In Volume 1 we investigated the phenomena exhibited by the process of capitalist production, taken by itself, i.e. the immediate production process, in which connection all secondary influences external to this process were left out of account. But this immediate production process does not exhaust the life cycle of capital. In the world as it actually is, it is supplemented by the process of circulation, and this formed our object of investigation in the second volume. Here we showed, particularly in Part Three, where we considered the circulation process as it mediates the process of social reproduction, that the capitalist production process, taken as a whole, is a unity of the production and circulation processes. It cannot be the purpose of the present, third volume simply to make general reflections on this unity. Our concern is rather to discover and present the concrete forms which grow out of the process of capital’s movement considered as a whole. In their actual movement, capitals confront one another in certain concrete forms, and, in relation to these, both the shape capital assumes in the immediate production process and its shape in the process of circulation appear merely as particular moments. The configurations of capital, as developed in this volume, thus approach step by step the form in which they appear on the surface of society, in the action of different capitals on one another, i.e. in competition, and in the everyday consciousness of the agents of production themselves.
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The value of any commodity C produced in the capitalist manner can be depicted by the formula: C = c + v + s. If we subtract from the value of this product the surplus-value s, there remains a mere equivalent or replacement value in commodities for the capital value c + v laid out on the elements of production.
Let us say that the production of a certain article requires a capital expenditure of £500: £20 for wear and tear of the instruments of labour, £380 for raw materials and £100 for labour-power. If we take the rate of surplus-value as 100 per cent, the value of the product is 400c + 100ν + 100s = £600.
After deducting the surplus-value of £100, there remains a commodity value of £500, and this simply replaces the capital expenditure of £500. This part of the value of the commodity, which replaces the price of the means of production consumed and the labour-power employed, simply replaces what the commodity cost the capitalist himself and is therefore the cost price of the commodity, as far as he is concerned.
What the commodity costs the capitalist, and what it actually does cost to produce it, are two completely different quantities. The portion of the commodity’s value that consists of surplus-value costs the capitalist nothing, for the very reason that it costs the worker his unpaid labour. But since the worker, in the situation of capitalist production, is himself an ingredient of the functioning productive capital that belongs to the capitalist, and the capitalist is therefore the actual commodity producer, the cost price of the commodity necessarily appears to him as the actual cost of the commodity itself. If we call the cost price k, the formula C = c + v + s is transformed into the formula C = k + s, or commodity value = cost price + surplus-value.
When we combine the various portions of commodity value that simply replace the capital value spent in the commodity’s production, under the heading of cost price, we express on the one hand the specific character of capitalist production. The capitalist cost of the commodity is measured by the expenditure of capital, whereas the actual cost of the commodity is measured by the expenditure of labour. The capitalist cost price of the commodity is thus quantitatively distinct from its value or its actual cost price; it is smaller than the commodity’s value, for since C = k + s, k = C — s. On the other hand, however, the cost price of the commodity is by no means simply a category that exists only in capitalist book-keeping. The independence that this portion of value acquires makes itself constantly felt in practice in the actual production of the commodity, as it must constantly be transformed back again into the form of productive capital by way of the circulation process, i.e. the cost price of the commodity must continuously buy back the elements of production consumed in its production.
Yet the category of cost price has nothing to do with the formation of commodity value or the process of capital’s valorization. If I know that five-sixths of a commodity value of £600, i.e. £500, is simply an equivalent, a replacement value, for the capital of £500 that has been spent, and that this is therefore just sufficient to buy back, the material elements of this capital, I still neither know how this five-sixths of the commodity’s value which forms its cost price was produced, nor can I explain the origin of the last sixth that forms its surplus-value. Our investigation will show, however, that cost price does none the less, in the economy of capital, present the false semblance of an actual category of value production.
