Demand and supply imply the transformation of values into market-prices, and to the extent that they proceed on a capi- talist basis, to the extent that the commodities are products of capital, they are based on capitalist processes, that is, on quite different and more complicated conditions than the mere pur- chase and sale of goods. In these capitalist processes it is not a question of the formal conversion of the value of com- modities, into prices, not a question of a mere change of form. It is a matter of definite differences in quantity between mar- ket-prices and market-values, and, further, prices of produc- tion. In simple purchases and sales, it is enough to consider merely the producers of articles as such. But supply and de- mand, in a wider analysis, imply the existence of different classes and sections of classes which divide the total revenue of society among themselves and consume it as revenue among themselves, which, therefore, constitute the demand in the form of revenue. On the other hand, the attempt to grasp the question of the supply and demand among the producers as such requires an analysis of the total conformation of the cap- italist process of production.
Under capitalist production it is not a question of merely throwing a certain mass of values into circulation and ex- changing that mass for equal values in some other form, whether of money or other commodities, but it is also a ques- '- " If each man of a class could never have more than a given share, or aliquot part of the gains and possessions of the whole, he would readily combine to raise the gains" (he does it as soon as the proportion of demand to supply permits it); " this is monopoly. But where each man thinks that he may any way increase the absolute amount of his own share, though by a process which lessens the whole amount, he will often do it; this is competition." An Inquiry into thost Principles respecting the Nature of Demand, etc, London, page 105.
230 Capitalist Production.
tion of advancing capital in production and realising on it as much surplus-value, or profit, in proportion to its magni- tude, as any other capital of the same or of other magnitudes in whatever line of production. It is a question, then, of sell- ing the commodities at least at prices which will yield the average profit, in other words, at prices of production. Capi- tal comes in this form to a realisation of the social nature of its power, in which every capitalist participates in proportion to his share in the total social capital.
In the first place, capitalist production is essentially in- different to the particular use-value, or the peculiarity, of any commodity produced by it. In every sphere of production it is the sole purpose of production, to secure surplus-value, to appropriate in the product of labor a certain quantity of un- paid labor. And it is likewise the nature of the wage-labor subject to capital to be indifferent to the specific character of its labor, to transform itself in accord with the requirements of capital, and to submit to being transferred from one sphere of production to another.
In the second place, one sphere of production is now as good or as bad as another. Every one of them yields the same profit, and every one of them would be useless, if the commodities produced by them did not satisfy some social need.
Now, if the commodities are sold at their values, then, as we have shown, considerably different rates of profit arise in the various spheres of production, according to the different organic composition of the masses of capital invested in them. But capital withdraws from spheres with low rates of profit and invades others which yield a higher rate. By means of this incessant emigration and immigTation, in one word, by its distribution among the various spheres in accord with a rise of the rate of profit here, and its fall there, it brings about such a proportion of supply to demand that the average profit in the various spheres of production becomes the same, so that values are converted into prices of production. This equilibration is accomplished by capital in a more or less per- fect degi-ee to the extent that capitalist development is ad- Market Prices and Market J\iliies. 231 vanced in a certain nation, in other wordsj to the extent that conditions in the respective countries are adapted to the capi- talist mode of production. As capitalist development pro- ceeds, it develops also its own peculiar conditions and subjects to its specific character and its immanent laws all the social requirements on which the process of production is based.
The incessant equilibration of the continual differences is accomplished so much quicker, 1), the more movable capital is, the easier it can be shifted from one sphere and one place to another; 2) the quicker labor-power can be transferred from one sphere to another and from one local point of pro- duction to another. The first condition implies complete freedom of trade in the interior of society and the removal of all monopolies with the exception of those which naturally arise out of the capitalist mode of production. It implies, furthermore, the development of the credit-system, which con- centrates the inorganic mass of the disposable social capital instead of leaving it in the hands of individual capitalists. Finally it implies a subordination of the various spheres of production to the control of capitalists. This last implica- tion is of itself included in the assumption that it is a ques- tion of a transformation of values into prices of production in all capitalistically exploited spheres of production. But this equilibration meets great obstacles, whenever numerous and large spheres of production, which are not operated on a cap- italistic basis (such as farming by small farmers), are inter- polated between the capitalist spheres and interrelated with them. A great density of population is also a requirement. — The second condition implies the abolition of all laws which prevent the laborers from moving from one sphere of produce tion to another and from one local center of production to an- other; an indifference of the laborer to the nature of his labor; the greatest possible reduction of labor in all spheres of pro- duction to simple labor; the elimination of all craft prejudices among laborers; and last, not least, a subjugation of the la- borer under the capitalist mode of production. More de- tailed statements concerning these points belong in a special analysis of competition* 22^2 Capitalist Production.
