,4 and the price of the commodity will amount to 116 . Thus prices have been influenced by the level of wages. A lowering of the prices has been the outcome.The content of Volume 3 of Capital breaks down into two parts:
(1) The development of the rate of profit; and
(2) How it is divided up into different parts: entrepreneur’s profit; commercial profit; interest on loan capital; and ground rent. Most important and decisive is the development of the rate of profit. Once again, this is specifically Marx’s scientific explanation of the profit rate, and to this day it remains the only one.
Volume 3 is the most important and interesting [part of Capital] after Volume 1.
It is written clearly in its theoretical aspect, and if we study it on our own, it will not cause us any special difficulties. To be sure it requires effort in order to follow the how the profit rate develops. But it is not as difficult as the theory of value in Volume 1.
The third volume is especially important because after its publication, great confusion arose. [In some circles] people had the impression that the content of the third volume disproved teachings presented in the first volume.1 As a result there was uncertainty in the circles indicated, which found expression in the allegation that Marx’s theory did not have a solid footing despite the fact that in particular areas it was capable of achieving a great deal.
And so, first of all, development of the rate of profit.
Everyone probably had the impression that the theory of value [in general], not just Marx’s, is the cornerstone of economic life.
Marx’s [theory of value] is, however, distinct from all others. It makes a distinction between two things:
(1) the hidden laws that operate invisibly behind the scenes in the bourgeois economy; and
(2) the outward forms in which those laws reach the consciousness of human beings.
The main thing is the great conversion of the objective laws of the capitalist economy into pictoral representations [Vorstellungen] [showing] how those laws prevail on the surface of that economy: i.e., the way in which the rate of profit is formed.
The value of a commodity is represented by the amount of socially necessary labor embodied in it. How is that represented in capitalist terms?
In a capitalist enterprise how does the value of a commodity arise?
The value of a commodity contains: constant capital[;] The value of labor power: variable capital[;] surplus value.
Those are the distinctions we Marxists make.
Is this representation of value meaningful for the entrepreneur? No. What sticks in his mind as value is what he can stick in his pocket, what he has gained [in profit].
For the capitalist a different way of dividing up the value of the commodity is important, one different from the method of scientific inquiry.
From the capitalist’s point of view we can break down the value of each commodity into the cost price of the commodity, that is, into constant and variable capital, [on the one hand,] and into surplus value [on the other]. That expresses the capitalist point of view. For the capitalist, everything that he has laid out are on one sheet of paper, and on the other, everything he has taken in as an increase [of his capital].
Surplus value in this way has been separated from capital outlays, because the capitalist has put all his outlays together [in one place], and as a result surplus value is viewed in connection with cost price as a whole.
Surplus value, when viewed in connection with total cost price, appears to him to be profit.
What follows from this? That the capitalist has placed surplus value, which he has also placed in his pocket, in a proportional relationship with all the outlays he has made in the production of a commodity. From this it follows [in his view] that surplus value is a result of the application of [his] capital, i.e., that it comes equally from all parts of his capital. Its [real] origin is [thus] veiled. Profit as a FRUIT PRODUCED BY CAPITAL is the result of this conception.
What strengthens the capitalist in this conception? First, he has the experience that he can never produce without means of production. Then there is an additional appearance, that his outlays for wages are placed in the same category with [outlays for] the various other means of production.
Among the means of production are those from which only a small portion goes into the commodity and those that enter into the commodity entirely: that is, raw materials.
For the capitalist, all the costs of the means of production have now been accounted for.
The capitalist probably makes a distinction between the expenditures whose value goes completely into the product and the expenditures he has made that last for a longer period of time. He distinguishes between fixed and circulating capital, that is, between that which is stationary and that which moves around.
Raw materials belong to circulating capital, as do wages.
From the standpoint of this distinction, the [real] origin of surplus value is obscured all the more. The capitalist is reinforced in the conception that the surplus value he obtains has no connection with any one part of his capital. He thinks it comes from the capital as a whole.
What happens when machines are introduced?
Their application means that living labor is displaced. The capitalist shifts part of his variable capital over to constant capital. His surplus value does not become smaller. To the contrary, at first it is even larger. At first he obtains an extra amount of surplus value.
This strengthens him in his conception that profit comes from all the various parts of capital.