To return to our example. If we suppose that the value produced by one worker in an average social working day is expressed in a sum of money to the value of 6 shillings, then the capital advanced, £500 = 400c + 100ν, is the value product of 1,666 2/3 of such 10-hour working days, of which 1,333 1/3 working days are crystallized in the value of the means of production, = 400c, and 333 1/3 in the value of the labour-power, = 100ν. Given the rate of surplus-value of 100 which we assumed, the actual production of the new commodity costs for its part an expenditure of labour-power of 100ν + 100s, or 666 2/3 10-hour working days.
We know from Volume 1 (Chapter 9, p. 320) that the value of the product newly formed, in this case £600, is composed of (1) the reappearing value of the constant capital of £400 spent on means of production, and (2) a newly produced value of £200. The cost price of the commodity, £500, comprises the reappearing 400c plus a half of the newly produced value of £200 (100ν), two elements of commodity value that are completely different as far as their origins are concerned.
By the purposive character of the labour spent during these 666 2/3 10-hour working days, the value of the means of production consumed, a total of £400, is transferred from these means of production to the product. This old value reappears therefore as a component of the product’s value, though it does not originate in the production process of this commodity. It exists only as a component of the commodity’s value because it existed previously as a component of the capital advanced. The constant capital that was spent is thus replaced by the portion of commodity value that it itself adds to this commodity value. This element of the cost price has therefore a dual significance. On the one hand it enters into the cost price of the commodity because it is a component of commodity value, and replaces the capital used up; on the other hand it forms a component of this commodity value only because it is the value of capital that has been used up, or because the means of production cost such and such an amount.
It is quite the reverse with the other component of cost price. The 666 2/3 days’ labour expended during the production of the commodity forms a new value of £200. Out of this new value, one part simply replaces the variable capital of £100 that was advanced, or the price of the labour-power employed. But this advance of capital value does not go in any way into the formation of the new value. Within the capital that is advanced, labour-power counts as a value, but in the production process it counts as the creator of value. In place of the value of the labour-power, which is what figures in the capital advance, we have the living, value-creating labour-power that actually functions as productive capital.
The distinction between these various components of commodity value, which together form the cost price, leaps to the eye as soon as there is a change in the value of either the constant or the variable portion of the capital spent. Say that the price of the same means of production, or the constant portion of capital, rises from £400 to £600, or falls conversely to £200. In the first case, it is not only the cost price of the commodity that rises from £500 to 600c + 100ν, = £700 but the commodity value itself also rises from £600 to 600c + 100ν + 100s = £800. In the second case, not only does the cost price fall from £500 to 200c + 100ν = £300 but the commodity value itself falls from £600 to 200c + 100ν + 100s = £400. Because the constant capital that is used up transfers its own value to the product, the value of the product rises or falls, other circumstances remaining the same, just as that capital value does. But let us now assume instead that, with other circumstances still remaining the same, the price of the same amount of labour-power rises from £100 to £150, or falls to £50. In the first case, the cost price of £500 certainly rises to 400c + 150ν = £550, and falls in the second case from £500 to 400c + 50ν = £450. But in both of these cases the commodity value remains unchanged at £600; the first time as 400c + 150ν + 50s and the second time as 400c + 50ν + 150s. The variable capital advanced does not add its own value to the product. In place of its value, it is the new value created by labour that enters the product. Therefore a change in the absolute size of the variable capital, in so far as this expresses simply a change in the price of labour-power, does not change in the least the absolute size of the commodity value, because it does not affect that absolute size of the new value which active labour-power creates. A change of this kind affects only the ratio between the two components of this new value, one of which forms a surplus-value, while the other simply replaces the variable capital and thus enters into the cost price of the commodity.
All that the two portions of the cost price have in common, in our case the 400c and 100ν, is that they are both portions of commodity value which replace capital that was advanced.
From the standpoint of capitalist production, however, this actual state of affairs necessarily appears upside down.
