27 April 2012

The General Rate of Profit


The General Rate of Profit

Capital Volume 3, Part 2, Conversion of Profit into Average Profit

The source of increase under capitalism is surplus value. This is the truth that is revealed in exhaustive detail in Capital, Volume 1, and it is not going to be contradicted here in Volume 3.

But what is called “profit” is not the increase as a whole, but the increase in relation to all costs of production.

Marx’s definition of the rate of profit is “the ratio of surplus labour (s) to necessary labour plus the value of components and materials used in production (v + c) – the capitalist’s costs of production.”

Labour power is paid for at cost, but yields more labour than is required to reproduce labour-power. The extra labour thus found (i.e. surplus labour) generates surplus value

All other inputs such as materials, equipment and general overhead expenses are inert costs that have no regenerative power. They are simply consumed in production and their cost is passed on directly to form part of the commodity price of the resultant product.

Only labour can produce surplus value. All other inputs, even if their cost is passed on in full into the selling-price, neither add nor take away from profit, but go to reduce the overall rate of profit. When labour and the corresponding surplus-value it produces become a smaller proportion of the whole, the rate of profit on the whole outlay is less.

It follows that the only way that profit can be made is by the employment of people. This is in turn is why the threat of employers to employ machinery instead of people is hollow. To make more money, the capitalist must generally employ more people.

The jargon used today is “labour-intensive” versus “capital-intensive”. In a capital-intensive business, the costs of other inputs are higher in proportion to the labour-power employed, and the rate of profit is consequently lower.

This is shown in the table given at the beginning of the well-known Chapter 9 of Volume 3 (download linked below).

This chapter is full of quite simple examples, interspersed with categorical general statements. It is readable to people with a business background.

In general, the chapter is about the development of the overall “economy” out of its individual-capitalist parts, so that we now enter the world of “financial markets”, with an idea of what comes through from the basic relationships and what begins to feed back from the overall (social) level so as to affect individual enterprises.

18 April 2012

The Rate of Profit


The Rate of Profit

Capital Volume 3, Part 1: The Conversion of Surplus-Value into Profit and of the Rate of Surplus-Value into the Rate of Profit

Marx begins Volume 3 as follows:

“In Book I we analysed the phenomena which constitute the process of capitalist production as such, as the immediate productive process, with no regard for any of the secondary effects of outside influences.

“But this immediate process of production does not exhaust the life span of capital. It is supplemented in the actual world by the process of circulation, which was the object of study in Book II. In the latter, namely in Part III, which treated the process of circulation as a medium for the process of social reproduction, it developed that the capitalist process of production taken as a whole represents a synthesis of the processes of production and circulation.

“Considering what this third book treats, it cannot confine itself to general reflection relative to this synthesis. On the contrary, it must locate and describe the concrete forms which grow out of the movements of capital as a whole. In their actual movement capitals confront each other in such concrete shape, for which the form of capital in the immediate process of production, just as its form in the process of circulation, appear only as special instances. The various forms of capital, as evolved in this book, thus approach step by step the form which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves.”

In Chapter 21 of Volume 2 Marx had written:

“Let us note by the way: Once more we find here, as we did in the case of simple reproduction, that the exchange of the various component parts of the annual product, i.e., their circulation …does not by any means presuppose mere purchase of commodities supplemented by a subsequent sale, or a sale supplemented by a subsequent purchase, so that there would actually be a bare exchange of commodity for commodity, as Political Economy assumes, especially the free-trade school since the physiocrats and Adam Smith.”

Like that of the physiocrats and Adam Smith, the “ordinary consciousness of the agents of production themselves” is confined to “the surface of society”. In the journey through Volume 1 and Volume 2, from Marx’s point of departure in the first line of the entire work (“The wealth of those societies in which the capitalist mode of production prevails, presents itself as ‘an immense accumulation of commodities’") we have submarined among the deep and hidden workings of the system, so as to comprehend its true nature. Now, in Volume 3, we are going to emerge again into the visible world, and examine the phenomena that form the conscious narrative of politics, and which inform the subjective reactions of men and women from day to day and year to year.