It follows from the foregoing that the individual capitalist as well as the capitalists as a whole in each particular sphere of production are participants in the exploitation of the total working class by the total capital, and in the degree of that exploitation, not only out of general class sympathy, but also for direct economic reasons, because, assuming all other con- ditions, among them the value of the advanced constant cap- ital, to be given, the average rate of profit depends on the in- tensity of exploitation of the total labor by the total capital.
The average profit coincides with the average sui*plus-value produced for each 100 of capital, and so far as the surplus- value is concerned, the foregoing statements apply as a matter of course. In the determination of the rate of profit, the value of the advanced capital becomes an additional element. In fact, the direct interest taken by the capitalist, or the capi- tal, of any individual sphere of production in the exploitation of the laborers directly employed by him, or it, is limited to the endeavor to make an extra gain, a profit exceeding the average, either by exceptional overwork, or by a reduction of wages below the average, or by an exceptional productivity of labor. Aside from this, a capitalist who would not employ any variable capital, and therefore no laborers (an exag- gerated assumption), Avould be as much interested in the ex- ploitation of the working class by capital, and would derive his profit quite as much from unpaid surplus-labor, as a capi- talist who would employ only variable capital (another exag- geration), and who would invest his entire capital in wages. The degree of exploitation of labor depends on the average intensity of labor, if the working day is given, and on the length of the working day, if the average intensity of exploitation is given. The degree of exploitation of labor deter- mines the size of the rate of surplus-value, and therefore the size of the mass of surplus-value for a given total mass of variable capital, and consequently the magnitude of the profit. The individual capitalist, as distinguished from his sphere, has the same special interest in the exploitation of the laborers personally employed by him that the capital of a certain Market Prices and Market Values. 233 s}«iiere, as distinguished from the total social capital, has in tie exploitation of the laborers directly employed by it.
On the other hand, every particular sphere of capital, and every individual capitalist, has the same interest in the pro- ductivity of the social labor employed by the total capital. For two things depend on this productivity: In the first place, the mass of use-values by which the average profit is expressed; and this is doubly important, where this average profit serves as a fund for the accumulation of new capital and as a fund for revenue to be spent in enjoyment. In the sec- ond place, the amount of the value of the total capital invested (constant and variable), which, with a given amount of sur- plus-value, or profit, for the whole capitalist class, determines the rate of profit, or the profit on a certain percentage of cap- ital. The special productivity of labor in any particular sphere, or in any individual business of this sphere, interests only those capitalists who are directly engaged in it, since it enables that particular sphere, or that individual capitalist, to make an extra profit over that of the total capital.
Here, then, we have the mathematically exact demonstra- tion, how it is that the capitalists form a veritable freemason society arrayed against the whole working class, however much they may treat each other as false brothers in the competition among themselves.
The price of production includes the average profit. We call it price of production. It is, as a matter of fact, the same thing which Adam Smith calls natural price, Eicardo price of production, or cost of production, and the physiocrats prix necessaire, because it is in the long run a prerequisite of supply, of the reproduction of commodities in every individual sphere. ^^ But none of them has revealed the difference be- tween price of production and value. We can well under- stand, then, why these same economists, who always resist a determination of the value of commodities by labor-time, by the quantity of labor contained in them, always speak of prices of production as centers, around which market-prices fluctu- 3' Malthus.
234 Capitalist Production.
ate. Thev can afford to do that, because the price of produc- tion is an utterly external and, at first glance, meaningless form of the value of commodities, a form as seen in competi- tion and thus reflected in the mind of the vulgar capitalist, and consequently in that of the vulgar economists.
