If laborer I has higher expenses, they are made good by a greater portion of the value of his commodities replacing this "constant" part, and he has to reconvert a larger portion of the total value of his product into the material elements of this constant part, while laborer II, if he receives less for this purpose, has to reconvert so much less. Under these circumstances a difference in the rates of profit would be of no concern, just as it is immaterial for the wage-laborer to-day what rate of profit may express the amount of surplus-value filched from him, and just as in international commerce the difference in the various national rates of profit is immaterial for the exchange of their commodities.

The exchange of commodities at their values, or approximately at their values, requires, therefore, a much lower stage than their exchange at their prices of production, which requires a relatively high development of capitalist production.

Whatever may be the way in which the prices of the various commodities are first fixed or mutually regulated, the law of value always dominates their movements. If the labor time required for the production of these commodities is reduced, prices fall; if it is increased, prices rise, other circumstances remaining the same.

Aside from the fact that prices and their movements are [209] dominated by the law of value, it is quite appropriate, under these circumstances, to regard the value of commodities not only theoretically, but also historically, as existing prior to the prices of production. This applies to conditions, in which the laborer owns his means of production, and this is the condition of the land-owning farmer and of the craftsman in the old world as well as the new. This agrees also with the view formerly expressed by me that the development of product into commodities arises through the exchange between different communes, not through that between the members of the same commune.27 It applies not only to this primitive condition, but also to subsequent conditions based on slavery or serfdom, and to the guild organisation of handicrafts, so long as the means of production installed in one line of production cannot be transferred to another line except under difficulties, so that the various lines of production maintain, to a certain degree, the same mutual relations as foreign countries or communistic groups.

In order that the prices at which commodities are exchanged with one another may correspond approximately to their values, no other conditions are required but the following: 1) The exchange of the various commodities must no longer be accidental or occasional, 2) So far as the direct exchange of commodities is concerned, these commodities must be produced on both sides in sufficient quantities to meet mutual requirements, a thing easily learned by experience in trading, and therefore a natural outgrowth of continued trading, 3) So far as selling is concerned, there must be no accidental or artificial monopoly which may enable either of the contracting sides to sell commodities above their value or compel others to sell below value. An accidental monopoly is one which a buyer or seller acquires by an accidental proportion of supply to demand.

The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only [210] that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium. We shall also have to note a market value, which must be distinguished from the individual value of the commodities produced by the various producers. Of this more anon. The individual value of some of these commodities will be below the market-value, that is to say, they require less labor-time for their production than is expressed in the market-value, while that of others will be above the market-value. We shall have to regard the market-value on one side as the average value of the commodities produced in a certain sphere, and on the other side as the individual value of commodities produced under the average conditions of their respective sphere of production and constituting the bulk of the products of that sphere. It is only extraordinary combinations of circumstances under which commodities produced under the least or most favorable conditions regulate the market-value, which forms the center of fluctuation for the market-prices, which are the same, however, for the same kind of commodities. If the ordinary demand is satisfied by the supply of commodities of average value, that is to say, of a value midway between the two extremes, then those commodities, whose individual value stands below the market-value, realise an extra surplus-value, or surplus-profit, while those, whose individual value stands above the market-value cannot realise a portion of the surplus-value contained in them.

It does not do any good to say that the sale of the commodities produced under the most unfavorable conditions proves that they are required for keeping up the supply. If the price in the assumed case were higher than the average market-value, the demand would be greater. At a certain price, any kind of commodities may occupy so much room on the market. This room does not remain the same in the case of a change of prices, unless a higher price is accompanied by a smaller quantity of commodities, and a lower prices by a larger quantity of commodities. But if the demand is so strong that it does not let up when the price is regulated by [211] the value of commodities produced under the most unfavorable conditions, then these commodities determine the market-value. This is not possible unless the demand exceeds the ordinary, or the supply falls below it. Finally, if the mass of the produced commodities exceeds the quantity which is ordinarily disposed of at average market-values, then the commodities produced under the most favorable conditions regulate the market value. These commodities may be sold exactly or approximately at their individual values, and in that case it may happen that the commodities produced under the least favorable conditions do not realise even their cost prices, while those produced under average conditions realise only a portion of the surplus-value contained in them. The statements referring to market-value apply also to the price of production, if it takes the place of market-value. The price of production is regulated in each sphere, and this regulation depends on special circumstances. And this price of production is in its turn the center of gravity around which the daily market-prices fluctuate and tend to balance one another within definite periods. (See Ricardo on the determination of the price of production by those who produce under the least favorable conditions.)

No matter what may be the way in which prices are regulated, the result always is the following:

1) The law of value dominates the movements of prices, since a reduction or increase of the labor-time required for production causes the prices of production to fall or to rise. It is in this sense that Ricardo (who doubtless realised that his prices of production differed from the value of commodities) says that "the inquiry to which he wishes to draw the reader's attention relates to the effect of the variations in the relative value of commodities, and not in their absolute value."

2) The average profit which determines the prices of production must always be approximately equal to that quantity of surplus-value, which falls to the share of a certain individual capital in its capacity as an aliquot part of the total social capital. Take it that the average rate of profit, and therefore the average profit, are expressed by an amount of [212] money of a higher value than the money-value of the actual average surplus-value. So far as the capitalists are concerned in that case, it is immaterial whether they charge one another a profit of 10 or of 15%. The one of these percentages does not cover any more actual commodity-value than the other, since the overcharge in money is mutual. But so far as the laborer is concerned (the assumption being that he receives the normal wages, so that the raising of the average profit does not imply an actual deduction from his wages, in other words, does not express something entirely different from the normal surplus-value of the capitalist), the rise in the price of commodities due to a raising of the average profit must be accompanied by a corresponding rise of the money-expression for the variable capital. As a matter of fact, such a general nominal raising of the rate of profit and the average profit above the limit provided by the proportion of the actual surplus-value to the total invested capital is not possible without carrying in its wake an increase of wages, and also an increase in the prices of the commodities which constitute the constant capital. The same is true of the opposite case, that of a reduction of the rate of profit in this way. Now, since the total value of the commodities regulates the total surplus-value, and this the level of the average profit and the average rate of profit—always understanding this as a general law, as a principle regulating the fluctuations—it follows that the law of value regulates the prices of production.

Competition first brings about, in a certain individual sphere, the establishment of an equal market-value and market-price by averaging the various individual values of the commodities. The competition of the capitals in the different spheres then results in the price of production which equalises the rates of profit between the different spheres. This last process requires a higher development of capitalist production than the previous process.

In order that commodities of the same sphere of production, the same kind, and approximately the same quality, may be sold at their value, the following two requirements must be fulfilled:

[213]

1) The different individual values must have been averaged into one social value, the above-named market-value, and this implies a competition between the producers of the same kind of commodities, and also the existence of a common market, on which they offer their articles for sale. In order that the market-price of identical commodities, which however are produced under different individual circumstances, may correspond to the market-value, may not differ from it by exceeding it or falling below it, it is necessary that the different sellers should exert sufficient pressure upon one another to bring that quantity of commodities on the market which social requirements demand, in other words, that quantity of commodities whose market-value society can pay. If the quantity of products exceeds this demand, then the commodities must be sold below their market-value; vice versa, if the quantity of products is not large enough to meet this demand, or, what amounts to the same, if the pressure of competition among the sellers is not strong enough to bring this quantity of products to market, then the commodities are sold above their market-value. If the market-value is changed, then there will also be a change in the conditions under which the total quantity of commodities can be sold. If the market-value falls, then the average social demand increases (always referring to the solvent demand) and can absorb a larger quantity of commodities within certain limits. If the market-value rises, then the solvent social demand for commodities is reduced and smaller quantities of them are absorbed. Hence if supply and demand regulate the market-price, or rather the deviations of market-prices from market-values, it is true, on the other hand, that the market-value regulates the proportions of supply and demand, or the center around which supply and demand cause the market-prices to fluctuate.

If we look closer at the matter, we find that the conditions determining the value of some individual commodity become effective, in this instance, as conditions determining the value of the total quantities of a certain kind. For, generally speaking, capitalist production is from the outset a mass-production. [214] And even other, less developed, modes of production carry small quantities of products, the result of the work of many small producers, to market as co-operative products, at least in the main lines of production, concentrating and accumulating them for sale in the hands of relatively few merchants. Such commodities are regarded as co-operative products of an entire line of production, or of a greater or smaller part of this line.

We remark by the way that the "social demand," in other words, that which regulates the principle of demand, is essentially conditioned on the mutual relations of the different economic classes and their relative economic positions, that is to say, first, on the proportion of the total surplus-value to the wages, and secondly, on the proportion of the various parts into which surplus-value is divided (profit, interest, ground-rent, taxes, etc.). And this shows once more that absolutely nothing can be explained by the relation of supply and demand, unless the basis has first been ascertained, on which this relation rests.

Although both commodity and money represent units of exchange-value and use-value, we have already seen in volume I, chapter I, 3, that in buying and selling both of these functions are polarised at the two extremes, the commodity (seller) representing the use-value, and the money (buyer) the exchange-value. It was one of the first conditions for the sale of a commodity that it should have a use-value and satisfy some social need. The other essential condition was that the quantity of labor contained in a certain commodity should represent socially necessary labor, so that its individual value (and what amounts to the same under the present assumption, its selling price) should coincide with its social value.28

Now let us apply this to the mass of commodities on the market, which represent the product of a whole sphere of production. The matter will be most easily explained by regarding this whole mass of commodities, coming from one line of production, as one single commodity, and the sum of the prices of the many identical commodities as one price. In [215] that case the statements made in regard to one individual commodity apply literally to the mass of commodities sent to the market by one entire line of production. The postulate that the individual value of a commodity should correspond to its social value has then the significance that the total quantity of commodities contains the quantity of social labor necessary for its production, and that the value of this mass is equal to its market-value.

Now let us assume that the bulk of these commodities has been produced under approximately the same normal conditions of social labor, so that this social value is at the same time identical with the individual value of the individual commodities constituting this mass. In that case, a relatively small portion of these commodities may have been produced below, and another above, these conditions, so that the individual value of the one portion is greater, and that of the other smaller, than the average value of the bulk of the commodities, but in such proportions that these extremes balance one another. The average value of the commodities in these extremes is then equal to the average value of the great bulk of average commodities. Under such circumstances, the market-value is determined by the value of the commodities produced under average conditions.29 The value of the entire mass of commodities is equal to the actual sum of the values of all individual commodities combined, no matter whether they were produced under average conditions, or under conditions above or below the average. In this case, the market-value, or the social value, of the mass of commodities—the necessary labor time contained in them—is determined by the value of the average bulk.

Let us assume, on the other hand, that the total mass of commodities brought to market remains the same, while the value of the commodities produced under the least favorable conditions is not balanced by the value of the commodities produced under the most favorable conditions, so that the mass of commodities produced under the least favorable conditions constitutes a relatively large quantity, compared to the [216] average mass as well as to the other extreme. In that case the mass produced under the least favorable conditions determines the market-value, or social value.

Take it, finally, that the mass of commodities produced under the most favorable conditions is considerable in excess of the mass produced under the least favorable conditions, and is large even compared with the average mass. Then the mass produced under the most favorable conditions determines the market-value. We leave aside the question of a transfer of the market, whenever the mass of commodities produced under the most favorable conditions regulates the market-price. We are not dealing here with the market-price in so far as it differs from the market-value, but with the various modes of determining the market-value itself.30

In fact, assuming the strictest case (which, or course, is realised only approximately and with a thousand modifications) of our first illustration, the market-value regulated by the average values of the total mass of commodities is equal to the sum of their individual values, although this market-value is forced as an average value upon the commodities produced at the extremes. Those who produce under the worst conditions must then sell their commodities below their individual values; those producing under the best conditions sell them above their individual values.

In the second case, the two lots of commodities produced [217] as the two extremes do not balance one another. The lot produced under the worst conditions decides the question. Strictly speaking, the average price, or the market-value, of every individual commodity, or of every aliquot part of the total mass, would now be determined by the total value of the mass as ascertained by the addition of the values of the commodities produced under different conditions, and by the aliquot part of this total value falling to the share of the individual commodity. The market-value thus ascertained would be above the individual value, not only of the commodities belonging to the most favorable extreme, but also of those belonging to the average lot. But still it would be below the individual value of the commodities produced at the most unfavorable extreme. The extent to which this market-value would approach the individual value of this extreme, or coincide with it, would depend entirely on the volume occupied in that sphere of commodities by the lot of commodities produced at the unfavorable extreme. If the demand exceeds the supply but slightly, then the individual value of the unfavorably produced commodities regulates the market-price.

Finally, if the lot of commodities produced at the most favorable extreme occupies the greatest space, as it does in the third case, compared not only to the other extreme, but also to the average lot, then the market-value falls below the average value. The average value, computed by the addition of the sum of values of the two extremes and of the middle, stands here below that of the middle, and approaches it or recedes from it, according to the relative space occupied by the favorable extreme. If the demand is weak compared to the supply, then the favorably situated part, whatever may be its size, makes room for itself forcibly by contracting its price down to its individual value. The market-value cannot coincide with this individual value of the commodities produced under the most favorable conditions, except when the supply far exceeds the demand.

This mode of determining market-values, which we have here outlined abstractly, is promoted on the real market by competition among the buyers, provided that the demand is [218] just large enough to absorb the quantity of commodities at the values fixed in this manner. And this brings us to the second point.

2) To say that a commodity has a use-value is merely to say that it satisfies some social want. So long as we were dealing simply with individual commodities, we could assume that the demand for any one commodity—its price implying its quantity—existed without inquiring into the extent to which this demand required satisfaction. But this question of the extent of a certain demand becomes essential, whenever the product of some entire line of production is placed on one side, and the social demand for it on the other. In that case it becomes necessary to consider the amount, the quantity, of this social demand.

In the foregoing statements referring to market-value, the assumption was that the mass of the produced commodities remains the same given quantity, and that a change takes place only in the proportions of the elements constituting this mass and produced under different conditions, so that the market-value of the same mass of commodities is differently regulated. Let us suppose that this mass is of a quantity equal to the ordinary supply, leaving aside the possibility that a portion of the produced commodities may be temporarily withdrawn from the market. Now, if the demand for this mass also remains the same, then this commodity will be sold at its market-value; no matter which one of the three aforementioned cases may regulate this market-value. This mass of commodities does not only satisfy a demand, but satisfies it to its full social extent. On the other hand, if the quantity is smaller than the demand for it, then the market-prices differ from the market-values. And the first differentiation is that the market-value is always regulated by the commodity produced under the least favorable circumstances, if the supply is too small, and by the commodity produced under the most favorable conditions, if the supply is too large. In other words, one of the extremes determines the market-value, in spite of the fact that the proportion of the masses produced under different conditions ought to bring about a different result. [219] If the difference between demand and supply of the product is very considerable, then the market-price will likewise differ considerably from the market-value in either direction. Now, the difference between the quantity of the produced commodities and the quantity of commodities which fixes their sale at their market-value may be due to two reasons. Either the quantity itself varies, by decreasing or increasing, so that there would be a reproduction on a different scale than the one which regulated a certain market-value. If so, then the supply changes while the demand remains unchanged, and we have a relative overproduction or underproduction. Or, the reproduction, and the supply, remain the same, while the demand is reduced or increased, which may take place for several reasons. If so, then the absolute magnitude of the supply is unchanged, while its relative magnitude, compared to the demand, has changed. The effect is the same as in the first case, only it acts in the opposite direction. Finally, if changes take place on both sides, either in opposite directions, or, if in the same direction, not to the same extent, in other words, if changes take place on both sides which alter the former proportion between these sides, then the final result must always lead to one of the two above mentioned cases.

The real difficulty in determining the meaning of the concepts supply and demand is that they seem to amount to a tautology. Consider first the supply, either the product on the market, or the product which can be supplied to the market. In order to avoid useless details, we shall consider only the mass annually reproduced in every given line of production and leave out of the question the varying faculty of some commodities to withdraw from the market and go into storage for consumption at a later time, for instance next year. This annual reproduction is expressed in a certain quantity, in weight or numbers, according to whether this mass of commodities is measured continuously or discontinuously. They represent not only use-value satisfying human wants, but these use-values are on the market in definite quantities. In the second place, this quantity of commodities has [220] a definite market-value, which may be expressed by a multiple of the market-value of the individual commodity, or of the measure, which serve as units. There is, then, no necessary connection between the quantitative volume of the commodities on the market and their market-value, since many commodities have, for instance, a high specific value, others a low specific value, so that a given sum of values may be represented by a very large quantity of some, and a very small quantity of other commodities. There is only this connection between the quantity of articles on the market and the market-value of these articles: Given a certain basis for the productivity of labor in every particular sphere of production, the production of a certain quantity of articles requires a definite quantity of social labor time; but this proportion differs in different spheres of production and stands in no internal relation to the usefulness of these articles or the particular nature of their use-values. Assuming all other circumstances to be equal, and a certain quantity a of some commodity to cost b labor time, a quantity na of the same commodity will cost nb labor-time. Furthermore, if society wants to satisfy some demand and have articles produced for this purpose, it must pay for them. Since the production of commodities is accompanied by a division of labor, society buys these articles by devoting to their production a portion of its available labor-time. Society buys them by spending a definite quantity of the labor-time over which it disposes. That part of society, to which the division of labor assigns the task of employing its labor in the production of the desired article, must be given an equivalent for it by other social labor incorporated in articles which it wants. There is, however, no necessary, but only an accidental, connection between the volume of society's demand for a certain article and the volume represented by the production of this article in the total production, or the quantity of social labor spent on this article, the aliquot part of the total labor-power spent by society in the production of this article. True, every individual article, or every definite quantity of any kind of commodities, contains, perhaps, only the social labor required [221] for its production, and from this point of view the market-value of this entire mass of commodities of a certain kind represents only necessary labor. Nevertheless, if this commodity has been produced in excess of the temporary demand of society for it, so much of the social labor has been wasted, and in that case this mass of commodities represents a much smaller quantity of labor on the market than is actually incorporated in it. (Only when production will be under the conscious and prearranged control of society, will society establish a direct relation between the quantity of social labor time employed in the production of definite articles and the quantity of the demand of society for them.) The commodities must then be sold below their market-value, and a portion of them may even become unsaleable. The opposite takes place, if the quantity of social labor employed in the production of a certain kind of commodities is too small to meet the social demand for them. But if the quantity of social labor spent in the production of a certain article corresponds to the social demand for it, so that the quantity produced is that which is the ordinary on that scale of production and for that same demand, then the article is sold at its market-value. The exchange, or sale, of commodities at their value is the rational way, the natural law of their equilibrium. It must be the point of departure for the explanation of deviations from it, not vice versa the deviations the basis on which this law is explained.

Now let us look at the other side, the demand.

Commodities are bought either as means of production or means of subsistence, in order to be used for productive or individual consumption. It does not alter matters that some commodities may serve both ends. There is, then, a demand for them on the part of the producers (who are capitalists in this case, since we have assumed that the means of production have been transformed into capital) and on the part of the consumers. It appears at first sight as though these two sides ought to have a corresponding quantity of social demands offset by a corresponding quantity of social supplies in the various lines of production. If the cotton industry [222] is to accomplish its annual reproduction on a given scale, it must produce the usual quantity of cotton and an additional quantity determined by the annual extension of reproduction through the necessities of accumulating capital, always assuming other circumstances to remain the same. This is also true of means of subsistence. The working class must find at least the same quantity of necessities on hand, if it is to continue living in the accustomed way, although these necessities may be of different kinds and differently distributed. And there must be an additional quantity to allow for the annual increase of population. This applies with more or less modification to the other classes.

It would seem, then, that there is on the side of demand a definite magnitude of social wants which require for their satisfaction a definite quantity of certain articles on the market. But the quantity demanded by these wants is very elastic and changing. Its fixedness is but apparent. If the means of subsistence were cheaper, or money-wages higher, the laborers would buy more of them, and a greater "social demand" would be manifested for this kind of commodities, leaving aside the question of paupers, whose "demand" is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, the demand of the capitalists for it would increase, more additional capital would be thrown into the cotton industry, etc. It must never be forgotten that the demand for productive consumption is a demand of capitalists, under our assumption, and that its essential purpose is the production of surplus-value, so that commodities are produced only to this end. Still this does not argue against the fact that the capitalist as a buyer, for instance of cotton, represents the demand for this cotton. Moreover it is immaterial to the seller of cotton, whether the buyer converts it into shirting or into guncotton, or whether he intends to make it into wads for his and the world's ears. But it does exert a considerable influence on the way in which the capitalist acts as a buyer. His demand for cotton is essentially modified by the fact that he disguises thereby his real demand, that of making profits. The limits within [223] which the need for commodities on the market, the demand, differs quantitatively from the actual social need, varies naturally considerably for different commodities; in other words, the difference between the demanded quantity of commodities and that quantity which would be demanded, if the money-prices of the commodities, or other conditions concerning the money or living of the buyers, were different.

Nothing is easier than to realise the inequalities of demand and supply, and the resulting deviation of market-prices from market-values. The real difficulty consists in determining what is meant by balancing supply and demand.

Demand and supply balance one another, when their mutual proportions are such that the mass of commodities of a definite line of production can be sold at their market-value, neither above nor below it. That is the first thing we hear.

The second is this: If the commodities are sold at their market-values, then supply and demand balance.

If demand and supply balance, then they cease to have any effect, and for this very reason commodities are sold at their market-values. If two forces exert themselves equally in opposite directions, they balance one another, they have no influence at all on the outside, and any phenomena taking place at the same time must be explained by other causes than the influence of these forces. If demand and supply balance one another, they cease to explain anything, they do not affect market-values, and therefore leave us even more in the dark than before concerning the reasons for the expression of the market-value in just a certain sum of money and no other. It is evident that the essential fundamental laws of production cannot be explained by the interaction of supply and demand (quite aside from a deeper analysis of these two motive forces of social production, which would be out of place here). For these laws cannot be observed in their pure state, until the effects of supply and demand are suspended, are balanced. As a matter of fact supply and demand never balance, or, if they do, it is by mere accident, it is scientifically rated at zero, it is considered as not happening. But political economy assumes that supply and demand balance one another. [224] Why? For no other reason, primarily, than to be able to study phenomena in their fundamental relations, in that elementary form which corresponds to their conception, that is to say, to study them unhampered by the disturbing interference of supply and demand. The other reason is to find the actual tendencies of economic movements and to fix them, as it were. For the inequalities are of an antagonistic nature, and since they continually follow one after another, they balance one another by their opposite movements, by their opposition. Since supply and demand never balance each other in any given case, their differences follow one another in such a way that supply and demand are always balanced only when looking at them from the point of view of a greater or smaller period of time. For the result of a deviation in one direction is a deviation in the opposite direction. Such a balance is only an average of past movements, a result of a continual movement in contradictions. By this means the market-prices differing from the market-values reduce one another to the average of market-values and balance the different plus and minus in their divergencies. And this average figure has not merely a theoretical, but also a practical, value for capital, since its investment is calculated on the fluctuations and compensations of more or less fixed periods of time.

The relation of demand and supply explains, therefore, on the one hand only the deviations of market-prices from market-values, and on the other the tendency to balance these deviations, in other words, to suspend the effect of the relation of demand and supply. (Such exceptions as commodities having prices without having any value are not considered here.) Demand and supply may bring about a balance in the effect caused by their inequalities in many different ways. For instance, if the demand, and consequently the market-price, fall, capital may be withdrawn and the supply reduced. But instead it may happen that the market-value itself is reduced and balanced with the market-price through inventions, which reduce the necessary labor time. Vice versa, if the demand increases, and consequently the market-price rises [225] above the market-value, too much capital may flow into this line of production and production may be increased to such an extent, that the market-price finally falls below the market-value. Or, it may lead to a rise of prices which cuts down the demand. It may also bring about a rise in the market-value itself for a shorter or longer time, in some lines of production, in which a portion of the desired products must be produced under more unfavorable conditions during this period.

If demand and supply determine the market-price, so does the market-price, and in the further analysis the market-value determine demand and supply. This is obvious in the case of demand, which moves in opposition to price, rising when prices fall, and falling when prices rise. But it may also be noted in the case of supply. For the prices of the means of production which are incorporated in the supplied commodities determine the demand for these means of production, and thus the supply of the commodities whose supply implies the demand for these means of production. The prices of cotton are determining elements for the supply of cotton goods.

This confusion of a determination of prices by demand and supply, and at the same time a determination of supply and demand by prices, is worse confounded by the determination of the supply by the demand, and the demand by supply, of the market by production, and of production by the market.31

[226]

Even the ordinary economist (see our foot-note) recognizes that the proportion between supply and demand may vary in consequence of a change in the market-value of commodities, without a change in the demand of supply by external circumstances. The author of the Observations continues after the passage quoted in the foot-note: "This proportion" (between demand and supply) "however, if we still mean by 'demand' and 'natural price' what we meant just now, when referring to Adam Smith, must always be a proportion of equality; for it is only when the supply is equal to the effectual demand, that is, to that demand, which will pay neither more nor less than the natural price, that the natural price is in fact paid; consequently there may be two very different natural prices, at different times, for the same commodity, and yet the proportion which the supply bears to the demand, be in both cases the same, namely the proportion of equality." It is admitted, then, that with two different natural prices of the same commodity at different times demand and supply may balance one another and must balance one another, if the commodity is to be sold at its natural price in both instances. Since there is no difference in the proportion of supply and demand in either case, but only a difference in the magnitude of the natural price itself, it follows that this price is determined independently of demand and supply, and cannot very well be determined by them.

In order that a commodity may be sold at its market-value, that is to say, in proportion to the necessary social labor contained in it, the total quantity of social labor devoted to the [227] total mass of this kind of commodities must correspond to the quantity of the social demand for them, meaning the solvent social demand. Competition, the fluctuations of market-prices which correspond to the fluctuations of demand and supply, tend continually to reduce the total quantity of labor devoted to each kind of commodities to this scale.

The proportion of supply and demand repeats, in the first place, the relation of the use-value and exchange-value of commodities, of commodity and money, of buyer and seller; in the second place, the relation of producer and consumer, although both of them may be represented by third merchants. In studying buyers and sellers, it is sufficient to confront them individually, in order to set forth their relations. Three individuals suffice for the complete metamorphosis of commodities, and therefore for the complete transactions of sale and purchase. A converts his commodity into the money of B, to whom he sells his commodity, and he reconverts his money into commodities which he buys for it from C. The whole transaction takes place between these three. Furthermore: In the study of money it had been assumed that the commodities are sold at their values, because there was no reason to take into consideration any divergence of prices from values, it being a question of changes of form experienced by the commodities in their transformation into money and their reconversion from money into commodities. As soon as a commodity has been sold and a new commodity bought with the receipts, we have the entire metamorphosis before us, and for the consideration of this process it is immaterial whether the price of the commodity stands above or below its value. The value of the commodity is essential as a basis, because the concept of money cannot be developed on any other foundation but this one, and because price, in its general meaning, is but value in the form of money. Of course, it is assumed in the study of money as a medium of circulation that more than one metamorphosis of a certain commodity takes place. It is the social interrelation of these metamorphoses which is studied. Only by this means do we arrive at the circulation of money and at the development [228] of its function as a medium of circulation. While this connection of the matter is very important for the transition of money into its function of a circulating medium, and for its resulting change of form, it is of no moment for the transaction between the individual buyer and seller.

In a question of supply and demand, however, the supply means the sum of the sellers, or producers, of a certain kind of commodities, and the demand the sum of the buyers, or consumers, of the same kind of commodities (both productive and individual consumers). There two bodies react on one another as units, as aggregate forces. The individual counts here only as a part of a social power, as an atom of some mass, and it is in this form that competition enforces the social character of production and consumption.

That side of competition, which is momentarily the weaker, is also that in which the individual acts independently of the mass of his competitors and often works against them, whereby the dependence of one upon the other is impressed upon them, while the stronger side always acts more or less unitedly against its antagonist. If the demand for this particular kind of commodities is larger than the supply, then one buyer outbids another, within certain limits, and thereby raises the price of the commodity for all of them above the market-price, while on the other hand the sellers unite in trying to sell at a high price. If, vice versa, the supply exceeds the demand, some one begins to dispose of his goods at a cheaper rate and the others must follow, while the buyers unite in their efforts to depress the market-price as much as possible below the market-value. The common interest is appreciated only so long as each gains more by it than without it. And common action ceases, as soon as this or that side becomes the weaker, when each one tries to get out of it by his own devices with as little loss as possible. Again, if some one produces more cheaply and can sell more goods, thus assuming more room on the market by selling below the current market-price, or market-value, he does it, and thereby he begins an action which gradually compels the others to introduce the cheaper mode of production and which reduces the socially necessary labor to a [229] new, and lower, level. If one side has the advantage, every one belonging to it gains. It is as though they had exerted their common monopoly. If one side is the weaker, then every one may try on his own hook to be the stronger (for instance, any one working with lower costs of production), or at least to get off as easily as possible, and in that case he does not care in the least for his neighbor, although his actions affect not only himself, but also all his fellow strugglers.32

Demand and supply imply the transformation of values into market-prices, and to the extent that they proceed on a capitalist basis, to the extent that the commodities are products of capital, they are based on capitalist processes, that is, on quite different and more complicated conditions than the mere purchase and sale of goods. In these capitalist processes it is not a question of the formal conversion of the value of commodities, into prices, not a question of a mere change of form. It is a matter of definite differences in quantity between market-prices and market-values, and, further, prices of production. In simple purchases and sales, it is enough to consider merely the producers of articles as such. But supply and demand, in a wider analysis, imply the existence of different classes and sections of classes which divide the total revenue of society among themselves and consume it as revenue among themselves, which, therefore, constitute the demand in the form of revenue. On the other hand, the attempt to grasp the question of the supply and demand among the producers as such requires an analysis of the total conformation of the capitalist process of production.

Under capitalist production it is not a question of merely throwing a certain mass of values into circulation and exchanging that mass for equal values in some other form, whether of money or other commodities, but it is also a question [230] of advancing capital in production and realising on it as much surplus-value, or profit, in proportion to its magnitude, as any other capital of the same or of other magnitudes in whatever line of production. It is a question, then, of selling the commodities at least at prices which will yield the average profit, in other words, at prices of production. Capital comes in this form to a realisation of the social nature of its power, in which every capitalist participates in proportion to his share in the total social capital.

In the first place, capitalist production is essentially indifferent to the particular use-value, or the peculiarity, of any commodity produced by it. In every sphere of production it is the sole purpose of production to secure surplus-value, to appropriate in the product of labor a certain quantity of unpaid labor. And it is likewise the nature of the wage-labor subject to capital to be indifferent to the specific character of its labor, to transform itself in accord with the requirements of capital, and to submit to being transferred from one sphere of production to another.

In the second place, one sphere of production is now as good or as bad as another. Every one of them yields the same profit, and every one of them would be useless, if the commodities produced by them did not satisfy some social need.

Now, if the commodities are sold at their values, then, as we have shown, considerably different rates of profit arise in the various spheres of production, according to the different organic composition of the masses of capital invested in them. But capital withdraws from spheres with low rates of profit and invades others which yield a higher rate. By means of this incessant emigration and immigration, in one word, by its distribution among the various spheres in accord with a rise of the rate of profit here, and its fall there, it brings about such a proportion of supply to demand that the average profit in the various spheres of production becomes the same, so that values are converted into prices of production. This equilibration is accomplished by capital in a more or less perfect degree to the extent that capitalist development is advanced [231] in a certain nation, in other words, to the extent that conditions in the respective countries are adapted to the capitalist mode of production. As capitalist development proceeds, it develops also its own peculiar conditions and subjects to its specific character and its immanent laws all the social requirements on which the process of production is based.

The incessant equilibration of the continual differences is accomplished so much quicker, 1), the more movable capital is, the easier it can be shifted from one sphere and one place to another; 2) the quicker labor-power can be transferred from one sphere to another and from one local point of production to another. The first condition implies complete freedom of trade in the interior of society and the removal of all monopolies with the exception of those which naturally arise out of the capitalist mode of production. It implies, furthermore, the development of the credit-system, which concentrates the inorganic mass of the disposable social capital instead of leaving it in the hands of individual capitalists. Finally it implies a subordination of the various spheres of production to the control of capitalists. This last implication is of itself included in the assumption that it is a question of a transformation of values into prices of production in all capitalistically exploited spheres of production. But this equilibration meets great obstacles, whenever numerous and large spheres of production, which are not operated on a capitalistic basis (such as farming by small farmers), are interpolated between the capitalist spheres and interrelated with them. A great density of population is also a requirement.—The second condition implies the abolition of all laws which prevent the laborers from moving from one sphere of production to another and from one local center of production to another; an indifference of the laborer to the nature of his labor; the greatest possible reduction of labor in all spheres of production to simple labor; the elimination of all craft prejudices among laborers; and last, not least, a subjugation of the laborer under the capitalist mode of production. More detailed statements concerning these points belong in a special analysis of competition.

[232]

It follows from the foregoing that the individual capitalist as well as the capitalists as a whole in each particular sphere of production are participants in the exploitation of the total working class by the total capital, and in the degree of that exploitation, not only out of general class sympathy, but also for direct economic reasons, because, assuming all other conditions, among them the value of the advanced constant capital, to be given, the average rate of profit depends on the intensity of exploitation of the total labor by the total capital.

The average profit coincides with the average surplus-value produced for each 100 of capital, and so far as the surplus-value is concerned, the foregoing statements apply as a matter of course. In the determination of the rate of profit, the value of the advanced capital becomes an additional element. In fact, the direct interest taken by the capitalist, or the capital, of any individual sphere of production in the exploitation of the laborers directly employed by him, or it, is limited to the endeavor to make an extra gain, a profit exceeding the average, either by exceptional overwork, or by a reduction of wages below the average, or by an exceptional productivity of labor. Aside from this, a capitalist who would not employ any variable capital, and therefore no laborers (an exaggerated assumption), would be as much interested in the exploitation of the working class by capital, and would derive his profit quite as much from unpaid surplus-labor, as a capitalist who would employ only variable capital (another exaggeration), and who would invest his entire capital in wages. The degree of exploitation of labor depends on the average intensity of labor, if the working day is given, and on the length of the working day, if the average intensity of exploitation is given. The degree of exploitation of labor determines the size of the rate of surplus-value, and therefore the size of the mass of surplus-value for a given total mass of variable capital, and consequently the magnitude of the profit. The individual capitalist, as distinguished from his sphere, has the same special interest in the exploitation of the laborers personally employed by him that the capital of a certain [233] sphere, as distinguished from the total social capital, has in the exploitation of the laborers directly employed by it.

On the other hand, every particular sphere of capital, and every individual capitalist, has the same interest in the productivity of the social labor employed by the total capital. For two things depend on this productivity: In the first place, the mass of use-values by which the average profit is expressed; and this is doubly important, where this average profit serves as a fund for the accumulation of new capital and as a fund for revenue to be spent in enjoyment. In the second place, the amount of the value of the total capital invested (constant and variable), which, with a given amount of surplus-value, or profit, for the whole capitalist class, determines the rate of profit, or the profit on a certain percentage of capital. The special productivity of labor in any particular sphere, or in any individual business of this sphere, interests only those capitalists who are directly engaged in it, since it enables that particular sphere, or that individual capitalist, to make an extra profit over that of the total capital.

Here, then, we have the mathematically exact demonstration, how it is that the capitalists form a veritable freemason society arrayed against the whole working class, however much they may treat each other as false brothers in the competition among themselves.