Profit [in the view of the capitalist] is that part of the commodity that is obtained over and above the cost price. Only after the sale of the commodity does the capitalist see whether he has obtained a profit. On the market what happens for him is that, depending on supply and demand, he obtains a larger or smaller profit. From this he derives the conception that the profit is the result of the circulation of the commodity, because depending on the conditions of the market he obtains a larger or smaller profit.
The average capitalist receives more profit, the more he succeeds in reducing the cost price. The capitalist makes savings if he succeeds in driving down the wages of the workers, but also if he buys raw materials more cheaply. Thus the more he can drive down the cost price, the more profit he has. This strengthens him in his false conception.
It seems as though the profit of the capitalist is the result of the activity of the capitalist.
Capital appears here as a self-fructifying relationship.
But this is more like the illusion of the capitalist’s thinking.
If I, for example, with a capital of 100 marks, 80 of which go into constant capital and 20 of which go into variable capital, at the same time obtain 20 marks [profit], then it makes no difference, to begin with, whether or not I imagine that I obtained them by means of the entire capital or just the variable capital.
But there is indeed a difference if I express the profit as a percentage.
The rate of surplus value is never the same as the rate of profit. The latter will always be smaller than the rate of surplus value.
This is also not true in reality, as we shall see.
Let us imagine: 5 capitals. Each would amount to 100 marks. These 5 capitals break down in different ways into constant capital [c] and variable capital [v].
1: 80 c + 20 v. Surplus value 100% The surplus value amounts to 20 marks. The value of the products comes to 120 marks, and the rate of profit 20%.
Tables:
In the tables below, it is assumed that the entire constant capital passes over into the new products. This is seldom or never the case [in reality].
| 1st capital: | 80c + 20v, with the rate of surplus value at 100%. Thus surplus value is 20 marks and the value of the products, 120 marks, but the rate of profit is only 20%. |
| 2d capital: | 70c + 30v, the rate of surplus value 100%. Surplus value is 30 marks, the value of the products is 130 marks, and the rate of profit, 30%. |
| 3d capital: | 60c + 40v, with the rate of surplus value 100 %. Thus surplus value is 40 marks, the value of the products is 140 marks, and the rate of profit, 40%. |
| 4th capital: | 85c + 15v, with the rate of [s] 100%. Thus surplus value is 15 marks, the value of the products is 115 marks, and the profit rate 15%. |
| 5th capital: | 95c + 5v, with the rate of surplus value 100%. Thus surplus value is 5 marks, the value of the products is 105 marks, and the profit rate 5%. |
The larger the constant capital and the smaller the variable capital, the smaller the rate of surplus value and the rate of profit will be.
First, the size of the constant capital in the various steps [represented by the 5 different capitals in the above tables] depends on advances in technology in one and the same branch of production. Only after that do other, different branches of production come into consideration.
There are in reality no two enterprises in which the distribution of constant and variable capital is the same.
From this it follows, however, that the various capitalists, depending on which branch of production they invest their capital in and depending on what the level of technology is in that branch of production (with all other things being equal—that is, the degree of intensity of exploitation, the rate of surplus value, etc.) the result comes out differently, depending on the distribution of capital. The different capitalists receive quite different rates of profit.
Even with completely equal rates of surplus value, quite different rates of profit will result.
For the capitalist the rate of surplus value does not exist at all—only the rate of profit.
And so he encounters the following result: the more varied his capital investments are, he finds himself in the peculiar situation of obtaining quite different rates of profit.
But he derives his profit unalterably from the investment of capital.
These dissimilar, or uneven, profit rates would be an abnormality, however, from the standpoint of the capitalist mode of production [as a whole]. To understand how this situation is amended, let us imagine the following:
The 5 different capitals [in the table] belong to one and the same capitalist. What would happen to him when he saw the result [in the form of these] disparate profit rates?
If, for example, a capitalist owns a rolling mill2 and a coal-mining operation, he would by no means get rid of the rolling mill just because he doesn’t make as much profit from it as he does from the coal-mining operation. Because he needs the rolling mill for his coal mining.
And so the capitalist will view his 5 capitals as a single unit of capital and will calculate an average profit from it. He will then observe whether this average profit is as high as that of his colleagues and competitors.
Thus the individual, private capitalist will calculate an average rate of profit. He will regard his separate units of capital as a single whole, see them all together as a single whole, a collective quantity of capital.
How does capitalist society as a whole act [in this regard]?