Among other things, the capitalist mode of production is distinguished from the mode of production founded on slavery by the fact that the value or price of labour-power is expressed as the value or price of labour itself, i.e. as wages (Volume 1, Chapter 19). The variable component of the capital value advanced thus appears as capital spent on wages, as a capital value which pays the value or price of all labour spent in production. If we assume for example that an average social working day of 10 hours is embodied in a sum of money of 6 shillings, the variable capital of £100 that is advanced is the monetary expression of a value produced in 333 1/3 10-hour working days. But the value of the labour-power purchased, which figures here in the capital advance, does not form any part of the actually functioning capital. In the production process, it is living labour-power itself that appears in its place. If the rate of exploitation of this labour-power is 100 per cent, as in our example, it is used for 666 2/3 10-hour working days and hence adds to the product a new value of £200. In the capital advance, however, the variable capital of £100 figures as capital laid out on wages, or as the price of the labour performed in these 666 2/3 10-hour working days. £100 divided by 666 2/3 gives us the price of one 10-hour working day as 3 shillings, the value product of 5 hours’ labour.
If we now compare capital advance on the one hand and commodity value on the other, we have:
I. Capital advance of £500 = £400 in capital spent on means of production (price of the means of production) + £100 in capital spent on labour (price of 666 2/3 working days, i.e. wages for the same).
II. Commodity value of £600 = cost price of £500 (£400 price of the means of production + £100 price of the 666 2/3 working days) + £100 surplus-value.
In this formula, the portion of capital laid out on labour is distinguished from that laid out on means of production such as cotton or coal only by the fact that it serves as payment for a materially different element of production and in no way by the fact that it plays a functionally different role in the process of forming commodity value, and therefore also in the valorization process of capital. In the cost price of the commodity there appears once again the price of the means of production, in the shape in which this figured already in the capital advance, and indeed precisely because these means of production were used in a way appropriate to the purpose. In exactly the same way, there appears again in the cost price of the commodity the price or wages for the 666 2/3 working days spent on its production, as this already figured in the capital advance, and again because this amount of labour was used in an appropriate way. What we see here are only finished and existing values – the value portions of the capital advanced which enter the formation of the product’s value – and not an element that creates new value. The distinction between constant and variable capital has disappeared. The entire cost price of £500 now has the dual significance that it is firstly the component of the commodity value of £600 that replaces the capital of £500 consumed in the commodity’s production; and that secondly this component of commodity value itself exists only because it existed formerly as the cost price of the elements of production employed, means of production and labour, i.e. as a capital advance. The capital value returns as the commodity’s cost price, because and in so far as it was spent as a capital value.
The circumstance that the various value components of the capital advanced are laid out on materially distinct elements of production, on means of labour, raw and ancillary materials, and on labour itself, only means that the cost price of the commodity must buy back again these materially distinct elements of production. With respect to the formation of the cost price itself, on the other hand, the only distinction that matters is the distinction between fixed and circulating capital. In our example, the depredation of the means of labour was reckoned at £20 (400c = £20 for depreciation of the means of labour + £380 for materials). If the value of these means of labour was formerly £1,200, before the production of the commodity in question, it exists after this production in two forms, £20 as part of the value of the commodity, and 1,200 – 20 = £1,180 as the remaining value of the means of labour, which is to be found now as before in the capitalist’s possession, not as a value element of his commodity capital but as an element of his productive capital. In contrast to the means of labour, production materials and wages are used up completely in the production of the commodity, so that their entire value enters the value of the commodity produced. We have already seen in connection with the turnover how these different components of the capital advanced assume the forms of fixed and circulating capital.
The capital advanced is therefore £1,680, a fixed capital of £1,200 plus a circulating capital of £480 (= £380 in production materials and £100 in wages).
The cost price of the commodity, on the other hand, is £500 (£20 for depreciation of fixed capital, £480 for circulating capital).
This difference between the cost price of the commodity and the advance of capital is however merely a confirmation that the cost price is formed exclusively by the capital actually used up on the commodity’s production.