The price of production includes the average profit. We call it price of production. It is, as a matter of fact, the same thing which Adam Smith calls natural price, Ricardo price of production, or cost of production, and the physiocrats prix nécessaire, because it is in the long run a prerequisite of supply, of the reproduction of commodities in every individual sphere.33 But none of them has revealed the difference between price of production and value. We can well understand, then, why these same economists, who always resist a determination of the value of commodities by labor-time, by the quantity of labor contained in them, always speak of prices of production as centers, around which market-prices fluctuate. [234] They can afford to do that, because the price of production is an utterly external and, at first glance, meaningless form of the value of commodities, a form as seen in competition and thus reflected in the mind of the vulgar capitalist, and consequently in that of the vulgar economists.

Our analysis resulted in the discovery that the market-value (and everything said concerning it applies with the necessary modifications to the price of production) implies a surplus-profit for those who produce in any particular sphere of production under the most favorable conditions. With the exception of crises, and of over-production in general, this applies to all market-prices, no matter how much they may deviate from market-values or market-prices of production. For the market-price signifies that the same price is paid for commodities of the same kind, although they may have been produced under very different individual conditions and may have considerably different cost-prices. (We do not speak at this point of any surplus-profits due to monopolies in the strict meaning of the term, whether they are artificial or natural.)

A surplus-profit may also arise, when certain spheres of production are in a position to evade the conversion of the values of their commodities into prices of production, and thus a reduction of their profits to the average profit. We shall devote more attention to the further modifications of these two forms of surplus-profit in the part dealing with ground-rent.

CHAPTER XI.: EFFECTS OF GENERAL FLUCTUATIONS OF WAGES ON PRICES OF PRODUCTION.↩

LET the average composition of social capital be 80 c + 20 v, with a profit of 20%. The rate of surplus-value is then 100%. A general increase of wages, all other things remaining the same, is a reduction of the rate of surplus-value. In [235] the case of the average capital, profit and surplus-value are identical. Let wages rise by 25%. Then the same quantity of labor, which was formerly set in motion with 20, costs 25. Instead of 80 c + 20 v + 20 p, we have then for the value of one turn-over 80 c + 25 v + 15 p. The labor set in motion by the variable capital still produces a value of 40, the same as before. If v rises from 20 to 25, then the surplus p, or s, amounts only to 15. The profit of 15 on a capital of 105 is 14 2/7%, and this would be the new average rate of profit. Since the price of production of commodities produced by the average capital coincides with their value, the price of production of these commodities would remain unchanged. The raising of wages would have brought about a reduction of profits, but no change in the value and price of the commodities.

Formerly, so long as the average profit was 20%, the price of production of the commodities produced in one period of turn-over was equal to their cost-price plus a profit of 20% on this cost-price, in other words k + kp' = k + 20 k/100. In this formula k is a variable magnitude, changing according to the value of the means of production which are incorporated in the commodities, and according to the amount of wear transferred from the fixed capital to the product. Now the price of production would amount to k + (14 2/7 k)/100.

Now let us first select a capital, whose composition is lower than the original composition of the average social capital of 80 c + 20 v (which has now been transformed into 76 4/21 c+ 23 17/21 v), for instance a capital of 50 c + 50 v. In this case, the price of production of the annual product, assuming for the sake of simplicity that the entire fixed capital passes through wear into the product and that the time of turn-over is the same as that in the first case, would have been 50 c + 50 v + 20 p, or 120, before the raising of wages. A raising of wages by 25% means for the same quantity of labor a rising of the variable capital from 50 to 62½. If the annual product were sold at the former price of production of 120, then we should have the formula 50 c + 62½ v + 7½ p, or a rate of profit of 6 2/3%. But the new average rate of [236] profit is 14 2/7%, and since we assume all other circumstances to remain the same, this capital of 50 c + 62½ v will also have to make this profit. Now, a capital of 112½ makes a round profit of 16 1/12 at a rate of profit of 14 2/7%. Therefore the price of production of the commodities produced by this capital is now 50 c + 62½ v + 16 1/12 p = 128 7/12. In consequence of a raise in wages of 25%, the price of production of the same quantity of the same commodities has risen from 120 to 128 7/12, or more than 7%.

Vice versa, let us select a sphere of production of a higher composition than the average capital, for instance a capital of 92 c + 8 v. The original average profit in this case would still be 20, and if we assume once more that the entire fixed capital passes into the annual product, and that the time of turn-over is the same as in the first and second case, the price of production of the commodities is also 120.

In consequence of the rise of wages by 25% the variable capital for the same quantity of labor rises from 8 to 10, the cost-price of the commodities from 100 to 102, while the average rate of profit has fallen from 20% to 14 2/7%. Now 100 : 14 2/7 = 102 : 14 4/7 (approximately). The profit now falling to the share of 102 is 14 4/7. Therefore the total product sells at k + kp', or 102 + 14 4/7, or 116 4/7. The price of production has fallen from 120 to 116 4/7, or more than 3%.

Consequently, if wages are raised by 25%,

Since the price of production of the commodities of the average capital remains the same and equal to the value of the product, it follows that the sum of the prices of production of the products of all capitals remain the same and equal to the sum of the values produced by the total social capital. The increase on one side is balanced by the decrease on the [237] other and the level of the average social capital maintained for the total social capital.

Seeing that the price of production in the second illustration rises, while it falls in the third, it is evident from these opposite effects brought about by a fall in the rate of surplus-value or by a general rise of wages that there is no prospect of any compensation in the price for the rise in wages, since the fall of the price of production in No. III cannot very well compensate the capitalist for the fall in the profit, and since the rise of the price in No. II does not prevent a fall in profit. On the contrary, in either case, whether the price rises or falls, the profit remains the same as that of the average capital whose price remains unchanged. It is the same average profit, which has fallen by 5 5/7, or about 25%, in the case of II as well as III. It follows from this, that if the price did not rise in II and fall in III, II would have to sell below and III above the new, recently reduced, average profit. It is quite evident that a rise of wages must affect a capitalist who has invested one-tenth of his capital in wages differently from one who has invested one-fourth or one-half, according to whether 50, 25, or 10 per hundred of capital are advanced for wages. An increase in the price of production on one side, and a fall on the other, according to whether a capital is below or above the average social composition, is effected only by leveling to the new reduced average profit.

Now, how would a general fall of wages, and a corresponding general rise of the rate of profit, and thus of the average profit, affect the prices of production of commodities produced by capitals diverging in opposite directions from the average social composition? We have but to reverse the foregoing statements, in order to find the answer (which Ricardo did not analyse).

I. Average capital 80 c + 20 v = 100; rate of surplus-value 100%; price of production = value of commodities = 80 c + 20 v + 20 p = 120; rate of profit 20%. Let wages fall by one-fourth. Then the same constant capital is set in motion by 15 v, instead of 20 v. We have then as the value of commodities 80 c + 15 v + 25 p = 120. The quantity [238] of labor employed by v remains the same, only the newly created value is differently distributed between the capitalist and the laborers. The surplus-value increases from 20 to 25, and the rate of surplus-value from 20/20 to 25/15, in other words, from 100% to 166 2/3%. The profit on 95 is now 25, so that the rate of profit per 100 is 26 6/19. The composition of the capital in percentages is now 84 4/19 + 15 15/19 = 100.

II. Lower composition. Original composition, as above, 50 c + 50 v. By the fall of wages by one-fourth v is reduced to 37½, and consequently the advanced total capital to 50 c + 37½ v = 87½. Applying to this the new rate of profit of 26 6/19%, we get 100 : 26 6/19 = 87½ : 23 1/38. The same mass of commodities which formerly cost 120, now costs 87½ + 23 1/38 = 100 10/19. A fall in prices of almost 10%.

III. Higher composition. Original composition 92 c + 8 v = 100. The fall in wages by one-fourth reduces 8 v to 6 v, and the total capital to 98. Consequently 100 : 26 6/19 = 98 : 25 15/19. The price of production of the commodities, formerly 100 + 20 = 120, is now, after the fall in wages, 98 + 25 15/19 = 123 15/19. A rise by almost 4%.

We see, then, that we have but to follow the preceding development in the opposite direction with the necessary, modifications; that a general fall of wages carries with it a general rise of surplus-value, of the rate of surplus-value, and, other circumstances remaining the same, also of the rate of profit, although expressed by different proportions; a fall in the prices of production for the commodities produced by capitals of lower composition, a rise in the prices of production for commodities produced by capitals of higher composition. The result is just the reverse of that following a general rise of wages.34 In both cases, whether of a rise or a fall, the assumption is that the working day remains the same, also the prices of the means of subsistence. Under these circumstances, [239] a fall in wages is possible only, if wages stood higher than the normal price of labor, or if they are depressed below this price. The way in which this condition is modified, if the rise or fall of wages is due to a change in value, and consequently in the price of production of commodities usually consumed by the laborer, will be to a certain extent analysed in the part dealing with ground-rent. At this place we make for once and all the following statements:

In this entire chapter, it is assumed as a fact that there are in existence a general rate of profit, an average profit, and a conversion of values into prices of production. The question was merely in what manner a general rise or fall in wages affected the prices of production of commodities, which were assumed to exist. This is but a very secondary question compared with the important points analysed in this part. But it is the only relevant question treated by Ricardo, and we shall see that he treated even this but onesidedly and imperfectly.

CHAPTER XII.: SOME AFTER REMARKS.↩

CHAPTER XIII.: THE THEORY OF THE LAW.↩

WITH a given wage and working day, a certain variable capital, for instance of 100, represents a certain number of employed laborers. It is the index of this number. For instance, let 100 p.st. be the wages of 100 laborers for one week. If these laborers perform the same amount of necessary as of surplus-labor, in other words, if they work daily as much time for themselves as they do for the capitalist, or, in still other words, if they require as much time for the reproduction of their wages as they do for the production of surplus-value for the capitalist, then they would produce a total value of 200 p.st., and the surplus-value would amount to 100 p.st. The rate of surplus-value, s/V, would be 100%. But we have seen that this rate of surplus-value would express itself in considerably different rates of profit, according to the different volumes of constant capitals c and consequently of total capitals C. For the rate of profit is calculated by the formula s/C.

Take it that the rate of surplus-value is 100%. Now, if

[248] In this way, the same rate of surplus-value, with the same degree of labor exploitation, would express itself in a falling rate of profit, because the material growth of the constant capital, and consequently of the total capital, implies their growth in value, although not in the same proportion.

If it is furthermore assumed that this gradual change in the composition of capital is not confined to some individual spheres of production, but occurs more or less in all, or at least in the most important ones, so that they imply changes in the organic average composition of the total capital of a certain society, then the gradual and relative growth of the constant over the variable capital must necessarily lead to a gradual fall of the average rate of profit, so long as the rate of surplus-value, or the intensity of exploitation of labor by capital, remain the same. Now we have seen that it is one of the laws of capitalist production that its development carries with it a relative decrease of variable as compared with constant capital, and consequently as compared to the total capital, which it sets in motion. This is only another way of saying that the same number of laborers, the same quantity of labor-power set in motion by a variable capital of a given value, consume in production an ever increasing quantity of means of production, such as machinery and all sorts of fixed capital, raw and auxiliary materials, and consequently a constant capital of ever increasing value and volume, during the same period of time, owing to the peculiar methods of production developing within the capitalist system. This progressive relative decrease of the variable capital as compared to the constant, and consequently to the total, capital is identical with the progressive higher organic composition of the average social capital. It is, in another way, but an expression of the progressive development of the productive powers of society, which is manifested by the fact that the same number of laborers, in the same time, convert an ever growing quantity of raw and auxiliary materials into products, thanks to the growing application of machinery and fixed capital in general, so that less labor is needed for the production of the same, or of more, commodities. This growing value and volume of constant [249] capital corresponds to a progressive cheapening of products, although the increase in the value of the constant capital indicates but imperfectly the growth in the actual mass of use-values represented by the material of the constant capital. Every individual product, taken by itself, contains a smaller quantity of labor than the same product did on a lower scale of production, in which the capital invested in wages occupies a far greater space compared to the capital invested in means of production. The hypothetical series placed at the beginning of this chapter expresses, therefore, the actual tendency of capitalist production. This mode of production produces a progressive decrease of the variable capital as compared to the constant capital, and consequently a continuously rising organic composition of the total capital. The immediate result of this is that the rate of surplus-value, at the same degree of labor-exploitation, expresses itself in a continually falling average rate of profit. (We shall see later why this fall does not manifest itself in an absolute form, but rather as a tendency toward a progressive fall.) This progressive tendency of the average rate of profit to fall is, therefore, but a peculiar expression of capitalist production for the fact that the social productivity of labor is progressively increasing. This is not saying that the rate of profit may not fall temporarily for other reasons. But it demonstrates at least that it is the nature of the capitalist mode of production, and a logical necessity of its development, to give expression to the average rate of surplus-value by a falling rate of average profit. Since the mass of the employed living labor is continually on the decline compared to the mass of materialised labor incorporated in productively consumed means of production, it follows that that portion of living labor, which is unpaid and represents surplus-value, must also be continually on the decrease compared to the volume and value of the invested total capital. Seeing that the proportion of the mass of surplus-value to the value of the invested total capital forms the rate of profit, this rate must fall continuously.

Simple as this law appears from the foregoing statements, all of political economy has so far tried in vain to discover it, [250] as we shall see later on. The economists saw the problem and cudgeled their brains in tortuous attempts to interpret it. Since this law is of great importance for capitalist production, it may be said to be that mystery whose solution has been the goal of the entire political economy since Adam Smith. The difference between the various schools since Adam Smith consists in their different attempts to solve this riddle. If we consider, on the other hand, that political economy up to the present has been tinkering with the distinction between constant and variable capital without ever defining it accurately; that it never separated surplus-value from profit, and never even considered profit in its purely theoretical form, that is, separated from its different subdivisions, such as industrial profit, commercial profit, interest, ground rent; that it never thoroughly analyzed the differences in the organic composition of capital, and for this reason never thought of analyzing the formation of an average rate of profit; if we consider all this, we no longer wonder at its failure to solve the riddle.

We intentionally analyze first this law, before we pass on to a consideration of the different independent categories into which profit is subdivided. The fact that this analysis is made independently of the subdivisions of profit, which fall to the share of different categories of persons, shows in itself that this law, in its general workings, is independent of those subdivisions and of the mutual relations of the resulting categories of profit. The profit to which we are here referring is but another name for surplus-value itself, which is merely observed in its relation to the total capital, instead of its relation to the variable capital from which it arises. The fall in the rate of profit therefore expresses the falling relation of surplus-value itself to the total capital, and is for this reason independent of any division of this profit among various participants.

We have seen that a certain stage of capitalist development, in which the organic composition of capital, c : v shows the proportion of 50 : 100, expresses a rate of surplus-value of 100% by a rate of profit of 66 2/3%, and that a higher stage, in [251] which c : v shows the proportion 400:100, expresses the same rate of surplus-value by a rate of profit of only 20%. What is true of different successive stages in the same country, is also true of different contemporaneous stages of development in different countries. In an undeveloped country, in which the first-named composition of capital is the rule, the average rate of profit would be 66 2/3%, while in a country with the other, higher, stage of development, the average rate of profit would be 20%.

The difference between two national rates of profit might be eliminated, or even reversed, if labor were less productive in the less developed country, so that a larger quantity of labor would be incorporated in a smaller quantity of the same commodities, a larger exchange-value represented by a smaller use-value, so that the laborer would consume a larger portion of his time in the reproduction of his own means of subsistence, or of their value, and have less time to spare for the production of surplus-value, and consequently would perform less surplus-labor, so that the rate of surplus-value would be lower. For instance, if the laborer of the less developed country were to work two-thirds of the working day for himself, and one-third for the capitalist, then, referring to the above illustration, the same labor-power would be paid with 133 1/3 and would furnish a surplus of only 66 2/3. A constant capital of 50 would correspond to a variable capital of 133 1/3. The rate of surplus-value would then amount to 133 1/3 : 66 2/3 = 50%, and the rate of profit to 183 1/3 : 66 2/3 = about 36½%.

Since we have not analysed the different subdivisions of profit, so that they do not exist for the present so far as we are here concerned, we make the following preliminary remarks merely in order to prevent misunderstanding: It would be a mistake to measure the level of the national rate of profit by, say, the level of the national rate of interest, when comparing countries in different stages of development, especially when comparing countries with a developed capitalist production to countries, in which labor has not yet been fully subjected to capital, although the laborer may already [252] be exploited by the capitalist, as happens, for instance, in India, where the ryot manages his farm as an independent producer, whose production, strictly so called, is not yet under the complete sway of capital, although the usurer may not only rob him of his entire surplus-labor by means of interest, but also curtail his wages, to use a capitalist term. For the interest of such stages comprises all of the profit, and more than the profit, instead of merely expressing an aliquot part of the produced surplus-value, or profit, as it does in countries with a developed capitalist production. On the other hand, the rate of interest in capitalist countries is overwhelmingly determined by conditions (loans granted by usurers to owners of large estates who draw ground-rent) which have nothing to do with profit, but which merely indicate to what extent usury appropriates ground-rent.

In countries with capitalist production in different stages of development, and consequently with capitals of different organic composition, a country with a short normal working day may have a higher rate of surplus-value (the one factor which determines the rate of profit) than a country with a long normal working day. In the first place, if the English working day of 10 hours, on account of its higher intensity, is equal to an Austrian working day of 14 hours, then dividing the working day equally in both instances, 5 hours of English surplus-labor may represent a greater value on the world-market than 7 hours of Austrian surplus-labor. In the second place, a larger portion of the English working day may represent surplus-labor than of the Austrian working day.

The law of the falling tendency of the rate of profit, which is the expression of the same, or even of a higher, rate of surplus-value, says in so many words: If you take any quantity of the average social capital, say a capital of 100, you will find that an ever larger portion of it is invested in means of production, and an ever smaller portion in living labor. Since, then, the aggregate mass of the living labor operating the means of production decreases in comparison to the value of these means of production, it follows that the unpaid labor, and that portion of value in which it is expressed, must decline [253] as compared to the value of the advanced total capital. Or, an ever smaller aliquot part of the invested total capital is converted into living labor, and this capital absorbs in proportion to its magnitude less and less surplus-labor, although the proportion of the unpaid part of the employed labor may simultaneously grow as compared with the paid part. The relative decrease of the variable, and the relative increase of the constant, capital, while both parts may grow absolutely in magnitude, is but another expression for the increased productivity of labor.

Let a capital of 100 consist of 80 c + 20 v, and let the 20 v stand for 20 laborers. Let the rate of surplus-value be 100%, that is to say, the laborers work one-half of the day for themselves and the other half for the capitalist. Now take a less developed country, in which a capital of 100 is composed of 20 c + 80 v, and let these 80 v stand for 80 laborers. But let these laborers work two-thirds of the day for themselves, and only one-third for the capitalists. Assuming all other things to be equal, the laborers in the first case will produce a value of 40, while those in the second case will produce a value of 120. The first capital produces 80 c + 20 v + 20 s = 120; rate of profit 20%. The second capital produces 20 c+80 v+40 s=140; rate of profit 40%. In other words, the rate of profit in the second case is double that of the first case, and yet the rate of surplus-value in the first case is 100%, while it is only 50% in the second case. But a capital of the same magnitude appropriates in the first case the surplus-labor of only 20 laborers, while it appropriates that of 80 laborers in the second case.

The law of the falling tendency of the rate of profit, or of the relative decline of the appropriated surplus-labor compared to the mass of materialised labor set in motion by living labor does not argue in any way against the fact that the absolute mass of the employed and exploited labor set in motion by the social capital, and consequently the absolute mass of the surplus-labor appropriated by it, may grow. Nor does it argue against the fact that the capitals controlled by individual capitalists may dispose of a growing mass of labor [254] and surplus-labor, even though the number of the laborers employed by them may not grow.

Take for illustration's sake a certain population of working people, for instance, two millions. Assume, furthermore, that the length and intensity of the average working day, and the level of wages, and thereby the proportion between necessary and surplus-labor, are given. In the case the aggregate labor of these two millions, and their surplus-labor expressed in surplus-value, represent always the same magnitude of values. But with the growth of the mass of the constant (fixed and circulating) capital, which this labor manipulates, the proportion of this produced quantity of values declines as compared to the value of this total capital. And the value of this capital grows with its mass, although not in the same proportion. This proportion, and consequently the rate of profit, falls in spite of the fact that the same mass of living labor is controlled as before, and the same amount of surplus-labor absorbed by the capital. This proportion changes, not because the mass of living labor decreases, but because the mass of the materialised labor set in motion by living labor increases. It is a relative decrease, not an absolute one, and has really nothing to do with the absolute magnitude of the labor and surplus-labor set in motion. The fall of the rate of profit is not due to an absolute, but only to a relative decrease of the variable part of the total capital, that is, its decrease as compared with the constant part.

The same thing which applies to any given mass of labor and surplus-labor, applies also to a growing number of laborers, and thus under the above assumptions, to any growing mass of the controlled labor in general and to its unpaid part, the surplus-labor, in particular. If the laboring population increases from two million to three million, if, furthermore, the variable capital invested in wages also rises to three million from its former amount of two million, while the constant capital rises from four million to fifteen million, then the mass of surplus-labor, and of surplus-value, under the above assumption of a constant working day and a constant rate of surplus-value, rises by 50%, that is, from two million to [255] three million. Nevertheless, in spite of this growth in the absolute mass of surplus-labor and surplus-value by 50%, the proportion of the variable to the constant capital would fall from 2 : 4 to 3 : 15, and the proportion of the surplus-value to the total capital, expressed in millions, would be

While the mass of surplus-value has increased by one-half, the rate of profit has fallen by one-half. However, the profit is only the surplus-value calculated on the total social capital, so that its absolute magnitude, socially considered, is the same as the absolute magnitude of the surplus-value. In this case, the absolute magnitude of the profit would have grown by 50%, in spite of its enormous relative decrease compared to the advanced total capital, or in spite of the enormous fall of the average rate of profit. We see, then, that in spite of the progressive fall of rate of profit, there may be an absolute increase of the number of laborers employed by capital, an absolute increase of the labor set in motion by it, an absolute increase of the mass of surplus-labor absorbed, a resulting absolute increase of the produced surplus-value, and consequently an absolute increase in the mass of the produced profit. And this increase may be progressive. And it may not only be so. On the basis of capitalist production, it must be so, aside from temporary fluctuations.

The capitalist process of production is essentially a process of accumulation. We have shown that the mass of values, which must be simply reproduced and maintained, increases progressively with the development of capitalist production to the extent that the productivity of labor grows, even if the employed labor-power should remain constant. But the development of social productivity carries with it a still greater increase of the produced use-values, of which the means of production form a part. And the additional labor, whose appropriation reconverts this additional value into capital, does not depend on the value, but on the mass of these means of production (including the means of subsistence), because the laborer in the productive process is not operating with the [256] exchange-value, but with the use-value of the means of production. Accumulation itself, however, and the concentration of capital that goes with it, is a material means of increasing the productive power. Now, this growth of the means of production includes the increase of the laboring population, the creation of a laboring population which corresponds to the surplus-capital or even exceeds its general requirements, leading to an overpopulation of working people. A momentary excess of the surplus-capital over the laboring population controlled by it would have a twofold effect. It would, on the one hand, mitigate the conditions, which decimate the offspring of the laboring class and would facilitate marriages among them, by raising wages. This would tend to increase the laboring population. On the other hand, it would employ the methods by which relative surplus-value is created (introduction and improvement of machinery) and thereby create still more rapidly an artificial relative overpopulation, which in its turn would be a hothouse for the actual propagation of its numbers, since under capitalist production poverty propagates its kind. The nature of the capitalist process of accumulation, which process is but an element in the capitalist process of production, implies as a matter of course that the increased mass of means of production, which is to be converted into capital, must always find on hand a corresponding increase, or even an excess, of laboring people for exploitation. The progress of the process of production and accumulation must, therefore, be accompanied by a growth of the mass of available and appropriated surplus-labor, and consequently by a growth of the absolute mass of profit appropriated by the social capital. But the same laws of production and accumulation increase the volume and value of the constant capital in a more rapid progression than those of the variable capital invested in living labor. The same laws, then, produce for the social capital an increase in the absolute mass of profit and a falling rate of profit.

We leave out of consideration the fact that the same amount of values represents a progressively increasing mass of use-values and enjoyments to the extent that the capitalist process [257] of production carries with it a development of the productive power of social labor, a multiplication of the lines of production, and an increase of products.

The development of capitalist production and accumulation lifts the processes of labor to a higher scale and gives them greater dimensions, which imply larger investments of capital for each individual establishment. A growing concentration of capitals (accompanied by a growing number of capitalists, though not to the same extent) is therefore one of the material requirements of capitalist production as well as one of the results produced by it. Hand in hand with it, and mutually interacting, goes a progressive expropriation of the more or less direct producers. It is, then, a matter of course for the capitalists that they should control increasing armies of laborers (no matter how much the variable capital may relatively decrease in comparison to the constant capital), and that the mass of surplus-value, and of profit, appropriated by them, should grow simultaneously with the fall of the rate of profit, and in spite of it. The same causes which concentrate masses of laborers under the control of capitalists, are precisely those which also swell the mass of fixed capital, auxiliary and raw materials in a growing proportion as compared to the mass of the employed living labor.

It requires but a passing notice at this point, that, given a certain laboring population, the mass of surplus-value, and therefore the absolute mass of profit, must grow if the rate of surplus-value increases by a prolongation or intensification of the working day, or by a lowering of the value of wages through a development of the productive power of labor, and must do so in spite of the relative decrease of the variable capital compared to the constant.

The same development of the productive power of social labor, the same laws, which express themselves in a relative fall of the variable as compared to the total capital and in a correspondingly hastened accumulation, while this accumulation in its turn becomes the starting point of a further development of the productive power and of a further relative fall of the variable capital, this same development manifests [258] itself, aside from temporary fluctuations, by a growing increase of the employed total labor-power, a growing increase of the absolute mass of surplus-value, and consequently of profits.

Now, in what form must this two-faced law with the same causes for a decrease of the rate of profits and a simultaneous increase of the absolute mass of profits show itself? A law based on the fact that under certain conditions the appropriated mass of surplus-labor, and consequently of surplus-value, increases, and that, so far as the total capital is concerned, or the individual capital as an aliquot part of the total capital, profit and surplus-value are identical magnitudes?

Take that aliquot part of capital which is the basis of our calculation of the rate of profit, for instance 100. These 100 illustrate the average composition of the total capital, say 80 c + 20 v. We have seen in the second part of this volume, that the average rate of profit is determined, not by the particular composition of individual capital, but by the average composition of social capital. If the variable capital decreases as compared to the constant, or to the total capital, then the rate of profit, or the relative magnitude of surplus-value calculated on the total capital, falls even though the intensity of exploitation were to remain the same, or even to increase. But it is not this relative magnitude alone which falls. The magnitude of the surplus-value or profit absorbed by the total capital of 100 also falls absolutely. At a rate of surplus-value of 100%, a capital of 60 + 40 produces a mass of surplus-value and profit amounting to 40; a capital of 70 c + 30 v a mass of profit of 30; a capital of 80 c + 20 v produces only 20 of profit. This fall refers to the mass of surplus-value and thus of profit, and is due to the fact that the total capital of 100, with the same intensity of labor exploitation, employs less living labor, sets in motion less labor-power, and therefore produces less surplus-value. Taking any aliquot part of the social capital, this is, of capital of average composition, as a standard by which to measure surplus-value—and this is done in all calculations of profit—a relative fall of surplus-value is identical with its absolute [259] fall. The rate of profit sinks in the above cases from 40% to 30% and 20%, because the mass of surplus-value, and of profit, produced by the same capital falls absolutely from 40 to 30 and 20. Since the magnitude of the value of capital, by which the surplus-value is measured, is given as 100, a fall in the proportion of surplus-value to this given magnitude can be only another expression for the fact that surplus-value and profit decrease absolutely. This is, of course, a tautology. But we have demonstrated that the nature of the capitalist process of production brings about this decrease.

On the other hand, the same causes which bring about an absolute decrease of surplus-value and profit on a given capital, and consequently in the percentage of the rate of profit, produce an increase of the absolute mass of surplus-value and profit appropriated by the total capital (that is, by the capitalists as a whole). How can this be explained, and what is the only way in which this can be explained, or what are the conditions on which this apparent contradiction is based?

While any aliquot part, any 100 of the social capital, any 100 of average social composition, is a given magnitude, for which a fall in the rate of profit implies a fall in the absolute magnitude of profit, just because the capital which serves as a standard of measurement is a constant magnitude, the magnitude of the social capital, on the other hand, as well as that of the capital in the hands of individual capitalists, is variable, and in keeping with our assumptions it must vary inversely to the decrease of its variable portion.

In our former illustration, when the percentage of composition was 60 c + 40 v, the corresponding surplus-value and profit was 40, and the rate of profit 40%. Take it that the total capital in this stage of composition was one million. In that case the total surplus-value, and total profit, amounted to 400,000. Now, if the composition changes later to 80 c + 20 v, while the degree of labor exploitation remains the same, then the surplus-value and profit for each 100 is 20. But as we have demonstrated that the absolute mass of surplus-value and profit increases in spite of the fall of the rate of profit, in spite of the decrease in the production of surplus-value by [260] a capital of 100, that it grows, say, from 400,000 to 440,000, there is no other way in which this could be brought about than by a growth of the total capital to 2,200,000 to the extent that this new composition developed. The mass of the total capital set in motion has risen by 220%, while the rate of profit has fallen by 50%. If the total capital had only been doubled, it could have produced no more surplus-value and profit with a rate of profit of 20% than the old capital of 1,000,000 at a rate of 40%. If it had grown to less than twice its old size, it would have produced less surplus-value or profit than the old capital of 1,000,000 which, with its former composition, would have had to grow from 1,000,000 to no more than 1,100,000, in order to raise its surplus-value from 400,000 to 440,000.

We meet here once more the previously analysed law, that the relative decrease of the variable capital, or the development of the productive power of labor, requires an increasing mass of total capital for the purpose of setting in motion the same quantity of labor-power and absorbing the same quantity of surplus-labor. Consequently the possibility of a relative surplus of laboring people develops to the extent that capitalist production advances, not because the productive power of social labor decreases, but because it increases. Relative overpopulation does not arise out of an absolute disproportion between labor and means of subsistence, or of means for the production of these means of existence, but out of a disproportion due to the capitalist exploitation of labor, a disproportion between the growing increase of capital and its relatively decreasing demand for an increase of population.

A fall in the rate of profit by 50% means its fall by one-half. If the mass of profit is to remain the same, the capital must be doubled. In order that the mass of profit made at a declining rate of profit may remain the same as before, the multiplier indicating the growth of the total capital must be equal to the divisor indicating the fall of the rate of profit. If the rate of profit falls from 40 to 20, the total capital must rise at the rate of 20 to 40, in order that the result may remain the same. If the rate of profit had fallen from 40 to 8, [261] the capital would have to increase at the rate of 8 to 40, or five times its value. A capital of 1,000,000 at a rate of 40% produces 400,000, and a capital of 5,000,000 at a rate of 8% likewise produces 400,000. This applies, so long as the result is to remain the same. But if the result is to be higher, then the capital must grow at a faster rate than the rate of profit falls. In other words, in order that the variable portion of the total capital may not only remain the same, but may also increase absolutely, although its percentage in the total capital falls, the total capital must grow at a higher rate than the percentage of the variable capital falls. It must grow at such a rate that it requires in its new composition not merely the same old variable capital, but more than it for the purchase of labor-power. If the variable portion of a capital of 100 falls from 40 to 20, the total capital must rise higher than 200, in order to be able to employ a larger variable capital than 40.

Even if the mass of the exploited laboring population were to remain constant, and only the length and intensity of the working day to increase, the mass of the invested capital would have to increase, since it must rise for the mere purpose of employing the same mass of labor under the old conditions of exploitation as soon as the composition of capital varies.

In short, the same development of the social productivity of labor expresses itself in the course of capitalist production on the one hand in a tendency to a progressive fall of the rate of profit, and on the other hand in a progressive increase of the absolute mass of the appropriated surplus-value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both. This twofold effect, as we have seen, can express itself only in a growth of the total capital at a ratio more rapid than that expressed by the fall in the rate of profit. In order that an absolutely increased variable capital may be employed in a capital of higher composition, that is, a capital in which the constant capital has relatively increased still more than the variable, the total capital must one only grow in proportion [262] to its higher composition, but even still more rapidly. It follows, then, that an ever larger quantity of capital is required in order to employ the same, and still more an increased amount of labor-power, to the extent that the capitalist mode of production develops. The increasing productivity of labor thus creates necessarily and permanently an apparent overpopulation of laboring people. If the variable capital forms only one-sixth of the total capital instead of one-half, as before, then the total capital must be trebled in order to employ the same amount of labor-power. And if the labor-power to be employed is doubled, then the total capital must be multiplied by six.

Political economy has so far been unable to explain the law of the falling tendency of the rate of profit. So it pointed as a consolation to the increasing mass of profit, the increase in the absolute magnitude of profit for the individual capitalist as well as for the social capital, but even this consolation was based on mere commonplaces and probabilities.

It is simply a tautology to say that the mass of profit is determined by two factors, namely first the rate profit, and secondly by the mass of capital invested at this rate. It is therefore but a corollary of this tautology to say that there is a possibility for the increase of the mass of profit even though the rate of profit may fall at the same time. This does not help us to get one step farther, since there is also a possibility that the capital may increase without resulting in an increase of the mass of profit, and that it may even increase while the mass of profit is already falling. For 100 at 25% make 25, while 400 at 5% make only 20.35 But if the same [263] causes, which bring about a fall in the rate of profit, promote the accumulation, that is, the formation of additional capital, and if each additional capital employs additional labor and produces additional surplus-value; when, on the other hand, the mere fall in the rate of profit implies the fact that the constant capital, and with it the total old capital, have increased, then this process ceases to be mysterious. We shall see later, to what falsifications of calculations some people have recourse in order to deny the possibility of an increase in the mass of profits while the rate of profits is simultaneously decreasing.

We have shown that the same causes, which bring about a tendency of the average rate of profits to fall, necessitate also an accelerated accumulation of capital and consequently an increase in the absolute magnitude, or total mass, of the surplus-labor (surplus-value, profit) appropriated by it. Just as everything is reversed in competition, and thus in the consciousness of its agents, so is also this law, this internal and necessary connection between two apparent contradictions. It is evident, within the proportions indicated above, that a capitalist disposing of a large capital will receive a larger mass of profits than a small capitalist making apparently high profits. A superficial observation of competition shows furthermore that under certain circumstances, when the greater capitalist wishes to make more room for himself on the market by pushing aside the smaller ones, as happens in times of commercial crises, he makes a practical use of this, that is, he lowers his rate of profit intentionally in order to crowd the smaller ones off the field. Particularly merchant's capital, as we shall show at length later on, shows symptoms, which seem to attribute the fall in profits to an expansion of the business, [264] and thus of capital. We shall later on give a scientific expression for this false conception. Similar superficial observations result from the comparison of rates of profit made in some particular lines of business, according to whether they are subject to free competition or to monopoly. The utterly shallow conception existing in the heads of the agents of competition is found in our Roscher, namely the idea that a reduction of the rate of profits is "more prudent and humane." The fall in the rate of profit is in this case attributed to an increase of capital, it appears as a consequence of this increase, and of the resultant calculation of the capitalist that the mass of profits to be pocketed by him will be greater at a smaller rate of profits. This entire conception (with the exception of that of Adam Smith, which we shall mention later) rests on the utter misapprehension of what the average rate of profit represents and on the crude idea that prices are indeed determined by adding a more or less arbitrary amount of profit to the actual value of the commodities. Crude as these ideas are, they arise necessarily out of the inverted aspect which the immanent laws of capitalist production represent under competition.

The law that the fall in the rate of profit due to the development of the productive powers is accompanied by an increase in the mass of profit expresses itself furthermore in the fact that a fall in the price of commodities produced by capital is accompanied by a relative increase of the masses of profit contained in them and realised by their sale.