It acts exactly the same way, except that it does not calculate everything as a collective owner, but it does view itself as equally justified, like every individual capitalist does.
The capitalist will seek to withdraw his capital from the investment that does not bring in as much profit. Other capitalists will do that too. They put their capital into businesses that earn a higher profit. This results in an inflow of capital to those businesses and an outflow from the old businesses from which the capitalists are turning away, and as a result there is a rise in the rate of profit.
A capital inflow results in an increase in production, and therefore a larger market is needed. However, the market is not guided by the amount of capital investment, and hence the capital inflow leads to a lowering of prices.
What will happen in the areas from which there is a capital outflow? A shrinking of production will result. Production will drop, and then there will be an onset of increased demand [because these goods are now in short supply]. Prices will climb, and [with that] the rate of profit will rise.
How far will the rise and fall of the profit rate go on in the two businesses? Until it reaches a middle level.
What helps decide this middle level?
Social demand, and social need. In either case it must be satisfied.
Must we assume that things will constantly go as follows: after prices are driven down in the most profitable branches so that they [no longer] earn abnormally high profits, will the capital flow go back into the old businesses?
In certain branches of production prices must constantly be higher than their value, because otherwise the law of the equal rate of profit would be cancelled out.
The law of the rate of profit or the law of value? That is the chief difficulty to which the various critics of Marx take exception. Certainly Smith and Ricardo were unable to solve this problem.
Is it possible for commodities to be sold at their real value and for everyone to indeed obtain an equal rate of profit? (After all, every commodity requires a different labor input and therefore has a different value.)
To be sure, in every single, separate branch of production upward or downward deviations occur.
But if we take all branches of production together, it turns out that prices all come out in the same way, so that the law of value really does hold true so that prices coincide with value.
The law of value holds true for the system of capitalist production as a whole.
Is this a violation of the law of value? Not at all. Those who take that position obviously proceed from the following [mistaken] conception of the law of value:
[They think it means that] each individual commodity ought to be sold at its value. But can the law of value hold true for anything other than the total amount of social labor?
How could one think, after absorbing the first volume of Capital, that the law of value means that each individual commodity is exchanged in accordance with the amount of labor that was necessary for its production?
The concept of socially necessary labor is the result of the most varied branches of production and individual enterprises conceived of as acting in combination.
It is as if society is an entirety that hangs together despite the anarchy [of production]. The law of value is precisely what holds it together.
The total amount of social labor is decisive in determining the prices of the total number of commodities.
The law of the equal rate of profit is nothing other than the law of value transformed capitalistically.
Postscript on the development of the rate of profit.
The rate of surplus value is the relation of surplus value to variable capital.
The rate of profit is the relation of surplus value to total capital.
Surplus value is the relation of unpaid labor to paid labor.
In the concept of profit the concept of unpaid labor disappears.
The rate of profit blurs over and obscures the source of surplus value.
The concept of the rate of surplus value is the formulation of the relation between capital and labor. The rate of profit is the relation of capital to itself. According to that conception, capital fructifies itself and produces a surplus of its own accord.
Is the transformation of the rate of surplus value into the rate of profit something more than a mere illusion of the capitalists? Yes, it is:
From the concept of the rate of profit it follows as a law for the capitalist mode of production that all capitals of the same size must bring in the same profit.
What practical actions are linked to the various concepts? The capitalists derive profit from the application of capital as a whole. From this it follows that: If it is capital that produces profit, then each individual quantity of capital of the same size must produce the same profit. For [the concept of] surplus value this is incorrect, because it [profit] comes from variable capital. Depending on the size of the latter, the size of the surplus value will vary. The distribution of capital into constant and variable differs depending on the branch of production and the individual business operation. One branch of production will use more dead means of production and less living labor, while for another the opposite is true. That depends on the technological composition of the business in question. The distribution of capital into constant and variable is not exactly the same in one business as in another.
In practice the equal rate of profit for all [individual capitals] holds true. A capital of 100 marks, for example, will bring in as much profit as another capital of 100 marks that is invested in another branch of production and whose division into constant and variable capital differs from the first.