Our analysis resulted in the discovery that the market-value (and everything said concerning it applies with the necessary modifications to the price of production) implies a surplus- profit for those who produce in any particular sphere of pro- duction under the most favorable conditions. With the ex- ception of crises, and of over-production in general, this ap- plies to all market-prices, no matter how much they may de- viate from market-values or market-prices of production. For the market-price signifies that the same price is paid for com- modities of the same kind, although they may have been pro- duced under very different individual conditions and may have considerably different cost-prices. (We do not speak at this point of any surplus-profits due to monopolies in the strict meaning of the term, whether they arc artificial or natural.)
A surplus-profit may also arise, when certain spheres of production are in a position to evade the conversion of the values of their commodities into prices of production, and thus a reduction of their profits to the average profit. We shall devote more attention to the further modifications of these two forms of surplus-profit in the part dealing with ground-rent.
CHAPTEK XI.
EFFECTS OF GENERAT, FLUCTUATIONS OF WAGES ON PRICES OF PRODUCTION.
Let the average composition of social capital be 80 c -1- 20 v, with a profit of 20%. The rate of surplus-value is then 100%. A general increase of Avages, all other things remain- ing the same, is a reduction of the rate of surplus-value. In Fluctuations of Wages and Prices. 235 the case of the average capital, profit and surplus-value are identical. Let wages rise by 25%. Then the same quantity of labor, which was formerly set in motion with 20, costs 25. Instead of 80 c + 20 v -|- 20 p, we have then for the value of one turn-over 80 c -]- 25 v -f~ 15 p. The labor set in motion by the variable capital still produces a value of 40, the same as before. If v rises from 20 to 25, then the surplus p, or s. amounts only to 15. The profit of 15 on a capital of 105 is 14y%, and this would be the new average rate of profit. Since the price of production of the commodities produced by the average capital coincides with their value, the price of production of these commodities would remain unchanged. The raising of wages would have brought about a reduction of profits, but no change in the value and price of the commodi- ties.
Formerly, so long as the average profit was 20%, the price of production of the conmiodities produced in one period of turn-over was equal to their cost-price plus a profit of 20% on this cost-price, in other words k -|- kp' = k -|- -j^. In this formula k is a variable magnitude, changing according to the value of the means of production which are incorporated in the commodities, and according to the amount of wear trans- ferred from the fixed capital to the product. Xow the price of production would amount to k -)- ^^^-.
Xow let us first select a capital, whose composition is lower than the original composition of the average social cajv ital of 80 c -f 20 V (which has now been transformed into 76/y c -{- 23-|-f v), for instance a capital of 50 c -|- 50 v. In this case, the price of production of the annual product, as- suming for the sake of simplicity that the entire fixed capital passes through wear into the product and that the time of turn-over is the same as that in the first case, would have been 50 c -|- 50 V -f- 20 p, or 120, before the raising of wages. A raising of wages by 25% means for the same quantity of labor a raising of the variable capital from 50 to 62^. If the an- nual product were sold at the former price of production of 120, then we should have the formula 50 c -j- 62^ v -|- 7^ p, or a rate of profit of 6f%. But the new average rate of 236 Capitalist Production.
profit is 14-1 %, and since we assume all other circumstances to remain the same, this capital of 50 c + 62^ v will also have to make this profit. Now, a capital of 112^ makes a round profit of le-^at a rate of profit of 14|-%. Therefore the price of production of the commodities produced by this cap- ital is now 50 c + 62^ V + ^^TtV = 1283^. In consequence of a raise in wages of 25%, the price of production of the same quantity of the same commodities has risen from 120 to 128y'^, or more than 7%.
Vice versa, let us select a sphere of production of a higher composition than the average capital, for instance a capital of 92 c -|- 8 V. The original average profit in this case would still be 20, and if we assume once more that the entire fixed capital pa^ises into the annual product, and that the time of turn-over is the same as in the first and second case, the price of production of the commodities is also 120.