In the production of the commodity, means of labour to a value of £1,200 are applied, but out of this capital value that is advanced only £20 is lost in production. The fixed capital applied thus enters into the commodity’s cost price only partially, as it is only partially used up in its production. The circulating capital applied enters the cost price of the commodity completely, because it is completely used up in its production. What does this demonstrate, if not that the fixed and circulating portions of capital that are consumed equally enter the cost price of their commodity in proportion to the magnitude of their value, and that this component of commodity value always derives simply from the capital used up in its production? If this were not the case, there would be no reason why the fixed capital of £1,200 that is advanced should not also add to the value of the product the £1,180 that it does not lose in the production process, instead of just the £20 that it actually does lose.
This difference between fixed and circulating capital, in connection with the calculation of the cost price, thus only confirms the apparent origin of the cost price in the capital value expended, or the price that the expended elements of production, labour included, cost the capitalist himself. As far as value formation is concerned, however, the variable portion of capital, that laid out on labour-power, is expressly identified here with constant capital (the portion of capital consisting of production materials), under the heading of circulating capital, and thus the valorization process of capital is completely mystified.1
So far we have considered only one element of commodity value, the cost price. We must now take a look at the other component, the excess over the cost price or the surplus-value. Surplus-value is at first, therefore, an excess commodity value over and above the cost price. But since the cost price is equal to the value of the capital expended and is also continuously transformed back into the material elements of this capital, this additional value is a value accruing to the capital expended in the production of the commodity and returning from its circulation.
We have already seen how although s, the surplus-value, derives only from a change in the value of v, the variable capital, and is therefore originally simply an increment to the variable capital, it can also, once the production process is completed, form a value increment to c + v, the total capital expended. The formula c + (v + s), which indicates that s is produced by transforming the determinate capital value v advanced in labour-power into a variable magnitude, can also be represented as (c + v) + s. Before production began we had a capital of £500. After production is over, we have the capital of £500 plus a value increment of £100.2
Yet the surplus-value forms an addition not only to the part of the capital advanced that enters the process of valorization, but also to the part that does not enter this process; i.e. a value addition not only to the capital expended that is replaced out of the cost price of the commodity, but also to the capital applied to production in general. Before the production process we had a capital value of £1,680: £1,200 in fixed capital laid out on means of labour, of which only £20 enters the value of the commodity as depreciation, plus £480 circulating capital in production materials and wages. After the production process we have £1,180 as the value component of the productive capital, plus a commodity capital of £600. If we add these two sums of value together, the capitalist now possesses a value of £1,780. If he deducts from this the total capital of £1,680 that he advanced, there remains an additional value of £100. Thus the £100 surplus-value forms as much an addition to the total capital applied of £1,680 as to the fraction of this, £500, that is used up in the course of production.
It is clear enough to the capitalist that this additional value derives from the productive activities which he undertakes with his capital, i.e. that it derives from the capital itself. For after the production process he has it, and before the production process he did not. As far as the capital actually used up in the course of production is concerned, in the first place the surplus-value appears to derive equally from the different value elements of this capital, both means of production and labour. For these elements are both equally involved in the formation of the cost price. They both add their values, present as capital advances, to the value of the product and are not distinguished as constant and variable magnitudes. This becomes evident if we suppose for a moment that all the capital expended would consist either exclusively of wages or exclusively of the value of means of production. In the first case we would then have, instead of the commodity value 400c + 100ν + 100s, a commodity value 500ν, + 100s. The capital of £500 laid out on wages is the value of all the labour applied in the production of the commodity value of £600 and forms for this reason the cost price of the entire product. The formation of this cost price, through which the value of the capital expended reappears as a value component of the product, is however the only process in the formation of this commodity value that we know of. We know nothing of where its surplus-value component of £100 comes from. Exactly the same happens in the second case, where we take the commodity value as 500c + 100s. We know in both cases that the surplus-value derives from a given value because this value was advanced in the form of productive capital, leaving aside the question whether this took the form of labour or that of means of production. Yet the capital value advanced cannot form surplus-value simply by virtue of its having been used up and forming therefore the cost price of the commodity. For to the precise extent that it forms the cost price of the commodity, it does not form any surplus-value, but simply an equivalent, a replacement value, for the capital used up. To the extent that it does form surplus-value, therefore, it forms this not in its specific capacity as capital that has been used up, but rather as advanced and therefore applied capital in general. Surplus-value thus derives as much from the part of the capital advanced that does not enter the cost price of the commodity as from the part of it that does enter the cost price; in short, it derives equally from the fixed and circulating components of the capital applied. In its material capacity, the entire capital serves to form the product, the means of labour as much as the production materials and labour itself. The entire capital is materially involved in the labour process, even if only a part of it is involved in the process of valorization. This is perhaps the very reason why it contributes only in part towards the formation of the cost price, but in full towards the formation of surplus-value. However this might be, the upshot is that the surplus-value springs simultaneously from all parts of the capital applied. The deduction may be substantially abbreviated, as in the clear and simple words of Malthus: ‘The capitalist… expects an equal profit upon all the parts of the capital which he advances.’3
As this supposed derivative of the total capital advanced, the surplus-value takes on the transformed form of profit. A sum of value is therefore capital if it is invested in order to produce a profit,4 or alternatively profit arises because a sum of value is employed as capital. If we call profit p, the formula C = c + v + s = k + s is converted into the formula C = k + p, or commodity value = cost price + profit.