This carrying through [of the equal rate of profit for all units of capital] happens in the following way (see above): one quantity of capital produces more profit in a business than the same amount of capital in another business, and so the second quantity of capital will flow away from the second business and turn its flow toward the first business. And it is not only this one quantity of capital that will do this, but all other capitals of the same size that are earning less profit than the first. As a result, in the business to which the flow of capital is turning, production will rise, and as a result supply will again become greater than demand, and because of that, once again, many goods will not be sold or will be sold at a lower price. In both cases the rate of profit falls. Meanwhile in the second business, which has experienced an outflow of capital, demand becomes greater than supply, and as a result prices rise and the rate of profit becomes higher.
As a result of this constant movement of capital an equal rate of profit is obtained.
This brings about the fact that in some particular branches of production goods are sold regularly at prices below their value and in others they are sold regularly above their value.
The average rate of profit for all capitals thus signifies that the following phenomenon will occur:
Some capitalists, in the rate of profit they obtain, receive less surplus value than they have actually extorted.
Other capitalists receive more surplus value than they have actually extorted.
With each individual capitalist and in each individual branch of production there is thus a distortion of the real state of affairs, which not only results in a different designation but also in a different quantity.
If one views the capitalist class as a whole and the working class as a whole, the law of value applies exactly.
Practice contradicts the theory of value, as long as we have our eyes fixed on the individual enterprise and the individual branches of production. But that is not so when we look at all enterprises as a whole and the working class as a whole.
In practice vulgar economics seems to be right when it says that it depends on the market prices how much surplus value one will receive, not the number of workers [employed].
In the law of the generally equal rate of profit, we find the formulation, or expression, of the class solidarity of the employers as opposed to the workers.
Joint stock companies have created the possibility for capital to flow back and forth with insane speed. On the stock exchange everything can change in a few hours. The quicker that happens, the more rapidly the rate of profit evens out.
The development of the credit system also contributes to the rapid evening out of the rate of profit.
| Capitals | Rate ofsurplus-value | Surplus-value | Rate of profit | Used up c | Value of commodities | Cost price |
| I. 80c + 20v | 100% | 20 | 20% | 50 | 90 | 70 |
| II. 70C + 30v | 100% | 30 | 30% | 51 | 111 | 81 |
| III. 60c + 40v | 100% | 40 | 40% | 31 | 131 | 91 |
| IV. 85c + 15v | 100% | 15 | 15% | 40 | 70 | 33 |
| V. 95c + 5v | 100% | 5 | 5% | 10 | 20 | 15 |
| 390c + 110v | — | 110 | 110% | — | — | — Total |
| 78c + 22v | — | 22 | 22% | — | — | — Average |
| Capitals | Surplus-value | Value of commodities | Cost-price of commodities | Price of commodities | Rate of profit | Divergence of price from value |
| I. 80c + 20v | 20 | 90 | 70 | 92 | 22% | +2 |
| II. 70c + 30v | 30 | 111 | 81 | 103 | 22% | –8 |
| III. 60c + 40v | 40 | 131 | 91 | 113 | 22% | –18 |
| IV. 85c + 15v | 15 | 70 | 55 | 77 | 22% | +7 |
| V. 95c + 5v | 5 | 20 | 15 | 37 | 22% | +17 |
From Volume 3 of Capital by Marx, this page, to the end of this page, this page, this page.3
Does what we have said about socially necessary labor still remain valid or not?
The raw materials that pass over completely into a commodity cost as much as the socially necessary labor put into them. This is expressed in the form of money.
Thus, if the capitalist calculates that he paid so-and-so much for raw materials, for tools, and so on, he is only totalling up the social labor that was necessary to produce those things.
The new value that has been put into the product is always larger than wages. That will also be true in a socialist society. Every human being can create more [MS. Missing words]
Then comes the new value—the human labor that has entered into the product. The new value that has been put into the product is always higher than wages. That will also remain true in socialist society. Most human beings are capable of creating more than is necessary to maintain them.
So the capitalist calculates in addition to his expenditures for raw materials, and so on. [He says to himself:] “I have spent so-and-so much on wages.” In so doing, he is adding a calculation for a part of the surplus value that has been created.
If he now finishes his calculations and gives an expression to the commodity in the form of its price, would he have summed up the real value of the commodity?
No, because an additional portion of human labor has been put into the commodity that was not paid for.
In order to express the real value of the commodity, the capitalist must add to his calculation all the unpaid labor as well, even though he did not spend anything for it.
How does he express this part? What point of departure does he have for doing that?