But we must continue to hold in mind the revelations of Volumes 1 and 2. Marx is still exploring “the secret of the self-expansion of capital”.

In the beginning of Chapter 2 of Volume III, Marx again allows himself to be terse and direct:

“The general formula of capital is M-C-M'. In other words, a sum of value is thrown into circulation to extract a larger sum out of it. The process which produces this larger sum is capitalist production. The process that realises it is circulation of capital. The capitalist does not produce a commodity for its own sake, nor for the sake of its use-value, or his personal consumption. The product in which the capitalist is really interested is not the palpable product itself, but the excess value of the product over the value of the capital consumed by it.

“…he is a capitalist, and can undertake the process of exploiting labour only because, being the owner of the conditions of labour, he confronts the labourer as the owner of only labour-power. As already shown in the first book, (i.e. Volume 1) it is precisely the fact that non-workers own the means of production which turns labourers into wage-workers and non-workers into capitalists.”

Capital is more of a relationship than a thing. It is permanently a relationship. It may have a money-form as part of its cycle, but the relationship of labourer to capitalist is constant throughout the cycle.

Volume III is divided into seven parts. We will take one part at a time, and choose one chapter from each part as a reading text.

12 April 2012

Accumulation and Reproduction of Capital


Accumulation and Reproduction of Capital

Marx begins this third part of Capital, Volume 2 as follows:

“The direct process of the production of capital is its labour and self-expansion process, the process whose result is the commodity-product and whose compelling motive is the production of surplus-value.”

Here Marx is confirming, in direct terms, the order of things as explained in Capital, Volume 1. The motive of capital is the production of surplus-value and the commodity-product is the consequence. Some would call this production for profit and not for need; others might say that it is the creation and the reproduction of a power relationship of the bourgeois owners over the working class.

Marx continues to assist. In contrast to the end of the second section of Volume 2, where he left us with more questions than answers, at the beginning of the third section he lays out the scheme of Volume 1 (“ Book 1”) and all three sections of Volume 2 as follows (shortened; see Chapter 18 for the full text):

“In Book I the process of capitalist production was analysed as an individual act as well as a process of reproduction: the production of surplus-value and the production of capital itself. The only act within the sphere of circulation on which we have dwelt was the purchase and sale of labour-power as the fundamental condition of capitalist production.

“In the first part of this Book II, the various forms were considered which capital assumes its circular movement, and the various forms of this movement itself. The circulation time must now be added to the working times discussed in Book I.

“In the second Part, the circuit was studied as being periodic, i.e., as a turnover.

“…Especially money-capital came forward with distinctive features not shown in Book I. Certain laws were found according to which diverse large components of a given capital must be continually advanced and renewed — depending on the conditions of the turnover — in the form of money-capital in order to keep a productive capital of a given size constantly functioning.

“But in both the first and the second Parts it was always only a question of some individual capital, of the movement of some individualised part of social capital.

“However the circuits of the individual capitals intertwine, presuppose and necessitate one another, and form, precisely in this interlacing, the movement of the total social capital.

“We have now to study the process of circulation (which in its entirety is a form of the process of reproduction) of the individual capitals as components of the aggregate social capital, that is to say, the process of circulation of this aggregate social capital.”

There are four chapters in the third part of Volume 2. Chapter 18 is covered above. Chapter 19 doubles back to the Physiocrats and Adam Smith. Chapter 20 is very long, covering many kinds of ordinary and extraordinary circumstances, divided into four parts; but it begins with a useful schematic summary, as follows:

“The total product, and therefore the total production, of society may be divided into two major departments:

I. Means of Production, commodities having a form in which they must, or at least may, pass into productive consumption.

II. Articles of Consumption, commodities having a form in which they pass into the individual consumption of the capitalist and the working-class.