In consequence of the rise of wages by 25% the variable capital for the same quantity of labor rises frdm 8 to 10, the cost-price of the commodities from 100 to 102, while the aver- age rate of profit has fallen from 20% to 14y%. Now 100: 14f = 102:14^ (approximately). The profit now falling to the share of 102 is 14 -f-- Therefore the total prod- uct sells at k -j- kp', or 102 -j- l^i f j ^^ H^ 7 • "^^^ price of production has fallen from 120 to 116 4-, or more than 3%.
Consequently, if wages are raised by 25%, 1) the price of production of tlie commodities of a capital of average composition is not changed; 2) the price of production of the commodities of a capital of lower composition rises, but not in the same proportion in which the jDrofit falls; 3) the price of production of the commodities of a capital of higher composition falls, but not as much as the profit.
Since the price of production of the commodities of the average capital remains the same and equal to the value of the product, it follows that the sum of the prices of produc- tion of the products of all capitals remain the same and equal to the sum of the values produced by the total social capital. The increase on one side is balanced by the decrease on the Fluctuations of Wages and Prices. 237 other and the level of the average social capital maintained for the total social capital.
Seeing that the price of production in the second illustration rises, while it falls in the third, it is evident that these opposite effects brought about by a fall in the rate of surplus-value or by a general rise of wages that there is no prospect of any compensation in the price for the rise in wages, since the fall of the price of production in No. Ill cannot very well com- pensate the capitalist for the fall in the profit, and since the rise of the price in No. II does not prevent a fall in profit. On the contrary, in either case, whether the price rises or falls, the profit remains the same as that of the average capital whose price remains unchanged. It is the same average profit, which has fallen by 5%, or about 25%, in the case of II as well as III. It follows from this, that if the price did not rise in II and fall in III, II would have to sell below and III above the new, recently reduced, average profit. It is quite evident that a rise of wages must affect a capitalist who has invested one- tenth of his capital in wages differently from one who has invested one-fourth or one-half, according to whether 50, 25, or 10 per hundred of capital are advanced for wages. An increase in the price of production on one side, and a fall on the other, according to whether a capital is below or above the average social composition, is effected only by leveling to the new reduced average profit. It is clear that, when in conse- quence of the establishment of a general rate of profit for the capitals of lower composition (those wherein v is above the average) the values are lowered by their transformation into prices of production, but the values for the capitals of higher composition will be increased.
Now, how would a general fall of wages, and a correspond- ing general rise of the rate of profit, and thus of the average profit, affect the prices of production of commodities produced by capitals diverging in opposite directions from the average social composition? We have but to reverse the foregoing statements, in 'order to find the answer (which Ricardo did not analyse).
I. Average capital 80 c + 20 v = 100; rate of surplus- value 100%; price of production = value of commodities = 80 c + 20 V -f 20 p = 120; rate of profit 20%. Let wages fall by one-fourth. Then the same constant capital is set in motion by 15 v, instead of 20 v. We have then as the value of commodities 80 c + 15 v -f 25 p = 120. The quantity 238 Capitalist Production.
of labor employed by v remains the same, only the newly created value is differently distributed between the capitalist and the laborers. The surplus-value increases from 20 to 25, and the rate of surplus-value from f^ to ff, in other words, from lOO^c to 1GG|%. The profit on 95 is now 25, so that the rate of profit per 100 is 26y9-. The composition of the capital in percentages is now 84y9- + 15 ^f= 100.
II. Lower composition. Original composition, as above, 50 c + 50 V. By the fall of wages by one-fourth v is reduced to 37^, and consequently the advanced total capital to 50 c + 37^ V = 87^. Applying to this the new rate of profit of 26^%, we get 100: 26^%= §'^2: 23^\. The same mass of commodities which formerly cost 120, now costs 87^ -j- 23^8- = 100i§-. A fall in prices of almost lO^c.
III. Higher composition. Original composition 92 c -|- 8 V ^ 100. The fall in wages by one- fourth reduces 8 v to 6 V, and the total capital to 98. Consequently 100: 26^% = 98: 25 J |-. The price of production of the commodities, for- merly 100 -f 20 =. 120, is now, after the fall in wages, 98 -f 25if= 123^1-. A rise by almost 47o.