For this [part] there does not exist any subjective experience [on the part of the capitalist]. It is only from common sense that he has any concept of this. He knows: in his branch of production, one gets a return of 10 percent or 20 percent on what one lays out. He says to himself, “If I did not fight for that percentage, I would be a fool.”
But we know that he is merely adding to his calculations the part of the labor that was not paid for. The value of the commodity now represents socially necessary labor.
What does this average profit have to do with the size of the unpaid labor which has been put into the commodity and which still needs to be taken into account? Does it correspond to the part of the unpaid labor that is still stuck inside the commodity?
Does profit match up with the sum total of unpaid labor?
Not in all cases. Only in those where by chance the rate of profit an individual receives happens to agree with the average rate of profit.
For every individual business the profit will not correspond, but for all commodities taken together it will. If we calculate all commodities together, what is calculated as profit will coincide with the part of socially necessary labor that is unpaid.
This fact is confirmed even if we take into account the fluctuations in prices in a given branch of production.
One question that especially interests us is this: How do wages affect the way prices of commodities may move?
What impact does the movement of wages have on the value and price of commodities?
If food becomes cheaper, wages drop: the employers is then in a position to put more surplus value into his pocket.
That is, the movement of wages affects only the rate of surplus value. That rate changes, or moves, in an opposite way in relation to wages. It rises when wages fall and falls when wages rise.
According to the theory of value, the level of wages does not affect the value of commodities at all.
The capitalist knows what his capital outlays are, and he knows the profit that he is entitled to fight for. Of surplus value he knows absolutely nothing.
Let us assume that we have a branch of production in front of us in which the combination of constant and variable capital coincides with the average [rate of profit].
The average rate of profit would be as follows:
| C | V | Rate of Surplus Value | Profit Rate | Price of Commodity |
| 80 | 20 | 100 | 20 | 120 |
Wages rise 25 percent, and the rate of surplus value drops to 75 percent. The rate of profit will now come to 15 percent instead of 20 percent. The composition of the price [of production is now]: 80c, 25v, and 15 for the rate of profit. Thus it amounts to 120, as before.
| C | V | Rate of Surplus Value | Profit Rate | Price of Commodity |
| 92 | 8 | 100 | 20 | 120 |
[Let there be] an increase in wages of 25 percent. The variable capital would now amount to 10 instead of 8. The cost price would now be 102. Add to that 14 ,4 and the price of the commodity will amount to 116 . Thus prices have been influenced by the level of wages. A lowering of the prices has been the outcome.
| C | V | Increase in Wages | Profit Rate |
| 50 | 50 | 25% | 20% |
The cost price [now amounts to] 112 and ½, [and the rate of profit is] 16 ⅞ percent. When added up, the price of the commodities would come to 129 ⅜. And so [in this case too] prices have risen.
In those branches of production where outlays for wages are higher than the outlays for constant capital, the prices of commodities rise. But in those branches where the outlays for variable capital are lower than the outlays for constant capital, prices fall.
The lowering of prices [in one part of the economy] is counteracted by the raising of prices [in another].
For the totality of all branches of production the rise in prices in one case and the fall in prices in another compensate for one another, and as a whole the outcome will be what theory has shown us. Marx: Capital, Volume 3, this page, Part I.5
If the capitalists say to us in each particular case: Every rise in wages must invariably have the consequence that prices will rise, that would be wrong in that general form. In one case the price rises, but in another it does not. In the one case prices went higher, but in the other they fell.
For capital as a whole there is only one consequence: if wages rise, profits will be smaller.
| C | V | Profit Rate | Price |
| 50 | 50 | 20% | 120 |
Wages rise by 25 percent.
Now:
| C | V | Profit Rate |
| 50 | 62 ½ | 14 % |
Added all together, this comes to 16½ percent, and the price of the commodities will be 128 
. Thus, the price of the commodities have increased. But not as much as the wages, 25 percent, but only by 6½ percent. Wages have here increased by 25 percent, the prices from 120 to 128 , that is, by 6½ percent.
This is proof that the capitalists do not have to increase prices to the exact same extent as the rise in wages. Here the rise in wages was 25 percent, but the increase in prices was only 6½ percent. [This shows] that after all wages are only part of capital.6
| C | V |
| 92 | 8 |
A wage increase of 25 percent. The cost price, 92 plus 10, would come to 102. On top of that we add a profit rate of 14 percent, which gives a price of production amounting to 116 .