“All the various branches of production pertaining to each of these two departments form one single great branch of production, that of the means of production in the one case, and that of articles of consumption in the other. The aggregate capital employed in each of these two branches of production constitutes a separate large department of the social capital.

“In each department the capital consists of two parts:

1) Variable Capital. This capital, so far as its value is concerned, is equal to the value of the social labour-power employed in this branch of production; in other words, it is equal to the sum of the wages paid for this labour-power. So far as its substance is concerned, it consists of the labour-power in action, i.e., of the living labour set in motion by this capital-value.

2) Constant Capital. This is the value of all the means of production employed for productive purposes in this branch. These, again, are divided into fixed capital, such as machines, instruments of labour, buildings, labouring animals, etc., and circulating constant capital, such as materials of production: raw and auxiliary materials, semi-finished products, etc.

“The value of the total annual product created with the aid of this capital in each of the two departments consists of one portion which represents the constant capital c consumed in the process of production and only transferred to the product in accordance with its value, and of another portion added by the entire labour of the year. This latter portion is divided in turn into the replacement of the advanced variable capital v and the excess over and above it, which forms the surplus-value s. And just as the value of every individual commodity, that of the entire annual product of each department consists of c + v + s.”

Reading for Discussion

We shall use Part 1 of Chapter 21, the last chapter in Volume 2, for a reading text, downloadable via the link below.

It is called “Accumulation and Reproduction on an Extended Scale”, thus confirming what Volume 2 is about, namely these two words which feature very prominently in 21st century South African communist literature: Reproduction and Accumulation. At seven thousand words, Part 1 of Chapter 21 is sufficiently short and sufficiently plain in its prose to be read as a discussion document.

Let it suffice, therefore, for this introduction, to point out that in Volume 2, Marx is examining the leads and lags in the full cycle of the accumulation and reproduction of capital, and discovering features that arise during this circulation (e.g. “…money-capital came forward with distinctive features not shown in Book I”) which have a material effect on the entire concrete social phenomenon which is Capital with a capital “C”.

One such feature is the “hoard” of money that is a necessary phenomenon within the cycle – the indispensible slack or easement without which the machinery could not move.

In Volume 1, Marx takes considerable pains to distinguish the miser (who hoards money) from the capitalist (who puts money into circulation). There is no contradiction, however, in Marx’s thinking. The hoard that arises in the cycle of capital is a transitional, usable and re-chargeable reservoir, and not, like the miser’s hoard of buried treasure, money that is permanently withheld from circulation and use of any kind.

Where one must be careful is with the unclear and conflicted representation of these matters that appears in the vulgar economics of “analysts” in newspapers and in the mouths of pundits and politicians today, where “capital” is invariably conceptualised in a limited sense as a hoard. For example the sentence “I need capital to start my business” always refers to a hoard, and only to a hoard.

In Marx, “accumulation” refers to the assembly, and the constant reassembly of all of the prerequisites for the extraction of surplus value, and not just to the pump-priming hoard of money.

These prerequisites for Capital also include the market, the proletariat, the bourgeoisie and the bourgeois state with its bourgeois constitution and laws, the means of transport and trade, and the subordination of all other classes to the rapacious needs of the bourgeois class. In the case of an individual business, the market for its goods or services is in particular a far more critical prerequisite than the prior possession of a hoard of money.

5 April 2012

Turnover of Capital


Capital Volume 2, Part 2

Turnover of Capital

In the fourth paragraph of Chapter 7, which is the first chapter of Part 2 of Capital Volume 2 (“The Turnover of Capital”), Karl Marx quotes Chapter 23 of “Capital”, Volume 1 as follows: ‘We have seen previously: “If production be capitalistic in form, so, too, will be reproduction. Just as in the former the labour-process figures but as a means towards the self-expansion of capital, so in the latter it figures but as a means of reproducing as capital — i.e., as self-expanding value — the value advanced.”