Since the development of the productive powers and the higher composition of capital corresponding to it set in motion an ever increasing quantity of means of production with an ever decreasing quantity of labor, every aliquot part of the total product, every single commodity, or every particular quantity of commodities in the total mass of products absorbs less living labor, and also contains less materialised labor, both as to the wear and tear of fixed capital and to the raw and auxiliary materials consumed. Every single commodity, then, contains a smaller amount of labor materialised in means of production and of labor newly added during production. [265] Hence the price of the individual commodity falls. The mass of profits contained in the individual commodities may nevertheless increase, if the rate of the absolute or relative surplus-value grows. The commodity then contains less newly added labor, but its unpaid portion grows over its paid portion. However, this is the case only within certain limits. In the course of the development of production, with the enormously growing absolute decrease of the amount of living labor newly embodied in the individual commodities, the mass of unpaid labor contained in them will likewise decrease absolutely, however much it may have grown as compared to their paid portion. The mass of profit on each individual commodity will decrease considerably with the development of the productive power of labor, in spite of the increase of the rate of surplus-value. And this reduction, the same as the fall in the rate of profits, is only delayed by the cheapening of the elements of constant capital and the other circumstances mentioned in the first part of this volume, which increase the rate of profit at a stable, or even falling, rate of surplus-value.

To say that the price of the individual commodities falls, which together make up the total product of the capital, is simply to say that a certain quantity of labor is realised in a larger quantity of commodities, so that each individual commodity contains less labor than before. This is the case even if the price of one of the parts of constant capital, such as raw material, etc., should rise. With the exception of a few cases (for instance, if the productive power of labor cheapens all the elements of constant and variable capital uniformly) the rate of profit will fall in spite of the increased rate of surplus-value, 1), because even a larger unpaid portion of the smaller total amount of newly added labor is smaller than a smaller aliquot portion of unpaid labor was in the former large amount of total labor, and 2), because the higher composition of the capital is expressed through the individual commodity by the fact that that portion of its value, in which newly added labor is materialised, decreases as compared to that portion of its value, which represents raw material, auxiliary [266] material, and wear and tear of fixed capital. This change in the proportions of the various component parts of the price of the individual commodities, the decrease of that portion of their price, in which newly added labor is materialised, and the increase of that portion, in which formerly materialised labor is represented, is that form which expresses through the price of the individual commodities the decrease of the variable capital as compared to the constant capital. To the extent that this decrease is absolute for a certain amount of capital, for instance 100, it is also absolute for every individual commodity as an aliquot part of the reproduced capital. However, the rate of profit, if calculated merely on the elements of the price of the individual commodity, would be different from what it actually is. The reason for this is as follows:

This demonstrates once more how important it is under the capitalist mode of production that the individual commodities or the commodity-product of a certain period should not be considered as isolated by themselves, as mere commodities, but as products of advanced capital and in their relation to the total capital, which produces them.

Although the rate of profit must be calculated by measuring the mass of the produced and realised surplus-value by the consumed portion of capital reappearing in the commodities as well as by the sum of this portion plus that portion of capital which, though not consumed, is employed and continues to serve in production, the mass of profit cannot be equal to anything but the mass of profit, or surplus-value, contained in the commodities themselves and to be realised by their sale.

If the productivity of industry increases, the prices of the individual commodities fall. There is less paid and unpaid labor contained in them. Let the same labor produce, say, thrice, its former product. Then the individual product requires two-thirds less labor. And since the profit can constitute but a portion of the amount of labor congealed in the individual commodities, the mass of profit in the individual commodities must decrease. And this must hold good, within certain limits, even if the rate of surplus-value should rise. In any case, the mass of profits on the total product does not fall below the original mass of profits so long as the capital employs the same number of laborers at the same degree of exploitation. (This may also take place, if fewer laborers [269] are employed at a higher rate of exploitation.) For to the same extent that the mass of profit on the individual product decreases does the number of products increase. The mass of profits remains the same, only it is distributed differently over the total amount of commodities. Nor does this alter the division of the amount of value created by newly added labor between the laborers and capitalists. The mass of profit cannot increase, so long as same amount of labor is employed, unless the unpaid surplus-labor increases, or, supposing the intensity of exploitation to remain the same, unless the number of laborers grows. Or, both of these causes may, of course, combine to produce this result. In all these cases, which, however, according to our assumption, presuppose an increase of the constant capital as compared to the variable and an increase in the magnitude of the total capital, the individual commodity contains a smaller mass of profit and the rate of profit falls even if it is calculated on the individual commodity. A given quantity of additional labor is materialised in a larger quantity of commodities. The price of the individual commodities falls. Abstractly speaking, the rate of profit may remain the same, even though the price of the individual commodity may fall as a result of an increase in the productivity of labor and a simultaneous increase in the number of these cheaper commodities, for instance, if the increase in the productivity of labor extended its effects uniformly and simultaneously to all the elements of the commodities, so that the total price of the commodities would fall in the same proportion in which the productivity of labor would increase, while on the other hand the mutual relations of the different elements of the price of commodities would remain the same. The rate of profit might even rise, if a rise in the rate of surplus-value were accompanied by a considerable reduction in the value of the elements of constant, and particularly of fixed, capital. But in reality, as we have seen, the rate of profit will fall in the long run. In any case, a fall in the price of any individual commodity does not by itself give a clue to the rate of profit. Everything depends on the magnitude of the total capital invested in its production. [270] For instance, if the price of one yard of fabric falls from 3 sh. to 1 2/3 sh.; if we know that it contained before this reduction in price 1 2/3 sh. worth of constant capital, yarn, etc., 2/3 sh. wages, and 1/3 sh. profit, while it contains after this reduction 1 sh. of constant capital, 1/3 sh. of wages, and 1/3 sh. of profit, we cannot tell whether the rate of profit has remained the same or not. This depends on the question, whether the advanced total capital has increased, and how much, and how many yards of fabric more it produces in a given time.

This phenomenon arising from the nature of the capitalist mode of production, namely, that an increase in the productivity of labor implies a fall in the price of the individual commodity, or of a certain mass of commodities, an increase in the number of commodities, a reduction of the mass of profit in the individual commodity and of the rate of profit on the aggregate of commodities, an increase of the mass of profit in the total quantity of commodities, this phenomenon shows itself on the surface only in a reduction of the mass of profit in the individual commodities, in a fall of their prices, in an increase of the mass of profits in the augmented number of commodities as a whole, which have been produced by the total capital of society or by that of the individual capitalist. It is then imagined that the capitalist adds less profits to the price of the individual commodities on his own free volition and makes up for it by the returns on a greater number of commodities produced by him. This conception rests upon the idea of profit upon alienation, which in its turn is deduced from the ideas of merchant's capital.

We have seen previously, in parts four and seven of Book I, that the growth in the mass of commodities resulting from the productivity of labor and the consequent cheapening of the commodities as such (unless these commodities become determining elements in the price of labor-power) do not affect the proportion between paid and unpaid labor in the individual commodities, in spite of the fall in price.

Since everything appears inverted under competition, the individual capitalist may imagine: 1) That he is reducing his profit on the individual commodity by cutting its price, [271] but still making a greater profit on account of the larger quantity of commodities which he is selling; 2) that he is fixing the price of the individual commodities and determining the price of the total product by multiplication, while the original process is really one of division (see Book I, chapter XII) and the multiplication is correct only in a secondary way, being based on that division. The vulgar economist does practically no more than to translate the queer concepts of the capitalists, who are in the thralls of competition, into a more theoretical and generalising language and to attempt a vindication of the correctness of those conceptions.

Practically, a fall in the prices of commodities and a rise in the mass of profits contained in the augmented mass of these cheapened commodities is but another expression for the law of the falling rate of profit with a simultaneous increase in the mass of profits.

The analysis of the extent to which a falling rate of profit may coincide with rising prices does not belong in this chapter any more than that of the point previously discussed in volume I, chapter XII, concerning relative surplus-value. A capitalist working with improved methods of production that have not yet become general sells below the market-price, but above his individual price of production. In this way his rate of profit rises until competition levels it down. During this leveling period the second requisite puts in its appearance, namely the expansion of the invested capital. According to the degree of this expansion the capitalist will be enabled to employ a part of his former laborers under the new conditions, and eventually all of them or more, in other words, he will be enabled to produce the same or a greater mass of profits.

CHAPTER XIV.: COUNTERACTING CAUSES.↩

IF we consider the enormous development of the productive powers of labor, even comparing but the last 30 years with all former periods; if we consider in particular the enormous mass of fixed capital, aside from machinery in the strict meaning of the term, passing into the process of social production. as a whole, then the difficult, which has hitherto troubled the vulgar economists, namely that of finding an explanation for the falling rate of profit, gives way to its opposite, namely to the question; How is it that this fall is not greater and more rapid? There must be some counteracting influences at work, which thwart and annul the effects of this general law, leaving to it merely the character of a tendency. For this reason we have referred to the fall of the average rate of profit as a tendency to fall.

The following are the general counterbalancing causes:

CHAPTER XV.: UNRAVELING THE INTERNAL CONTRADICTIONS OF THE LAW.↩

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CHAPTER XVI.: COMMERCIAL CAPITAL.↩

MERCHANT'S capital, or trading capital, consists of two subdivisions, namely commercial capital and financial capital, which we shall now proceed to define more in detail, so far as is necessary for the analysis of capital in its innermost structure. This is so much the more needed, as modern political economy, even in its best representatives, indiscriminately mixes trading capital with industrial capital and wholly over looks the characteristic peculiarities of the former.

The movements of commodity-capital have been analysed in volume II. The total capital of society exists always in part in commodities on the market about to be converted into money, and this part is naturally made up of ever changing elements and is continually changing in quantity. Another part exists as money on the market, ready to be converted into commodities. These portions of the total capital are perpetually passing through these metamorphoses. To the extent that this function of capital in the process of circulation becomes a special function of independent capital and becomes an established service assigned by division of labor to some particular species of capitalists, the commodity-capital becomes commercial or financial capital.

[315]

In volume II, chapter VI, under the head of cost of circulation, 2 and 3, we have explained to what extent the transportation industry, the storage and distribution of commodities in a distributable form, may be regarded as processes of production continuing within the process of circulation. These incidents in the circulation of commodity-capital are sometimes confounded with the peculiar functions of commercial or financial capital. It is true that the peculiar functions of these last-named forms of capital are sometimes practically combined with those incidental ones, but with the advancing development of social division of labor the functions of merchant's capital evolve into a distinct type and are separated from those real functions connected with those incidents in circulation. For our present purpose, which is to define the specific difference of this special form of capital, we must leave aside those other functions as irrelevant. So far as capital employed only in the process of circulation, such as commercial capital, combines at times those other functions with its specific ones, it does not appear in its typical form. We do not get its pure type, until we strip it of all incidental functions.

We have seen that the existence of capital in the shape of commodity-capital and the metamorphoses through which it passes within the sphere of circulation in its capacity as commodity-capital on the market—a series of metamorphoses expressed by buying and selling, conversion of commodity-capital into money-capital and money-capital into commodity-capital—form a phase in the process of reproduction of industrial capital, that is, a phase in its process of production as a whole. But we have also seen at the same time that it is distinguished in its function as capital of circulation from its function as productive capital. These are two different and separate forms of existence of the same capital. One portion of the total social capital is continually on the market in the form of capital of circulation, passing through those metamorphoses. For each individual capital, however, its existence as commodity-capital, and its metamorphoses in this form, represent merely ever vanishing and ever renewed points [316] of transition, stages of transition in the continuity of its process of production. And the elements of commodity-capital on the market vary continually, being perpetually withdrawn from the market and just as perpetually returned to it as new products of the process of production.

Commercial capital is nothing else but a changed form of a portion of this capital of circulation, which exists continually on the market in the process of its metamorphoses within the sphere of circulation. We say explicitly, a portion, because a portion of the selling and buying of commodities takes place between the industrial capitalists themselves. We leave this portion entirely out of consideration in this analysis, because it contributes nothing to the definition of the concept, or to the understanding of the specific nature, of merchant's capital. Moreover, it has been exhaustively treated in volume II.

The dealer in commodities, as a capitalist, appears first on the market as the representative of a certain sum of money, which he advances in his capacity as a capitalist. He desires to transform this sum of money from its original value x into x + 8x, that is, the original sum plus his profit. But it is evident that his capital must first enter the market in the shape of money, not only on account of his capacity as a capitalist in general, but also as a trader in commodities in particular. For he does not produce any commodities. He merely trades in them, he acts as middleman in their movements, and in order to be able to trade in them, he must first buy them, must be the owner of money-capital.

Take it that a trader in commodities owns 3,000 p.st., which he invests as a trading capital. He buys with these 3,000 p.st., say, 30,000 yards of linen from some linen manufacturer, at 2 sh. per yard. Then he sells his 30,000 yards. If the annual average rate of profit is 10%, and if he makes a profit of 10% after deducting all incidental expenses, then he has converted his 3,000 p.st. into 3,300 p.st. at the end of one year. How he makes this profit is a question which we shall discuss later. At this place we merely intend to observe the form, which the movements of his capital take. He continually [317] buys with his 3,000 p.st. linen and sells this linen; he continually repeats this operation of buying for the purpose of selling, M—C—M', the simple form of capital confined entirely to the sphere of circulation and not interrupted by the intervention of the process of production, which lies outside of its own movement and function.

What, then, is the relation of this commercial capital to the commodity-capital representing a mere passing phase of industrial capital? So far as the linen manufacturer is concerned, he has realised the value of his linen with the money of the merchant. He has thereby completed the first phase in the metamorphosis of commodity-capital, its conversion into money, and he can now, provided that circumstances remain the same, proceed to reconvert this money into yarn, coal, wages, etc., or into means of existence, etc., for the consumption of his revenue. Leaving aside the spending of his revenue, he can continue his process of production.

But while the sale of the linen, its metamorphosis into money, has taken place so far as its direct producer is concerned, it has not yet taken place so far as the linen itself is concerned. It is still on the market as a commodity-capital and awaits the completion of its first metamorphosis, awaits its sale. Nothing has happened to this linen but a change in the person of its owner. From the point of view of its own destination, of its position in the process, it is still a commodity-capital, a saleable commodity; only, it is now in the hands of the merchant instead of those of the manufacturer. The function of selling it, of serving as an agent in the first phase of its metamorphosis, has been transferred from the manufacturer to the merchant, has been converted into the particular business of the merchant, while it used to be a function, which the producer had to perform after completing the process of its production.

Now let us assume that the merchant would not succeed in disposing of those 30,000 yards of linen during the interval, which the linen manufacturer requires for the production of another lot of 30,000 yards and its marketing at 3,000 p.st. In that case, the merchant cannot buy this new lot, because [318] he still has the old stock of 30,000 yards on hand, which he has not yet reconverted into money-capital. A stagnation then ensues, an interruption of reproduction. Of course, the linen manufacturer might have some additional money-capital in reserve, which he might convert into productive capital independently of the sale of those 30,000 yards of linen, in order to continue his process of production. But this assumption would not alter the matter. So far as the capital tied up in the 30,000 yards of linen is concerned, its process of reproduction is and remains interrupted. Here we see indeed very clearly, that the operations of the merchant are really nothing but operations which must be performed under all circumstances in order to convert the commodity-capital of the producer into money-capital, operations, which promote the functions of the commodity-capital in the process of circulation and reproduction. If a clerk of the producer were to attend exclusively to the sale, and also with the purchase, instead of an independent merchant, this connection would not be obscured for a moment.

Commercial capital, then, is nothing but the commodity-capital of the producer, which has to pass through its transformation into money and to perform its function of commodity-capital on the market. The difference is only that this incidental function of the producer is now established as the exclusive business of a special kind of capitalists, of merchants, and becomes the independent business of a special investment of capital.

This is furthermore shown in the specific form of the circulation of commercial capital. The merchant buys a commodity and then sells it: M—C—M'. In the simple circulation of commodities, or even in the circulation of commodities as it appears when a process of circulation of industrial capital, C'—M—C, circulation is promoted by the circumstance that every piece of money changes hands twice. The linen manufacturer sells his commodity, the linen, converts it into money; the money of the buyer passes into his hands. With this money he buys yarn, coal, labor, etc., he spends the same money for the purpose of reconverting the value of linen [319] into those commodities which form the elements of production of linen. The commodity which he buys is not the same kind of commodity which he sells. He has sold products and bought means of production. But it is different with the movements of commercial capital. With his 3,000 p.st., the linen merchant buys 30,000 yards of linen. He sells the same linen for the purpose of recovering his money-capital (increased by profits) from the circulation. It is not the same pieces of money which here change places twice, but the same commodities; the linen passes from the seller into the hands of the buyer, and from the hands of the buyer, who becomes a seller, into those of another buyer. It is sold twice, and it may be sold still oftener, if a series of other merchants intervenes. And it is precisely through this repeated sale, this twofold change of place of the same commodity, that the money advanced by its first buyer for its purchase is recovered, its reflux to him promoted. In the case of C'—M—C the twofold change of place of the same money assists in the sale of one form of commodities and the purchase of another form. In the other case, M—C—M', the twofold change of place of the same commodity assists in the recovery of the advanced money from the circulation. This shows that the commodity has not been definitely sold, when it has passed from the hands of the producer into those of the merchant, and that the latter merely continues the operation of selling—or promotes the functions of commodity-capital. But it shows at the same time that the operation C—M, which represents for the productive capitalist a mere function of his capital in its transient form of commodity-capital, constitutes for the merchant the movement M—C—M', that is, a specific utilisation of his advanced money-capital. A phase in the metamorphosis of commodities here shows itself, with reference to the merchant, in the form of M—C—M', that is, as the evolution of a separate kind of capital.

The merchant sells his commodity, in this case the linen, definitely to the consumer, whether it be a productive consumer (for instance, a bleacher), or an individual consumer who uses the linen for his private needs. By this means the [320] merchant recovers his advanced capital (with a profit), and he can then repeat his operation. If the money had served merely as a means of payment, when the merchant bought the linen from the manufacturer, for instance, if the merchant would not have had to make payment until after six weeks, he might be able to pay the manufacturer without even advancing any money-capital of his own. But if he should not have sold the goods at the end of six weeks, he would have to advance his 3,000 p.st. on the date of the expiration, instead of advancing them on delivery of the linen. And if a fall in the market-price should have compelled him to sell below his purchase price, he would have to make good the loss out of his own capital.

Now, what is it that lends to commercial capital the character of an independently operating capital, while in the hands of the producer who does his own selling, it is obviously merely a special form of his capital in some particular phase of his process of reproduction, during its sojourn in the sphere of circulation?

1) It is, in the first place, the fact that the commodity-capital completes its definite conversion into money, its first metamorphosis, its function on the market in its capacity as commodity-capital, in the hands of another agent than the producer, and that this function of commodity-capital is promoted by the operations of the merchant, by his buying and selling, so that these transactions constitute themselves into a separate and independent business distinct from the other functions of industrial capital. Through it a portion of a function, which used to be performed in circulation as a special phase of the process of reproduction, is molded into the exclusive function of an independent agent of the circulation distinct from the producer. But this alone would not be enough to give to this special business the aspect of a function of an independent capital distinct from the industrial capital in process of self-expansion. In fact, it does not assume this aspect in cases where the trade in commodities is carried on by traveling agents, or by other direct agents of the industrial capitalist. [321] Another element is necessary to complete its special character.

2) This second element is introduced by the fact that the independent agent of circulation, the merchant, advances money-capital (his own or borrowed) in this position. The transaction which amounts for the industrial capital in process of reproduction merely to C—M, to a conversion of commodity-capital into money-capital, to a mere sale, assumes for the merchant the form M—C—M', purchase and sale of the same commodity, and thus to a reflux, by means of a sale, of the money-capital expended in a purchase.

It is always C—M, the conversion of commodity-capital into money, which assumes for the merchant the form of M—C—M, whenever he advances money for the purchase of commodities from their producers; it is always the first metamorphosis of commodity-capital, although the same transaction may amount for a producer, or for industrial capital in process of reproduction, to M—C, a reconversion of money into commodities (means of production), the second phase of this metamorphosis. For the linen producer, the first metamorphosis was C—M, the conversion of commodity-capital into money-capital. This transaction amounts for the merchant to M—C, the conversion of his money-capital into commodity-capital. Now, if he sells this linen to a bleacher, it means M—C, conversion of money-capital into productive capital, for the bleacher, which represents the second metamorphosis of his commodity-capital; while it means C—M, the sale of the linen, for the merchant. Actually the commodity-capital manufactured by the producer has now been definitely sold. This transaction, M—C—M, on the part of the merchant represents but the action of a middleman for the transaction C—M between two producers. Or let us assume, that the linen manufacturer buys with a portion of the value of the sold linen some yarn from a yarn dealer. This is M—C for him. For the merchant selling the yarn it is C—M, resale of the yarn. So far as the yarn itself is concerned, in its capacity of commodity-capital, it amounts to [322] its definite sale, its transition from the sphere of circulation into the sphere of production by means of C—M, the definite conclusion of its first metamorphosis. Whether the merchant buys from the industrial capitalist, or sells to him, the circulation of his merchant's capital, M—C—M, always expresses but the same thing, which constitutes, from the point of view of the commodity-capital itself, a form of transition of the industrial capital in process of reproduction, C—M, the mere completion of its first metamorphosis. The M—C of the merchant's capital amounts only for the industrial capitalist to C—M, but not for the commodity-capital produced by him. It is but the transfer of the commodity-capital from the hands of the industrial capitalist to those of the agent of circulation; Not until the merchant's capital closes the transaction C—M does commodity-capital as such perform its final C—M. M—C—M amounts merely to two times C—M on the part of the same commodity-capital, two successive sales of it, which promote its last and final sale.

It is evident, then, that commodity-capital assumes in commercial capital the form of an independent class of capital through the fact that the merchant advances money-capital. This money-capital serves its purpose as capital only by attending exclusively to the conversion of commodity-capital into money-capital, and it accomplishes this by the continual purchase and sale of commodities. This is its exclusive work. This promotion of the process of circulation of industrial capital is the exclusive function of the money-capital with which the merchant operates. By means of this function he converts his money into money-capital, molds his M into M—C—M', and by the same process he converts commodity-capital into commercial capital.

So long and so far as commercial capital exists in the form of commodity-capital, from the point of view of the process of reproduction of the total social capital, it is obviously nothing else but that portion of the industrial capital in process of metamorphosis, which is still on the market and serves as commodity-capital. It is therefore only the money-capital advanced by the merchant, which is exclusively destined for [323] purchase and sale and for this reason never assumes any other form but that of commodity-capital and money-capital, always remaining confined to the sphere of circulation. It is only this money-capital which is now to be analysed with reference to the entire process of reproduction of capital.

As soon as the producer, the linen manufacturer has sold his 30,000 yards of linen to the merchant for 3,000 p.st., he buys with the money so obtained the necessary means of production, and his capital re-enters the process of production; his process of production continues without interruption. So far as he is concerned, the conversion of his commodity into money has been accomplished. But we have already seen that the linen itself has not yet closed its metamorphosis. It has not yet been definitely reconverted into money, it has not yet passed as a use-value into productive or individual consumption. The linen merchant now represents on the market the same commodity-capital, which the linen manufacturer represented originally. So far as the manufacturer is concerned, the process of transformation has been abbreviated, but only to be continued through the hand of the merchant.

If the linen producer had to wait, until his linen had really ceased being a commodity, until it had actually passed into the hands of its final purchaser for productive or individual consumption, his process of reproduction would be interrupted. Or, if he did not wish to interrupt it, he would have had to restrict his operations, to transform a smaller portion of the value of his linen into yarn, coal, labor, etc., in short, into the elements of productive capital, and to hold back a larger portion of it as a money-reserve. While one portion of his capital would then be on the market in the shape of commodities, another would be enabled to continue in the process of production. In this way, one portion would return in the shape of money, while another would be going to market in the form of commodities. This division of capital of the individual producer is not abolished by the intervention of the merchant. But without it that portion of the capital of circulation which is held as a money reserve would have to be always greater in proportion than the portion employed [324] as productive capital, and the scale of production would have to be restricted accordingly. Instead of that, the producer is now enabled to employ a larger portion of his capital continually in the process of production itself, and a smaller portion as a money reserve.

This is offset on the other hand by the fact that another portion of the social capital, in the shape of merchant's capital, is held continually within the sphere of circulation. It is employed for no other purpose but that of buying and selling. There seems then to have been no other change but that of the persons who hold this capital in their hands.

If the merchant, instead of buying 3,000 p.st.'s worth of linen with the intention of selling it again, were to employ these 3,000 p.st. productively himself, then the productive capital of society would be increased. It is true, that the linen producer would then have to hold back a larger portion of his capital as a money reserve, and likewise the merchant who has now been transformed into an industrial capitalist. On the other hand, if the merchant were to remain a merchant the producer would save time in selling which he could employ for the supervision of the process of production, while the merchant would have to devote his whole time to selling.

If the merchant's capital does not exceed its necessary proportions, it may be assumed

1) that as a result of division of labor, the capital devoted exclusively to buying and selling (and this includes not only the money required for the purchase of commodities, but also the money which must be invested in the labor required for running the business of the merchant, in the constant capital of the merchant, store rooms, transportation, etc.) is smaller than it would be, if the industrial capitalist had to carry on the entire commercial part of his business himself;

2) that the exclusive occupation of the merchant with this business enables the producer to convert his commodities more rapidly into money, and permits the commodity-capital itself to pass more quickly through its metamorphosis, than it would in the hands of the producer;

3) that looking upon the entire merchant's capital in proportion [325] to the industrial capital, one turn-over of the merchant's capital may represent not only the turn-overs of many capitals in one sphere of production, but the turn-overs of a numbers of capitals in different spheres of production. The first is the case when the linen merchant, after buying with his 3,000 p.st. the product of some linen producer, sells it before the same producer can bring another lot of the same quantity to market, so that the linen merchant has to buy the product of another, or several other, linen manufacturers. When he sells this, he promotes the turn-overs of different capitals in the same sphere of production. The second is the case, if the merchant, after selling his linen, buys, for instance, some silk. In this way he promotes the turn-overs of capitals in different spheres.

In general it may be noted that the turn-over of the industrial capital is not limited merely by the time of circulation, but also by the time of production. The turn-over of merchant's capital, so far as it deals in one sort of commodities, is limited, not merely by the turn-over of one industrial capital, but by the turn-overs of all industrial capitals in the same line of production. After the merchant has bought and sold the linen of one producer, he can buy and sell that of another, before the first can bring another lot of his product on the market. The same merchant's capital may, therefore, promote successively the different turn-overs of the industrial capitals invested in a certain line of production. Its turn-over is therefore not identified with the turn-overs of one sole industrial capital, but with the turn-overs of many, and it does not take the place of but one money reserve, which one single industrial capitalist would have to hold back. The turn-over of the merchant's capital in one sphere of production is naturally determined by the total production of that sphere. But it is not determined by the limits of production or the time of turn-over of any single capital of the same sphere, so far as its time of turn-over is determined by its time of production. For instance, let us assume that A supplies a commodity, which requires three months for its production. After the merchant has bought and sold it, say, in one month, [326] he can buy and sell the same product of some other producer. Or, after he has sold, say, the corn of some farmer, he can buy with the same money that of another and another, etc. The turn-over of his capital is limited by the mass of corn, which he can buy successively in a certain time, for instance, in one year, while the capital of the farmer is limited in its turn-over, aside from the time of circulation, by the time of production, which lasts one year.

However, the turn-over of the same merchant's capital may promote equally well the turn-overs of capitals in different lines of production.

To the extent that the same merchant's capital serves in different turn-overs to transform different commodity-capitals successively into money, buying and selling them one after another, it performs in its capacity as money-capital the same function with regard to the commodity-capital, which money in general performs by means of its turn-overs within a certain period with regard to commodities.

The turn-over of merchant's capital is not identical with the turn-over or with one single reproduction of one industrial capital of the same size; it is rather equal to the sum of the turn-overs of a number of such capitals, either in the same, or in different spheres of production. The quicker merchant's capital is turned over, the smaller is that portion of the total money-capital, which serves as merchant's capital; the slower it is turned over, the larger is that same portion. The more undeveloped production is, the larger is the sum of merchant's capital as compared to the sum of the commodities thrown into circulation; but so much smaller is it absolutely, or compared with more developed conditions. Vice versa, the opposite holds good. In such undeveloped conditions the greater part of the strict money-capital is in the hands of the merchants, whose wealth constitutes the money wealth as compared to the wealth of others.

The velocity of the circulation of the money-capital advanced by the merchant depends: 1) on the velocity with which the process of production is renewed and the different [327] processes of production are linked together; 2) on the velocity of consumption.

It is not necessary that merchant's capital should pass merely through the above mentioned turn-over, by first buying commodities to its full amount and then selling them. The merchant may make both movements at the same time. His capital is then divided into two parts. One of them consists of commodity-capital, the other of money-capital. Here he buys and converts his money into commodities. There he sells and converts another part of his commodity-capital into money. On one side, his capital returns in the shape of money-capital, on the other it returns in the shape of commodity-capital. The larger the portion assuming one shape, the smaller the portion assuming another. This alternates and balances itself. If money is not employed merely as a medium of circulation, but also as a means of payment and in conjunction with the credit system, which develops along with it, then the money portion of the merchant's capital is reduced still more in proportion to the volume of the transactions promoted by the merchant's capital. If I buy 1,000 p.st.'s worth of wine on three months' credit, and sell all the wine for cash before the expiration of the three months, then I do not need to advance one penny for these transactions. In this case it is quite obvious that the money-capital, which here serves as merchant's capital, is nothing but industrial capital itself in the shape of money-capital, in process of reflux to itself in the shape of money. (The fact that the producer who sold 1,000 p.st.'s worth of wine on three months' credit may discount his note, which is a certificate of indebtedness of the buyer, at some bank does not alter the matter and has nothing to do with the capital of the merchant.) If market-prices should fall in the mean time by 1/10, the merchant would not only make no profit, but would recover only 2,700 p.st. instead of 3,000 p.st. He would then have to put up 300 p.st. out of his own pocket. These 300 p.st. serve merely as a reserve for balancing the difference in price. But the same applies to the producer. If he had sold at falling prices, he [328] would likewise have lost 300 p.st., and could not begin production on the same scale without reserve capital.

The linen merchant buys 3,000 p.st.'s worth of linen from the manufacturer. The manufacturer uses 2,000 p.st. of the 3,000 to buy yarn. He buys this yarn from a yarn dealer. The money with which the manufacturer pays the yarn dealer does not belong to the linen dealer. For the latter has received commodities to this amount. It is the money-form of the manufacturer's own capital. In the hands of the yarn dealer these 2,000 p.st. now appear as returned money-capital. But to what extent are they so, in what respect do they differ from the 2,000 p.st. representing the discarded money-form of the linen and the assumed money-form of the yarn? If the yarn dealer bought on credit and sold for cash before the expiration of his time, then these 2,000 p.st. do not contain one penny of merchant's capital as distinguished from the money-form, which the industrial capital itself assumes in the course of its circulation. The commercial capital then, so far as it is not a mere form of industrial capital, held in the hands of the merchant in the shape of commodity-capital or money-capital, is nothing but that portion of the money-capital which belongs to the merchant himself and is circulated by the purchase and sale of commodities. This portion represents on a reduced scale that part of the capital advanced for production, which must always be in the hands of the industrial as a money reserve, medium of purchase, and which would always have to circulate as money-capital. This portion, in a reduced scale, is now in the hands of capitalist merchants, and performs its functions only in the process of circulation. It is that portion of the total capital which, aside from expenditures of revenue, must continually circulate on the market as a medium of purchase in order to maintain the continuity of the process of reproduction. This portion is so much smaller in comparison to the total capital, the more rapidly the process of reproduction takes place, and the more developed the function of money as a means of payment, that is, of the credit-system.38

[329]

Merchant's capital is simply capital performing its functions in the sphere of circulation. The process of circulation is a phase of the total process of reproduction. But no value is produced in the process of circulation, and, therefore, no surplus-value. Nothing takes place there but changes of form of the same mass of values. In fact, nothing occurs there but the metamorphosis of commodities, and this has nothing to do either with the creation or with the transformation of values. If surplus-value is realised by the sale of the produced commodities, it is only because that surplus-value already existed in them. In the second act, the reconversion of money-capital into commodities (elements of production), the buyer does not realise any surplus-value. He merely inaugurates the production of surplus-value by the exchange of his money for means of production and labor-power. So far as these metamorphoses cost time of circulation—a time, during which capital is not producing at all, least of all surplus-value—they limit the creation of values, and the surplus-value will express itself through the rate of profit precisely in an inverse ratio to the duration of the time of circulation. Merchant's capital, therefore, does not create any value or surplus-value, [330] at least not directly. If it contributes toward shortening the time of circulation, it may help indirectly to increase the surplus-value produced by the industrial capitalists. To the extent that it helps to expand the market and promotes the division of labor between capitals, thereby enabling capital to work on a larger scale, its function enhances the productivity of the industrial capital and the accumulation of this capital. Inasmuch as it may shorten the time of circulation, it raises the ratio of surplus-value to the advanced capital, that is, the rate of profit. And to the extent that it confines a smaller portion of capital in the form of money-capital to the sphere of circulation, it increases that portion of capital which is engaged directly in production.

CHAPTER XVII.: COMMERCIAL PROFIT.↩

WE have seen in volume II, that the mere functions of capital in the sphere of circulation—the operations which the industrial capitalist must perform, first, in order to realise the value of his commodities, and secondly, in order to reconvert this value into elements of production, operations which promote the metamorphosis of the commodity-capital C'—M—C, the acts of selling and buying—produce neither value nor surplus-value. It was rather seen that the time required for this purpose, objectively so far as the commodities, subjectively so far as the capitalist is concerned, creates barriers to the production of value and surplus-value. What is true of the metamorphosis of commodity-capital in general, is, as a matter of course, not in the least altered by the fact that a part of it may assume the shape of commercial capital, or that the operations, by which the metamorphosis of commodity-capital is promoted, may become the particular business of a special class of capitalists, or the exclusive function of a portion of the money-capital. If selling and buying of commodities [331] —and that is what the metamorphosis of the commodity-capital C'—M—C amounts to—by the industrial capitalists themselves do not create any value or surplus-value, they will certainly not become creators of value by being transferred from the industrial capitalists to other persons. Furthermore, if that portion of the total social capital, which must be continually on hand in order that the process of reproduction, instead of being interrupted, may proceed continuously—if this money-capital does not create any value or surplus-value, then it cannot acquire the faculty to do so by being continually thrown into circulation for the performance of its function by some other section of the capitalists than the industrial capitalists. We have already indicated to what extent merchant's capital may be indirectly productive, and we shall discuss this point more at length later on.

Commercial capital, then—stripped of all heterogeneous functions, such as storing, expressing, transporting, distributing, arranging, which may be connected with its true function of buying in order to sell—creates neither value nor surplus-value, but promotes only their realisation and thereby the actual exchange of commodities, their transfer from one hand to the other, the social circulation of matter. Nevertheless, since the circulating phase of industrial capital is as much a phase of the process of reproduction as production is, the capital performing its functions independently in the process of circulation must yield the average annual profit just as well as the capital performing its functions in the different lines of production. If merchant's capital were to yield a higher percentage of average profit than industrial capital, then a portion of the industrial capital would transform itself into merchant's capital. If this capital were to yield a lower average profit, then the opposite process would take place. A portion of the merchant's capital would transform itself into industrial capital. No species of capital enjoys a greater facility to change its occupation than merchant's capital.

Seeing that merchant's capital itself does not produce any surplus-value, it is evident that surplus-value appropriated by [332] it in the shape of average profit must be a portion of the surplus-value produced by the total productive capital. But the question is now: How does the merchant's capital manage to appropriate its share of the surplus-value or profit produced by the productive capital?