That is, the price of production has fallen 3 percent. Wages went up 25 percent, and prices fell 3 percent.
The rate of profit has taken away approximately as much as corresponds to the average variable capital, but here the variable capital is smaller than the constant capital.
These are the results if there is an overall rise in wages or if a general falling-off of wages occurs. Only a general rise or fall can have a standardizing, or regulating, effect on the average rate of profit.
How do things stand if the workers have imposed a wage increase in a particular branch of production? The employer says he will now have to raise prices by such-and-such an amount. Can he really do that? No, [because] for him the average rate of profit is the determining factor as a rule. In order to charge for the wage increase, he would have to push prices way up. The consequence would be that he would price himself out of the market. And the result of that would be that, in order to stick with the old prices, he would have to pocket a smaller profit.
That is the outcome, just as the theory of value has shown. An increase in wages brings with it a reduction in profit.
For society as a whole, what we have learned from the law of value holds true completely.
Let us assume for a moment a case where along with a rise in wages prices also rise. We are taking only one branch of production.
| C | V | Average rate of profit |
| 92 | 8 | 20 |
Wages rise by 25 percent. In this case the average rate of profit is 14 percent.
Now the capital outlays are 102. To that we add the old rate of profit: 20. The result is that the prices of the commodities are 122. Prices have risen exactly as much as wages.
Can this branch of production deal with wages in such a way that it grabs approximately 6 percent more in prices? No, the average rate of profit comes into play. If that did not happen, there would be an immediate inflow of capital into this branch until the rate of profit dropped back down to the average.
[Let us consider another case:]
| C | V | Average rate of profit |
| 50 | 50 | 20 |
An increase in wages of 25 percent. As a result the average rate of profit drops. Capital outlays, taken altogether, are now 112 ½. If the old rate of profit were added to that, it would give 132 ½.
[But] if the old profit rate really was added, again an inflow of capital would take place until the average rate of profit was again established.
The movement of prices does not happen at the will of the capitalists. In setting prices they have to stick with those that correspond by and large to the value of all commodities.
Average:
| C | V | Average rate of profit |
| 80 | 20 | 20 |
Wages have increased by 25 percent. And so capital outlays of 80 plus 25 = 105.
We assume that profit will be calculated at the old rate, and this gives 125 for commodity prices.
[But what] for example, if this should happen in all of Germany? The consequence would be that it would be hit hard on the world market. Because other countries would not accept this price increase, Germany would have to back down. Or else we would experience this phenomenon: To the extent that the German producer found it possible to pursue a dual policy, he would do the following: Inside the country he would charge extra high prices, but on the world market his prices would be as low as possible. That corresponds to the actual policies of the cartels.
| C | V |
| 60 | 40 |
| 70 | 30 |
| 80 | 20 |
| 85 | 15 |
| 95 | 5 |
This table above shows an increase in constant capital and a decline in variable capital. This corresponds to the reality. With the increasing productivity [of labor] constant capital rises at the expense of variable capital.
This succession [the series of numbers, in the table above] is the capitalist expression of the growing productivity of labor.
In general the productivity of labor expresses itself in the fact that less human labor is necessary to produce something. This is expressed in capitalist terms in the fact that constant capital rises at the expense of variable capital.
That is how we arrive at the historical succession showing the development of capital.
The average rate of profit is the [same as] total surplus value, [that is,] as a total amount that is thrown together and then divided up among capitals of equal size.
What movement of the rate of profit is to be expected with the progressive development of capitalist production? Does it indeed proceed in the order of succession shown in the table above?
With the development of capitalist production variable capital becomes smaller and smaller. Surplus value is calculated on the basis of an ever-increasing amount of capital. If productivity rises, surplus value also must rise. But then the increasing productivity of labor results in a decline in the cost of maintaining the existence of the workers.
Variable capital increases absolutely. It declines only relatively to constant capital. The total number of workers increases. For that reason alone the total amount of surplus value must grow.
With regard to the rate of surplus value: the productivity of labor rises as the number of employed workers increases, because technology is also advancing. The rate of surplus value, that is, the relation between surplus value and variable capital, is bound to increase. At the same time it turns out that the rate of profit falls.
Here it becomes evident that the rate of profit is nothing other than a misleading and indeed falsifying way of calculating surplus value.