Capital Volume 2 is an elaboration, and not a contradiction or a supersession, of Capital Volume 1. Far from the latter being the case, the concepts of “accumulation” and of “reproduction” are rather strongly confirmed and reinforced, and in the same sense as they were introduced in Volume 1.

Part 2 proceeds to cover variations from the simple, typical cases, so as to prove the validity of the general theory advanced in Volume 1.

For the purpose of stimulating discussion on Part 2, we offer for reading its final chapter, Chapter 17 (linked below as a downloadable file).

Note that Marx continues to reference back to “Buch I” (i.e. Capital, Volume 1).

Here is a typical paragraph from the early part of the attached chapter:

“The simplest form in which the additional latent money-capital may be represented is that of a hoard. It may be that this hoard is additional gold or silver secured directly or indirectly in exchange with countries producing precious metals. And only in this manner does the hoarded money in a country grow absolutely. On the other hand it may be — and is so in the majority of cases — that this hoard is nothing but money which has been withdrawn from circulation at home and has assumed the form of a hoard in the hands of individual capitalists. It is furthermore possibly that this latent money-capital consists only of tokens of value — we still ignore credit-money at this point — or of mere claims of capitalists (titles) against third persons conferred by legal documents. In all such cases, whatever may be the form of existence of this additional money-capital, it represents, so far as it is capital in spe, nothing but additional and reserved legal titles of capitalists to future annual additional social production.”

This is followed by a very lengthy quotation from William Thompson in an 1850 book, and then this summary of Marx’s:

“For reproduction only two normal cases are possible, apart from disturbances, which interfere with reproduction even on a fixed scale.

“There is either reproduction on a simple scale.

“Or there is capitalisation of surplus-value, accumulation.”

This is what Capital Volume 2 is about: Reproduction, Accumulation, and the relation between these two.

Later on, Marx writes directly:

“None of the laws established with reference to the quantity of the circulating money in the circulation of commodities (Buch I, Kap. III), [English edition: Ch. III. — Ed.] are changed in any way by the capitalist character of the process of production.”

Yet then he develops, in various ways, a question expressed most simply as follows:

“The capitalist class remains consequently the sole point of departure of the circulation of money. If they need £400 for the payment of means of production and £100 for the payment of labour-power, they throw £500 into circulation. But the surplus-value incorporated in the product, with a rate of surplus-value incorporated in the product, with a rate of surplus-value of 100%, is equal in value to £100. How can they continually draw £600 out of circulation, when they continually throw only £500 into it? Nothing comes from nothing. The capitalist class as a whole cannot draw out of circulation what was not previously thrown into it.”

Marx continues to problematise this question until the end of the chapter, and leaves some of his questions unanswered.

For example, on the question of the substitution of credit for gold in the process of circulation, Marx writes:

“…so far as the expediencies developing with the credit system have this effect, they increase capitalist wealth directly, either by performing a large portion of the social production and labour-power without any intervention of real money, or by raising the functional capacity of the quantity of money really functioning.

“This disposes also of the absurd question whether capitalist production in its present volume would be possible without the credit system (even if regarded only from this point of view), that is, with the circulation of metallic coin alone. Evidently this is not the case. It would rather have encountered barriers in the volume of production of precious metals. On the other hand one must not entertain any fantastic illusions on the productive power of the credit system, so far as it supplies or sets in motion money-capital. A further analysis of this question is out of place here.”

We must look for those answers in Capital Volume 3, which we will come to immediately after dealing with the third and final Part of Capital Volume 2. These matters are crucial for understanding the current credit crisis, or “Global Economic Meltdown”, or recession, or bank crisis, which has been going on since 2008.

1 April 2012

Metamorphoses of Capital


Capital Volume 2, Part 1

Metamorphoses of Capital

Having completed our course on Volume 1 of “Capital”, we now begin Part 2. We will proceed in ten parts through to the end of Part 3.