We see, then, that we have but to follow the preceding de- velopment in the opposite direction with the necessary, modifi- cations; that a general fall of wages carries with it a general rise of surplus-value, of the rate of surplus-value, and, other circumstances remaining the same, also of the rate of profit, although expressed by different proportions; a fall in the prices of production for the commodities produced by capi- tals of lower composition, a rise in the prices of production for commodities produced by capitals of higher composition. The result is just the reverse of that following a general rise of wages.^* In both cases, whether of a rise or a fall, the as- sumption is that the working day remains the same, also the prices of the means of subsistence. Under these circum- ^* It is very peculiar that Ricardo (who naturally proceeds differently from us. since he did not understand the compensation of values to prices of production) did not even think of this eventuality, but considered only the first case, that of a rise of wages and its influence on the prices of production of commodities And the servile herd of imitators did not even make an attempt to advance so much as to apply the practical, or even tautological, test.
Some After Remarks. 239 stances, a fall in wages is possible only, if wages stood higher than the normal price of labor, or if they are depressed below this price. The way in which this condition is modified, if the rise or fall of wages is due to a change in vahie, and con- sequently in the price of production of commodities usually consumed by the laborer, will be to a certain extent analysed in the part dealing with ground-rent. At this place we make for once and all the following statements: If a rise or fall in wages is due to a change in the value of the necessities of life, then a modification of the above findings can take place only to the extent that the commodities, whose variation of price raises or lowers the variable capital, pass also as constituent elements into the constant capital and consequently do not affect wages alone. But to the extent that they affect only wages, the above analysis contains all that needs to be said.
In this entire chapter, it is assumed as a fact that there are in existence a general rate of profit, an average profit, and a conversion of values into prices of production. The question was merely in what manner a general rise or fall in wages affected the prices of production of commodities, which were assumed to exist. This is but a very secondary question com- pared with the important points analysed in this part. But it is the only relevant question treated by Ricardo, and we shall see that he treated even this but onesidedly and imper- fectly.
CHAPTER XII.
SOME AFTER REMARKS.
I. Causes Implying a Y aviation of the Price of Production.
The price of production of a commodity can vary only from two causes: 1) The average rate of profit varies. This can be due only to a change in the average rate of surplus-value, or, if the average rate of surplus-value remains the same, by a change 240 Capiiidist Production. ' iu the proportion of the sum of the appropriated surplus-values to the sum of the advauced total capital of society.
Unless a variation of the rate of surplus-value is due to a depression of wages below normal, or their rise above normal, — and such movements must be considered as mere oscilla- tions — it can take place only for two reasons: Either the value of labor -power may have risen or fallen. The one even- tuality is as impossible as the other without a change in the productivity of that labor which produces means of subsist- ence, in other w^ords, without a change in the value of the commodities which are consumed by the laborer. Or, the pro- portion of the sum of appropriated surplus-values to the ad- vanced total capital of society varies. Since the variation in this case is not due to the rate of surplus-value, it must be due to the total capital, or rather to its constant part. The mass of this part, technically speaking, increases or decreases in proportion to the quantity of labor-power bought by the varia- ble capital, and the mass of its value increases or decreases with the increase or decrease of its own mass. Its mass of value, then, increases or decreases likewise in proportion to the mass of the value of the variable capital. If the same labor sets more constant capital in motion, labor has become more productive. If less, less productive. There has then been a change in the productivity of labor, and a change must have taken place in the value of certain commodities.
The following rule, then, applies to both cases: If the price of production of a certain commodity changes in conse- quence of a change in the average rate of profit, its o^vn value may have remained unchanged, but a change must have taken place in the value of other commodities.
2) The average rate of profit remains unchanged. In that case the price of production of a commodity cannot change, unless its own value has changed. This may be due to the fact that more or less labor is required to produce this com- modity, either because the productivity of that labor varies, which produces this commodity in its final form, or of that laboT which produces the commodities consumed in its produc- tion. Cotton yarn may vary in its price of production, either Some After Remarks. 241 because cotton is produced at a lower figure, or because the labor of spinning has become more productive in consequence of improved machinery.