Profit, as we are originally faced with it, is thus the same thing as surplus-value, save in a mystified form, though one that necessarily arises from the capitalist mode of production. Because no distinction between constant and variable capital can be recognized in the apparent formation of the cost price, the origin of the change in value that occurs in the course of the production process is shifted from the variable capital to the capital as a whole. Because the price of labour-power appears at one pole in the transformed form of wages, surplus-value appears at the other pole in the transformed form of profit.
We have already seen that the cost price of a commodity is less than its value. Since C = k + s, k = C — s. The formula C = k + s can be reduced to C = k, commodity value = cost price, only if s = 0, a case that never arises in conditions of capitalist production, even if certain special market conditions may cause the sale price of commodities to fall to their cost price or even below.
If the commodity is sold at its value, a profit is realized that is equal to the excess of its value over its cost price, i.e. equal to the entire surplus-value contained in the commodity value. But the capitalist can sell the commodity at a profit even if he sells it at less than its value. As long as its sale price is above its cost price, even if below its value, a part of the surplus-value contained in it is always realized, i.e. a profit is made. In our example the commodity value is £600, the cost price £500. If the commodity is sold at £510, £520, £530, £560 or £590, it is sold respectively at £90, £80, £70, £40 or £10 below its value, and yet a profit of £10, £20, £30, £60 or £90 is made for all that. An indefinite series of sale prices is evidently possible between the value of a commodity and its cost price. The greater the element of commodity value consisting of surplus-value, the greater the practical room for these intermediate prices.
This not only enables us to explain such everyday phenomena of competition as, for instance, certain cases of under-selling, an abnormally low level of commodity prices in certain branches of industry,5 etc. The basic law of capitalist competition, which political economy has so far failed to grasp, the law that governs the general rate of profit and the so-called prices of production determined by it, depends, as we shall see, on this difference between the value and the cost price of commodities, and the possibility deriving from this of selling commodities below their value at a profit.
The minimum limit to the sale price of a commodity is imposed by its cost price. If it is sold beneath this cost price, the components of productive capital that were expended cannot be fully replaced from the price of sale. If this process continues long enough, the capital value advanced will disappear completely. From this standpoint alone, the capitalist is inclined to treat the cost price as the real inner value of the commodity, as it is the price he needs merely to preserve his capital. Added to this, however, is the fact that the cost price of the commodity is the purchase price which the capitalist has himself paid for its production, i.e. the purchase price determined by the production process itself. The excess value or surplus-value realized with the sale of the commodity thus appears to the capitalist as an excess of its sale price over its value, instead of an excess of its value over its cost price, so that the surplus-value concealed in the commodity is not simply realized by its sale, but actually derives from the sale itself. We have already dealt with this illusion in detail in Volume 1, Chapter 5 (‘Contradictions in the General Formula’) and will simply return for a moment here to the form in which it was given new currency by Torrens and others, as an alleged advance in political economy beyond Ricardo.*
‘The natural price, consisting of the cost of production or, in other words, of the capital expended in raising or fabricating commodities, cannot include the profit… The farmer, we will suppose, expends one hundred quarters of corn in cultivating his fields, and obtains in return one hundred and twenty quarters. In this case, twenty quarters, being the excess of produce above expenditure, constitute the farmer’s profit; but it would be absurd to call this excess, or profit, a part of the expenditure… The master manufacturer expends a certain quantity of raw material, of tools and implements of trade, and of subsistence for labour, and obtains in return a quantity of finished work. This finished work must possess a higher exchangeable value than the materials, tools, and subsistence, by the advance of which it was obtained.’