“The Metamorphoses of Capital and their Circuits” is the title of Part 1 of Karl Marx’s “Capital, Volume 2. A “metamorphosis” (plural “metamorphoses”) in science is a profound change in form, such as from a tadpole to a frog or from a caterpillar to a butterfly. [The illustration above refers to the story “Metamorphosis”, by Franz Kafka, wherein a man turns into a beetle].

Skimming through the first chapters of Volume 2, even though they contain some rather obscure formulas, it quickly becomes clear that what Marx is describing are the changes and movements that take place during the repeated acting-out of the capitalistic relationship (i.e. sale by the working proletarian and purchase by the capitalist of commodified labour-power, extraction of surplus value, and sale of the commodified product of labour).  These changes and movements are somewhat invisible to the actors, or else are only visible to them in an illusory form.

From Chapter 2:

“So long as the product is sold, everything is taking its regular course from the standpoint of the capitalist producer. The circuit of capital-value he is identified with is not interrupted. And if this process is expanded — which includes increased productive consumption of the means of production — this reproduction of capital may be accompanied by increased individual consumption (hence demand) on the part of the labourers, since this process is initiated and effected by productive consumption. Thus the production of surplus-value, and with it the individual consumption of the capitalist, may increase, the entire process of reproduction may be in a flourishing condition, and yet a large part of the commodities may have entered into consumption only apparently, while in reality they may still remain unsold in the hands of dealers, may in fact still be lying in the market. Now one stream of commodities follows another, and finally it is discovered that the previous streams had been absorbed only apparently by consumption. The commodity-capitals compete with one another for a place in the market. Late-comers, to sell at all, sell at lower prices. The former streams have not yet been disposed of when payment for them falls due. Their owners must declare their insolvency or sell at any price to meet their obligations. This sale has nothing whatever to do with the actual state of the demand. It only concerns the demand for payment, the pressing necessity of transforming commodities into money. Then a crisis breaks out. It becomes visible not in the direct decrease of consumer demand, the demand for individual consumption, but in the decrease of exchanges of capital for capital, of the reproductive process of capital.”

Different capitals compete with one another, says Marx. The fundamental type of capital has been described in Volume 1. Here we see “capitals”, plural, interacting with each other to produce a secondary phenomenon – a crisis.

Later in the same Chapter (under Part 3), Marx is very clear about the difference between “accumulation” and “hoarding”. This is a crucial point in terms of recent SACP theory, which has at times leant heavily on the term “accumulation”, or alternatively “accumulation path”. Marx says:

“Hence the accumulation of money, hoarding, appears here as a process by which real accumulation, the extension of the scale on which industrial capital operates, is temporarily accompanied. Temporarily, for so long as the hoard remains in the condition of a hoard, it does not function as capital, does not take part in the process of creating surplus-value, remains a sum of money which grows only because money, come by without its doing anything, is thrown in the same coffer.”

“Accumulation” for Marx is always the assembly of the prerequisites for the relationship “Capital” to appear, or reappear. Anything else, whether transitional or permanent, is “hoarding”.

For a reading of part of the original text, we offer Chapter 6, the last chapter in Part 1 of Volume 2 of Capital (see below for a link to download this chapter). It is clear from this chapter that in this Part 1, called “Metamorphoses of Capital and their Circuits”, Marx is dealing with the Reproduction and Accumulation of capital, where “reproduction” is accomplished by the reassembly (called accumulation) of the elements of production so that the cycle of extraction of surplus value can be re-enacted.

The following quotation can suffice to show that there is no question of Marx backsliding on the question of surplus-value being the source of “the self-increase of capital”, as expounded repeatedly in Volume 1:

“To the capitalist who has others working for him, buying and selling becomes a primary function. Since he appropriates the product of many on a large social scale, he must sell it on the same scale and then reconvert it from money into elements of production. Now as before neither the time of purchase nor of sale creates any value. The function of merchant’s capital gives rise to an illusion.