It is only outward semblance that commercial profit is a mere addition to, a nominal raise of the prices of commodities above their value.

It is evident that the merchant can draw his profit only out of the price of the commodities sold by him, more even, that this profit, which he makes by the sale of his commodities, must be equal to the difference between his purchase price and his selling price, equal to the excess of the latter over the former.

It is possible, that additional costs (costs of circulation) may enter into the commodities after their purchase and before their sale, and it is also possible, that this may not happen. If such costs should be added, it is evident that the excess of the selling price over the purchase price does not represent merely profit. In order to simplify the analysis, we assume first, that no such costs are added.

For the industrial capitalist, the difference between the selling price and the purchase price of his commodities is equal to the difference between their price of production and their cost-price, or, looking upon the matter from the point of view of the total social capital, equal to the difference between the value of the commodities and their cost-price for the capitalists, and this again resolves itself into the difference between the total quantity of labor incorporated in them and the quantity of the paid labor incorporated in them. Before the commodities bought by the industrial capitalist are taken back to market as saleable commodities, they pass through the process of production, in which that portion of their price which shall be realised as profit must be created. But it is different with the trading merchant. The commodities are in his hands only so long as they are in the process of circulation. He merely continues their sale, the realisation of their price begun by the productive capitalist, and therefore he does not [333] cause them to pass through any intermediate process, in which they can once more absorb new surplus-value. While the industrial capitalist merely realises the previously produced surplus-value or profit by means of the circulation, the merchant must not only realise his profit in and by the circulation, but he must first make it there. This seems possible in no other way than that of selling the commodities bought by him from the industrial capitalist at their prices of production, or, from the point of view of the total commodity-capital, their values, above their prices of production, by making a nominal addition to these prices, in other words by selling the total commodity-capital above its value and pocketing this excess of their nominal value over their real value. In short, it seems that he would be selling them for more than they are worth.

This method of raising prices seems easy to grasp. For instance, one yard of linen costs 2 sh. If I want to make 10% profit on my sales, I must add 1/10 to the price, I must sell one yard of linen at 2 sh. 2 2/5d. The difference between its actual price of production and its selling price is then 2 2/5d. and this represents a profit of 10% on 2 sh. This amounts to my selling one yard of linen to the buyer at a price which is in reality the price of 1 1/10 yard. Or, what amounts to the same, it is as though I sold to the buyer only 10/11 of one yard for 2 sh. and kept 1/11 for myself. In fact, I might buy back 1/11 of one yard for 2 2/5 d., if the price of one yard is 2 sh. 2 2/5d. This would be but a round-about way of sharing in the surplus-value and surplus-product by a nominal raise in the price of commodities.

This is the realisation of commercial profit by raising the price of commodities, as it appears at first glance on the surface. And it is indeed a fact that this whole conception of the rise of profit from a nominal raise in the price of commodities, or from their sale above their value, has its origin in the point of view of commercial capital.

But on closer inspection it is quickly seen that this is a mere semblance, and that, assuming capitalist production to be the prevailing mode, commercial profit cannot be realised in this manner. (It is here always a question of averages, not of exceptions.) [334] Why do we assume that the dealer in commodities can realise his profit of 10% on his commodities only by selling them 10% above their price of production? Because we had assumed that the producer of these commodities, the industrial capitalist (who impersonates The producer before the outside world as the personification of industrial capital), had sold them to the dealer at their prices of production. If the prices paid by the dealer for commodities are equal to their prices of production, so that the price of production, or in the last instance the value, represents the cost-price for the merchant, then the excess of the latter's selling price over his purchase price—and only this difference constitutes his profit—must indeed be an excess of their commercial price over their price of production, so that in the last analysis the merchant would be selling all commodities above their values. But why did we assume that the industrial capitalist sells his commodities to the merchant at their prices of production? Or rather, what was the premise of that assumption? It was that the commercial capital did not share in the formation of the average rate of profit (and as yet we are dealing with merchant's capital only in so far as it is commercial capital.) We started necessarily from this premise in the discussion of the average rate of profit, first, because the commercial capital as such did not exist for us at that time; and secondly, because the average profit, and thus the average rate of profit, had to be first developed out of a mutual leveling of profits, or surplus-values, actually produced by the industrial capitals of the different spheres of production. But in the case of merchant's capital we are dealing with a capital which shares in the profit without participating in its production. Hence it now becomes necessary, to supplement our former presentation at this point.

Let us suppose that the total industrial capital advanced for one year is 720 c + 180 v = 900 (say million p.st.), and that s' = 100%. The product is then valued at 720 c + 180 v + 180 s. Now let us call this product, the produced commodity-capital, C. Its value, or its price of production (both are identical for the total social commodity-capital), is [335] then 1080, and the rate of profit for the total social capital of 900 is 20%. These 20% constitute, according to our previous analyses, the average rate of profit, since the surplus-value is not calculated in this instance on this or that capital of some particular composition, but on the average composition of the total industrial capital. In short, C = 1,080, and the rate of profit = 20%. Now let us further assume that aside from these 900 of industrial capital, there are invested 100 of merchant's capital, which share in the profit, just as the industrial capital does, in proportion to their magnitude. According to our assumption, the total capital consists of 900 industrial + 100 commercial = 1,000, so that the commercial capital is 1/10 of the whole. Therefore it participates to the extent of 1/10 in the total surplus-value of 180, and by this means secures a profit at the rate of 18%. Actually, then, the profit remaining to be distributed among the other 9/10 of the total capital is only 162, which amounts likewise to 18% on the total capital of 900. In other words, the price at which C is sold by the owners of the industrial capital of 900 to the dealers is 720 c + 180 v + 162 s = 1,062. Now, if the dealer adds his average profit of 18% on his capital of 100, he sells the commodities at 1,062 + 18 = 1,080, which is their price of production, or, from the point of view of the total commodity-capital, their value, although he makes his profit only in and by the circulation, and only by an excess of his selling price over his purchase price. But nevertheless he does not sell the commodities above their value, nor above their price of production, just because he had bought them from the industrial capitalist below their value, or below their price of production.

The merchant's capital, then, plays a determining role in the formation of the average rate of profit in proportion to its pro rata magnitude in the total capital. Hence if we say in the cited case that the average rate of profit is 18%, it would be 20%, were it not for the fact that 1/10 of the total capital is merchant's capital, which implies a reduction of the rate of profit by 1/10.

This requires also a more precise and detailed definition of [336] the price of production. By price of production we mean, now as before, that price of the commodities, which is equal to their cost (the value of the constant + variable capital contained in them) + the average profit. But this average profit is now differently determined. It is determined by the total profit produced by the total productive capital, but it is not calculated merely on this total productive capital. It is not calculated, as first assumed, so that, if the total productive capital were 900, and the profit 180, the average rate of profit would be 180/900 = 20%. It is rather calculated on the total productive + the merchant's capital, so that, if the total capital is 900 productive + 100 merchant's capital, the average rate of profit is 180/1000 = 18%. The price of production is, therefore, equal to k (the costs) + 18, instead of k + 20. In the average rate of profit, the share of the total profit falling to the merchant's capital is included. The actual value, or price of production, of the total commodity-capital is, therefore, k + p + m (where m indicates profits in merchant's capital). The price of production, or the price at which the industrial capitalist as such sells his commodities, is thus smaller than the actual price of production of commodities. Or, looking upon the matter from the point of view of the total commodity-capital, the prices at which the class of industrial capitalists sell are lower than the values of commodities. Thus, in the above case, 900 costs + 18% on 900, or 900 + 162 = 1,062.

It follows, then, that the merchant, when selling a commodity at 118 for which he paid 100 does indeed raise the price by 18%. But since this commodity, for which he paid 100, is really worth 118, he does not sell it above its value. We shall retain the price of production as more closely defined above. Then it is evident, that the profit of the industrial capitalist is equal to the excess of the price of production of his commodities over their cost-price, and that the commercial profit, as distinguished from this industrial profit, is equal to the excess of the selling price over the price of production of the commodities, which is their cost-price for the merchant; but that the actual price of the commodities is equal to their [337] price of production plus the commercial profit. Just as the industrial capital realises only such profits as exist previously in the commodities as surplus-value, so the merchant's capital realises profits only because the entire surplus-value, or profit, has not yet been realised in the price charged for the commodities by the industrial capitalist.39 The selling price of the merchant, then, stands above his purchase price, not because the former stands above the total value, but because the purchase price stands below this value.

The merchant's capital participates in the compensation of the surplus-value to an average profit, although it does not take part in its production. So the average rate of profit implies that general deduction from surplus-value which falls to the share of merchant's capital, a deduction from the profit of the industrial capital.

From the foregoing it follows:

Assuming all other circumstances to remain the same, the relative volume of the merchant's capital (excepting the small dealer, who represents a hermaphrodite form) will be in a reverse ratio to the velocity of its turn-over, or in a reverse ratio to the energy of the process of reproduction in general. In the process of scientific analysis, the formation of an average rate of profit appears to take its departure from the industrial [338] capitals and their competition, and only later on does it seem to be corrected, supplemented, and modified by the intervention of merchant's capital. But in the course of historical events, the process is reversed. It is the commercial capital, which first determines the prices of commodities more or less by their values, and it is the sphere of circulation, while promoting the process of reproduction, which first affords an opportunity for the formation of an average rate of profit. The commercial profit originally determines the industrial profit. Not until the capitalist mode of production has asserted itself and the producer himself has become a merchant, is the commercial profit reduced to that aliquot part of the total surplus-value, which falls to the share of the merchant's capital as an aliquot part of the total capital engaged in the social process of reproduction.

In the analysis of the supplementary compensation of profit through the intervention of the merchant's capital it was found that no additional element for the advanced money-capital entered into the value of commodities, and that the addition to the price, by which the merchant makes his profit, was merely equal to that portion of the value of commodities, which the productive capital did not calculate, but rather left out of calculation in the price of production. The case of this money-capital is similar to that of the fixed capital of the industrial capitalist, which is not all consumed and does not pass as an element into the value of commodities. By the purchase price which the merchant pays for the commodity-capital, he replaces its price of production, M, in money. His own selling price, as we have previously shown, is equal to M + 8Delta;M, and this 8Delta;M stands for the addition to the price of commodities determined by the average rate of profit. By selling these commodities, he recovers together with this 8Delta;M his original money-capital, which he advanced for their purchase. Here, then, we see once more that his money-capital is nothing else but the commodity-capital of the industrial capitalist transformed into money-capital, and this change does not affect the magnitude of the volume of this commodity-capital any more than a direct sale to the ultimate consumer [339] instead of the merchant would. It merely anticipates payment by the consumer. However, this is correct only on the condition, which we had hitherto assumed, that the merchant has no expenses, or that he need not advance any fixed or circulating capital during the process of metamorphosis of the commodities, of buying and selling, aside from the money-capital which he must advance for the purchase of the commodities from the producer. But this is not so in reality, as we have seen in the analysis of the costs of circulation, volume II, chapter VI. These costs of circulation represent either expenses, which the merchant has to reclaim from the other agents of the circulation, or expenses, which are due directly to his specific business.

No matter what may be the character of these costs of circulation—whether they arise from the purely mercantile nature of the business, or whether they belong to the specific costs of circulation of the merchant, or whether they represent items, which are charges for subsequent processes of production added within the process of circulation, such as expressage, transportation, storage, etc.—they always require that the merchant should have, aside from his advanced money-capital, some additional capital for the purchase and payment of such means of circulation. To the extent that this element of cost consists of circulating capital, it passes wholly as an additional element into the selling price of the commodities; to the extent that it consists of fixed capital, it is transferred in proportion to its wear and tear. It is, however, an element, which forms a nominal value, even if it does not add any real value to the commodities. Such nominal values, which do not add any real value to the commodities, are the purely mercantile costs of circulation. But whether fixed or circulating, the entire additional capital participates in the formation of the general rate of profit.

The purely commercial costs of circulation (that is, excepting the costs of transportation, shipping, storage, etc.) resolve themselves into the costs required for the purpose of realising the value of commodities, by transforming it either from commodities into money, or from money into commodities, by [340] means of exchange. We leave entirely out of consideration any processes of production, which may eventually continue during the process of circulation, and which may exist separately from the merchant's business. In fact, the actual transport industry and shipping may be, and are, lines of occupation entirely separated from the merchant's business, and the purchaseable or saleable commodities may be stored in warehouses or other public sheds, and the cost of storage, so far as it has to be advanced by the merchant, may be charged up to him by other people. All this becomes apparent in commerce on a large scale, in which the merchant's capital assumes its purest form, unalloyed by other functions. The express owner, the railroad director, the ship owner, are not "merchants." The costs which we consider here are those of buying and selling. We have already remarked in another place that these resolve themselves into accounting, bookkeeping, marketing, correspondence, etc. The constant capital required for this purpose consists of offices, paper, postage, etc. The other costs resolve themselves into variable capital advanced for the employment of mercantile wage workers. (Expressage, cost of transportation, advances for duties, etc., may be considered as being advances made by the merchant for the purchase of commodities and entering into the purchase price to be paid by him.)

All these costs are not incurred in the production of the use-value of the commodities, but in the realisation of their exchange value. They are pure costs of circulation. They do not enter into the strict process of production, but since they enter into the process of circulation they are part of the total process of reproduction.

The only portion of these costs that interests us here is that advanced as variable capital. (Furthermore the following questions remain to be analysed: 1) How is the law, that only socially necessary labor enters into the value of commodities, enforced in the process of circulation? 2) How does accumulation represent itself in the case of merchant's capital? 3) How does merchant's capital function in the actual process of reproduction of society as a whole?)

[341]

These costs are due to the economic form of the product, that of a commodity.

Seeing that the labor time lost by the industrial capitalists themselves while directly selling commodities to one another, in other words, the circulation time of the commodities, does not add any value to these commodities, it is evident that this labor time is not endowed with any other character by transferring it from the industrial capitalist to the merchant. The conversion of commodities (products) into money, and of money into commodities (means of production) is a necessary function of industrial capital and, therefore, a necessary operation for the capitalist, who is but personified capital endowed with his consciousness and will. But these functions do not create any value, nor do they produce any surplus-value. The merchant, by performing these operations, by further promoting the functions of capital in the sphere of circulation after the productive capitalist has ceased to do so, merely steps into the shoes of the industrial capitalist. The labor time required for these operations is devoted to certain necessary operations in the process of reproduction of capital, but it adds no value to it. If the merchant did not perform these operations (did not expend the labor time required for them), he would not be using his capital as a circulation agent of industrial capital; he would not be continuing the interrupted function of the industrial capitalist, and consequently he could not participate as a capitalist, in proportion to his advanced capital, in the mass of profit produced by the class of industrial capitalists. In order to share in the mass of surplus-value, in order to expand the value of his advanced capital, the commercial capitalist need not employ any wage workers. If his business is small, he may be the only worker in it. But his wages are derived from that portion of the social profit which falls to his share through the difference between the purchase price paid by him for commodities and their actual price of production.

Under these circumstances, and assuming the merchant's advanced capital to be small, the profit realised by him may not be a bit larger, or may even be smaller, than the wages of [342] one of the better paid skilled wage workers. In fact, there are employed, side by side with him, many commercial agents of the industrial capitalist, such as buyers, sellers, travelers, who receive the same or a higher income than he, either in the form of wages, or in the form of a check upon the profit (percentages, tantièmes) made by each sale. In the first case, the merchant pockets the mercantile profit as an independent capitalist; in the other case, the salesman, the wage laborer of the industrial capitalist, receives a portion of the profit, either in the form of wages, or in the form of a proportional share in the profit of the industrial capitalist, whose direct agent he is, while his principal pockets both the industrial and the commercial profit. But in all these cases the income of the circulation agent is derived from the merchant's profit, even though he may regard it merely as wages paid to him for the performance of his labor, or, where it does not appear in this light, though his profit may not be any larger than the wages of a better paid wage laborer. This follows from the fact that his labor is not labor producing any values.

The prolongation of the act of circulation implies for the industrial capitalist 1) a personal loss of time, to the extent that it prevents him from performing his own function as a manager of the productive process; 2) a prolonged stay of his product, in the form of money or commodities, in the process of circulation, that is, a process, in which it does not produce any value and by which the direct process of production is interrupted. If this process is not to be interrupted, production must either be restricted, or more money-capital must be advanced, in order that the process of production may proceed on the same scale. This means every time that either a smaller profit is made by the capital hitherto invested, or that additional money-capital must be advanced in order to make the same profit. All this remains unchanged, when the merchant takes the place of the industrial capitalist. Instead of the industrial capitalist, the merchant then spends this prolonged time in the process of circulation; instead of the industrial capitalist, the merchant advances additional capital for the circulation; or, what amounts to the same, instead of a [343] large portion of the industrial capital straying off continually into the process of circulation, the capital of the merchant is wholly tied up in it; and instead of the industrial capitalist making a smaller profit, he must yield a portion of his profit wholly to the merchant. So long as merchant's capital remains within the boundaries, in which it is necessary, the only difference is that this division of the functions of capital reduces the time exclusively needed for the process of circulation, that less additional capital is advanced for this purpose, and that the loss of the total profits represented by the profits of merchant's capital is smaller than it would have been otherwise. If in the above example, a capital of 720 c + 180 v + 180 s, assisted by a merchant's capital of 100, leaves a profit of 162, or 18% for the industrial capitalist, or, in other words, implies a deduction of 18, then the additional capital required without the assistance of this independent merchant's capital would probably be 200, and the total advance to be made by the industrial capitalist would be 1,100 instead of 900, which, with a surplus-value of 180, would mean a rate of profit of only 16 4/11%.

Now, if the industrial capitalist, who acts as his own merchant, advances not only the additional capital with which he buys new commodities, before his product in process of circulation has been reconverted into money, but also capital (office expenses and wages for commercial laborers) for the realisation of the value of his commodity-capital, or, in other words, for the process of circulation, then these costs form additional capital, but they produce no surplus-value. They must be made good out of the value of the commodities. For a portion of the value of these commodities must once more be converted into these circulation costs; and no additional surplus-value is created thereby. So far as this concerns the total capital of society, it means that a portion of it must be set aside for secondary operations, which are no part of the process of creating value, and that this portion of the social capital must be continually reproduced for this purpose. This reduces the rate of profit for the individual capitalist and for the entire class of industrial capitalists, a result, which follows from every [344] addition of auxiliary capital, whenever such capital is required for the purpose of setting in motion the same mass of variable capital.

To the extent that these additional costs connected with the business of circulating are transferred from the shoulders of the industrial to those of the commercial capitalist, the same reduction in the rate of profit takes place, only to a smaller extent and in another way. The matter now assumes the form that the merchant advances more capital than would be necessary, if these costs did not exist, and that the profit on this additional capital increases the amount of the commercial profit, so that the merchant's capital shares with the industrial capital to a greater extent in the leveling of the average rate of profit, thereby lowering the average profit. If in our above examply 50 additional capital are advanced for those costs together with a merchant's capital of 100, then the total surplus-value of 180 is distributed over a productive capital of 900 plus a merchant's capital of 150, a total of 1,050. The average rate of profit then falls to 17 1/7%. The industrial capitalists sells his commodities to the merchant at 900 + 154 2/7 = 1,054 2/7, and the merchant sells them at 1,130, namely 1080 + 50 for costs which he must recover. For the rest it must be assumed that the division between merchant's and industrial capital is accompanied by a centralisation of the expenses of commerce and, consequently, by their reduction.

The question is now: How is it with the commercial wage workers employed by the commercial capitalist, in this case by the merchant?

In one respect, such a commercial laborer is a wage laborer like others. For, in the first place, his labor-power is bought with the variable capital of the merchant, not with the money spent by him as revenue, and consequently this labor-power is not bought for private service, but for the creation of value by means of the capital advanced for it. In the second place, the value of this labor-power, and thus his wages, are determined in the same way as those of other wage workers, namely by the cost of production and reproduction of his specific labor-power, not by the product of his labor.

[345]

However, we must make the same distinction between the commercial wage worker and the wage workers directly employed by the industrial capital which we found existing between the industrial capital and merchant's capital, and thus between the industrial capitalist and the commercial capitalist. Since the merchant, as a mere agent of circulation, produces neither value nor surplus-value (for the additional value, which he adds to the commodities by his expenses, resolves itself into an addition of previously existing values, although the question here poses itself: How does he preserve the value of his constant capital?) it follows that the mercantile laborers employed in these same functions cannot very well create any direct surplus-value for him. Here, as in the case of the productive laborers, we assume that wages are determined by the value of labor-power, and that the merchant does not make money by depressing wages, so that he does not allow in his accounts for any advance of wages which he paid only in part, in other words, that he does not make money by cheating his clerks.

The difficulty in the case of the mercantile wage workers is by no means that of explaining the way in which they produce any direct profits for their employer, even though they do not create any direct surplus-value (of which profit is but a changed form.) This part of the question has already been solved by the general analysis of commercial profits. Just as the industrial capital makes profits by selling labor embodied and realised in commodities for which it has not paid any equivalent, so the merchants' capital makes profits by not paying the productive capital for all the unpaid labor incorporated in the commodities (that is, commodities in so far as the capital invested in their production functions as an aliquot part of the total industrial capital), while in selling it demands payment for this unpaid portion still contained in the commodities and not paid for by itself. The relation of the merchant's capital to the surplus-value is different from that of the industrial capital. The industrial capital produces surplus-value by the direct appropriation of the unpaid labor of others. The merchant's capital, on the other hand, appropriates a portion of [346] this surplus-value by having this portion transferred from the industrial capital to itself.

It is only by its function of realising values that the merchant's capital serves in the process of reproduction as capital and in this capacity gets a share of the surplus-value produced by the total capital. The mass of profits depends for the individual merchant on the mass of capital, which he can invest in this process, and he can use so much more of it in buying and selling, the more unpaid labor his clerks perform. The function itself, by virtue of which the money of the merchant capitalist is capital, is largely performed by his employes. The unpaid labor of his clerks, while it does not create any surplus-value, at least appropriates surplus-value for him, which amounts to the same thing so far as results on his capital go. This unpaid labor is for him, therefore, a source of profit. Otherwise the mercantile business could never be carried on capitalistically, on a large scale.

Just as the unpaid labor of the laborer of the productive capital creates surplus-value for it in a direct way, so the unpaid labor of the commercial wage workers secures a share of this surplus-value for the merchant's capital.

Here is the difficulty: Seeing that the labor time and the labor of the merchant himself do not create any value, but only secure for him a share of already produced surplus-value, how is it with the variable capital, which he invests in the purchase of commercial labor-power? Must this variable capital be included in the expense account of advanced merchant's capital? If not, then it seems to be in contradiction with the law of the compensation of the average rate of profit; for where is there a capitalist who would advance 150, if he could place only 100 in account? If yes, it seems to be in contradiction with the nature of merchant's capital, since this class of capital does not act in the capacity of capital by setting in motion the labor of others, as the industrial capital does, but rather by performing its own work, that is, the process of buying and selling, and only for this and by this means does it transfer a portion of the surplus-value produced by the industrial capital to itself.

[347]

(Therefore the following points must be analysed: the variable capital of the merchant; the law of necessary labor in circulation; the way in which the merchant's labor preserves the value of his constant capital; the role of merchant's capital in the total process of reproduction; and finally, the two-fold materialisation in commodity-capital and money-capital on one side, and in commercial capital and financial capital on the other.)

If every merchant had only as much money as he is personally able to turn over by his own labor, there would be an infinite dissociation of merchant's capital. This dissociation would increase to the extent that productive capital, in the forward march of the capitalist mode of production, would produce and operate on a larger scale. The disproportion between the two classes of capital would increase. In proportion as capital in the sphere of production would be centralised, it would be decentralised in the sphere of circulation. The purely commercial business of the industrial capitalist, and thus his purely commercial expenses, would be infinitely expanded thereby, for he would have dealings with 1,000 capitalists at a time instead of 100. In this way, a large part of the advantage of the independent organisation of merchant's capital would be lost. Not only the purely commercial expenses, but also the other costs of circulation, sorting, expressage, etc., would grow. This applies to the industrial capital. Now let us consider the merchant's capital. In the first place, let us look at the purely commercial labors. It does not require more time to figure with large than with small numbers. But it costs ten times as much time to make 10 purchases at 100 p.st. each as it does to make one purchase at 1,000 p.st. It costs ten times as much correspondence, paper, postage, to carry on a correspondence with 10 small merchants as it does with one large merchant. A limited division of labor in a commercial office, in which one keeps books, another has charge of the treasury, a third carries on the correspondence, one man buys, another sells, another travels, etc., saves immense quantities of labor time, so that the number of workers employed in wholesale commerce stand in no [348] proportion to the comparative size of the business. This is so, because in commerce much more than in industry the same function, whether performed on a large or a small scale, costs the same labor time. For this reason, concentration appears historically in the merchant's business before it shows itself in the industrial workshop. There are furthermore the expenses for constant capital. 100 small offices cost incomparably more than one large office, 100 small warehouses more than one large one, etc. The costs of transportation, which enter into the accounts of commercial business at least as advances, grow with this dissociation.

The industrial capitalist would have to spend more for labor and circulation in the commercial part of his business. The same merchant's capital, when distributed among many small capitalists would require more laborers for the performance of its functions, on account of this dissociation, and, besides, more merchant's capital would be needed in order to turn over the same commodity-capital.

Let us designate the entire merchant's capital directly invested in the purchase and sale of commodities by B, and the corresponding variable capital invested in wages of commercial help by b. Then B + b is smaller than it would be, if every merchant had to worry along without any assistance and without investing any capital in b. However, we have not yet overcome all difficulties.

The selling price of the commodities must suffice, 1) to pay the average profit on B + b. This explains itself by virtue of the fact that B + b represents a reduction of the original B and a smaller merchant's capital than would be required without b. But this selling price must also suffice, 2) to cover not only the additional profit on b, but to recover also the paid wages, the variable capital of the merchant. There is the difficulty. Does b form a new constituent of the price, or is it merely a part of the profit made by means of B + b, which takes on the appearance of wages only so far as the mercantile wage worker is concerned, and simply replaces the variable capital from the point of view of the merchant? In this last case, the profit made by the merchant [349] on his advanced capital B + b would be only equal to the profit due to B according to the general rate, plus b, which he pays out in the form of wages without getting a profit on it.

The crux of the matter is, indeed, to find the limits (mathematically speaking) of b. Let us first define the difficulty exactly. Let us designate the capital invested directly in buying and selling commodities by B, the constant capital (expenses of objective materials of commerce) consumed in this function by K, and the variable capital invested by the merchant by b.

The recovery of B offers no difficulties. It simply represents for the merchant the realised purchase price, the price of production for the manufacturer. The merchant pays this price and in reselling he recovers B as a part of his selling price. Apart from this B, he also receives a profit on B, as we have previously explained. For instance, let the commodities cost 100 p.st. The profit on this may be 10%. In that case the commodities are sold at 110. These commodities cost previously 100, and the merchant's capital of 100 merely makes an additional 10 out of them.

Now let us look at K. It will at most be as large as, but in fact smaller, than that portion of the constant capital, which the producer would have to invest in the department of buying and selling, and which would be an addition to the constant capital invested by him in direct production. However, this portion must be continually recovered by the price of the commodities, or, what amounts to the same, a corresponding portion of the commodities must be continually expended in this form, must, from the point of view of the total capital of society, be continually reproduced in this form. This portion of the advanced constant capital would reduce the rate of profit just as well as the entire mass of it invested in production itself. To the extent that the industrial capitalist gives up the commercial part of his business to the merchant, he is no longer compelled to advance this part of the capital. The merchant advances it in his stead. In a way he does this but nominally, since a merchant neither produces nor reproduces the constant capital consumed by him (the cost of [350] the objective materials of commerce). Its production appears as a specific business, or at least as a part of the business, of some industrial capitalists, who play a similar role as those, who supply the constant capital for the producers of necessities of life. The merchant recovers this constant capital and his profit on it. Both things reduce the profit of the industrial capitalist to that extent. But owing to the economies and concentration which come with a division of labor, he loses less profits than he would, if he had to advance his own capital for this purpose. The reduction of the rate of profit is smaller, because the advanced capital is smaller.

So far, then, the selling price is made up of B + K + profits on B + K. This portion of the selling price offers no further difficulties. But now b, the variable capital advanced by the merchant, enters into this consideration.

The selling price is then made up of B + K + b + profits on B + K + profits on b.

B makes good merely the purchase price and adds nothing to this price but the profit on B. K adds K itself plus a profit on K; but K + profit on K, the circulation cost advanced in the form of constant capital plus a corresponding average profit, would be larger in the hands of the industrial capitalist than it is in those of the merchant. The reduction of the average profit assumes this form: It is as though the full average profit had been calculated, after deducting B + K from the advanced industrial capital, but the deduction from this average profit for B + K paid to the merchant, so that this deduction appears as the profit of a particular class of capital, of merchant's capital.

But it is different with b + profits on b, or in the present case, where we have assumed a rate of profit of 10%, with b + (1/10)b. Here lies the real difficulty.

What the merchant buys with b, is according to our assumption nothing but commercial labor, in other words, labor required for the promotion of the functions of circulating the capital, of performing the acts C—M and M—C. But this commercial labor is that labor, which is generally necessary, in order that any capital may perform the functions of [351] commercial capital, the conversion of commodity-capital into money and money into commodities. It is labor which realises values, but does not create any. And only to the extent that a capital performs this function—that a capitalist performs these operations with his capital—does this capital serve as commercial capital and participate in the regulation of the general rate of profit, that is, draw its dividend out of the total profit. But in b + profit on b, it looks as though labor were being paid, in the first place (for it makes no difference, whether the industrial capitalist pays the merchant for his own labor or the clerk employed by the merchant for his), and in the second place, as though it contained a profit on labor, which the merchant himself has to perform. The merchant's capital gets in the first place its b refunded, and in the second place a profit on it. This arises from the fact that it demands pay, in the first place, for work, which it performs in its capacity as merchant's capital, and that it receives, in the second place, a profit in its capacity of capital, for performing work, which is remunerated in the profit as the function of capital. This, then, is the question which we have to solve.

Let us assume that B = 100, b = 10, and the rate of profit = 10%. We place K = O, in order to leave this element of the purchase price, which does not belong here and has already been accounted for, out of consideration. In that case, the selling price would be B + p + b + p (or B + Bp' + b + bp'); where p' stands for the rate of profit. This means in figures 100 + 10 + 10 + 1 = 121.

Now, if b would not be invested by the merchant in wages—since b is paid only for commercial labor, for labor required for the realisation of the value of commodity-capital thrown on the market by industrial capital—then the condition of the matter would be the following: In order to buy or sell anything for B = 100, the merchant would spend his time, and we will assume, that this is the only time at his disposal. The commercial labor represented by b, or 10, if paid for by a profit instead of wages, would presuppose another commercial capital of 100, which, at 10%, would be [352] equal to b = 10. This second B of 100 would not be added to the price of commodities, but the 10% would. We should then have two operations with 100, making 200, that would buy commodities at 200 + 20 = 220.

Since merchant's capital is nothing but an independent form of a portion of industrial capital engaged in the process of circulation, all questions referring to it must be solved by representing the problem at first in that form, in which the phenomena peculiar to merchant's capital do not yet appear in an independent shape, but still in direct connection with industrial capital as one of its subdivsions. As an office separate from the workshop, the mercantile capital serves continually in the process of circulation. It is here that we must first analyse the b under consideration—in the office of the industrial capitalist himself.

The office is from the outset always infinitesimally small compared to the industrial workshop. For the rest, it is clear that the commercial operations increase to the extent that the scale of production is enlarged. These are operations, which must be continually performed for the circulation of the industrial capital, in order to sell the product existing in the shape of commodities, to convert the money so received once more into means of production, and to keep account of the whole. The calculation of prices, bookkeeping, managing funds, carrying on the correspondence, all these belong under this head. The more developed the scale of production is, the greater, if not in proportion, will be the commercial operations of industrial capital, and consequently the labor and other costs of circulation for the realisation of value and surplus-value. This necessitates the employment of commercial wage workers, who form the office staff. The expenses for these, although incurred for wages, differ from the variable capital invested in the purchase of productive labor. It increases the expenses of the industrial capitalist, the mass of capital to be advanced, without increasing the direct surplus-value. For these expenses are made for labor, which is employed only for the realisation of already created values. Like every expense of this kind, these expenses reduce the [353] rate of profit, because the advanced capital increases, but not the surplus-value. If the surplus-value s remains constant, while the advanced capital C increases to C + 8Delta;C, then the place of the rate of profit s/C is taken by the smaller rate of profit s/(C + 8Delta;C). For this reason, the industrial capitalist endeavors to limit these expenses of circulation to a minimum, just as he does with his expenses for constant capital. Hence industrial capital does not maintain the same relations to its commercial wage laborers that it does to its productive wage laborers. The greater the number of productive wages laborers employed under otherwise equal circumstances, the more voluminous is production, the greater the surplus-value or profit. On the other hand, the larger the scale of production, the greater the quantity of value and surplus-value to be realised, the greater, in other words, the produced commodity-capital, the larger grow the absolute office expenses, even if they do not grow relatively, and give rise to some kind of division of labor. To what extent profit is the first condition for these expenses, is shown among other things by the fact, that with the increase of commercial salaries a part of them is frequently paid by a share in the profits. It is in the nature of things that labor consisting merely of intermediary operations, which are connected either with a calculation of values, or with their realisation, or with the reconversion of the realised money into means of production, a labor whose amount depends on the quantity of produced values about to be realised, should not act as cause of the respective magnitudes and masses of these values, as directly productive labor does, but as their result. The case of the other costs of circulation is similar. In order that plenty may be measured, weighed, wrapped, transported, plenty must be supplied. The amount of labor consumed in packing, transporting, etc., depends on the quantity of the commodities which are the objects of its activity, not vice versa.

The commercial laborer does not produce any surplus-value directly. But the value of his labor is determined by the value of his labor-power, that is, of its costs of production, while the application of this labor-power, its exertion, expression, [354] and consumption, the same as in the case of every other wage laborer, is by no means limited by the value of his labor-power. His wages are therefore not necessarily in proportion to the mass of profits, which he helps the capitalist to realise. What he costs the capitalist and what he makes for him are two different things. He adds to the income of the capitalist, not by creating any direct surplus-value, but by helping him to reduce the costs of the realisation of surplus-value. In so doing, he performs partly unpaid labor. The commercial laborer, in the strict meaning of the term, belongs to the better paid classes of wage workers, he belongs to the class of skilled laborers, which is above the average. However, wages have a tendency to fall, even in proportion to the average labor, with the advance of the capitalist mode of production. This is due to the fact that in the first place, division of labor in the office is introduced; this means that only a onesided development of the laboring capacity is required, and that the cost of this development does not fall entirely on the capitalist, since the ability of the laborer is developed through the exercise of his function and increases so much faster, the more onesidedly the division of labor develops. In the second place, the necessary preparation, such as the learning of commercial details, languages, etc., is more and more rapidly, easily, generally, cheaply reproduced with the progress of science and popular education, to the extent that the capitalist mode of production organises the methods of teaching, etc., in a practical manner. The generalisation of public education makes it possible to recruit this line of laborers from classes that had formerly no access to such education and that were accustomed to a lower scale of living. At the same time this generalisation of education increases the supply and thus competition. With a few exceptions, the labor-power of this line of laborers is therefore depreciated with the progress of capitalist development. Their wages fall, while their ability increases. The capitalist increases the number of these laborers, whenever he has more value and profits to realise. The increase of this labor [355] is always a result, never a cause of the augmentation of surplus-value.40

We see, then, that a duplication takes place here. On the one hand, the functions of commodity-capital and money-capital (which later become merchant's capital) are general forms assumed by industrial capital. On the other hand, particular capitals, and therefore a particular series of capitalists, are exclusively devoted to these functions. And these functions develop into specific spheres of enhancing the value of capital.

