As we have seen before, the price of production is equal to k -f- p, equal to cost-price plus profit. This implies k -j- kp', and k, cost-price, stands here for a variable magnitude, which changes according to different spheres of production, but is everywhere equal to the value of the constant and variable capital consumed in the production of commodities, while p' stands for the percentage of the average rate of profit. If k = 200, and p' = 20%, the price of production k -|- kp' is equal to 200 + 200 tVo" = 200 + 40 = 240. It is evident that this price of production may remain the same, although the value of the commodities may change.
All changes in the price of production of commodities re- duce themselves in the last analysis to changes in value. But not every change in the value of commodities needs to find expression in a change of the price of production. For this price is not determined merely by the value of any particular commodity, but by the aggregate value of all commodities. A change in commodity A may eventually be balanced by an opposite change of commodity B, so that the general pro- portion remains the same.
II. Price of Production of Commodities of Average Com- position.
We have seen that a deviation of the prices of production from the values may be brought about by the following means: 1) By adding to the cost-price of a commodity, not the surplus-value contained in it, but the average profit.
2) By transferring a price of production, wdiich thus dif- fers from the value of some particular commodity, to the cost- price of some other commodity which consumes the first com- modity as one of its elements, so that the cost-price of a cer- tain commodity may already contain a deviation from the value of the means of production consumed by it, quite aside from the deviation, which it may still experience on its own 242 Capitalist Production.
account through a difference between the average profit and the surplus-value.
It is therefore possible that the cost-price may differ from the sum of the values of those elements which- make up this portion of the price of production, even in the case of com- modities produced by capitals of average composition. Take it that the average composition is 80 c + 20 v. Now it is possible that in the actual capitals of this composition 80 e may be greater or smaller than the value of c, the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way 20 v might differ from its value, if the laborer consumes commodities whose price of production differs from their value, in which case the laborer would work a longer or shorter time for their reproduction, and would thus perform more or less necessary labor, then Avould be required, if the price of production of the necessities of life coincided with their value.
However, this possibility does not alter the correctness of the rules laid down for commodities of average composition. The quantity of profit falling to the share of these commodi- ties is equal to the quantity of surplus-value contained in them. For instance, the most important point in a capital of the above composition, 80 c -j-20 v, so far as the deter- mination of surplus-value is concerned, is not whether these figures are expressions of actual values, but whether this rep- resents their actual proportion to one another, in other words, whether v is one-fifth, and c four-fifths, of the total capital. Whenever this is actually the case, as was assumed above, then the surplus-value produced by v is equal to the average profit. On the other hand, seeing that this surplus-value is equal to the average profit, the price of production, or cost- pnce plus profit, k + p, is equal to k + s, that is, practically equal to the value of these commodities. This implies that a rise or a fall in wages would not change the price of pro- duction, k -f- p, any more than it would change the value of these comm.odities. It would merely effect a corresponding opposite movement on the side of profit, a fall or a rise. For Some After Remarks. 243 if a rise or a fall of wages were to bring about a change in the price of commodities of average composition, then the rate of profit in these spheres of average composition would rise above, or fall below^ the level it holds in other spheres. The sphere of average composition maintains the same level of profit as the other spheres only so long as the price remains unchanged. The practical result in the case of this sphere of average composition is the same as though its products were sold at their value. For if commodities are sold at their actual values, it is evident that, other circumstances remain- ing equal, a rise or a fall in wages will cause a corresponding fall or rise in profits, but no change in the value of commod- ities, and that under all circumstances a rise or a fall in wages can never affect the value of commodities, but only the magnitude of the surplus-value.
III. Fluctuations foi' which the Capitalist mahes Allowance.
It has been said that competition levels the rates of profit of the different spheres of production into an average rate of profit and thereby transforms the values of the products of these different spheres into prices of production. This is ac- complished by continually transferring capital from one sphere to another, in which the profit happens to stand above the average for the moment. The fluctuations of profit due to the cycle of fat and lean years, following each other in any given line of industry during given periods, must be taken into consideration, of course. These incessant emigrations and immigrations of capital, which take place between the different spheres of production, create rising and falling move- ments of the rate of profit. These movements balance one another more or less and thereby create a tendency to reduce the rate of profit everywhere to the same common and univer- sal level.
This movement of capitals is caused primarily by the stand of the market-prices, which lift profits above the level of the universal average in one place and depress them below it in another. We leave out of consideration, for the present, 244 Capitalist Production.
mci'cliant's capital. We know from the sudden paroxysms of speculation in certain favorite articles that this merchants' capital can draw masses of capital from a certain line of busi- ness with extraordinary rapidity and throw them with equal rapidity into another. But we have nothing to do with mer- chants' capital at this place. So far as the sphere of actual production is concerned, that is, industries, agriculture, min- ing, etc., the transfer of capital from one sphere to another offers considerable difficulty, particularly on account of the existing fixed capital. Moreover, experience demonstrates that, if a certain line of industry, for instance the cotton in- dustry, yields extraordinary profits at one period, it suffers losses, or makes very little profit, at some other period, so that the average profit within a certain cycle of years is pretty much the same as in other lines. And capital soon learns to take this experience into account.