The general law of the fall in the rate of profit was already known to the classical authors of bourgeois political economy. They could not explain it because they had not calculated surplus value correctly.
Calculated as a percentage, the rate of profit declines.
From this the capitalists draw the conclusion that they will constantly obtain less profit.
But this is [also] true: The rate of surplus value constantly rises.
The first explanation of this phenomenon, so filled with contradictions, was given by Marx. [See] Capital, Vol. 3, Part 1, this page [of the first German edition].7
All roads in political economy lead to the law of value.
It is the cornerstone of [Marxist] political economy. If this [the law of value] is left out, nothing remains of Marx’s doctrine.
By this one can measure the worth of [Eduard] Bernstein’s statement in his Prerequisites of Socialism to the effect that Marx’s doctrine would be very good if only the law of value wasn’t so bad.8
[See Volume 3 of Capital by Marx, Part I,] this page.9 From this passage it follows that Marx assumed the number of capitalists would grow in absolute terms even if capital was being concentrated more quickly. [See] this page, this page until the end of the chapter. [See] this page ff.10
The growing productivity of labor, on the other hand, has the consequence of a constant devaluation of capital. That is, machines are made obsolete by new ones and then have to be reappraised as though they were cheaper.
That is an aspect that tends to stop the falling rate of profit, that is, slows it down.
(Final Section)11
Is it not strange that someone invests his capital and gets back only part of the profit, instead of supplying all of the capital himself and obtaining the entire profit?
Answer: First, if someone lends his capital, it is guaranteed that he will receive a specified [rate of] interest. But if he invests it himself, he does not know whether [or not] he will receive surplus value, or how much surplus value he will receive.
Second, smaller capitals are completely insufficient for making [big] profits. The basis for that becomes constantly larger.
Third, small amounts of capital have the possibility, through the system of interest payments, of becoming profitable. By themselves they were to small to make a profit.
According to what laws is the level of interest determined?
Is interest determined according to some laws based in the production process, for example, the rate of wages, or is it there no definite determining factor?
For relations, or conditions, within the realm of production it makes absolutely no difference whether the capital is one’s own or someone else’s. It is thus a private matter between the two people to whom the given amounts of capital belong. But of course it is not an entirely arbitrary matter.
The demand for capital at any given time and the [available] supply of loan capital determine the level of interest.
What course of motion does interest take from the very outset?
The colossal piling up of capital is what constantly expands the supply on the capital market. That is why the rate of interest is bound to fall. Mark my words: [we are talking about] interest on loans to capitalists.
Ground Rent Theory
Until now we have had two major theoreticians who have expanded [the theory of] ground rent: (1) Ricardo, who was the dominant figure up until Marx; (2) Rodbertus.
What Marx gives us goes beyond them both.
Ricardo knew only differential ground rent. Rodbertus knew only absolute ground rent.12
Marx was the first to distinguish two types of ground rent: (1) absolute ground rent; and (2) differential ground rent.
Conditions in England:
How high must the profit be that a quantity of capital seeks to obtain in agriculture? For example, a tenant farmer.
The profit must be at least as high as the average rate of profit. But in addition, it must also include the ground rent due to the capitalist.
The price of the products from the land must be high enough that, over and above profit, the ground rent can also be paid.
In reality there are also a large number of possibilities that allow, sometimes temporarily, sometimes [MS. Incomplete]
Differential Ground Rent. This results from the differences in fertility of the various pieces of land that are put to agricultural use by various private landowners. The level of the prices for food is so great in agriculture that a certain [amount of] rent must be deducted from it.
Differential ground rent provides extra income for the class of landowners who happen to possess the worst land.
This differential ground rent is naturally subject to a certain amount of fluctuation. If an entirely new [quantity of] land suddenly appears on the world market, so that an entire large quantity of products at a quite insignificant price are thrown [onto it.]
The costs of production are governed at any given time by the poorest type of land. Prices on the world market have fallen.
In the 1880s we experienced a drop in food prices, but on the other hand, since then, food prices have constantly risen. And if we look more closely, we have to say: This is based on the general trend of capitalist society. We will have to expect, unfortunately, that things will be no different [in the future], that prices will continue to rise. The capitalists will hold the line on wages and will want to push them down. That is important for the union movement. From this standpoint, our prospects are not at all rosy. But as realistic politicians, we have to take this into account.13