The commercial functions and expenses of circulation become independent only in the case of the mercantile capital. That side of industrial capital, which is devoted to the circulation, exists not only in its continuous shape of commodity-capital and money-capital, but also in the office alongside of the workshop. But it assumes an independent existence in the mercantile capital. For this capital, its office is its only workshop. The portion of capital employed in the form of expenses of circulation appears much larger in the business of the large merchant than in that of the industrial capitalist, because the offices connected with every industrial workshop are concentrated in the hands of a few merchants, and so is at the same time that portion of the capital, which would have to be invested for this purpose by the entire class of industrial capitalists. These merchants take care of the circulation and provide for the expenses incidental to its continuation.

For the industrial capital, the expenses of circulation appear as dead expenses, and so they are. For the merchant they appear as a source of his profit, which is proportional to [356] the level of the average rate of profit, whose existence is assumed. The investment to be made by the mercantile capital for these expenses of circulation is, therefore, a productive investment. And for this reason the commercial labor which it buys is likewise immediately productive for it.

CHAPTER XVIII.: THE TURN-OVER OF MERCHANT'S CAPITAL. THE PRICES.↩

THE turn-over of industrial capital is the combination of its time of production and time of circulation. It comprises, therefore, the process of production as a whole. The turn-over of merchant's capital, on the other hand; being in reality nothing but a movement of commodity-capital in an independent form, represents merely the first phase in the metamorphosis of commodities, C—M, as a movement of some capital returning to itself. M—C, C—M, is the turn-over of merchant's capital from the mercantile point of view. The merchant buys, converts his money into commodities, then sells, converts the same commodities back into money. And so forth in continuous repetitions. Within the circulation, the metamorphosis of industrial capital always presents itself in the form of C'—M—C''; the money realised by the sale of the produced commodities C' is used for the purchase of new means of production C''. This amounts to a practical exchange of C' for C'', and the same money thus changes hands twice. Its movement acts as an intermediary between two different kinds of commodities C' and C''. But in the case of the merchant, it is the same commodity, which changes hands twice in the process M—C—M'. It merely promotes the reflux of his money to him.

For instance, if a certain merchant's capital is 100 p.st., and the merchant buys for these 100 p.st. commodities and sells these commodities for 110 p.st., then his capital of 100 p.st. has completed one turn-over, and the number of its turn-overs in one year depends on the number of times which it can repeat this movement M—C—M'.

[357] We leave entirely out of consideration at this point those expenses, which may be concealed in the difference between the purchase price and the selling price, since these expenses do not alter in any way the form, which we are now analysing.

The number of turn-overs of a certain merchant's capital shows evidently some analogy to the repeated cycles of money in its capacity as a mere medium of circulation. Just as the same dollar, which circulates ten times, buys ten times its value in commodities, so the same money-capital of the merchant, when turned over ten times, buys ten times its value in commodities, or realises a total commodity-capital of ten times its value, for instance a merchant's capital of 100 a value of 1,000. But there is this difference: In the circulation of money as a medium of circulation, it is the same piece of money, which passes through different hands and performs repeatedly the same function, thereby making up for the limited number of the circulating pieces of money by the velocity of its circulation. But in the case of the merchant it is the same money-capital, the same money-value regardless of the pieces of money of which it may be composed, which repeatedly buys and sells the amount of its value, thereby returning repeatedly to the same hands from which it departed as M + 8Delta; M, value plus surplus-value. This is characteristic of its turn-over as a turn-over of capital. It always withdraws more money from circulation than it threw into it. By the way, it is a matter of course that an accelerated turn-over of merchant's capital (in which the function of money as a means of payment likewise predominates whenever the credit system is developed) is accompanied by a more rapid circulation of the same quantity of money.

A repeated turn-over of commercial capital, however, never expresses anything else but a repetition of buying and selling; while a repeated turn-over of industrial capital expresses the periodicity and renovation of the entire process of reproduction (which includes the process of consumption). For the merchant's capital, this appears merely as an outward condition. The industrial capital must continually throw commodities [358] on the market and withdraw others from it, in order that the turn-over of merchant's capital may continue rapidly. If the process of reproduction proceeds slowly in general, then the turn-over of merchant's capital does likewise. Now, it is true that the merchant's capital promotes the turn-over of the productive capital, but only in so far as it shortens the time of circulation of the latter. It has no direct influence on the time of production, which is also one of the limits of the time of turn-over of industrial capital. This is the first barrier for the turn-over of merchant's capital. In the second place, aside from the barrier formed by reproductive consumption, the turn-over of the merchant's capital is ultimately limited by the velocity and volume of individual consumption, since the entire part of commodity-capital which passes into the fund for consumption depends on that.

However, aside from the turn-overs in the world of merchants, in which one merchant always sells the same commodity to another, whereby this sort of circulation may assume the aspect of great prosperity during times of speculation, the merchant's capital abbreviates in the first place the phase C—M for the productive capital. In the second place, under the modern credit system, it disposes of a large portion of the total capital of society, so that it can repeat its purchases, even before it has definitely sold its previous purchases. And it is immaterial in this case, whether the merchant sells directly to the ultimate consumer, or whether a dozen other merchant's intervene between the first merchant and the ultimate consumer. Owing to the immense elasticity of the process of reproduction, which at any time may be driven beyond all bounds, this process finds no obstacle in production itself, or at best a very elastic one. Aside from the separation of C—M and M—C, which follows from the nature of commodities, a fictitious demand is here created. In spite of its independent status, the movement of merchant's capital is never anything else but the movement of industrial capital within the sphere of circulation. But thanks to its individualisation it moves within certain limits independently [359] of the bounds of the process of reproduction, and thereby drives this process itself beyond its boundaries. The internal dependence and the external independence drive merchant's capital to a point, where the internal connection is violently restored by a crisis.

Hence we note the phenomenon that crises do not show themselves, nor break forth, first in the retail business, which deals with direct consumption, but in the spheres of wholesale business and banking, by which the money-capital of society is placed at the disposal of wholesale business.

The manufacturer may actually sell to the exporter, and the exporter may in his turn sell to his foreign customer, the importer may sell his raw materials to the manufacturer, and the manufacturer his products to the wholesale dealer, etc. But at some particular and unseen point, the goods may lie unsold. On some other occasion, again, the supplies of all producers and middle men may become gradually overstocked. Consumption is then generally at its best either because one industrial capitalist sets a succession of others in motion, or because the laborers employed by them are fully employed and spend more than ordinarily. With the growing income of the capitalists their expenditures increase likewise. Besides, we have seen in volume II, Part III, that a continuous circulation takes place between constant capital and constant capital (even without considering any accelerated accumulation), which is in so far independent of individual consumption, as it never enters into such consumption, but which is nevertheless definitely limited by it, because the production of constant capital never takes place for its own sake, but solely because more of this capital is needed in those spheres of production whose products pass into individual consumption. However, this may proceed undisturbed for a while, stimulated by prospective demand, and in such lines the business of merchants and industrial capitalists prospers exceedingly. A crisis occurs whenever the returns of those merchants, who sell at long range, or whose supplies have accumulated also on the home market, become so slow and meager, that the banks press for payment, or the notes for the purchased commodities become [360] due before they have been resold. It is then that forced sales take place, sales made in order to be able to meet payments. And then we have the crash, which brings the deceptive prosperity to a speedy end.

But the superficiality and meaninglessness of the turn-over of merchant's capital are still greater, because the turn-over of one and the same merchant's capital may promote simultaneously or successively the turn-overs of several productive capitals.

Now, the turn-over of merchant's capital may not only promote the turn-overs of several industrial capitals, but also the opposite phase of the metamorphosis of commodity-capital. For instance, the merchant buys linen from the manufacturer and sells it to the bleacher. In this case, the turn-over of the same merchant's capital—in fact, the same C—M, a realisation on the linen—represents two opposite phases for two different industrial capitals. So far as the merchant sells at all for productive consumption, his C—M always means M—C for some industrial capitalist, and his M—C always C—M for some other industrial capitalist.

If we leave out of consideration, as we do in this chapter, K, the expenses of circulation, in other words, if we leave aside that portion of capital which the merchant advances apart from the money required for the purchase of commodities, it follows that 8Delta; K, the additional profit made on this additional capital, will likewise be left out. This is the strictly logical and mathematically correct mode of analysis, if we wish to study the way in which the profits and turn-over of merchant's capital affect prices.

If the price of production of 1 lb. of sugar is 1 p.st., the merchant can buy 100 lbs. of sugar with 100 p.st. If he buys and sells this quantity in the course of one year, and if the annual rate of average profit is 15% he would add 15 p.st. to 100 p.st., and 3 sh. to the price of production of 1 lb. of sugar, 1 p.st. That is, he would sell one pound of sugar at 1 p.st. 3 sh. But if the price of production of 1 lb. of sugar should fall to 1 sh., then the merchant could buy 2,000 lbs. of sugar with 100 p.st., and he could sell the sugar at 1 [361] sh. 1 4/5 d. per lb. The annual profit on capital invested in the sugar business would still be 15 p.st. on each 100 p.st. Only he has to sell 100 lbs. in the first case, while he must sell 2,000 lbs. in the second place. The high or low level of the price of production would not have anything to do with the rate of profit. But it would have a great deal, or even a decisive deal, to do with that aliquot part of the selling price of each lb. of sugar which resolves itself in mercantile profit; in other words, it would have a great deal to do with the addition to the price which the merchant makes on a certain quantity of commodities, or products. If the price of production of a certain commodity is small, then the amount advanced by the merchant for the purchase of a certain quantity of that commodity is also small, and so is the amount of profit made by him on this quantity of cheap commodities. Or, what amounts to the same, he can buy with a certain amount of capital, for instance with 100, a large quantity of these commodities, and the total profit of 15, which he makes on 100, will be distributed in small fractions over each individual portion of this mass of commodities. The opposite takes place in the opposite case. This depends entirely on the greater or smaller productivity of the industrial capital, with whose products he trades. If we except the cases, in which the merchant is a monopolist and monopolises at the same time the production of certain goods, as did the Dutch East India Company once upon a time, we must say that there is nothing more ridiculous than the current idea that it depends on the merchant whether he wants to sell many commodities at a small profit or few commodities at a large profit on the individual commodities. The two limits of his selling price are: On one hand, the price of production of commodities, over which he has no control; on the other hand, the average rate of profit, over which he has also no control. The only thing which he has to decide is whether he wants to deal in cheap or in dear commodities, and even here the size of his available capital and other circumstances have something to say. Therefore it depends wholly on the degree of development of the capitalist mode of production, not on the good will of the merchant, [362] what course he shall follow in this. A purely commercial company like the old Dutch East India Company, which had a monopoly of production, could imagine that it would be able to continue a method, adapted at best to the beginnings of capitalist production, under entirely changed conditions.41

The following circumstances, among others, help to maintain that popular prejudice, which, like all wrong conceptions of profit, etc., arise out of the views of pure commerce:

All these things concern only competition between merchants themselves.

We have already shown in volume I, that the high or low [363] level of the prices of commodities determines neither the mass of surplus-value produced by a certain capital nor the rate of surplus-value; it is merely true that, according to the relative quantity of commodities produced by a certain quantity of labor, the price of the individual commodity, and with it the share of surplus-value falling upon this price, is greater or smaller. The prices of every quantity of commodities are determined, so far as they correspond to their values, by the total quantity of labor incorporated in these commodities. If much labor is incorporated in few commodities, then the price of the individual commodities is low and the surplus-value contained in them is small. No matter in what proportion the labor incorporated in a commodity is divided into paid and unpaid labor, and no matter what portion of its price may represent surplus-value, it has nothing to do with the total quantity of this labor, nor, consequently, with its price. On the other hand, the rate of surplus-value does not depend on the absolute magnitude of the surplus-value contained in the price of the individual commodity, but on its relative magnitude, on its proportion to the wages contained in the same commodity. The rate of surplus-value may therefore be large, while the absolute magnitude of the surplus-value in each individual commodity may be small. This absolute magnitude of the surplus-value in each commodity depends in the first place on the productivity of labor, and only in the second place on its division into paid and unpaid labor.

Moreover, in the case of the commercial selling price, the price of production is a condition determined by external circumstances.

The high prices of commerce in former times were due 1) to the dearness of the prices of production, in other words, to the unproductivity of labor; 2) to the absence of an average rate of profit, which enabled the merchant's capital to absorb a much larger quantity of the surplus-value than would have fallen to its share, had the capitals enjoyed a greater general mobility. The cessation of this condition, in both of its aspects, is due to the development of the capitalist mode of production.

[364]

The turn-overs of merchant's capital vary in length, their numbers consequently are greater or smaller, in different lines of commerce. Within the same line of commerce, the turn-over is more or less rapid in different phases of the economic cycle. However, an average number of turn-overs, which is found by experience, takes place.

We have already noted, that the turn-over of merchant's capital differs from that of industrial capital. This follows from the nature of the case; one single phase in the turn-over of industrial capital appears as a complete turn-over of some independently constituted merchant's capital, or of a part of some such merchant's capital. This turn-over has also a different relation to the determination of profit and prices.

In the case of the industrial capital, its turn-over expresses on one hand the periodicity of reproduction, and on it depends the mass of commodities, which may be thrown on the market in a certain period. On the other hand, its time of circulation forms a barrier, which is elastic and exerts more or less of a restraint on the creation of value and surplus-value, because it exerts a pressure on the volume of the process of production. The turn-over therefore acts as a determining element on the mass of annually produced surplus-value, and thus helps to determine the average rate of profit, but it acts as a negative, not as a positive element. For the merchant's capital, however, the average rate of profit exists as a given magnitude. The merchant's capital does not directly participate in the creation of value or surplus-value, and it participates in the formation of an average rate of profit only to the extent that draws a dividend, in proportion to its size in the total social capital, out of the mass of profit produced by the industrial capital.

The greater the number of turn-overs of a certain industrial capital is under the conditions described in Volume II, Part II, the greater is the mass of profits created by it. Now, the formation of an average rate of profit distributes, the total profit among the different capitals, not in proportion to their actual participation in its direct production, but in proportion [365] to the aliquot parts which they constitute in the total capital, that is, in proportion to their magnitudes. But this does not alter the essence of the matter. The greater the number of turnovers of the industrial capital as a whole is, the greater is the mass of profits, the mass of annually produced surplus-value, and therefore the rate of profit, always assuming other circumstances to remain unchanged. It is different with merchant's capital. For it, the rate of profit is a given magnitude, determined on one hand by the mass of profit produced by the industrial capital, on the other hand by the relative magnitude of the total merchant's capital, by its quantitative relation to the sum of capital advanced in the processes of production and circulation. The number of its turn-overs does indeed exert a determining influence on its relation to the total social capital, or on the relative magnitude of the total merchant's capital required for the circulation. For it is evident that the absolute magnitude of the total merchant's capital and the velocity of its turn-over are inversely proportioned to one another. But, all other circumstances remaining the same, the relative magnitude of the merchant's capital, or its aliquot proportion in the total social capital, is determined by its absolute magnitude. If the total social capital is 10,000, and the merchant's capital 1,000, then it is 1/10 of the total; if the total capital is 1,000, and the merchant's capital 100, it is again 1/10. To that extent, the absolute magnitude of the merchant's capital may vary, while its relative magnitude in the total social capital remains the same. But in the present case, we assume that its relative magnitude of 1/10 of the total social capital is given. This relative magnitude, again, is determined by its turn-over. If it is turned over rapidly, its absolute magnitude will be 1,000 in the first case, and 100 in the second, so that its relative magnitude will be 1/10. But if it is turned over more slowly, then its absolute magnitude may be 2,000 in the first case, and 200 in the second case. Then its relative magnitude will have increased from 1/10 to 1/5 of the total social capital. Circumstances which reduce the average turn-over of merchant's capital, for instance, the development of means of transportation, reduce to that extent the [366] absolute magnitude of merchants' capital and thereby increase the average rate of profit. The opposite takes place, if things are reversed. A developed mode of capitalist production, compared to previous conditions, exerts a twofold influence on merchants' capital. In the first place, the same quantity of commodities is turned over with a smaller mass of actually functioning merchants' capital; for the proportion of the merchants' capital to industrial capital is reduced by the more rapid turn-over of merchants' capital and the greater velocity of the process of reproduction that is its basis. On the other hand, the development of the capitalist mode of production turns all production into a production of commodities, which puts all products into the hands of the agents of circulation. This is so much more notable, as under previous modes of production, which produced things on a small scale, a large portion of the producers sold their goods directly to the consumers or worked for their personal orders, leaving out of consideration that mass of products, which were immediately consumed by the producer himself, and that mass of services, which were performed in natura. While, therefore, under former methods of production, commercial capital represented proportionately a larger share of the commodity-capital which it turned over, it was.

1) absolutely smaller, because a disproportionately smaller part of the total product was produced in the shape of commodities, passed as commodity-capital into circulation, and fell into the hands of merchants. It was smaller, because the commodity-capital was smaller. But it was proportionately larger, not only because its turn-over was slower, and because it constituted a larger portion of the mass of commodities turned over by it, but also because the price of this mass of commodities, and consequently the merchants' capital to be advanced for it, were greater than under capitalist production on account of a lower productivity of labor, so that the same value was incorporated in a smaller mass of commodities.

2) Not alone is a larger mass of commodities produced on the basis of capitalist production (taking account also of the reduced value of these commodities), but the same mass of [367] products, for instance, of corn, also becomes to a greater extent commodity, that is, more and more of the product becomes an object of commerce. As a consequence, not only the mass of the merchants' capital, but of all capital invested in the circulation, increases, such as capital invested in marine shipping, railroading, telegraph business, etc.;

3) However, there is one point of view, which belongs in the discussion of "competition among capitals," namely: The merchants' capital, which is not serving in any function, or serving only in part, grows with the progress of the capitalist mode of production, with the facility of its investment in retail trade, with the increase of speculation, and with the superfluity of released capital.

But, assuming the relative magnitude of the merchants' capital in proportion to the social capital to be given, the difference of the turn-overs in the various lines of commerce does not affect the magnitude of the total profit falling to the share of the total merchants' capital, nor the general rate of profit. The profit of the merchant is determined, not by the mass of the commodity-capital turned over by him, but by the magnitude of the money-capital advanced by him for the promotion of this turn-over. If the yearly general rate of profit is 15%, and the merchant advances 100 p.st., which he turns over once a year, then he will sell his commodities at 115. If his capital is turned over five times per year, then he will sell a commodity-capital of 100 purchase price five times per year at 103, which will amount in one year to a commodity-capital of 500 sold 515. This constitutes the same annual profit of 15% on his advanced capital of 100 as before. If this were not so, then the merchants' capital would yield a much higher profit in proportion to the number of its turn-overs than the industrial capital, and this would be a contradiction to the law of the average rate of profit.

It follows, then, that the number of turn-overs of merchants' capital in the various lines of commerce affects the mercantile prices of commodities directly. The amount of the mercantile addition to the price, the addition of that aliquot part of the mercantile profit of a given capital which [368] falls upon the price of production of the individual commodities, stands in an inverse ratio to the number of turn-overs, or the velocity of turn-over, of the merchants' capitals in the various lines of commerce. If a certain merchants' capital is turned over five times per year, it will add to a commodity-capital of its own value but one-fifth of the profit, which another merchants' capital of the same value, which is turned over but once per year, will add to a commodity-capital of the same value.

This modification of selling prices by the average time of turn-over of the capitals in different lines of commerce amounts to this: In proportion to the velocity of turn-over, the same mass of profits, which is determined by the annual rate of average profit for any given magnitude of merchants' capital, independently of the specific commercial character of the operations of this capital, is differently distributed over masses of commodities of the same value. For instance, if the merchants' capital is turned over five times per year, it will add 15/5 = 3% to the price of commodities, and if turned over once per year, it will add 15% to their price.

The same percentage of the commercial profit in different lines of industry, according to the proportions of their times of turn-over, increases the selling prices of commodities by different percentages calculated on their values.

On the other hand, in the case of industrial capital, the time of turn-over does not affect in any way the magnitude of the value of the individual commodities produced during that time, although it does affect the mass of value and surplus-value produced in a given time, because it affects the mass of exploited labor. This is indeed concealed and seems to be otherwise, as soon as one has an eye only to the prices of production. But this is due solely to the fact that, according to the previously analysed laws, the prices of production of the various commodities deviate from their values. As soon as we look upon the process of production in its totality, upon the mass of commodities produced by the entire industrial capital of society, we shall find the general law vindicated.

We see then, that a closer inspection of the influence of the [369] time of turn-over on the formation of the values leads us back, in the case of the industrial capital, to the general law and to the basis of political economy, to-wit, the law that the values of commodities are determined by the labor time contained in them. But the influence of the turn-overs of merchants' capital on the mercantile prices reveals phenomena, which, without a very lengthy analysis of the connecting links, seem to point to a purely arbitrary fixing of prices. They seem to be fixed purely on the intention that a certain capital should make a definite quantity of profits in one year. Particularly it looks, on account of this influence of the turn-overs, as though the process of circulation determined by itself the prices of commodities, independently, within certain limits, of the process of production. All superficial and false conceptions of the process of reproduction as a whole arise from the point of view of merchants' capital and from the conceptions, which its peculiar movements call forth in the minds of the agents of circulation.

If it is realised—and the reader will have realised it to his great dismay—that the analysis of the actual internal interconnections of the capitalist process of production is a very complicated matter and a very protracted work; if it is a work of science to resolve the visible and external movement into the internal actual movement, then it is understood as a matter of course, that the conceptions formed about the laws of production in the heads of the agents of production and circulation will differ widely from these real laws and will be merely the conscious expression of the apparent movements. The conceptions of a merchant, a stock gambler, a banker, are necessarily quite perverted. Those of the manufacturer are vitiated by the acts of circulation, to which their capital is subject, and by the compensation of the general rate of profit.42

Competition likewise plays a completely perverted role in these heads. If the limits of value and surplus-value are [370] given, then it is easy to understand, in what manner the competition of capitals will transform values into prices of production and further into mercantile prices, and surplus-value into average profit. But without these limits, we cannot see any reason at all, why competition should reduce the average rate of profit to such and such a level instead of some other, should make it 15% instead of 1,500%. Competition at best can only reduce the rate of profit to one and the same level. But it does not contain any element, by which this level could be determined.

From the point of view of merchants' capital, the turn-over itself takes on the guise of a determining element of prices. On the other hand, while the velocity of the turn-over of industrial capital, in so far as it enables a certain industrial capital to exploit more or less labor, exerts a determining and limiting influence on the mass of profit and thus on the average rate of profit, this rate of profit exists as an external fact for the merchants' capital, and the internal connection of this rate with the production of surplus-value is entirely obliterated. If the same industrial capital, under otherwise equal circumstances, particularly with the same organic composition, is turned over four times per year instead of twice, it produces twice as much surplus-value and, consequently, profit. And this becomes palpable, as soon and so long as this capital has the monopoly of that improved mode of production, to which it owes its accelerated turn-over. Vice versa, differences in the times of turn-over in different lines of commerce manifest themselves in such a way that the profit made on the turn-over of some given commodity-capital is in an inverse ratio to the number of turn-overs of the money-capital which turns this commodity-capital over. Small profits and quick returns appears particularly to the shopkeeper as a principle, which he follows on principle.

For the rest, it is a matter of course, that this law of turn-overs of merchants' capital holds good in each line of commerce only for the average of turn-overs made by the entire merchants' capital invested in each particular line, and always without a consideration of any succession of alternating and [371] mutually compensating turn-overs of longer or shorter duration. The capital of A, who deals in the same line as B, may make more or less than the average number of turn-overs. This does not alter the turn-over of the total mass of merchants' capital invested in this line. But this is of decisive moment for the individual merchant or shopkeeper. He makes in this case an extra profit, just as the industrial capitalists make extra profits, if they produce under conditions more favorable than the average. If competition compels him, he can sell cheaper than his competitors without lowering his profit below the average. If the conditions, which would enable him to turn his capital over more rapidly, are themselves for sale, such as a favorable location of the shop, he can pay extra rent for it, that is to say, a portion of his surplus-profit is converted into ground rent.

CHAPTER XIX.: FINANCIAL CAPITAL.↩

THE purely technical movements performed by money in the process of circulation of industrial capital, and, as we may now add, of commercial capital, which assumes a part of the circulation movement of industrial capital as its own peculiar movement,—these movements, if individualised into an independent function of some particular capital that performs nothing but just this service, convert a capital into financial capital. In that case, one portion of the industrial capital, and of commercial capital, persists not only in the form of money, of money capital in general, but as money-capital, which performs only these technical functions. A definite part of the total social capital separates from the rest and individualises itself in the form of money-capital, whose capitalist function consists exclusively in performing the financial operations for the entire class of industrial and commercial capitalists. As in the case of the commercial capital, so in that of financial capital a portion of the industrial capital in process of function in circulation separates from the rest and [372] performs these operations of the process of reproduction for all the other capital. These movements of such money-capital, then, are once more merely movements of an individualised part of industrial capital in the process of reproduction.

Capital appears as the first and last point of this movement only to the extent that capital is newly invested, as happens in accumulation. But for every capital, which is already in process, this first and last point appear merely as points of transit. To the extent that industrial capital, from the moment of its exit from the sphere of production to that of its return to it, passes through the metamorphosis C'—M—C, M represents merely the final result of one phase of this metamorphosis and becomes at once the starting point of its supplementing second phase, as we have already seen in the discussion of the simple circulation of commodities. And although the C—M of industrial capital signifies always M—C—M for the commercial capital, nevertheless the actual process for this last named capital, once that it has become engaged, is also C—M—C. But the commercial capital passes continually through and simultaneously through the acts C—M and M—C, that is to say, there is not only one capital in the stage C—M, while another is in the stage M—C, but the same capital buys continually and sells continually at the same time, on account of the continuity of the process of production. It is continually and simultaneously in both stages. While one of its parts is converted into money, to be reconverted later into commodities, another is simultaneously converted into commodities, to be reconverted into money.

Whether the money serves here as a means of circulation or of payment, depends on the form of the exchange of commodities. In both cases, the capitalist has to pay out money continually to many persons, and to receive money continually from many persons. This purely technical labor of paying money and receiving money constitutes an employment by itself, which necessitates the making of balances, the balancing of accounts, so far as money serves as a means of payment. This labor belongs to the expenses of circulation, it does not [373] create any values. It is abbreviated by being organised as a special department of agents, or capitalists, who perform this work for all the rest of the capitalist class.

A definite portion of the capital must be continually available as a hoard, as potential money-capital. It constitutes a reserve of means of purchase, a reserve of means of payment, unemployed capital in the form of money waiting to be put to work. And one portion of the capital continually returns in this form. This requires not only the collecting, paying, and bookkeeping operations, but also the storing of a hoard, which constitutes an operation by itself. This work consists indeed in a continual conversion of a hoard into means of circulation and means of payment, and its restoration to the form of a hoard by means of money secured through sales and due payments. This continuous movement of that part of capital, which exists in the form of money, separated from the function of capital itself, this purely technical function causes its own labors and expenses, which belong to the expenses of circulation.

The division of labor brings it about, that these technical operations, which are conditioned on the functions of capital, should be performed as much as possible for the entire capitalist class by one class of agents, or capitalists, into whose hands it is concentrated as their exclusive function. We have here, as in the case of commercial capital, a division of labor in a twofold sense. It becomes a special business, and because it is performed as a special business for the money-mechanism of the whole class, it is concentrated and performed on a large scale. And then a further division of labor takes place within this special business, on one hand by a separation into various independent lines, on the other by a segmentation of the work within each office of these special lines. Large offices, many bookkeepers and cashiers, far going division of labor, disbursing of money, receiving of money, balancing of accounts, keeping of current accounts, storing of money, etc., all these things, separated from the acts that necessitate these technical operations, make of the capital advanced for these functions a financial capital.

[374]

The various operations, whose individualisation gives rise to special lines of financial business, follow from the different capacities of money itself and from its different functions, through which capital in its money-form must likewise pass.

I have pointed out on a previous occasion, that the money business in general developed originally from an exchange of products between different communes.43

The financial business, the trade with money as a commodity, developed first out of international commerce. As soon as different national coins exist, the merchants buying in foreign countries must exchange their national coins into foreign coins, and vice versa, or exchange different coins for uncoined pure silver or gold as international money. This gives rise to the business of money-exchange, which is one of the primitive foundations of modern financial business.44 Out of it developed the modern banks of exchange, in which silver (or gold) serve as world money—now called bank money or commercial money—as distinguished from current money. [375] The business of money-exchange, so far as it consists merely of notes of payment to travelers from one money-exchanger in one country to another in another country, developed as early as Roman and Grecian times out of the simple money-exchange.

The trade with gold and silver as commodities (raw materials for the making of articles of luxury) forms the primitive basis of bullion trade, or of that trade, which promotes the functions of money as world money. These, functions, as previously explained (Volume I, chapter III, 3c), are twofold: A currency back and forth between the various national spheres of circulation for the purpose of balancing the international payments and for performing the migrations of capital in quest of interest; simultaneously with this movement, there is a movement of precious metals from their sources of production across the world market and a distribution of their supply over the various national spheres of circulation. In England, the goldsmiths still served as bankers during the greater part of the 17th century. The way in which the balancing of international accounts in the money trade is further developed, is not discussed here, any more than any points referring to the business of dealing in valuable papers, in short, we leave out of consideration all special forms of the credit system, since this does not yet concern us here.

In the shape of world money, national money strips off its local character; one national money is expressed in another, and thus all of them are finally reduced to their contents in gold or silver, while these two metals, being the two commodities circulating as world money, are simultaneously reduced to their mutual ratios, which change continually. The money trader makes this intermediate business his special occupation. Money changing and bullion trading are thus the primitive forms of the money trade, and they arise from the twofold functions of money as national money and world money.

The capitalist process of production, and commerce in general, even under precapitalist methods, imply:

[377] Dealing in money is fully developed, even in its first stages, as soon as its ordinary functions of lending and borrowing are supplemented by the credit business. Of this more in the following part, which deals with interest-bearing capital.

The bullion trade itself, the transfer of gold or silver from one country to another, is merely the result of the trade in commodities. It is determined by the quotations of bills of exchange, which express the stand of the international payments and of the rate of interest on the different markets. The bullion trader as such acts but as an intermediary between results.

In discussing the way, in which the movements and forms of money develop out of the simple circulation of commodities, we have seen (Vol. I, chap. III), that the movements of the mass of money circulating as a means of purchase and payment are determined by the metamorphosis of commodities, by the volume and velocity of this metamorphosis. And we know now, that this metamorphosis is itself but a phase in the entire process of reproduction. As for the movement of the raw materials of money—gold and silver—from their places of production, it resolves itself in a direct exchange of commodities, an exchange of gold and silver as commodities for other commodities. Hence it is as much a phase of the exchange of commodities as the securing of iron or other metals by means of exchange. And so far as the movements of precious metals on the world-market are concerned (we leave aside at this point the consideration of their movements to the extent that they express the transfer of capital by loans, a transfer, which takes place also in the shape of commodity-capital), they are quite as much determined by the international exchange of commodities as the movements of money as a national means of purchase and payment are determined by the exchange of commodities on the home market. The emigrations and immigrations of precious metals from one national sphere to another, which are caused by a depreciation of national coins, or by a double standard, are extraneous to [378] the circulation of money as such and represent merely corrections of deviations brought about arbitrarily by state decrees. And finally, as concerns the formation of hoards, which constitute reserve funds for means of purchase and payment, either for the home trade or for foreign trade, and likewise of hoards, which represent merely a form of capital temporarily unemployed, they are both necessary precipitates of the process of circulation.

Just as the entire circulation of money, in its volume, its forms, and movements, is purely a result of the circulation of commodities which in its turn represents from the capitalist point of view only the process of circulation of capital (including the exchange of capital for revenue, and of revenue for revenue, so far as the expenditure of revenue is realised in retail trade), so it is a matter of course, that the trade in money does not promote merely the circulation of money, a mere result and phenomenon of the circulation of commodities. This circulation of money itself, as a phase in the circulation of commodities, is a fundamental requisite for the trade in money. This trade promotes merely the technical operations of money-circulation, concentrating, abbreviating, simplifying them. The trade in money does not form the hoards, but supplies the technical means by which the formation of hoards may be reduced to its economical minimum (so far as it is voluntary, that is, so far as it is not an expression of unemployed capital or of disturbances of the process of reproduction). For if the reserve funds of means of purchase and payment are managed for the capitalist class as a whole, they need not be so large as they would have to be, did each capitalist manage his own. The trade in money does not buy the precious metals, but merely promotes their distribution, as soon as the trade in commodities has bought them. The trade in money facilitates the squaring of balances, so far as money serves as a means of payment, and reduces by the artificial mechanism of these compensations the amount of money required for this purpose. But it determines neither the connections, nor the volume, of the mutual payments. For instance, the bills of exchange and checks, which are exchanged [379] for one another in banks and clearing houses, reflect quite independent transactions and are the results of real operations. It is merely a question of a better technical compensation of these results. So far as money serves as a means of purchase, the volume and number of purchases and sales are quite independent of the money trade. This trade cannot do anything but abbreviate the technical operations that go with buying and selling, and by this means it is enabled to reduce the amount of cash money required to turn the commodities over.

The money trade in its pure form, which we consider here, that is, the money trade not complicated by the credit system, is concerned only with the technique of a certain phase of the circulation of commodities, namely with the circulation of money and the different functions of money following from its circulation.

This distinguishes the money trade essentially from the trade in commodities, which promotes the metamorphosis of commodities and their exchange, or which gives even to this process the aspect of a process of a certain capital separated from the industrial capital. While, therefore, the commercial capital has its own form of circulation, M—C—M, in which the commodity changes hands twice and thereby recovers the money, in distinction from C—M—C, in which the money changes hands twice and thereby promotes the exchange of commodities, there is no such special form of circulation, which can be demonstrated in the case of financial capital.

To the extent that money-capital is advanced by a separate class of capitalists for the technical promotion of the circulation of money—a capital representing on a reduced scale the additional capital, which the merchants and industrial capitalists must otherwise advance themselves for these purposes—the general form of capital, M—M', is found also here. By the advance of M, the advancing capitalist secures M + 8Delta;M. But the promotion of the transaction M—M' does not concern itself in this case with the objective materials, but only with the technical processes of this metamorphosis.

It is evident, that the mass of money-capital, with which the [380] money dealers have to operate, is the money-capital of the merchants and industrial capitalists in process of circulation, and that the operations of the money dealers are merely those originally performed by the merchants and industrial capitalist.

It is equally evident, that the profit of the money dealers is nothing but a deduction from the surplus-value, since they are operating merely with already realised values (even when they have been realised in the form of creditors' claims).

As in the trade with commodities, so in that with money a duplication of functions takes place. For a portion of the technical operations connected with the circulation of money must be carried out by the dealers and producers of commodities themselves.

CHAPTER XX.: HISTORICAL DATA CONCERNING MERCHANTS' CAPITAL.↩

THE particular form, in which the commercial capital and financial capital accumulate money, will be discussed in the next part of this volume.

From what has gone before it follows as a matter of course that nothing can be more absurd than to consider merchants' capital, whether in the shape of commercial or of financial capital, as some particular kind of industrial capital, such as that invested in mining, agriculture, stock raising, manufacture, transportation, etc., which constitute side lines of industrial capital formed by division of social labor and thus different spheres for its investment. The simple observation, that every industrial capital, when in the circulation phase of its process of reproduction, performs in the shape of commodity-capital and money-capital the very same functions, which appear as exclusive functions of the two forms of merchants' capital, should make such a crude conception impossible. On the other hand, in commercial and financial capital the differences between the productive nature of industrial capital and its functions in the sphere of circulation are independently individualised, [381] by transferring definite forms and functions assumed momentarily by industrial capital into independent forms and functions of separate portions of capital permanently tied up in circulation. A changed form of industrial capital is widely different from distinctions between productive capitals following from the nature of the various lines of industry.