What competition does not show is the way in which value is determined and the movement of production dominated by this determination. It does not show the values that stand behind the prices of production and determine them in the last instance. Competition does show, on the other hand, the following things: 1) The average profits independent of the organic composition of capital in the different spheres of production, and therefore also independent of the mass of liv- ing labor appropriated by any given capital in any particular sphere of exploitation. 2) A rise and fall of prices of pro- duction as a result of changes in the level of w^ages, a phe- nomenon which flatly contradicts at first sight the law of value of commodities. 3) The fluctuations of market-prices, which reduce the average market-price of commodities in a given period of time, not to the market-value, but to a marhet- price of production differing considerably from this market- value. All these phenomena seem to contradict the deter- mination of value by labor-time as much as the fact that surplus-value consists of unpaid surplus-labor. Everything appears upside down in competition. The existing conforma- tion of economic conditions, as seen in reality on the surface of things, and consequently in the conceptions which the Some After Remarks. 245 leading human agents of these conditions fonn in trying to understand them, are not only different from the internal and disguised essence of these conditions, and from the concep- tions corresponding to this essence, but actually opposed to them, or their reverse.
Furthermore, as soon as capitalist production has reached a certain degree of development, the reduction of the different rates of profit of the individual spheres to the level of the average rate of profit no longer proceeds solely by virtue of the play of attraction and repulsion, by which the market- prices attract or repel capital. After the average prices, and the market-prices corresponding to them, have become stable for a time, the capitalists become conscious of the fact that this leveling process balances definite differences. And then they allow for these differences in their mutual calculations. The differences exist in the consciousness of the capitalists and are taken into consideration as fluctuations for which al- lowance must be made.
At the bottom of all conceptions lies that of the average profit, to-wit, that capitals of the same magnitude must yield the same profits in the same time. This, again, is based on the assumption that the capital of each sphere of production shares in the total profit squeezed out of the laborers by the to- tal social capital in proportion to its magnitude; or, that every individual capital should be regarded merely as a part of the total social capital, and every capitalist as a shareholder in the total social enterprise, each sharing in the total profit in proportion to the magnitude of his share of capital.
These conceptions sen^e as a basis for the calculations of the capitalist, for instance the assumption that a capital which is turned over more slowly than another, because its commodi- ties require a longer time for their production, or because they must be sold in more remote markets, should neverthe- less charge the profit it loses in this way and reimburse itself by putting up the price. Another idea is that capitals in- vested in lines which are exposed to considerable danger, for instance in shipping, should be compensated by a raise in prices. As soon as capitalist production, and the insurance 246 Capitalist Production.
business, are developed, the danger is equalised for all spheres of production (see Corbett); but the capitals invested in more than ordinarily dangerous enterprises have to pay higher insur- ance rates and recover them in the prices of their commodi- ties. All this amounts in practice to saying that every cir- cumstance (and all of them are considered equally necessary within certain limits), which renders one line of production profitable, and another less, are calculated as legitimate grounds for compensation, without requiring the ever renewed action of competition to demonstrate the justification of such claims. The capitalist simply forgets, or rather he does not see, because competition does not show it to him, that all these claims for compensation mutually advanced by the capitalists in the calculation of the prices of commodities of different lines of production repeat in another way the idea that all capitalists are entitled, in proportion to the magni- tude of their respective capitals, to equal shares of the com- mon loot, the total surplus-value. They are rather under the impression, seeing that the profit pocketed by them differs from the surplus-value appropriated by them, that those grounds for compensation do not equalise their participation in the total surplus-value, but that they rather create the profit itself, which is supposed to originate in an addition to the price of their commodities, for w^hich they advance different excuses.
In other respects the statements made in chapter VII con- cerning the assumptions of the capitalists as to the source of surplus-value apply also in this instance. The present case differs a little from those in chapter VII, but only to the ex- tent that a saving in cost-price depends on individual ability, attention to business, etc., assuming the market-price of com- modities and the degree of exploitation of labor to be given.
PAUT III.
THE LAW OF THE FALLING TENDENCY OF THE KATE OF PROFIT.
CHAPTER XIIL THE THEORY OF THE LAW.