Torrens concludes from this that the excess of the sale price over the cost price, or the profit, derives from the fact that the consumers ‘either by immediate or circuitous barter give some greater portion of all the ingredients of capital than their production costs’.6
In actual fact, the excess over a given magnitude can in no way form part of that magnitude, and so profit, the excess of a commodity’s value over the capitalist’s outlays, cannot form any part of these outlays. Thus if commodity value is formed without any other element besides the capitalist’s advance of value, there is no way of seeing how any more value is to come out of production than went into it, unless something is to come out of nothing. Torrens manages to evade this creation from nothing only by shifting it from the sphere of commodity production to the sphere of commodity circulation. Profit cannot derive from production, says Torrens, for if it did it would already be included in the costs of production and would not be an excess over and above these costs. Profit cannot derive from commodity exchange, Ramsay answers him, unless it is already present before this exchange takes place.* The sum of values of the products exchanged is evidently not affected by the exchange of the products whose value sum this is. It should also be noted here that Malthus appeals expressly to Torrens’s authority,7 even though he himself explains the sale of commodities above their value in a different way – or rather does not explain it, as all arguments of this kind are unfailingly reducible, in effect, to the same thing as the negative weight of phlogiston, which was so renowned in its time.*
In a social order dominated by capitalist production, even the non-capitalist producer is dominated by capitalist ways of thinking. Balzac, a novelist who is in general distinguished by his profound grasp of real conditions, accurately portrays in his last novel, Les Paysans, how the small peasant eager to retain the good-will of the money-lender performs all kinds of services for him unpaid, yet does not see himself as giving something for nothing, as his own labour does not cost him any cash expenditure. The money-lender for his part kills two birds with one stone. He spares cash expenditure on wages and, as the peasant is gradually ruined by depriving his own fields of labour, he enmeshes him ever deeper in the web of usury.
The unthinking notion that the cost price of the commodity is its real price and that surplus-value springs from selling the commodity above its value, i.e. that commodities are sold at their values when their sale price is equal to their cost price – i.e. equal to the price of the means of production consumed in them, plus wages – has been trumpeted forth by Proudhon with his customary pseudo-scientific quackery as a newly discovered secret of socialism. In fact this reduction of the values of commodities to their-cost prices forms the foundation for his People’s Bank.† We have already shown how the various components of commodity value can be represented by proportionate parts of the product itself. (See Volume 1, Chapter 9, 2, pp. 329–30.) If for example the value of 20 1b. of yarn is 30 shillings, made up of 24s. means of production, 3s. labour-power and 3s. surplus-value, this surplus-value can be represented as one-tenth of the product, or 2 1b. of yarn.
If these 20 1b. of yarn are now sold at their cost price, for 27s., the buyer receives 2 1b. of yarn for nothing, or the commodity is sold at one-tenth below its value. The worker has still performed his surplus labour, but now for the buyer of the yarn instead of for the capitalist yarn producer. It would be quite wrong to suppose that, if all commodities were sold at their cost prices, the result would in fact be the same as if they were all sold above their cost prices but at their values. For even if the value of labour-power, the length of the working day and the rate of exploitation are taken as everywhere the same, yet the amounts of surplus-value that the values of the various different kinds of commodities contain are completely unequal, according to the differing organic compositions of the capitals advanced for their production.8