Aside from the brutality with which the economist ordinarily handles distinctions of form, in which he is interested only so far as their material side is concerned, the vulgar economist is influenced by two other reasons in his violation of distinctions. There is, in the first place, his incapability to explain the peculiar nature of mercantile profit. In the second place, he writes for the apologetic purpose of proclaiming his opinion, that the process of production by its very nature, is the source of such forms as commodity-capital and money-capital, or later of merchants' capital and financial capital, instead of showing that they are due to the specific form of capitalist production, which is conditioned above all on the circulation of commodities and therefore of money.

If commercial capital and financial capital do not differ from the production of grain any more than this differs from stock raising and manufacture, then it is evident that production and capitalist production are one and the same thing, and that especially the distribution of the social products among the members of society for the purpose of productive or individual consumption need no more be promoted by merchants and bankers than the consumption of meat by stock raising or that of clothes by their manufacture.46

[382]

The great economists, such as Smith, Ricardo, etc., are embarrassed over mercantile capital as a special kind, since they analyse the basic form of capital, industrial capital, and take notice of capital of circulation (commodity-capital and money-capital) only to the extent that it is a phase in the process of reproduction of all capital. The rules concerning the formation of value, profit, etc., which are directly deduced from an analysis of industrial capital, do not fit merchants' capital directly. Therefore these economists leave merchants' capital entirely out of consideration and mention it only as a kind of industrial capital. Whenever they treat of it particularly, as Ricardo does in dealing with foreign commerce, they seek to demonstrate that it does not create any value (and consequently no surplus-value). But whatever is true of foreign commerce, applies also to home commerce.

Hitherto we have considered merchants' capital merely from the point of view of the capitalist mode of production, and within its limits. However, not only commerce, but also merchants' capital, is older than the capitalist mode of production. In fact, it represents historically the oldest free existence of capital.

As we have already seen that the money trade and the capital advanced for it require nothing for their existence but the presence of commerce on a large scale, and further of commercial capital, it is only the latter, which we have to consider here.

Since commercial capital is tied up in the circulation, and since its function consists exclusively in promoting the exchange of commodities, it follows that it requires no other condition for its existence—aside from undeveloped forms arising from direct barter—but those indispensable for the simple circulation of money and commodities. Or rather, the circulation of money is the condition of its existence. No matter what may be the basis on which production is carried on, which throws its products into circulation as commodities [383] —whether it be the basis of a primitive commune, or of slave production, or of small agricultural, small bourgeois, or capitalist—the character of the products as commodities is not altered, and as commodities they have to pass through the process of exchange and through the forms incidental to it. The extremes, between which merchants' capital acts as a mediator, exist for it as given propositions, just as they do for money and its movements. The only requisite is that these extremes should be present as commodities, regardless of whether production is wholly a production of commodities, or whether only the surplus of the independent producers over the immediate needs satisfied by their production is thrown on the market. The merchants' capital promotes only the movements of these extremes, these commodities, which are premises of its own existence.

The extent to which production ministers to commerce and supplies the merchants, depends on the mode of production. It reaches its maximum under a fully developed capitalist production, in which the product is primarily produced as a commodity, not for direct subsistence. On the other hand, on the basis of every mode of production, commerce promotes the production of surplus products destined for exchange, for the purpose of increasing the enjoyments of wealth of the producers (who are here understood to be the owners of the products). Commerce impregnates production more and more with the character of a production for exchange.

The metamorphosis of commodities, their movements, consist, 1) materially, of an exchange of different commodities for one another; 2) formally, of a conversion of commodities into money by sale, and a conversion of money into commodities by purchase. And the functions of merchants' capital resolve themselves into these functions of buying and selling commodities. It promotes merely the exchange of commodities, which must be conceived at the outset as being something more than a bare exchange of commodities between direct producers. Under slavery, feudalism, vassalage, so far as primitive organisations are concerned, it is the slave holder, the feudal lord, the tribute collecting state, who are the owners [384] and sellers of the products. The merchant buys and sells for many. In his hands are concentrated purchases and sales, and purchase and sale cease consequently to be dependent on a direct necessity of the buyer (as a merchant).

But whatever may be the social organisation of the spheres of production, whose exchange of commodities the merchant promotes, his wealth exists always in the form of money and his money always serves as capital. Its form is always M—C—M'. Money, the independent form of exchange value, is his starting point, expansion of the exchange value his independent purpose. He occupies himself with the exchange of commodities and the operations incidental to it, which are separated from production and performed by a non-producer, and this is merely a means to increase wealth and at that wealth in its most general social form, exchange value. His compelling motive and compelling end are the conversion of M into M + 8Delta;M. The transactions M—C and C—M, which promote the act M—M', appear merely as stages of transition in this conversion of M into M + 8Delta;M. This M—C—M' is the characteristic movement of merchants' capital which distinguishes it from C—M—C, the exchange of commodities between the producers themselves, which has for its ultimate end the exchange of use-values.

To the extent that production is undeveloped, the money wealth will be concentrated in the hands of merchants, will appear in the specific form of merchants' wealth.

Within the capitalist mode of production—that is, as soon as capital has seized hold of production and given to it a wholly changed and specific form—merchants' capital appears merely as a capital with a specific function. But in all previous modes of production, and so much the more production ministers to the direct wants of the producers themselves, merchants' capital appears as the capital which performs the function of capital.

There is, then, no difficulty in understanding how it is that that merchants' capital is the historical form of capital long before capital has subjected production to its control. Its existence and development to a certain level are themselves [385] historical premises for the development of capitalist production. For they are, 1), premises for the concentration of moneyed wealth, and 2), the capitalist mode of production is conditioned on production for exchange, commerce on a large scale instead of with a few individual customers, and this requires also a merchant, who does not buy for the satisfaction of his own individual wants, but concentrates the transactions of many buyers in one commercial transaction. On the other hand, all development of merchants' capital tends to give to production more and more the character of a production for exchange and to impregnate the products more and more with the character of commodities. But the development of merchants' capital by itself is incapable of bringing about and explaining the transition from one mode of production to another, as we shall presently see.

Within capitalist production, the merchants' capital is reduced from its former independent existence to a special phase in the investment of capital in general, and the compensation of profits reduces its rate of profits to the general average. Then it serves only as an agent of productive capital. The particular social conditions, which formed together with the development of merchants' capital, are then no longer paramount. On the contrary, where merchants' capital still predominates, we find backward conditions. This is true even of one and the same country, in which, for instance, the pure merchants' towns form far better analogies with past conditions than the manufacturing towns.47

An independent and prevailing development of capital in the shape of merchants' capital signifies that production is not subject to capital, in other words, it means that capital develops [386] on the basis of a mode of production independent and outside of it. The independent development of merchants' capital stands therefore in an inverse ratio to the general economic development of society.

The independent mercantile wealth, as a prevailing form of capital represents the independent establishment of the process of circulation as against its extremes, and these extremes are the exchanging producers themselves. These extremes remain independent of the process of circulation, just as this circulation remains independent of them. The product becomes a commodity in this case by way of commerce. It is commerce which, under such conditions, develops products into commodities; it is not the produced commodity itself which, by its movements, gives rise to commerce. Capital in the capacity of capital appears here first in the process of circulation. In the process of circulation money first develops into capital. In the circulation, the products first assume the character of exchange values, of commodities and money. Capital can and must form in the process of circulation, before it learns to control the extremes, that is, the various spheres of production between which circulation intervenes as a mediator. The circulation of money and commodities may act as an intermediary between spheres of production of widely different organisation, whose internal structure is still, predominantely adjusted to the production of use-values. This independent status of the process of circulation, by which various spheres of production are connected by means of a third link, expresses two facts. On the one hand it shows that the circulation has not yet seized hold of production, but as yet regards it as an existing fact. On the other hand, it shows that the process of production has not yet absorbed circulation and made a phase of production of it. But in capitalist production, both of these things are accomplished. The process of production rests wholly upon the circulation, and the circulation is a mere phase of transition of production, in which the product, having been created as a commodity, is realised in money and its elements of production replaced by products, which have likewise been created in the shape of commodities. [387] That form of capital, which developed directly in circulation, the merchants' capital, appears here merely as one of the forms of capital in its process of reproduction.

The rule, that the independent development of merchants' capital is inversely proportioned to the degree of development of capitalist production, becomes particularly manifest in the history of the carrying trade, for instance, among the Venetians, Genoese, Dutch, etc., where the principal gains were not made by the exportation of the products of the home industries, but by the promotion of the exchange of products of commercially and otherwise economically undeveloped societies and by the exploitation of both spheres of production.48

Here the merchants' capital is pure, separated from the extremes, the spheres of production, between which it intervenes. This is one of the main sources of its formation. But this monopoly of the carrying trade disintegrates, and with it this trade itself, in proportion as the economic development of peoples advances, whom it exploits at each end of its course, and whose backward development formed the basis of this trade. In the carrying trade, this appears not only as the disintegration of a special line of commerce, but also as the disintegration of the supremacy of purely commercial nations and of their commercial wealth in general, which rested upon this carrying trade. This is but one of the special forms, which expresses the subordination of the commercial capital to the industrial capital with the advance of capitalist production. The manner in which merchants' capital behaves wherever it rules over production is drastically illustrated, not only by the colonial economy (the colonial system) in general, but particularly by the methods of the old Dutch East India Company.

Since the movement of merchants' capital is M—C—M', [388] the profit of the merchant is made, in the first place, only within the process of circulation, by the two transactions of buying and selling; and in the second place, it is realised in the last transactions, the sale. It is a profit upon alienation. At first sight, a pure and independent commercial profit seems impossible, so long as products are sold at their value. To buy cheap in order to sell dear is the rule of trade. It is not supposed to be an exchange of equivalents. The conception of value is included in it only to the extent that the individual commodities all have a value and are to that extent money. In quality, they are all expressions of social labor. But they are not values of equal magnitude. The quantitative ratio, in which products are exchanged, is at first quite arbitrary. They assume the form of commodities inasmuch as they are exchangeable, that is, inasmuch as they may be expressed in terms of the same third thing. The continued exchange and the more regular reproduction for exchange reduces this arbitrariness more and more. But this applies not at once to the producer and consumer, but only to the mediator between them, the merchant, who compares the money-prices and pockets their difference. By his own movements he establishes the equivalence of commodities.

The merchants' capital is at first merely the intervening movement between extremes not controlled by it and between premises not created by it.

Just as from the mere form of the circulation of commodities, C—M—C, money rises not only as a measure of value and medium of circulation, but also as the absolute form of the commodity and thus of wealth, in the form of a hoard, so that its conservation and accumulation as money become its life's purpose, so money, in the shape of a hoard, issues from the mere form of the circulation of merchants' capital, M—C—M', as something which is preserved and increased only by its alienation.

The trading nations of the ancients existed like the gods of Epicure in the intermediate worlds of the universe, or rather like the Jews in the pores of Polish society. The trade of the first independent and highly developed merchant towns and [389] trading nations rested as a pure carrying trade upon the barbarism of the producing nations between whom they intervened.

In the precapitalist stages of society, commerce rules industry. The reverse is true of modern society. Of course, commerce will have more or less of a reaction on the societies, between which it is carried on. It will subject production more and more to exchange value, by making enjoyments and subsistence more dependent on the sale than on the immediate use of the products. Thereby it dissolves all old conditions. It increases the circulation of money. It seizes no longer merely upon the surplus of production, but corrodes production itself more and more, making entire lines of production dependent upon it. However, this dissolving effect depends to a large degree on the nature of the producing society.

So long as merchants' capital promotes the exchange of products between undeveloped societies, commercial profit does not only assume the shape of outbargaining and cheating, but also arises largely from these methods. Leaving aside the fact that it exploits the difference in the prices of production of the various countries (and in this respect it tends to level and fix the values of commodities), those modes of production bring it about that merchants' capital appropriates to itself the overwhelming portion of the surplus-product, either in its capacity as a mediator between societies, which are as yet largely engaged in the production of use-values and for whose economic organisation the sale of that portion of its product which is transferred to the circulation, or any sale of products at their value, is of minor importance; or, because under those former modes of production, the principal owners of the surplus-product, with whom the merchant has to deal, are the slave holder, the feudal landlord, the state (for instance, the oriental despot), and they represent the wealth and luxury, which the merchant tries to trap, as Adam Smith correctly scented in that passage on feudal times, which I have quoted above. Merchants' capital in its supremacy everywhere stands for a system of robbery,49 and its development, among the [390] trading nations of old and new times, is always connected with plundering, piracy, snatching of slaves, conquest of colonies. See Carthage, Rome, and later Venetians, Portuguese, Dutch, etc.

The development of commerce and merchants' capital brings forth everywhere the tendency toward production of exchange values, increases its volume, multiplies and monopolises it, develops money into world money. Commerce therefore has everywhere more or less of a dissolving influence on the producing organisations, which it finds at hand and whose different forms are mainly carried on with a view to immediate use. To what extent it brings about a dissolution of the old mode of production, depends on its solidity and internal articulation. And to what this process of dissolution will lead, in other words, what new mode of production will take the place of the old, does not depend on commerce, but on the character of the old mode of production itself. In the antique world the effect of commerce and the development of merchants' capital always result in slave economy; or, according to what the point of departure may be, the result may simply turn out to be the transformation of a patriarchal slave system devoted [391] to the production of direct means of subsistence into a similar system devoted to the production of surplus-value. However, in the modern world, it results in the capitalist mode of production. From these facts it follows, that these results were conditioned on quite other circumstances than the mere influence of the development of merchants' capital.

It follows from the nature of the case that as soon as town industry as such separates from agricultural industry, its products are from the outset commodities and require for their sale the intervention of commerce. The leaning of commerce upon the development of the towns, and, on the other hand, the dependence of the towns upon commerce, are to that extent intelligible. However, in what measure industrial development will keep step with this development, depends upon quite other circumstances. Already ancient Rome, in its later republican days, developed merchants' capital more highly than it had ever existed in the antique world, without any progress in the development of crafts, while in Corinth and in other Grecian towns of Europe and Asia Minor the development of commerce was accompanied by highly developed crafts. On the other hand, in direct opposition to the development of towns and its conditions, the trading spirit and the development of commerce are frequently found among unsettled nomadic peoples.

There is no doubt—and it is precisely this fact which has led to many wrong conceptions—that in the 16th and 17th centuries the great revolutions, which took place in commerce with the through geographical discoveries and rapidly increased the development of merchants' capital, form one of the principal elements in the transition from feudal to capitalist production. The sudden expansion of the world market, the multiplication of the circulating commodities, the zeal displayed among the European nations in the race after the products of Asia and the treasures of America, the colonial system, materially contributed toward the destruction of the feudal barriers of production. However, the modern mode of production, in its first, period, the manufacturing period, developed only in places, where the conditions for it had been [392] previously developed during medieval times. Compare, for instance, Holland with Portugal.50 And, on the other hand, when in the 16th, and partially still in the 17th, century the sudden expansion of commerce and the creation of a new world market exerted an overwhelming influence on the overthrow of the old mode of production and the rise of the capitalistic one, this was accomplished on the basis of the already created capitalist mode of production. The world market forms itself the basis of this mode of production. On the other hand, the immanent necessity of this production to produce on an ever enlarged scale tends to extend the world market continually, so that it is not commerce in this case which revolutionises industry, but industry which continually revolutionises commerce. The commercial supremacy itself is now conditioned on the greater or smaller prevalence of the conditions for a large industry. Compare for instance, England and Holland. The history of the decline of Holland as the ruling commercial nation is the history of the subordination of merchants' capital to industrial capital. The obstacles presented by the internal solidity and articulation of precapitalistic, national, modes of production to the corrosive influence of commerce is strikingly shown in the intercourse of the English with India and China. The broad basis of the mode of production is here formed by the unity of small agriculture and domestic industry, to which is added in India the form of communes resting upon common ownership of the land, which, by the way, was likewise the original form in China. In India, the English exerted simultaneously their direct political and economic power as rulers and landlords, for the purpose of disrupting these small economic organisations.51 The English commerce [393] exerts a revolutionary influence on these organisations and tears them apart only to the extent that it destroys by the low prices of its goods the spinning and weaving industries, which are an archaic and integral part of this unity. And even so this work of dissolution is proceeding very slowly. It proceeds still more slowly in China, where it is not backed up by any direct political power on the part of the English. The great economy and saving in time resulting from the direct connection of agriculture and manufacture offer here the most dogged resistance to the products of great industries, whose prices are everywhere perforated by the dead expenses of their process of circulation. On the other hand, Russian commerce, unlike the English, leaves the economic basis of Asiatic production untouched.52

The transition from the feudal mode of production takes two roads. The producer becomes a merchant and capitalist, in contradistinction from agricultural natural economy and the guild-encircled handicrafts of medieval town industry. This is the really revolutionary way. Or, the merchant takes possession in a direct way of production. While this way serves historically as a mode of transition—instance the English clothier of the 17th century, who brings the weavers, although they remain independently at work, under his control by selling wool to them and buying cloth from them—nevertheless it cannot by itself do much for the overthrow of the old mode of production, but rather preserves it and uses it as its premise. For example, even up to the middle of the 19th century the manufacturer in the French silk industry and in the English hosiery and lace industries was but nominally a manufacturer, and merely a merchant in point of fact, who permitted the weavers to continue their work in the old unorganized [394] way and exerted only the control of the merchant, for whom they work in reality.53 This method is everywhere an obstacle to a real capitalist mode of production and declines with the development of the latter. Without revolutionising the mode of production, it deteriorates merely the condition of the direct producers, transforms them into mere wage workers and proletarians under worse conditions than those who have already been placed under the immediate control of capital and absorbs their surplus-labor on the basis of the old mode of production. The same conditions exist in a somewhat modified form in the London furniture industry, so far as it is carried on by handicrafts. Particularly in the Tower hamlets it is practised on a very extensive scale. The whole production is divided into numerous separate lines independent of one another. One business makes only chairs, another only tables, a third only bureaus, etc. But these lines of business themselves are run more or less like crafts, by one small master with a few journeymen. Nevertheless the output is too large to work directly for private persons. The products are bought by owners of furniture stores. On Saturdays the master sees them and sells his product, and the transaction is closed with as much haggling as is done in a pawnshop over the loan on this or that piece. The masters need this weekly sale, were it for no other reason than to buy more raw materials for next week and pay wages. Under these circumstances, they are really only middlemen between their employes and the merchants. The merchant is the real capitalist, who pockets the largest share of the surplus-value.54

A similar condition exists in the transition to manufacture from lines, which were formerly carried on as handicrafts or as sidelines to rural industries. According to the development [395] of such small independent businesses—which may even employ machinery that admits of a craftslike operation—the transition to large scale industry takes place. The machine is driven by steam, instead of by hand. This is the case, for instance, of late in the English hosiery industry.

There is, consequently, a threefold transition. First, the merchant becomes directly an industrial capitalist. This is the case in crafts conditioned on commerce, especially industries producing luxuries, which are imported by the merchants together with the raw materials and laborers from foreign countries, as they were in Italy from Constantinople in the 15th century. In the second place, the merchant converts the small masters into his middlemen or, perhaps, buys direct from the self-producer, leaving him nominally independent and his mode of production unchanged. In the third place, the industrial becomes a merchant and produces immediately on a large scale for commerce.

In the Middle Ages, the merchant is merely the man who, as Poppe correctly says, "removes" the goods produced by the guilds or the peasants. The merchant becomes an industrial capitalist, or rather, he lets the craftsmen, particularly the small rural producers, work for him. On the other hand, the producer becomes a merchant. The master weaver, instead of receiving his wool in installments from the merchant and working for him with his journeymen buys wool or yarn himself and sells his cloth to the merchant. The elements of production pass into his process of production as commodities bought by himself. And instead of producing for the individual merchant, or for definite customers, the master cloth-weaver produces for the commercial world. The producer is himself a merchant. The merchants' capital performs no longer anything but the process of circulation. Originally the commerce was the premise for the transformation of the crafts, rural domestic industries, and feudal agriculture into capitalist enterprises. It develops the products into commodities, either by creating a market for them, or by carrying new equivalents in the form of goods to them and supplying production with new raw and auxiliary materials. In this way [396] it opens up new lines of production, which are based at the outset upon commerce, both as concerns the production for the home and world market and as concerns conditions of production originated by the world market. As soon as manufacture gains sufficient strength, and still more large scale industry, it creates in its turn a market for itself and captures it with its commodities. Now commerce becomes the servant of industrial production, and a continual expansion of the market becomes a vital necessity for industrial production. An ever more extended wholesale production floods the existing market and thereby works continually toward a still wider expansion of the market and a bursting of its bonds. What restricts this wholesale production, is not commerce (to the extent that it expresses the existing demand), but the magnitude of the employed capital and the developed productivity of labor. The industrial capitalist always has the world market before him, compares, and must continually compare, his own cost-prices with those of the whole world, not only with those of his home market. In former periods this comparison falls almost entirely upon the shoulders of the merchants, and thereby secures for merchants' capital the supremacy over industrial capital.

The first theoretical treatment of modern modes of production—the mercantile system—started out necessarily from the superficial phenomena of the process of circulation, which are presented in an independent form by the movements of merchants' capital. Therefore it grasped only the semblance of things. This was partly due to the fact that merchants' capital is the first free mode of existence of capital in general. On the other hand, it was due to the overwhelming influence exerted by this capital during the first period of revolution of feudal production, the period of genesis of modern production. The real science of modern economy does not begin, until theoretical analysis passes from the process of circulation to the process of production. It is true, interest-bearing capital is likewise a very old form of capital. But we shall see later, why mercantilism did not take its departure from it, but assumed a controversial attitude towards it.

CHAPTER XXI.: THE INTEREST-BEARING CAPITAL.↩

IN our first discussion of the general, or average, rate of profit in Part II of this volume, we did not have this rate before us in its complete form, since the equalisation of profit appeared there only as an equalisation between the various industrial capitals invested in different spheres. This was further supplemented in the preceding Part, in which the participation of merchants' capital in this equalisation and the commercial profit were discussed. By this means the general rate of profit and the average profit presented themselves within more circumscribed limits than before. In the further process of our analysis it should be remembered, that any future reference to the general rate of profit or to the average profit means only this latter, completed, form of the average rate. Since this rate is now the same for the industrial and the mercantile capital, it is no longer necessary, so far as this average profit is concerned, to make any distinction between industrial and commercial profit. Whether capital is invested industrially in the sphere of production, or commercially in the sphere of circulation, it yields the same average profit annually in proportion to its magnitude.

Money—which signifies here any independent expression of a certain amount of value, whether it exists actually as [398] money or as commodities—may be converted into capital on the basis of capitalist production. By this conversion it is transformed from a given value to a self-expanding, increasing, value. It produces a profit, that is, it enables a capitalist to extract a certain amount of unpaid labor, surplus-products and surplus-value, from the laborers and to appropriate it to himself. In this way it acquires, aside from its use-value as money, an additionel use-value, namely that of serving as capital. Its use-value consists then precisely in the profit, which it produces when converted into capital. In this capacity of potential capital, of a means for the production of profit, it becomes a commodity, but a commodity of a peculiar kind. Or, what amounts to the same, capital as capital becomes a commodity.55

Take it that the average rate of profit is 20%. In that case a machine, valued at 100 p.st., employed as capital under the prevailing average conditions and with an average exertion of intelligence and adequate activity, would yield a profit of 20 p.st. In other words, a man having 100 p.st. at his disposal, holds in his hand a power by which 100 p.st. may be turned into 120 p.st., or by which a profit of 20% may be produced. He holds in his hand a potential capital of 100 p.st. If this man relinquishes these 100 p.st. for one year to another man, who uses this sum actually as capital, he gives him the power to produce a profit of 20%, a surplus-value, which costs this other nothing, for which he pays no equivalent. If this man should pay, say 5 p.st. at the close of the year to the owner of the 100 p.st., out of the produced profit, he would be paying for the use-value of the 100 p.st., the use-value of its function as capital, the function of producing 20 p.st. of profit. That part of the profit, which he pays to the owner, is called interest. It is merely another name, a special term, for a certain part of the profit, which capital in process of its function has to give up to its owner, instead of keeping it in its own pockets.

[399]

It is evident, that the possession of 100 p.st. gives to their owner the power to absorb the interest, a certain portion of the profit produced by his capital. If he did not give the 100 p.st. to the other man, then this other could not produce any profit, and could not act in the capacity of capitalist at all with reference to these 100 p.st.56

To speak in such a case of natural justice, as Gilbart is doing (see note), is nonsense. The justice of the transactions between the agents of production rests on the fact that these transactions arise as natural consequences from the conditions of production. The juristic forms, in which these economic transactions appear as activities of the will of the parties concerned, as expressions of their common will and as contracts which may be enforced by law against some individual party, cannot determine their content, since they are only forms. They merely express this content. This content is just, whenever it corresponds, and is adequate, to the mode of production. It is unjust, whenever it contradicts that mode. Slavery on the basis of capitalist production is unjust; likewise fraud in the quality of commodities.

The 100 p.st. produce the profit of 20 p.st. by functioning as capital, whether it be industrial or commercial. But the indispensable condition of this function as capital is that this money is used as capital, that this money is invested in the purchase of means of production (in the case of industrial capital), or of commodities (in the case of merchants' capital). But in order to be expended, it must be there. If A, the owner of the 100 p.st., were to spend them for his private expenses, or to keep them as a hoard, they could not be invested by B, in his capacity as a capitalist, as capital. B does not invest his own capital, but that of A. But he cannot expend the capital of A without the consent of A. Therefore it is really A, who first expends these 100 p.st. as capital, although his whole function as a capitalist is limited to this expenditure of 100 p.st. as capital. So far [400] as these 100 p.st. are concerned, B acts in the capacity of a capitalist only because A lends him this money and thus expends it as capital.

Let us first consider the peculiar circulation of interest-bearing capital. Then we shall analyse in the second place the peculiar manner, in which it is sold as a commodity, being merely lent instead of relinquished for good.

The point of departure is the money, which A advances to B. This may be done with or without security. However, the first named form is the more ancient, with the exception of advances on commodities or on certificates of indebtedness, such as bills of exchange, bonds, etc. These special forms do not concern us here. We are dealing here with interest-bearing capital in its ordinary form.

In the hand of B, the money is actually converted into capital, passes through the process M—C—M', and returns as M' to A, as M + increment of M, where the increment of M represents the interest. For the sake of simplicity we leave out of consideration the case, in which capital stays in the hands of B for a long term and interest is paid at periodical intervals.

The movement, then, is M—M—C—M'—M'. What appears duplicated here is 1) the expenditure of the money as capital, 2) its reflux as realised capital, as M', or as M + increment of M.

In the movement of merchants' capital, M—C—M', the same commodity changes hands twice, or even more than twice, if one merchant sells to another. But every change of hand of these commodities indicates a metamorphosis, a purchase or sale of commodities, no matter how often this process may be repeated until it ends in consumption.

On the other hand, the same money changes hands twice in C—M—C, but this indicates the complete metamorphosis of the commodity, which is first converted into money and then from money back into another commodity.

But in the case of interest-bearing capital, the first change of hands of M is not a phase of either the metamorphosis of a commodity or of the reproduction of capital. It does [401] not become so until the second change of hands, in the hands of the man acting in the capacity of a capitalist, who carries on a trade with it or transforms it into productive capital. The first change of hands of M does not express anything else in this case but its transfer, or handing over by contract, from A to B. This is a transfer, which usually takes place under certain juristic forms and stipulations.

This duplicated expenditure of money as capital, the first of which is merely a transfer from A to B, is supplemented by the duplication of its reflux. As M', or M + increment of M, it flows back out of the process to the man acting in the capacity of a capitalist. This man in his turn transfers it back to A, together with a part of the profit, of realised capital, of M + increment of M, which, however, is not equal to the entire profit, but only a part of the profit, the interest. It flows back to B only as the thing which he had invested, as capital in process of function, but as the property of A. In order that its reflux may be complete, B must return it to A. But B has not only to return the amount of the capital, he must also turn over to A a part of the profit, which he made with this capital, and this part is called interest. For A gave him this money only as a capital, that is, as a value, which is not only maintained by its movements, but brings also a surplus-value to its owner. It remains in the hands of B only so long as it is performing its function of capital. And it ceases to be capital as soon as it is returned to its owner on the stipulated date. When no longer serving as capital, it must be returned to A, who never ceased being its legal owner.

The form of lending, which is peculiar to this commodity, this capital as a commodity, and which also occurs in other transactions instead of that of sale, follows from the simple definition that capital serves here as a commodity, or that money as capital becomes a commodity.

It is necessary to make a distinction here.

We have seen in Volume II, chapter I, and recall at this point, that capital serves in the process of circulation as commodity-capital and money-capital. But in neither of [402] these forms does capital become a commodity as capital.

As soon as the productive capital has transformed itself into commodity-capital, it must be thrown upon the market, it must be sold as a commodity. There it serves simply in the capacity of a commodity. The capitalist then appears only as a seller of commodities, just as the buyer is only a buyer of commodities. As a commodity, the product must realise its value in the process of circulation, by its sale, must assume the form of money. In this respect it is quite immaterial, whether this commodity is bought by a consumer for the purpose of subsistence, or by a capitalist as a means of production to become a part of his capital. In the act of circulation, the commodity-capital serves only as a commodity, not as capital. It is a commodity-capital, as distinguished from a simple commodity, 1), because it is pregnant with surplus-value, so that the realisation of its value is simultaneously a realisation of surplus-value. But this does not alter in any way its simple existence as a commodity, as a product of a certain price. 2) It is a commodity-capital, because its function as a commodity is a phase in its process of reproduction as capital, so that its movement as a commodity, being a part of its movement in process, is simultaneously its movement as capital. Yet it does not become capital by the act of selling as such, but only through the connection of this act with the whole movement of this definite amount of value in the capacity of capital.

In like manner it serves only as money pure and simple, when acting in the capacity of money-capital, that is, as a means of buying commodities (the elements of production). The fact that this money is at the same time money-capital, a form of capital, is not due to the act of buying, which is the service performed by it as money. It is due to the connection of this act with the total movement of capital, since this act, which it performs as money, inaugurates the capitalist process of production.

But so far as they perform any service and play any actual role in the process, commodity-capital on the market serves only as a commodity, money-capital only as money. At no [403] time during the metamorphosis, viewed by itself, does the capitalist sell his commodities as capital to the buyer, although they represent a capital for himself, nor does he give up money to the sellers in his capacity as a capitalist. In either case he exchanges his commodities simply as commodities, and the money simply as money, as a means of purchasing commodities.

It is only in the connection with the whole process, at the moment where the point of departure appears simultaneously as the point of return, in M—M' or C—C', that capital in the process of circulation appears as capital (while it appears as capital in the process of production through the subordination of the laborer under the capitalist and the production of surplus-value). In this moment of return, however, the connection disappears. What is present is M', that is money plus increment of money (regardless of whether the amount of value increased by this increment has the form of money, commodities, or elements of production), a certain amount of money equal to the amount originally advanced plus an increment, which is the realised surplus-value. And it is precisely at this point of return, where capital exists as a realised capital, as an expanded value, that capital never passes into circulation—considering this point as a fixed point of rest, whether imaginary or real—, but rather appears to be withdrawn from circulation as a result of the whole process. Whenever it is again relinquished, it is never transferred to another as capital, but sold to him as a simple commodity, or given to him as simple money in exchange for commodities. It never appears as capital in its process of circulation, but only as a commodity or as money, and this is the only form in which it exists so far as others are concerned. Commodities and money are here capital, not inasmuch as commodities change into money, or money into commodities, not with reference to their actual relations to sellers or buyers, but only with reference to their ideal relations, that is, subjectively speaking, their relations to the capitalist himself, or objectively speaking, as elements of the process of reproduction. So far as capital is capital, [404] it exists only in its actual function, not in the process of circulation, but only in the process of production, in the process by which labor-power is exploited.

But it is different with interest-bearing capital, and it is precisely this difference, which constitutes its specific character. The owner of money, who desires to invest his money as interest-bearing capital, transfers it to some one else, throws it into circulation, makes a commodity of it as capital. It is not a capital for himself alone, but also for others. It is not capital merely for the man who offers it for investment, but it is handed to others at the outset as capital, as a value endowed with the use-value of creating surplus-value, profit; a value which preserves itself in process and returns to its original owner, in this case the owner of money, after performing its function. It moves away from him only for a certain time, it passes for a while from the possession of its owner into that of a capitalist performing his business, it is neither given up in payment nor sold, but merely loaned. It is relinquished only with the understanding that it shall in the first place return to its point of departure after a certain time, and that it shall return, in the second place, as realised capital, a capital having actually performed its function of creating surplus-value.

Commodities, which are loaned out as capital, are loaned either as fixed or as circulating capital, according to their constitution. Money may be loaned in either form. For instance, it may be loaned as fixed capital in the form of an annuity, whereby a portion of the capital returns with the interest. Some commodities, owing to the nature of their use-values, can be loaned only as fixed capital, such as houses, ships, machines, etc. But all loan capital, whatever be its forms, and no matter in what manner the nature of its use-value may modify its return, is only a specific form of money-capital. For the thing that is loaned here is always a definite sum of money, and it is this sum on which interest is calculated. If the thing that is loaned is neither money nor circulating capital, it is paid back in the same way in which fixed capital returns. The lender receives periodically [405] a certain interest and a portion of the consumed value of the fixed capital itself, an equivalent for the periodical wear and tear. And at the end of the stipulated term the unconsumed portion of the loaned fixed capital is returned in natura. If the loaned capital is circulating capital, it is like-wise returned in the manner peculiar to circulating capital.

The manner of reflux, then, is always determined by the actual circulation of the capital in process of reproduction and its specific kind. But so far as loan capital is concerned, its reflux assumes the form of return payments, because its advance, by which it is relinquished, has the form of loaning.

In this chapter we treat only of money-capital proper, from which the other forms of loaned capital are derived.

The loaned capital returns in a twofold way. First it returns in the process of reproduction to the capitalist performing his function, and then its return is duplicated by its transfer to the lender, the money-capitalist, in the form of a return payment to its real owner, its legal point of departure.

In the actual process of circulation the capital appears always as a commodity or as money, and its movements are always dissolved into a series of purchases and sales. In short, the process of circulation resolves itself into the metamorphosis of commodities. It is different, when we consider the process of reproduction as a whole. If we take our departure from money (and it is the same, when we start off with commodities, since we then take our departure from their value and look upon them from the point of view of money), we see that a certain sum of money is expended and returns after a certain period with an increment. This sum has preserved itself and expanded itself in the course of a certain rotation. To the extent that money is loaned as capital, it is loaned as just such a sum of money, which preserves and expands itself, returns after a certain period with an increment, and is ready to pass through the same process once more. It is not expended either as money or as a commodity, it is neither exchanged for commodities when advanced in the form of money, nor sold in exchange for money, when [406] advanced in the form of commodities. It is expended as capital. This reflexive relation to itself, in which capital presents itself when the process of production is viewed in its entirety and as a unit, and in which money appears as self-increasing money, is here imposed upon it as its character and peculiarity without the intervention of any intermediary movement. And it is expended in this peculiar form, when it is loaned as money-capital.

A very queer conception of the role of money-capital is held by Proudhon "Gratuité du Crédit. Discussion enter M. F. Bastiate et M. Proudhon. Paris, 1850.") Loaning appears as an evil to Proudhon because it is not selling. Loaning at interest is for him "the faculty of always selling the same article over and over, and of receiving its price again and again, without ever relinquishing the ownership of the things one is selling" (page 9). The object, such as money, a house, etc., does not change owners, as it does in selling and buying. But Proudhon does not see, that no equivalent is received for money handed over as interest-bearing capital. It is true that objects are passed from one to another in every act of buying and selling, so far as they are at all processes of exchange. The ownership of the sold object is always relinquished. But its value is not given up. In selling the commodity is relinquished, but not its value, which is given in return in the form of money, or in another form which here takes the place of money, namely of certificates of indebtedness, or of titles of payment. In buying money is given away, but its value, which is recovered in the shape of commodities. The industrial capitalist holds the same value in his hands during the entire process of reproduction (except the surplus-value), only it assumes different forms.

To the extent that exchange takes place, that is, an exchange of objects, no change of value takes place. The same capitalist always holds the same value in his hands. But so long as surplus-value is produced by the capitalist, no exchange takes place. As soon as exchange takes place, the surplus-value is already incorporated in the commodities. If we do not have in mind the individual acts of exchange, but [407] the total circulation of capital, M—C—M', we see that a definite amount of values is continually advanced, and that this amount plus the surplus-value, or the profit, is recovered from the circulation. It is true, the individual acts of exchange do not reveal the fact that they are promoting this process. And it is precisely this process of M as capital, on which the interest of the money-lending capitalist rests and from which it arises.

"In fact," says Proudhon, "the hat maker, who sells hats...receives their value, no more and no less. But the money-lending capitalist...does not recover merely his capital: he recovers more than his capital, more than he throws into circulation; he receives an interest over and above his capital." (Page 169.) The hatter stands here in the place of the productive capitalist as distinguished from a loan capitalist. Evidently Proudhon did not learn the secret, which enables the capitalist to sell commodities at their value (the equalisation of values by the prices of production is here immaterial for his conception), whereby he receives a profit in addition to the capital, which he throws into circulation. Let us assume that the price of production of 100 hats is 115 pounds sterling, and that this price of production happens to be identical with the value of the hats, which means that the capital invested in the production of hats is of the same composition as the average social capital. If the profit is 15 p.st., or 15%, then the hatter gets this profit of 15 p.st. by selling his hats at their value of 115. They cost him 100 p.st. If he has produced them with his own capital, he pockets the whole surplus of 15 p.st. If he has borrowed the capital, he may have to give up 5 p.st. for interest. This does not alter anything in the value of the hats, but only in the distribution of the surplus-value already contained in this value between different persons. Since the value of the hats is not affected by the payment of interest, it is nonsense on the part of Proudhon to say: "As in commerce the interest of capital is added to the wages of laborers in making up the price of commodities, it is impossible that the laborer should be able to buy back the product of his own labor. To live by working [408] is a principle, which implies a contradiction under the rule of interest."57

How little Proudhon understood the nature of capital, is shown by the following statement, in which he describes the movement of capital in general as a movement peculiar to interest-bearing capital: "Since money-capital, from exchange to exchange, comes always back to its source by the accumulation of interest, it follows that re-investment is always made by the same hand and profit accrues always to the same person."

What is it, now, that remains a riddle to him in the peculiar movement of interest-bearing capital? The categories buying, price, giving up objects, and the spontaneous form, in which surplus-value appears here; in short, the phenomenon that capital as such has become a commodity, so that selling has been turned into lending and price into a share in the profit.

The return of capital to its point of departure is the most general and characteristic movement of capital in its total circulation. This is by no means a peculiarity of interest-bearing capital. Its peculiarity is rather the externalised form of its return without the intervention of any circulation. The loaning capitalist lets go of his capital, transfers it to some industrial capitalist, without receiving any equivalent. His handing over of capital is not an act of the real circulation of capital at all, but serves merely as a prelude for the industrial capitalist who effects this circulation. This first change of place of money does not express any act of metamorphosis, neither buying nor selling. Its ownership is not relinquished, because no exchange takes place, no equivalent is offered. The return of the money from the hand of the industrial capitalist to that of the loaning capitalist supplements [409] merely the first act of handing over the capital. This capital, after having been advanced in the form of money, returns to the industrial capitalist from the process of circulation in the form of money. But as the capital did not belong to him when he expended it, neither can it belong to him on its return. The passage through the process of reproduction cannot by any means give him the ownership of this capital. Hence he must restore it to its lender. The first transfer of the capital from the hands of the lender to those of the borrower is a legal transaction, which has nothing to do with the actual process of reproduction, but merely inaugurates it. The restoration, which transfers the returned capital from the hands of the borrower back to those of the lender is another legal transaction, a supplement of the first. The first inaugurates the actual process, the second takes place after this process. The point of departure and of return, the dispensation and recovery of the loaned capital, thus appear as arbitrary movements promoted by legal transactions, which take place before and after the actual process of capital and have nothing to do with it. So far as this actual process is concerned, the industrial capitalist might as well own the capital at the outset, so that it would return to him as his property.

In the first introductory act the lender gives his capital to the borrower. In the second and closing act after the process, the borrower returns the capital to the lender. To the extent that we consider merely the transaction between these two—and leaving aside the question of interest for the present—, in other words to the extent that we have in mind only the movement of the loan capital itself between the lender and the borrower, the whole movement is comprised within these two acts (separated by a longer or shorter time, during which the process of actual reproduction of capital takes place). And this movement, this dispensing on condition of returning, constitutes per se the movement of lending and borrowing, which is a specific form of a conditional dispensation of money or commodities.

The characteristic movement of capital in general, namely [410] the return of money to the capitalist, the return of capital to its point of departure, assumes in the case of interest-bearing capital a wholly externalised form, separated from the actual movement of which it is an expression. A lets go of his money, not in the sense of money, but of capital. This implies no transformation of the capital. It merely changes hands. Its real transformation into capital is not performed until it is in the hands of B. But it has become capital for A as soon as he has given it to B. The actual reflux of capital from the processes of production and circulation takes place only for B. But for A the reflux assumes the same form as the dispensation. The capital returns from the hands of B to those of A. Dispensing, loaning money for a certain time and recovering it with interest (surplus-value) make up the complete form of the movement, which is peculiar to interest-bearing capital as such. The actual movement of the loaned money as capital constitutes a process, which is outside of the transactions between the lender and the borrower. In these transactions the intermediate process is obliterated, invisible, not directly comprised.

Being a peculiar sort of commodity, capital has its own peculiar mode of alienation. Its return in the present case is not the expression, not the consequence or result, of a definite series of economic processes, but the outcome of a specific legal agreement between buyer and seller. The time of return depends on the duration of the process of reproduction. But in the case of interest-bearing capital, its return as capital seems to depend on the mere agreement between lender and borrower. The return of capital as a part of this agreement no longer appears as a result due to the process of reproduction, but seems to take place without depriving the loaned capital of the form of money. It is true that these transactions are actually determined by the reproductive returns. But this is not evident in the transactions themselves. Nor is it always the case in practice. If the return in reproduction does not take place at the proper time, then the borrower has to face the problem. what other resources he can [411] call into play to fulfill his obligations towards the lender. The mere form of this capital—that is, money expended as a certain sum, A, and returning as another sum A + IA/x, after a certain lapse of time, without any other intermediate connection but this lapse of time—is but an abstract image of the actual movement of capital.

In the actual movement of capital, its return is a phase of the process of circulation. The money is first converted into means of production; the process of production transforms it into commodities; by the sale of the commodities it is reconverted into money, and in this form it returns to the hands of the capitalist, who originally advanced the capital in the form of money. But in the case of interest-bearing capital, both the alienation and the return are the results of a legal transaction between the owner of capital and another person. We see only the alienation and the return. Whatever passes during the interval is obliterated.

But since money, when advanced as capital, has the faculty of returning to the person, who expended it as capital, since M—C—M' is the immanent form of the movement of capital, for this very reason the owner of money can loan it as capital, a thing having the faculty of returning to its point of departure, of preserving its value while under way in process, and of increasing it. He loans it as capital, because it returns to its point of departure after having been transformed into capital, so that the borrower can restore it to the lender after a certain period, because he has recovered it himself.

The loaning of money as capital—its alienation on condition that it be returned after a certain time—is therefore conditioned on the requirement that this money be actually employed as capital, so that it may actually flow back to its starting point. The actual cycle of money as capital is therefore the basic condition of the legal transaction, by which the borrower has to return the money to the lender. If the borrower does not invest the money as capital, it is his own business. The lender loans it as capital, and as such it is [412] supposed to perform the capitalist functions, which include the circulation of money-capital until it reaches once more its starting point in the form of money.

The transactions M—C and C—M' in the circulation, in which a certain amount of value serves as money or commodities, are but intermediary processes, individual phases of a whole movement. As capital, this sum passes through the whole movement M—M'. It is advanced as money, or as a sum of values in some form, and returns as a sum of values. The lender of money does not expend it in the purchase of commodities, or, if this sum of values exists in the form of commodities, he does not sell it for money, but he advances it as capital, as M—M', as a value, which returns after a certain lapse of time to its point of departure. Instead of buying and selling, he loans. This loaning, then, is the form corresponding to its alienation as capital, instead of its alienation as money or commodities. This does not mean, however, that loaning may not be used in transactions, which have nothing to do with the capitalist process of reproduction.

We have so far considered only the movements of loaned capital between its owner and the industrial capitalist. Now we shall have to inquire into interest.

The lender expends his money as capital; the amount of values, which he relinquishes into the hands of another, is capital and returns to him. But the mere return of the loan capital into his hands as the same amount would not be its reflux as capital, but merely the return of a loaned sum of values. In order to return as capital, the advanced sum of values must not only be preserved in process, but must also be expanded, must return with a surplus-value, must be recovered as M + increment of M. This increment of M is in the present case the interest. It is that portion of the average profit, which does not remain in the hands of the practicing capitalist, but falls to the share of the money capitalist.

[413]

The fact that the money capitalist expends it as capital implies that it must be restored to him as M + increment of M. Later we shall also have to consider the case, in which interest is paid in fixed intervals without the simultaneous return of the capital, whose definite return does not take place until at the end of a longer period.

What is it that the money capitalist gives to the borrower, the industrial capitalist? What does he really pass over to him? It is only this transaction of handing over money which makes of the loaning of money a lending of money as capital, that is, the lending of capital as a commodity.

It is only by this act of passing money over to another that the capital is loaned by the money lender as a commodity, or that the commodity at his disposal is given to another as capital.

What is it that is alienated in ordinary sale? It is not the value of the sold commodities, for this changes merely its form. The value exists ideally in a commodity as its price, before it passes actually into the hands of the seller as money. The same value and the same amount of value merely change their form in such a case. In one instance they exist in the form of a commodity, in another in the form of money. The thing which is actually alienated by the seller, and which for this reason passes into the individual or productive consumption of the buyer, is the use-value of the commodity, is the commodity as a use-value.

What, then, is the use-value, which the money capitalist passes over for the period of the loan and relinquishes into the hands of the borrower, the productive capitalist? It is the use-value, which the money assumes by being capable of being invested as capital and performing the functions of capital, so that it can create a definite surplus-value, the average profit (any excess or fall below this is here a matter of accident), during its process, in addition to preserving its original magnitude of value. In the case of other commodities the use-value is ultimately consumed. Their substance disappears in consequence and with it their value. But the commodity [414] capital has the peculiarity, that the consumption of its use-value not only preserves its exchange value and its use-value, but also increases them.

It is this use-value of money as capital, this faculty of producing an average profit, which the money capitalist relinquishes to the industrial capitalist for the period, during which he yields to the latter the use of the loan capital.

The money thus loaned shows in this respect a certain analogy with labor-power in its relation to the industrial capitalist. There is only this difference, that he pays for the value of labor-power, while he simply pays back the value of the loaned capital. The use-value of labor-power consists for the industrial capitalist in the faculty that labor-power creates more value (the profit) by its consumption for the industrial capitalist. And in like manner the use-value of the loan capital appears as its faculty of preserving and increasing value.

The money-capitalist alienates indeed a use-value, and for this reason the thing which he gives away is given as a commodity. And to this extent the analogy with a commodity is complete. In the first place, it is a value, which passes from one hand to another. In the case of a simple commodity, a commodity as such, the same value remains in the hands of the buyer and seller, only it has different forms; both have the same value which they had before the transaction, the one in the form of a commodity, the other in that of money. The difference in the case of loan capital is that the money capitalist is the only one who gives away a value when loaning money; but he preserves it by means of future restoration. In the transaction of loaning only one party receives value, since only one party relinquishes value.

In the second place, it is a real use-value, which is relinquished on one side and received and consumed on the other. But it differs from the use-value of ordinary commodities in that it is itself a value, namely the excess over the value of the original capital realised by the use of money as capital. The profit is this use-value.

The use-value of the loan capital consists in being able [415] to serve as capital and to produce in this capacity the average profit under average conditions.58

What, then, does the industrial capitalist pay, and what is, therefore, the price of the loaned capital? That which men pay as interest for the use of what they borrow is, according to Massie, a part of the profit it is capable of producing.59

What the buyer of an ordinary commodity buys is its use-value; what he pays for is its exchange value. What the borrower of money buys, is likewise its use-value as capital; but what does he pay for? Surely not for its price, or value, as in the case of ordinary commodities. No change of form takes place in the value passing between the borrower and the lender, such as takes place between the buyer and the seller, so that this value would exist in one instance in the form of money, in another instance in the form of a commodity. The sameness of the alienated and returned value shows itself here in an entirely different way. The sum of values, the money, is given away without an equivalent, and is returned after the lapse of a certain period. The lender always remains the owner of the same value, even after it has passed from his hands into those of the borrower. In the simple exchange of commodities, the money is always on the side of the buyer; but in the lending, the money is on the side of the lender. It is he, who gives away his money for a certain period, and it is the borrower, the buyer of capital, who receives it as a commodity. But this is possible only when the money serves as capital and is advanced for this purpose. The borrower borrows money as capital, as a value producing an increment. But at the moment of borrowing it is as yet only potential capital, and so is any other capital at the moment when it is advanced. Only by its use does it expand [416] its value and realise itself as capital. But after it has become realised capital, the borrower has to return it, as a value plus a surplus-value (interest). And this interest can be only a portion of the realised profit. Only a portion, not the whole of it. For its use-value for the borrower consists in producing a profit for him. Otherwise there would not have been any alienation of its use-value on the part of the lender. On the other hand, it cannot be the whole profit which falls to the share of the borrower. Otherwise he would not be paying anything for the alienation of the use-value, and he would return the advanced money to the lender as simple money, not as a capital having realised itself. For it is realised capital only when it is M + increment of M.

Both of them expend the same sum of money as capital, the lender and the borrower. But only in the hands of the latter does it serve as capital. The profit is doubled by the double existence of the same sum of money as a capital for two persons. It can serve as a capital for both of them only by dividing the profit. That portion, which falls to the share of the lender, is called interest.

It is our assumption, that this entire transaction takes place between two kinds of capitalists, the money-capitalist and the industrial or the merchant capitalist.

It should never be forgotten, that capital as such is here a commodity, or that the commodity, which is here in question, is capital. All the relations, which become manifest here, would be irrational from the point of view of a simple commodity, or even from the point of view of capital serving as a commodity-capital in its process of reproduction. Lending and borrowing, instead of selling and buying, is here a distinction arising from the specific nature of the commodity, of capital; also that it is interest, not the price of the commodity, which is paid here. If interest is to be called the price of money-capital, it will be an irrational form of price, which is quite at variance with the conception of the price of commodities.60 The price is then reduced to its purely [417] abstract and meaningless form, signifying a certain sum of money paid for some thing, which serves in some manner as a use-value. On the other hand, the concept of price really signifies the value of some use-value expressed in money.

To call interest the price of capital is to use at the outset an irrational expression. A commodity has here a double value, namely first a real value, and secondly a price differing from this value, while ordinarily price signifies the expression of the value in money. Money-capital is primarily but a sum of money, or the value of a certain quantity of commodities incorporated in a sum of money. If a commodity is loaned as capital, then it is only the disguised form of a sum of money. For that which is loaned as capital is not so and so many pounds of cotton, but so much money existing in the form of cotton as its value. The price of capital, therefore, refers to it as a sum of money, even if not a currency, as Mr. Torrens thinks (see above note 60). How, then, can a sum of values have a price beside its own price, that is, aside from the price expressed in their own money-form? Price is precisely the value of commodities (and this holds good also of the market-price, whose difference from value is not one of quality, but only one of quantity, since it refers only to the magnitude of the value) as distinguished from their use-value. A price which is different in quality from value is an absurd contradiction.61

Capital manifests itself as capital by its employment. The degree of its self-expansion expresses the quantitative ratio, in which it realises itself as capital. The surplus-value or profit produced by it—its rate or magnitude—is measurable only by its comparison with the value of the advanced capital. The greater or lesser self-expansion of interest- [418] bearing capital is, therefore, only measurable by a comparison of the amount of interest, its share in the total profits, with the value of the advanced capital. While the price expresses the value of commodities, the interest expresses the self-expansion of money-capital and thus appears as the price, which the lender receives for it. This shows how absurd it is at the start to apply indiscriminately to this question the simple relations of exchange through buying and selling, as Proudhon does. For the basic premise is here that money serves as capital and may thus be transferred as capital itself, as potential capital, to another person.

Capital itself appears here as a commodity, inasmuch as it is offered on the market as the use-value of money actually handed over as capital. Its use-value consists in producing profits. The value of money or of commodities employed in the capacity of capital is not determined by their value as money or commodities, but by the quantity of surplus-value, which they produce for their owner. The product of capital is profit. On the basis of capitalist production it is merely a difference in the employment of money, whether it is expended as money or advanced as capital. Money, or commodities, are in themselves, potentially, capital, just as labor-power is potential capital. For in the first place, money may be converted into elements of production and is to that extent only an abstract expression of them, personifying their existence as values; in the second place, the material elements of wealth have the capacity of being even potentially capital, because the opposite supplement, which makes capital of them, namely wage-labor, is present on the basis of capitalist production.

The opposing social peculiarities of material wealth, its antagonism to labor in the form of wage-labor, considered apart from the process of production, are expressed even in capitalist property as such. This particular fact, when separated from the process of capitalist production itself, of which it is a constant result and, being its constant result, is its constant prerequisite, expresses itself in such a way that money and commodities alike become latent, potential, capital, [419] so that they may be sold as capital, and that they represent in this form a command over the labor of others, a claim to the appropriation of the labor of others, so that they become self-expanding values. In this way it also becomes clearly apparent that this relation supplies the title and means for the appropriation of the labor of others, and that this is not due to any labor offered as an equivalent on the part of the capitalist.

Capital appears furthermore as a commodity, inasmuch as the division of profit into interest and profit proper is regulated by demand and supply, that is, by competition, just as are the market-prices of commodities. But in the present case the difference becomes quite as apparent as the analogy. If demand and supply balance, the market-price of commodities corresponds to their price of production. In other words, their price is then seen to be regulated by the internal laws of capitalist production, independently of competition, since the fluctuations of supply and demand do not explain anything but the deviations of market-prices from the prices of production. These deviations balance mutually, so that in the course of long periods the average market-prices correspond to the prices of production. As soon as these prices coincide, these forces cease to operate, they compensate one another, and the general law determining prices then applies also to individual cases. The market-price then corresponds even in its immediate form, and without the help of averages drawn from the movements of market-prices, to the price of production, which is regulated by the immanent laws of the mode of production itself. The same is then true of wages. If supply and demand balance, they neutralise each other's effects, and wages are then equal to the value of labor-power. But it is different with the interest on money-capital. Competition does not, in this case, determine the deviations from the rule, but there is rather no law of division except that enforced by competition, because no such thing as a "natural" rate of interest exists, as we shall see presently. By the natural rate of interest people merely mean the rate fixed by free competition. There are no "natural" limits for the rate [420] of interest. Whenever competition does not merely determine the deviations and fluctuations, in other words, whenever a neutralisation of the opposing forces of competition puts a stop to all determination, the thing to be determined becomes a matter of arbitrary and lawless estimation. We shall dwell on this further in the next chapter.

In the case of interest-bearing capital, everything is outward appearance: The advance of capital seems a mere transfer from the lender to the borrower; the reflux of realised capital a mere transfer back to its owner, a return payment with interest from the borrower to the lender. The same holds good of the fact, due to the capitalist mode of production, that the rate of profit is not merely determined by the relation of the profit made in one single turn-over to the advanced capital-value, but also by the length of the time of turn-over itself, so that it is a question of a profit realised on the industrial capital in definite periods of time. This likewise appears in the case of interest-bearing capital in the outward fact, that a definite interest is paid to the lender for a definite period of time.

With his customary insight into the internal connection of things, the romantic Adam Müller says ("Elemente der Staatskunst," Berlin, 1809, p. 37): "In determining the prices of things, time is not considered; while in the determination of interest, it is principally time which is taken into account." He does not see that the time of production and the time of circulation enter into the determination of the price of commodities, and that this is precisely what determines the rate of profit for a given time of turn-over of capital, while the determination of profit for a certain time in its turn determines that of interest. His sagacity consists here, as it always does, in seeing the clouds of dust on the surface and having the presumption to declare this dust to be something mysterious and important.

CHAPTER XXII.: DIVISION OF PROFIT. RATE OF INTEREST. NATURAL RATE OF INTEREST.↩

THE object of this chapter, and in general all other phenomena of credit requiring our consideration later on, cannot here be analysed in detail. The competition between lenders and borrowers and the resulting minor fluctuations of the money-market fall outside of the scope of our inquiry. The circle described by the rate of interest during the industrial cycle requires for its presentation the analysis of this cycle itself, but this is likewise beyond our intentions for the present. The same is true of the greater or lesser approximate equalisation of the rate of interest in the world market. We merely intend here to analyse the independent form of interest-bearing capital and the individualisation of interest as differentiated from profit.

Since interest is merely a part of profit, paid according to our assumption by the industrial capitalist to the money-capitalist, the maximum limit of interest is marked by profit itself, and in that case the portion pocketed by the productive capitalist would be equal to zero. Aside from exceptional cases, in which interest might be actually larger than profit and could not be paid out of profit, one might consider as the maximum limit of interest the entire profit minus that portion (to be subsequently analysed), which resolves itself into wages of superintendence. The minimum limit of interest is wholly undefinable. It may fall to any depth. But counteracting circumstances will always appear and lift it again above this relative minimum.

"The relation between the amount paid for the use of some capital and this capital itself expresses the rate of interest, measured in money." "The rate of interest depends, 1), on the rate of profit; 2), on the proportion in which the total [422] profit is divided between the lender and the borrower." (Economist, January 22nd, 1853.) "Since that which is paid as interest for the use of that which is borrowed is a part of the profit, which the borrowed is able to produce, this interest must always be regulated by that profit." (Massie, l. c., p. 49.)

Let us first assume, that a fixed relation exists between the total profit and that one of its parts, which has to be paid as interest to the money-capitalist. In this case it is evident, that the interest will rise or fall with the total profit, and this profit is determined by the general rate of profit and its fluctuations. For instance, if the average rate of profit were 20% and the interest one-quarter of the profit, then the rate of interest would be 5%; if the rate of profit were only 16%, the rate of interest would be 4%. With a rate of profit of 20%, the rate of interest might rise to 8%, and yet the industrial capitalist would still make the same profit as he would with the rate of profit at 16% and the rate of interest at 4%, namely 12%. If the interest should rise only to 6 or 7%, he would keep a still larger share of the profit. If the interest amounted to a constant quota of the average profit, it would follow, that to the extent that the general rate of profit would rise, the absolute difference between the total profit and the interest would increase, and to the same extent would that portion of the total profit increase, which the productive capitalist would pocket, and vice versa. Take it that the interest amounts to one-fifth of the average profit. One-fifth of 10 is 2; difference between total profit and interest 8. One-fifth of 20 is 4; difference 20-4 = 16. One-fifth of 25 is 5; difference 25-5 = 20. One-fifth of 30 is 6; difference 30-6 = 24. One-fifth of 35 is 7; difference 35-7 = 28. The different rates of interest of 4, 5, 6, 7% would in this case always represent one-fifth of the total profit. If the rates of profit are different, then different rates of interest may represent the same aliquot parts of the total profit, or the same percentage of the total profit. With such constant proportions of interest, the industrial profit (the difference between the total profit and the interest) would be so much greater, the [423] higher the average rate of profit would be, and vice versa.

Assuming all other conditions to be equal, in other words, assuming the proportion between interest and total profit to be more or less constant, the productive capitalist will be able and willing to pay a higher or lower interest directly proportional to the level of the rate of profit.62 Since we have seen, that the height of the rate of profit is inversely proportional to the development of capitalist production, it follows that the high or low rate of interest in a certain country is to the same extent inversely proportional to the degree of industrial development, at least so far as differences in the rate of interest actually expresses differences in the rates of profit. And this mode of regulating interest applies even to its average.

In any event the average rate of profit is the ultimate limit determining the maximum limit of interest.

The fact that the rate of interest is related to the average profit will be considered more at length immediately. Whenever a certain whole, such as profit, is to be divided between two parties, the first thing to be considered is the magnitude of the whole. The magnitude of the profit is determined by its average rate. Assuming the average rate of profit, and thus the magnitude of profit, for a capital of a certain size, to be given (for instance 100), it is evident that the variations of interest will be inversely proportional to those of the profit remaining in the hands of the capitalist working with a borrowed capital. And the circumstances, which determine the amount of profit to be divided (the values produced by unpaid labor), differ widely from those, which determine its distribution between these two kinds of capitalists, and frequently produce effects in opposite directions.63

If we observe the cycles of variation, in which modern industry [424] moves along—condition of rest, increasing activity, prosperity, overproduction, crisis, stagnation, condition of rest, etc., which fall outside of the scope of our analysis—we shall find, that a low rate of interest generally corresponds to periods of prosperity, or of extra profit, a rise of interest to the transition between prosperity and its reverse, and a maximum of interest up to a point of extreme usury to the period of crises.64 With the summer of 1843 came a period of remarkable prosperity; the rate of interest, which had still been 4½% in the spring of 1842, fell to 2% in the spring and summer of 1843;65 in September it fell even to 1½%. (Gilbart, I, p. 166); whereupon it rose to 8% and more during the crisis of 1847.

It may happen, however, that low interest is found in times of stagnation, and moderately rising interest in times of increasing activity.

The rate of interest reaches its highest point during crises, when money must be borrowed in order to meet payments at any cost. Since a rise of interest implies a fall in the price of securities, this offers at the same time a fine opportunity to people with available money-capital, who may acquire possession at cut-rate prices of such interest-bearing securities as must at least regain their average price in the regular course of things, as soon as the rate of interest falls again.66

However, there is also a tendency of the rate of interest to fall, quite independently of the fluctuations of the rate of profit. This is due to two main causes.

I. "Let us assume that capital were never borrowed for [425] any other but productive investments, it is nevertheless possible, that the rate of interest may vary without any change in the rate of gross profits. For, as a people progresses in the development of wealth, there arises and grows more and more a class of people, who find themselves possessed of funds through the labors of their ancestors, and who can live on the mere interest on them. Many, having actively participated in business in their youth and prime, retire, in order to live quietly in their old age on the interest of the sums accumulated by them. These two classes have a tendency to increase with the growing wealth of the country; for those who start out with a moderate capital acquire more easily an independent fortune than those, who start out with little. In old and rich countries, therefore, that portion of the national capital, whose owners do not care to invest it themselves, makes up a larger proportion of the total productive capital of society than in newly settled and poor countries. How numerous is not the class of annuity-holders in England! In proportion as the class of annuity-holders increases, that of the capital loaners increases also, for they are both the same." (Ramsay, Essay on the Distribution of Wealth, p. 201)

II. The development of the credit system, and with it the continually growing control of the industrials and merchants over the money savings of all classes of society by the co-operation of bankers, and the progressive concentration of these savings into such volumes as will enable them to serve as money-capital, must also depress the rate of interest some-what. We shall discuss this more at length later.

With reference to the determination of the rate of interest, Ramsay says that it "depends in part on the rate of gross profits, in part on the proportion in which this is divided into interest and profits of enterprise. This proportion depends on the competition between lenders and borrowers of capital. This competition is influenced, but not exclusively regulated, by the prospective rate of gross profits.67 Competition is [426] not exclusively regulated thereby, because on one side many are borrowing without any intention of productive investment, and because on the other the magnitude of the total loanable capital changes with the wealth of the country, independently of any change in the gross profits." (Ramsay, 1. c., p. 206, 207.)

In order to find the average rate of interest, it is necessary, 1), to calculate the average rate of interest during its variations in the great industrial cycles; 2), to find the rate of interest in such investments as require loans of capital for a long time.

The average rate of interest prevailing in a certain country—as differentiated from the continually fluctuating market rates—cannot be determined by any law. In this sense there is no such thing as a natural rate of interest, such as economists speak of when mentioning a natural rate of profit and a natural rate of wages. Massie has justly said with reference to this (p. 49): "The only thing which any man can be in doubt about on this occasion, is, what proportion of these profits do of right belong to the borrower, and what to the lender; and this there is no other method of determining than by the opinions of borrowers and lenders in general; for right and wrong, in this respect, are only what common consent makes so." The balancing of demand and supply—assuming the average rate of profit to be a fact—does not signify anything here. Wherever else this formula serves as an excuse (and is then practically correct) it is used to find the fundamental rule, which is independent of competition and rather determines it, this rule indicating the regulating limits, or the limiting magnitudes, of competition; this formula serves particularly as a help to those, who are bounded by the horizon of practical competition, its phenomena, and the conceptions arising from them, and who try thereby to get a rather shallow grasp of the internal connections of economic conditions within the sphere of competition. It is a method by which to pass from the variations that go with competition to the limits of these variations. This is not so in the case of the average rate of interest. There is no reason [427] by which the idea could be justified, that the average conditions of competition, a balance between lenders and borrowers, should secure for the lender a rate of interest of 3, 4, 5%, etc., on his capital, or a certain percentage of the gross profits, say 20% or 50%. Whenever competition as such determines anything in this matter, its determination is a matter of accident, purely empirical, and only pedantry or fantasticalness can attempt to represent this accidental character as something necessary.68 Nothing is more amusing than to listen in the reports of Parliament of 1857 and 1858 concerning bank legislation and commercial crises to the rambling twaddle of directors of the Bank of England, London bankers, provincial bankers, and theoretical professionals, when referring to "the real rate produced." They never get beyond such commonplaces as that "the price paid by loanable capital probably varies with the supply of such capital," that "a high rate of interest and a low rate of profit cannot exist together in the long run," and similar specious platitudes.69 Custom, legal tradition, etc., have as much to do with the determination of the average rate of interest as competition itself, so far as this rate exists not merely as an average figure, but as an actual magnitude. An average rate of profit has [428] to be assumed as a legal rate even in many law disputes, in which interest has to be calculated. Now, if we press the inquiry, why the limits of an average rate of interest cannot be deduced from general laws, we find the answer simply in the nature of interest. It is merely a portion of the average profit. The same capital appears in two roles, as a loanable capital in the hands of the lender, and as an industrial capital, or commercial capital, in the hands of the investing capitalist. But it performs its function as capital only once, and produces profit only once. In the process of production itself, the loanable nature of this capital does not play any role. To what extent the two parties divide the profit, in which they both share, is in itself as much a purely empirical fact belonging to the realm of accident as the division of the shares of common profit of some corporative business among different share holders by percentages. In the division between surplus-value and wages, on which the determination of the rate of profit essentially rests, the decision is made by two very different elements, labor-power and capital; these are functions of two independent variables, which limit one another; and their qualitative difference is the source of the quantitative division of the produced value. We shall see later that the same takes place in the division of surplus-value between rent and profit. But nothing of the kind occurs in the case of interest. In this case the qualitative differentiation, as we shall see immediately, proceeds rather from the purely quantitative division of the same lot of surplus-value.

From what has gone before it follows that there is no such thing as a "natural" rate of interest. But while, in distinction from the general rate of profit, there is on one side no general law, by which the limits of the average interest, or average rate of interest, may be determined and differentiated from the continually fluctuating market rates of interest, because it is merely a question of dividing the gross profit between two possessors of capital under different titles, there is on the other side the fact that the rate of interest, whether it be the average or the prevalent market rate, appears as a uniform, [429] definite and tangible magnitude in a very different way from the general rate of profit.70

The rate of interest holds a similar relation to the rate of profit as the market price of a commodity does to its value. To the extent that the rate of interest is determined by the rate of profit, it is so always by the general rate of profit, not by any specific rates of profit, which may prevail in some particular lines of industry, and still less by any extra profit, which some individual capitalist may make in some particular line of business.71 It is a fact, then, that the general rate of profit re-appears as an empirical, given, reality in the average rate of interest, although the latter is not a pure or reliable expression of the former.

It is true, that the rate of interest itself differs according to the different classes of securities offered by the borrowers and according to the length of time for which the money is borrowed; but it is uniform within every one of these classes at a given moment. This distinction, then, does not militate against a fixed and uniform shape of the rate of interest.72

[430]

The average rate of interest appears in every country for long epochs as a constant magnitude, because the general rate of profit—in spite of the continual variation of the particular rates of profit, in which a variation in one sphere is offset by an opposite variation in another sphere—varies only in long intervals. Its relative constancy is revealed in this more or less constant nature of the average rate, or common rate, of interest.

As concerns the continually fluctuating market rate of interest, it exists at any moment as a fixed magnitude, the same as the market price of commodities, because all the loanable capital as an aggregate mass is continually facing the invested capital, so that the relation between the supply of loanable capital on one side, and the demand for it on the other, decide at any time the market level of interest. This is so much more the case, the more the development and simultaneous concentration of the credit system impregnates the loanable capital with a general social character, and throws it all at one time on the market. On the other hand, the general rate of profit always exists as a mere tendency, as a movement to compensate specific rates of profit. The competition between capitalists—which is itself this movement toward an equilibrium—consists in this case in their activity of gradually withdrawing capital from spheres, in which the profit stays for a long time below the average, and in the same way taking capital into spheres, in which the profit is above the average. Or it may also consist in their distributing additional capital gradually and in varying proportions between these spheres. It is always a matter of a continual variation between supply and demand of capital with reference to different spheres, never a simultaneous mass effect, as it is in the determination of the rate of interest.

We have seen that interest-bearing capital, although a category absolutely different from a commodity, becomes a peculiar commodity, so that interest becomes its price, which [431] is fixed at any time by supply and demand, just as the market price of an ordinary commodity is fixed. The market rate of interest, while continually oscillating, appears therefore at any moment just as constantly fixed and uniform as the prevailing market price of commodities. The money-capitalists offer this commodity, and the investing capitalists buy it and make a demand for it. This does not take place in the equalisation of profits toward a general rate of profit. If the prices of commodities in a certain sphere are below or above the price of production (leaving aside any oscillations, which are found in every business and are due to fluctuations of the industrial cycles), a balance is effected by an expansion or restriction of production. This signifies an expansion or restriction of the quantities of commodities thrown on the market by industrial capitalists, by means of immigration or emigration of capital to and from particular spheres. It is by such a compensation of the average market prices of commodities to prices of production that the deviations of specific rates of profit from the general, or average, rate of profit are corrected. This process does not, and cannot, at any time assume the appearance as though the industrial or mercantile capital as such were commodities seeking a buyer, but it does in the case of interest-bearing capital. To the extent that this process is perceptible, it is so only in the oscillations and compensations of the market prices of commodities to prices of production, not in any direct fixation of the average profit. The general rate of profit is actually determined, 1), by the surplus-value produced by the capital; 2), by the proportion of this surplus-value to the value of the total capital; and, 3), by competition, but only to the extent that this is a movement, by which capitals invested in particular spheres seek to draw equal dividends out of this surplus-value in proportion to their relative magnitudes. The general rate of profit, then, derives its determination actually from causes, which are quite different and far more profound than those of the market rate of interest, which is directly and immediately determined by the proportion between supply and demand. It is, therefore, not such a tangible [432] and obvious fact as the rate of interest. The particular rates of interest in the different spheres of production are themselves more or less unsettled; but so far as they are perceptible, it is not their uniformity, but their differences, which appear. The general rate of profit itself appears only as the minimum limit of profit, not as the empirical and directly visible shape of the actual rate of profit.

In emphasizing this difference between the rate of interest and the rate of profit, we still leave out of consideration the following two circumstances, which favor the consolidation of the rate of interest: 1), The historical pre-existence of interest-bearing capital and the existence of a traditionally sanctioned general rate of interest; 2), the far greater direct influence exerted by the world market on the fixation of the rate of interest, independently of the economic conditions of a certain country, compared to its influence on the rate of profit.

The average profit does not appear as a directly existing fact, but merely as a final result of the compensation of opposite fluctuations, to be ascertained by analysis. Not so the rate of interest. It is, at least in its local validity, a daily fixed thing, a fact which serves even to industrial and mercantile capitals as a prerequisite and figure in their calculations. It becomes a general faculty of every sum of money of 100 pounds sterling to yield 2, 3, 4, 5%. Meteorological reports do not register the stand of the barometer and thermometer more accurately than the reports of the Bourse do the stand of the rate of interest, not for this or that capital, but for the money-capital on the market, for the available loanable capital in general.

On the money market only lenders and borrowers face one another. The commodity has the same form, money. All specific forms of capital according to its investment in particular spheres of production or circulation are here blotted out. It exists here in the undifferentiated, homogenous, form of independent value, money. The competition of the individual spheres ceases here. They are all thrown together as borrowers of money, and capital likewise faces all of them in [433] a form, in which it is as yet indifferent to its definite investment in this or that specific manner. The character worn by industrial capital only in its movement and competition between individual spheres, the character of a common capital of a class comes into evidence here in full force by the demand and supply of capital. On the other hand, money-capital on the money market has actually that form, in which it may be distributed as a common element among the capitalists in the various spheres, regardless of its specific employment, as the requirements of production in each individual sphere may dictate. Add to this that with the development of large scale industry money-capital, so far as it appears on the market, is not represented by some individual capitalist, not by the owner of this or that fraction of the capital on the market, but assumes more and more the character of an organised mass, which is far more directly subject to the control of the representatives of social capital, the bankers, than actual production is. Under these circumstances, not only the demand for loanable capital is expressed with the full force of a class, but also its supply appears as loanable capital in masses.

These are some of the reasons, why the general rate of profit appears as a vanishing shape of mist compared to the definite rate of interest, which, while fluctuating in its magnitude, yet faces all borrowers as a fixed fact, because it varies uniformly for all of them. In like manner the variations in the value of money do not prevent it from having the same value for all commodities. In like manner the market prices of commodities fluctuate daily, yet this does not prevent them from being reported daily. In like manner, the rate of interest is regularly reported as "the price of money." It is so for the reason that capital itself is here offered in the form of money as a commodity. The fixation of its price is thus a fixation of its market price, as it is with all other commodities. Thus the rate of interest always appears as the general rate of interest, as so much for so much money, as a definite quantity. Not so the rate of profit. It may vary even within the same sphere for commodities with the same [434] price, according to the different conditions under which different capitals produce the same commodity. For the rate of profit of the individual capital is determined, not by the market price of a commodity, but by the difference between the market-price and the cost-price. And these different rates of profit, first within the same sphere and then between different spheres themselves, can be balanced only by continual fluctuations.

(Note for later elaboration): A specific form of credit. It is known that when money serves as a means of payment instead of as a means of purchase, the commodity is transferred, but its value is not realised until later. If payment is not made until after the commodity has again been sold, then this sale does not seem to be the result of the purchase, but it is by this sale that the purchase is realised. In other words, the sale becomes a means of purchase.—Secondly; Titles to debts, bills of exchange, etc., become means of payment for the creditor.—Thirdly: The compensation of titles to debts replaces the money.

CHAPTER XXIII.: INTEREST AND PROFIT OF ENTERPRISE.↩

INTEREST, as we have seen in the two preceding chapters, seems to be originally, is originally, and remains in fact merely a portion of profit, of surplus-value, which the investing capitalist, whether industrial or commercial, has to pay over to the owner and lender of money-capital whenever he uses loan capital instead of his own. If he employs only his own capital, no such division of profit takes place; it is all his. In fact, to the extent that the owners of capital employ it themselves in the process of reproduction, they do not compete in the determination of the rate of interest. This alone shows that the category of interest, an impossibility without a determination of the rate of interest, is alien to the movements of industrial capital itself.

[435]

"The rate of interest may be defined to be that proportional sum which the lender is content to receive, and the borrower to pay, for a year or for any longer or shorter period for the use of a certain amount of moneyed capital...when the owner of capital employs it actively in reproduction, he does not come under the head of those capitalists, the proportion of whom, to the number of borrowers, determines the rate of interest." (Th. Tooke, History of Prices, Newmarch ed. London, 1857, II, p. 355.) It is indeed only the separation of capitalists into money-capitalists and industrial capitalists, which transforms a portion of the profit into interest, which creates the category of interest at all; and it is only the competition between these two kinds of capitalists which creates the rate of interest.

So long as capital serves in the process of reproduction—even assuming that it belongs to the industrial capitalist himself, so that he has no need of paying it back to some lender—just so long the capitalist has at his disposal as a private individual, not this capital itself, but only the profit, which he may spend as revenue. So long as his capital performs the functions of capital, it belongs to the process of reproduction, it is tied up in that process. He is indeed its owner, but this ownership does not enable him to dispose of it in some other way, so long as he uses it as capital for the exploitation of labor. It is the same with the money-capitalist. So long as his capital is loaned out and serves as money-capital, it brings him as interest a portion of the profit, but he cannot dispose of the principal. This becomes evident, whenever he loans his capital, say, for one year, or longer, and receives interest at certain stipulated times without recovering his principal. But even the return of the principal does not make any difference here. If he gets it back, then he must always loan it out again, so long as he expects it to produce the effects of capital, in this case of money-capital, for him. While he is keeping it in his own hands, it collects no interest, it does not act in the capacity of capital; and so long as it gathers interest and serves as capital, it is not in his hands. This accounts for the possibility to loan capital for all eternity. [436] The following remarks of Tooke against Bosanquet are, therefore, entirely wrong. He quotes Bosanquet (Metallic, Paper, and Credit Currency, p. 73): "If the rate of interest were depressed to 1%, then borrowed capital would be almost on a par with owner's capital." Tooke makes the following comment on this: "That a capital borrowed at this, or even at a lower rate, should be considered as being almost on a par with one's own capital is such a strange contention, that it would hardly deserve any serious consideration, did it not come from so intelligent a writer, who is so well informed on particular points of his subject. Has he overlooked the fact, or does he hold it to be so unimportant, that his assumption implies the condition of return payment?" (Th. Tooke, An Inquiry into the Currency Principle, 2nd. edition, London, 1844, p. 80.) If interest were equal to zero, then the industrial capitalist working with a borrowed capital would be on a par with a capitalist working with his own capital. Both of them would pocket the same average profit, and capital, whether borrowed or the owner's, serves as capital only to the extent that it produces profit. The condition of return payment would not alter this in the least. The more the rate of interest approaches zero, falling, for instance, to 1%, the more borrowed capital is placed on a par with owner's capital. So long as money-capital is expected to act in the capacity of money-capital, it must always be loaned out again and again, and this must take place at the prevailing rate of interest, say 1%, and always to the same class of industrial and commercial capitalists. So long as these perform the functions of capitalists, the only difference between one working with a borrowed and one working with his own capital is that the one has to pay interest and the other has not; that the one pockets the whole profit p, and the other only p—i, profit minus interest. To the extent that the interest approaches zero, p—z becomes equal to p, and to the same extent do both capitals stand on a par. The one must pay back the capital and borrow it again; but the other, so long as his capital is expected to perform its function, must likewise advance it again and again to the process of production [437] and cannot dispose of it freely without any dependence upon this process. The only remaining difference between the two is the obvious one that the one is the owner of his capital and the other is not.

The question which arises here is this: How is it that this purely quantitative division of profit into net profit and interest turns into a qualitative one? In other words, how is it that even the capitalist who employs only his own capital, and not a borrowed one, ranges a portion of his gross profit under the specific category of interest and calculates it separately as such? And furthermore, why is all capital, whether borrowed or not, differentiated in itself as interest-bearing capital from net profit producing capital?

It is understood that not every accidental quantitative division of profit turns in this manner into a qualitative one. For instance, some industrial capitalists associate for some business and divide the profits among themselves according to some legal agreement. Others carry on their business, each by himself, without any associate. These last do not calculate their profit under two heads, one part as individual profit, the other as profits of the company for associates who do not exist. In this case the quantitative division does not turn into a qualitative one. It takes place, when the ownership is vested accidentally in several juridical personalities. It does not take place, when this is not the case.

In order to answer this question, we must dwell a little longer on the actual point of departure of the formation of interest; that is, we must take our departure from the assumption, that the money-capitalist and the industrial capitalist really face one another, not merely as legally different persons, but as persons playing entirely different roles in the process of reproduction, or as persons in whose hands the same capital really passes through a twofold and wholly different movement. The one merely loans it, the other employs it productively.

For the productive capitalist, who works with a borrowed capital, the gross profit falls into two parts, namely into the interest to be paid by the lender and the surplus over the interest [438] forming his own share of the profit. If the general rate of profit is given, then this last portion is determined by the rate of interest; if the rate of interest is given, then this last portion is determined by the general rate of profit. And furthermore: Whatever may be the divergence in any individual case of the gross profit, the actual magnitude of value of the total profit, from the average profit, it does not alter the fact that the portion belonging to the investing capitalist is determined by the interest, since this is fixed by the general rate of interest (aside from special legal stipulations) and assumed to be paid beforehand, before the process of production begins, and before its result, the gross profit, has been made. We have seen that the peculiar and specific product of capital is surplus-value, or more closely defined, profit. But for the capitalist working with a borrowed capital it is not the profit, but the profit minus the interest, that portion of the profit which remains for him after the interest has been deducted. This portion of the profit necessarily appears to him as the product of a capital performing its function; and so far as he is concerned it is really so, because he is the representative of capital in action. He is its personification to the extent that it is in function, and it performs its function to the extent that it is profitably invested in industry or commerce and engaged, through its employer, in such operations as are prescribed by the line of its industry. In distinction from interest, which he has to pay out of the gross profits to the lender, the remaining portion of the profit, which he pockets, necessarily assumes the form of industrial or commercial profit, or, to designate it by a term comprising both of them, the form of profit of enterprise. If the gross profit is equal to the net profit, then the magnitude of this profit of enterprise is exclusively determined by the rate of interest. If the gross profit varies from the average profit, then its difference from the average profit (after deducting the interest from both of them) is determined by all constellations causing a temporary deviation, either of the rate of profit in any particular sphere from the general rate of profit, or of the profit made by some individual capitalist [439] in a certain sphere from the average profit of this sphere. Now, we have seen, that the rate of profit within the process of production itself does not depend merely on the surplus-value, but also on many other circumstances, for instance, on the purchase prices of the means of production, on methods more productive than the average, on economies in constant capital, etc. And aside from the price of production, it depends on special constellations of the market, and in every business transaction on the greater or lesser smartness and thrift of the individual capitalists, whether, and to what extent, a man will buy or sell above or below the price of production and thus appropriate in the process of circulation a greater or smaller portion of the total surplus-value. At any rate the quantitative division of the gross profit turns here into a qualitative one, and it does so all the more as the quantitative division itself depends on the nature of thing that is to be divided, on the manner in which the capitalist manages his capital, and on the amount of gross profit it yields for him in his capacity as active capitalist. The investing capitalist is here assumed not to be the owner of the capital. The ownership of capital is vested in the money-capitalist, who stands opposed to him. The interest, which he pays to the lender, thus appears as that portion of the gross profit, which is absorbed by the ownership of capital as such. In distinction therefrom, that portion of the profit, which falls to the share of the investing capitalist, appears then as profit of enterprise, arising solely from the operations, or functions, which he performs with the capital in the process of reproduction, particularly of those functions, which he performs as the impersonator of enterprise in industry or commerce. From his point of view, the interest appears merely as the fruit of the ownership of capital, of capital "itself" abstracted from the process of capital in reproduction, of a capital not "working," not performing its function; while profit of enterprise appears to him as the exclusive fruit of the functions, which he performs with the capital, a fruit of the movements and performances of capital, of performances, which appear to him as his own activity as [440] differentiated from the inactivity, the non-participation, of the money-capitalist in the process of production. This qualitative separation of the two portions of gross profit, which makes interest appear as the fruit of abstract capital, of the ownership of capital outside of the process of production, and profit of enterprise as the fruit of capital performing its function in the process of production, of the active role played by the employer of capital in the process of reproduction, this qualitative separation is by no means merely a subjective point of view of the money-capitalist on one side and of the industrial capitalist on the other. It rests upon an objective fact, for the interest flows into the hands of the money-capitalist, the lender, the mere owner of capital, who represents only capital property before the process of production and outside of it; while the profit of enterprise flows only into the hands of the investing capitalist, who is not the owner of the capital.

In this way, both the industrial capitalist working with borrowed capital and the money-capitalist not working himself with his capital play a role, in which a merely quantitative division of the gross profit between two persons having two different legal titles to the same capital and to the profit produced by it turns into a qualitative division. One portion of the profit appears now as interest, as a fruit coming to capital in one of its forms; the other portion appears as a specific fruit of capital in an opposite form, and thus as profit of enterprise. One appears as the fruit of mere ownership of capital, the other as a fruit of the performance of the function of capital, as a fruit of capital in process, of the functions performed by the active capitalist. And this ossification and individualisation of the two parts of the gross profits among themselves, as though they were derived from two essentially different sources, now becomes a fixture for the entire capitalist class and the total capital. And this takes place regardless of whether the capital employed by the active capitalist is borrowed or not, and whether the capital belonging to the money-capitalist is employed by himself or not. The profit of every capital, and consequently the average [441] profit established by a mutual compensation of capitals, is separated into two qualitatively different, separately individualised, and mutually independent parts, to wit, interest and profit of enterprise, both of which are determined by particular laws. The capitalist working with his own capital divides the gross profit into interest due to himself as its owner lending it to himself, and into profit of enterprise due to himself as an active capitalist performing his function, just as does the capitalist working with a borrowed capital. For this division, in its qualitative aspects, it becomes immaterial whether the capitalist really has to divide his profit with another or not. The employer of capital, even when working with his own capital, falls apart into two personalities, into the mere owner of capital and the employer of capital; his capital itself, with reference to the categories of profit which it yields, falls apart into capital property outside of the process of production and yielding interest of itself, and capital in the process of production yielding profit of enterprise through its function in the process.

Interest, then, becomes so firmly established, that it no longer appears as a division of gross profits, to which production is indifferent and which takes place only occasionally when the industrial capitalist works with the capital of some other man. Even when he works with his own capital, his profit is separated into interest and profit of enterprise. Thus a merely quantitative division turns into a qualitative one. It takes place without regard to the fact, whether the industrial capitalist is, or is not, the owner of the capital employed by him. It is no longer a question of different quota of profit assigned to different persons, but of two different categories of profit holding different relations to the capital, being related to different forms of capital.

It is a simple matter, in view of the foregoing remarks, to explain, why this character of qualitative separation becomes established for the total social capital and the entire capitalist class, as soon as the separation of gross profits into interest and profits of enterprise has assumed its qualitative aspect.

1) This follows from the simple empirical circumstance, that the majority of the industrial capitalists, even if in different [442] proportional numbers, work with their own and with borrowed capital, and that the proportion between self-owned and borrowed capital changes in different periods.

2) The transformation of a portion of the gross profits into the shape of interest converts the other portion into profit of enterprise. The latter is indeed but the antagonistic form assumed by the excess of the gross profit over the interest, as soon as interest exists as an independent category. The entire analysis of the problem, how gross profit is differentiated into interest and profit of enterprise, resolves itself into the inquiry, how a portion of the gross profits becomes universally ossified and individualised in the shape of interest. Now, historically, interest-bearing capital exists as a complete, traditional form, and with it interest as a ready subdivision of the surplus-value produced by capital, long before the capitalist mode of production and the conceptions of capital and profit belonging to it existed. Thus it is that popular conception still regards money-capital, interest-bearing capital, as typical capital, as capital par excellence. Thus, also, we find up to the time of Massie the prevailing idea, that it is money as such, which is paid in interest. The fact that loaned capital yields interest, whether it is actually employed as interest or not—even when borrowed only for consumption—lends strength to the idea of the independence of this form of capital. The best proof of the independence, which interest seemed to have with reference to profit and interest-bearing capital with reference to industrial capital, during the first periods of the capitalist mode of production, is that it was not until the middle of the 18th century that Massie, and after him Hume, discovered the fact that interest is but a portion of the gross profit, and that such a discovery was necessary at all.

3) Whether the industrial capitalist works with his own or with borrowed capital, it does not alter the fact that the class of money-capitalists face him as a special class of capitalists, money-capital as an independent form of capital, and interest as the independent form of surplus-value peculiar to this specific capital.

[443]

Qualitatively speaking, interest is surplus-value supplied by the mere ownership of capital, yielded by capital as such, even though its owner remains outside of the process of reproduction. It is surplus-value realised by capital outside of its process.

Quantitatively speaking, that portion of profit, which forms interest, does not seem to be related to industrial or commercial capital as such, but to money-capital, and the rate of this portion of surplus-value, the rate of interest, fortifies this relation. For, in the first place, the rate of interest, despite its dependence upon the general rate of profit, is independently determined, and, in the second place, it appears with all its variations as a fixed, uniform, tangible and always given relation, just like the market-prices of commodities, compared to the intangible rate of profit. If all capital were in the hands of the industrial capitalists, there would be no interest and no rate of interest. The independent form assumed by the quantitative division of gross profit creates the qualitative one. If the industrial capitalist compares himself to the money-capitalist, only his profit of enterprise distinguishes him from the other man, the excess of his gross profit over the average interest, the latter being empirically given by means of the rate of interest. On the other hand, if he compares himself to the industrial capitalist working with his own, instead of borrowed capital, the other differs from him only as a money-capitalist by pocketing the interest instead of paying it over to some one else. On either side the portion of the gross profit differing from the interest appears to him as profit of enterprise, and interest itself as a surplus-value yielded by capital as such, which it would yield even without any productive employment.

This is practically correct for the individual capitalist. He has the choice, whether he wants to invest his capital as an interest-bearing one or as a productive one, regardless of whether it exists in the form of money-capital from the out-set, or whether it has to be converted into money-capital. But to make this conception a general one and apply it to the total capital of society, as some vulgar economists do, who even [444] go so far as to regard this capital as the source of profit, is, of course, preposterous. The idea of a conversion of the total capital of society into money-capital without the existence of people, who shall buy and utilise the means of production, which form the total capital with the exception of relatively small portion existing in the shape of money, is sheer nonsense. It implies the additional nonsense, that capital could yield interest on the basis of capitalist production without performing any productive function, in other words, without producing any surplus-value, of which interest would be but a part; that the capitalist mode of production could run its course without any capitalist production. If an excessively large number of capitalists were to convert their capital into money-capital, it would result in an extraordinary depreciation of money-capital and an extraordinary fall of the rate of interest; many would at once be face to face with the impossibility of living on their interest, and would be compelled to retransform themselves into industrial capitalists. But we repeat that it is a fact for the individual capitalist. For this reason, he necessarily considers that part of his average profit, which is equal to the average interest, as a fruit of his capital as such, apart from the process of production, even when he works with his own capital; and he differentiates from this portion, from this interest, that surplus of the gross profit, which constitutes his profit of enterprise.

4) (A blank in the manuscript.)

We have seen that that portion of the profit, which the investing capitalist has to pay to the mere owner of borrowed capital, converts itself into the independent form of a portion of profit, which all capital as such, whether borrowed or not, yields under the name of interest. How large that portion shall be is determined by the quotation of the average rate of interest. Its origin does not show itself any more in anything but the fact that the investing capitalist, when owner of his capital, no longer competes in the determination of the rate of interest, at least not actively. The purely quantitative division of profit between two persons having different legal titles to it has turned into a qualitative [445] division, which seems to arise from the nature of capital and profit itself. For, as we have seen, as soon as a portion of the profit generally assumes the form of interest, the difference between the average profit and the interest, or the portion of profit exceeding the interest, assumes a form antagonistic to interest, that of profit of enterprise. These two forms, interest and profit of enterprise, exist only as opposites. They are not reduced to the surplus-value, of which they represent proportional parts cast in different moulds, but are merely referred to one another. Because one portion converts itself into interest, the other portion appears as profit of enterprise.

By profit we always mean average profit here, since the variations of individual profit and of profit in different spheres, due to the fluctuations of the competitive struggle and other circumstances affecting the distribution of the average profit, or surplus-value, do not concern us in this analysis. This applies quite generally to the foregoing inquiry.

Interest is then net profit, as Ramsay calls it, which capital as such yields, either for the mere lender remaining outside of the process of reproduction, or for the owner employing his capital productively. For this latter capitalist also, capital yields this net profit, not in his capacity as a productive capitalist, but of money-capitalist and lender of his own capital as an interest-bearing one to himself as an investing capitalist. Just as the conversion of money, and of value in general, into capital is the constant result of capitalist production, so its existence in the form of capital is its constant prerequisite. By its ability to transform itself into means of production, it commands continually unpaid labor and thereby transforms the process of production and circulation of commodities into a production of surplus-value for its owner. Interest is, therefore, merely the expression of the fact, that value in general, in other words, value representing materialised labor in its general social form, or value assuming the form of means of production in the actual process of production, faces living labor-power as an independent power, and is a means of appropriating unpaid labor; and that [446] it is such a power, because it represents the property of another in opposition to the laborer. But on the other hand, this opposition to wage-labor is obliterated in the form of interest; for interest-bearing capital as such has not wage-labor, but productive capital for its object. The lending capitalist faces as such the capitalist performing his actual function in the process of reproduction, not the wage-worker, who is expropriated from the means of production under capitalist production. Interest-bearing capital represents capital as ownership compared to capital as a function. But to the extent that capital does not perform its function, it does not exploit the laborers and does not come into opposition to labor.

On the other hand, profit of enterprise is not in opposition to wage-labor, but only to interest.

1) Assuming the average profit to be given, the rate of profit on enterprise is not determined by wages, but by the rate of interest. It is high or low inversely as the rate of interest is.73

2) The investing capitalist derives his claim to profits of enterprise, and consequently the profit of enterprise itself, not from his ownership of capital, but from its production function as distinguished from the form, in which it is only inert property. This appears as an obviously existing contrast, whenever he is working with a borrowed capital, so that interest and profits of enterprise each go to different persons. The profit of enterprise arises from the function of capital in the process of reproduction, it is a result of the operations by which the investing capitalist promotes this function of industrial and commercial capital. But to be a representative of invested capital is not a sinecure like the representation of interest-bearing capital. On the basis of capitalist production, the capitalist directs the processes of production and circulation. The exploitation of productive labor requires exertion, whether he performs it himself or has it performed by some one else in his name. In distinction from interest, his profit of enterprise appears to him as independent [447] of the ownership of capital, it seems to be the result of his function as a non-proprietor—a laborer.

Under these circumstances his brain necessarily conceives the idea, that his profit of enterprise, far from being in opposition to wage-labor and representing only the unpaid labor of others, is rather itself wages of labor, wages of superintendence of labor. These wages are superior to those of the common laborer, 1) because they pay for more complicated labor, 2) because the capitalist pays them to himself. The fact that his function as a capitalist consists in creating surplus-value, which is unpaid labor, and to create it under the most economical conditions, is entirely forgotten over the contrast, that the interest falls to the share of the capitalist, even if he does not perform any capitalist function and is merely the owner of capital; and that, on the other hand, the profit of enterprise falls to the share of the investing capitalist, even if he is not the owner of the capital, which he employs. The antagonistic form of the two parts, into which profit, or surplus-value is divided, leads him to forget, that both parts are surplus-value, and that this division does not alter the nature, origin, and living conditions of surplus-value.

In the process of reproduction, the investing capitalist represents capital as the property of another in opposition to the wage-laborers, and the money-capitalist, represented by the investing capitalist, shares in the exploitation of labor. The fact, that the investing capitalist can perform his function or employ means of production as capital only as the personification of the means of production in opposition to the laborers, is forgotten over the antagonism between the function of capital in the process of reproduction and the mere ownership of capital outside of the process of reproduction.

In fact, the forms assumed by the two parts of profit, of surplus-value, when divided into interest and profit of enterprise, do not express their relation to labor, because their relation refers only to themselves and to the profit, or rather to the surplus-value as a whole compared to them as parts of [448] this unit. The proportion in which the profit is divided, and the different legal titles, by which this division is sanctioned, are based on the assumption that profit is already in existence. If, therefore, the capitalist is the owner of the capital, which he employs, he pockets the whole profit, or surplus-value. It is immaterial to the laborer, whether the capitalist pockets the whole profit, or whether he has to pay over a part of it to some other person, who has a legal claim to it. The reasons for dividing the profit among two kinds of capitalists thus turn surreptitiously into reasons for the existence of the surplus-value to be divided, which the capital as such draws out of the process of reproduction quite apart from any subsequent division. Seeing that the interest is opposed to the profit of enterprise, and the profit of enterprise to the interest, that they are both opposed to one another, but not to labor, it follows that both profit of enterprise plus interest, in other words, the total profit, and further the surplus-value, are derived—from what? From the antagonistic form of its two parts! But the profit is produced, before this division takes place, and before there can be any mention of it.

Interest-bearing capital stands the test of such only to the extent that borrowed money is actually converted into capital, and that a surplus is produced with it, of which the interest is a part. But this does not militate against the fact, that the faculty of drawing interest is innate in it outside of the process of production. So does labor-power evince its faculty of producing value only so long as it is employed and materialised in the labor-process; yet this does not argue against the fact, that labor-power is potentially a faculty of creating values, which does not arise out of the mere process of production, but is rather antecedent to it. As a faculty creating value, it is bought. One might also buy it without setting it to work productively. It may be used for purely personal ends, for instance, for personal service, etc. So it is with capital. It is the borrower's affair, whether he employs it as capital, actually setting in motion its inherent faculty of producing surplus-value. What he pays, is in [449] either case the surplus-value inherently latent in the commodity capital.

Let us now consider profit of enterprise more in detail.

Since the specific social faculty of capital under capitalist production, that of being property in the hands of one and yet commanding the labor-power of another, becomes fixed, so that interest appears as a part of the surplus-value produced by capital in this interrelation, the other part of the surplus-value, the profit of enterprise, must necessarily appear as derived, not from capital as such, but from the process of production, separated from its social faculty, which is already expressed as a distinct mode of existence by the term interest in capital. Now, separated from capital, the process of production is simply a labor-process. Hence the industrial capitalist as differentiated from the owner of capital does not appear, in this case, as a functionary of capital, but as a functionary separated from capital, as a simple agent of the labor-process, as a laborer, and specifically as a wage-laborer.

Interest itself expresses precisely the existence of the conditions of labor in the form of capital, in their social antagonism to labor, and in their transformation into personal powers in opposition to labor and dominating it. Interest represents the mere ownership of capital as a means of appropriating the products of the labor of others. But it represents this character of capital as something, which belongs to it outside of the process of production, and which is not by any means a result of the specifically capitalist nature of this process of production itself. Interest places this process in such a light, that it does not seem opposed to labor, but rather without any relation to labor and simply the relation of one capitalist toward another. It thus assumes a form which places it outside of the relation of capital toward labor, and renders it indifferent toward this relation. In interest, then, which is that specific form of profit, in which the antagonistic character of capital assumes an independent form, this is done in such a way, that the antagonism here appears completely [450] obliterated and left out of consideration. Interest is a relation between two capitalists, not between a capitalist and a laborer.

On the other hand, this form of interest bestows upon the other portion of profit the qualitative form of profit of enterprise, and, further on, of wages of superintendence. The specific functions, which the capitalist as such has to perform, and which precisely differentiate him from the laborer and bring him into opposition to the laborer, are presented as mere functions of labor. He creates surplus-value, not because he performs the work of a capitalist, but because he also works aside from his capacity as a capitalist. This portion of surplus-value is thus no longer surplus-value, but its opposite, an equivalent for labor performed. Owing to the fact that the estranged character of capital, its antagonism to labor, has been relegated to a place outside of the actual process of exploitation, namely to the interest-bearing capital, this process of exploitation itself appears as a simple labor process, in which the exploiting capitalist performs merely a different kind of labor than the laborer. In this way the labor of exploitation and the exploited labor both appear as labor, as identical. The labor of exploitation is labor just as well as the labor which is exploited. It is the interest which represents the social form of capital, but it does so in a neutral and indifferent way. It is the profit of enterprise which represents the economic function of capital, but it does so in a way, which takes no cognizance of the definite capitalist character of this function.

In the present case, what passes in the consciousness of the capitalist is quite similar to what passes in the case of the fluctuations for which the capitalist makes allowance in the equalisation of the average profits, as indicated in part II of this volume. These compensating causes, which exert a determining influence on the distribution of the surplus-value, are distorted by the capitalist conception into originating causes and subjective justifications of profit itself.

The conception of profit of enterprise in the shape of wages of superintendence of labor, arising from the antagonism of [451] profit of enterprise to interest, is further strengthened by the fact, that a portion of the profit may indeed be separated, and is separated in reality, as wages, or rather the reverse, that a portion of the wages appear under capitalist production as a separate portion of the profit. Already Adam Smith indicated, that this portion assumes its pure form, independently of profit and wholly separated from it (as the sum of interest and profit of enterprise), and likewise separated from that portion of the profit, which remains in the shape of profit of enterprise after the deduction of the interest, in the salary of the superintendent in those lines of business, whose size, etc., permits a sufficient division of labor to justify a special salary for the labor of a superintendent.

The labor of superintendence and management will naturally be required whenever the direct process of production assumes the form of a combined social process, and does not rest on the isolated labor of independent producers.74 It has, however, a double nature.

On one side, all labors, in which many individuals cooperate, necessarily require for the connection and unity of the process one commanding will, and this performs a function, which does not refer to fragmentary operations, but to the combined labor of the workshop, in the same way as does that of a director of an orchestra. This is a kind of productive labor, which must be performed in every mode of production requiring a combination of labors.

On the other side, quite apart from any commercial department, this labor of superintendence necessarily arises in all modes of production, which are based on the antagonism between the laborer as a direct producer and the owner of the means of production. To the extent that this antagonism becomes pronounced, the role played by superintendence increases in importance. Hence it reaches its maximum in the slave system.75 But it is indispensable also under the [452] capitalist mode of production since then the process of production is at the same time the process by which the capitalist consumes the labor-power of the laborer. In like manner, the labor of superintendence and universal interference by the government in despotic states comprises both the performance of the common operations arising from the nature of all communities and the specific functions arising from the antagonism between the government and the mass of the people.

In the works of ancient writers, who have the slave system under their eyes, both sides of the labor of superintendence are as inseparably combined in theory as they were in practice. So it is also in the works of the modern economists, who regard the capitalist mode of production as the absolute mode of production. On the other hand, as I shall show immediately by an example, the apologists of the modern slave system utilise the labor of superintendence quite as much to justify slavery, as the other economists do to justify the wage system.

The villicus in Cato's time: "At the head of the rural slave community (familia rustica) stood the manager (villicus, derived from villa), who took receipts and made expenditures, bought and sold, received instructions from the master, gave orders and meted out punishment in his absence....The manager occupied naturally a freer position than the other slaves; the Magonian books advise to permit him to marry, raise children, and have his own funds, and Cato recommends that he be married with the female manager; he alone probably had any prospects of being liberated by the master for good behavior. For the rest, all of them formed one common economy....Every slave, including the manager himself, was supplied with his necessities at the expense of his master, in definite periods according to fixed rates, and he had to get along on that. The quantity varied according to labor, and for this reason the manager, whose work was lighter than that of the other slaves, received a smaller ration than the others." (Mommsen, Römische Geschichte, second edition, 1856, I, p. 808-810.)

[453]

Aristotle: "For the master proves himself such not in the buying, but in the employing of slaves." (The capitalist proves himself such, not by the ownership of capital, which gives him the power to buy labor-power, but in the employment of laborers, nowadays of wage laborers in the process of production.) "But there is nothing great about this knowledge. For whatever the slave must be able to perform, the master must be able to order. Whenever the masters are not compelled to drudge at superintendence, the manager assumes this honor, while the masters attend to affairs of state or study philosophy." (Aristotle, Republic, Bekker edition, Book I, 7.)

Aristotle says in plain words, that rulership on the political and economic field imposes upon the powers that be the functions of government, and that they must understand the art of consuming labor-power. And he adds, that this labor of superintendence is not a matter of great moment, and that for this reason the master, who is wealthy enough, leaves the "honor" of this drudgery to an overseer.

The labor of management and superintendence arising out of the servitude of the direct producers has often been quoted in justification of this relation, not because it is a function due to the nature of all combined social labor, but because it is due to the antagonism between the owner of means of production and the owner of mere labor-power, regardless of whether this labor-power is bought by buying the laborer himself, as it is under the slave system, or whether the laborer himself sells his labor-power, so that the process of production is the process by which capital consumes his labor-power. And exploitation, the appropriation of the unpaid labor of others, has quite as often been represented as the reward justly due to the owner of capital for his labor. But it was never better defended than it was by a champion of slavery in the United States, a certain lawyer O'Connor, at a meeting held in New York, on December 19th, 1859, under the slogan of "Justice for the South." "Now, Gentlemen," he said amid great applause, "nature itself has assigned this condition of servitude to the negro. He has the strength and is fit to work; [454] but nature, which gave him this strength, denied him both the intelligence to rule and the will to work. (Applause.) Both are denied to him! And the same nature, which denied him the will to work, gave him a master, who should enforce this will, and make a useful servant of him in a climate, to which he is well adapted, for his own benefit and that of the master who rules him. I assert that it is no injustice to leave the negro in the position, into which nature placed him; to put a master over him; and he is not robbed of any right, if he is compelled to labor in return for this, and to supply a just compensation for his master in return for the labor and the talents devoted to ruling him and to making him useful to himself and to society."

Now, the wage-laborer, like the slave, must have a master, who shall put him to work and rule him. And assuming this relation of master and servant to exist, it is quite proper to compel the wage-laborer to produce his own wages and also the wages of superintendence, a compensation for the labor of ruling and superintending him, "a just compensation for his master in return for the labor and talents devoted to ruling him and to making him useful to himself and to society."

The labor of superintendence and management arising out of the antagonistic character and rule of capital over labor, which all modes of production based on class antagonisms have in common with the capitalist mode, is directly and inseparably connected, also under the capitalist system, with those productive functions, which all combined social labor assigns to individuals as their special tasks. The wages of an epitropos, or régisseur, as he used to be called in feudal France, are entirely differentiated from the profit and assumes the form of wages for skilled labor, whenever the business is operated on a sufficiently large scale to warrant paying such a manager, although our industrial capitalists do not "attend to affairs of state or study philosophy" for all that.

That not the industrial capitalists, but the industrial managers are "the soul of our industrial system," has already [455] been remarked by Mr. Ure.76 So far as the commercial part of the business is concerned, we have said as much as was necessary in the preceding part of this volume.

The capitalist mode of production itself has brought matters to such a point, that the labor of superintendence, entirely separated from the ownership of capital, walks the streets. It is, therefore, no long