With a given wage and working day, a certain variable capi- tal, for instance of 100, represents a certain number of em- ployed laborers. It is the index of this number. For in- stance, let 100 p. St. be the wages of 100 laborers for one week. If these laborers perform the same amount of necessary as of suqilus-labor, in other words, if they work daily as much time for themselves as they do for the capitalist, or, in still other words, if they require as much time for the reproduction of their wages as they do for the production of surplus-value for the capitalist, then they would produce a total value of 200 p.st., and the surplus-value would amount to 100 p.st. The rate of surplus-value, -^, would be 100%. But we have seen that this rate of surplus-value would express itself in considerably different rates of profit, according to the differ- ent volumes of constant capitals c and consequently of total capitals C. For the rate of profit is calculated by the for- mula -^.
Take it that the rate of surplus-value is 100%. Now, if 248 Capitalist Production.
In this way, the same rate of surplus-value, with the same degree of labor exploitation, would express itself in a falling rate of profit, because the material growth of the constant ca])i- tal, and consequently of the total capital, implies their growth in value, although not in the same proportion.
If it is furthermore assumed that this gradual change in the composition of capital is not confined to some individual spheres of production, but occurs more or less in all, or at least in the most important ones, so that tliey imply changes in the organic average composition of the total capital of a cer- tain society, then the gradual and relative growth of the con- stant over the variable capital must necessarily lead to a grad- ual fall of the average rate of profit, so long as the rate of surplus-value, or the intensity of exploitation of labor by capi- tal, remain the same. Xow we have seen that it is one of the laws of capitalist production that its development carries with it a relative decrease of variable as compared with constant capital, and consequently! as compared to the total capital, which it sets in motion. This is only another way of saying that the same number of laborers, the same quantity of labor- power set in motion by a variable capital of a given value, con- sume in production an ever increasing quantity of means of production, such as machinery and all sorts of fixed capital, raw and auxiliary materials, and consequently a constant capi- tal of ever increasing value and volume, during the same period of time, owing to the peculiar methods of production developing within the capitalist system. This progressive rel- ative decrease of the variable capital as compared to the con- stant, and consequently to the total, capital is identical with the progressive higher organic composition of the average so- cial capital. It is, in another way, but an expression of the progressive development of the productive powers of society, which is manifested by the fact that the same number of la- borers, in the same time, convert an ever growing quantity of raw and auxiliary materials into products, thanks to the grow- ing application of machinery and fixed capital in general, so that less labor is needed for the production of the same, or of more, commodities. This growing value and volume of con- The Theory of the Law. 249 stant capital corTesponds to a progressive cheapening of prod- ucts, although the increase in the value of the constant capital indicates but imperfectly tlie growth in the actual mass of use- values represented by the material of the constant capital. Every individual product, taken by itself, contains a smaller quantity of labor than the same product did on a lower scale of production, in which the capital invested in wages occupies a far greater space compared to the capital invested in means of production. The hypothetical series placed at the begin- ning of this chapter expresses, therefore, the actual tendency of capitalist production. This mode of production produces a progressive decrease of the variable capital as compared to the constant capital, and consequently a continuously rising organic composition of the total capital. The immediate re- sult of this is that the rate of surplus-value, at the same de- gree of labor-exploitation, expresses itself in a continually fall- \y^ ing average rate of profit. (We shall see later why this fall does not manifest itself in an absolute fonn, but rather as a tendency toward a progressive fall.) This progressive tend- ency of the average rate of profit to fall is, therefore, but a peculiar expression of capitalist production for the fact that the social productivity of labor is progressively increasing. This is not saying that the rate of profit may not fall tem- porarily for other reasons. But it demonstrates at least that it is the nature of the capitalist mode of production, and a logical necessity of its development, to give expression to the average rate of surplus-value by a falling rate of average profit. Since the mass of the employed living labor is con- tinually on the decline compared to the mass of materialised labor incorporated in productively consumed means of pro- duction, it follows that that portion of living labor, which is unpaid and represents surplus-value, must also be continually on the decrease compared to the volume and value of the in- vested total capital. Seeing that the proportion of the mass of surplus-value to the value of the invested total capital forms >^ the rate of profit, this rate must fall continuously.
Simple as this law appears from the foregoing statements, all of political economy has so far tried in vain to discover it, 250 * Capitalist Production.
as we shall see later on. The economists sa\v the problem and cudgeled their brains in tortuous attempts to interpret it. Since this law is of great importance for capitalist produc- tion, it may be said to be that mystery whose solution has been the goal of the entire political economy since Adam Smith. The difference between the various schools since Adam Smith consists in their different attempts to solve this riddle. If we consider, on the other hand, that political economy up to the present has been tinkering wdth the distinction between constant and variable capital without ever defining it accu- rately; that it never separated surplus-value from profit, and never even considered profit in its purely theoretical form, that is, separated from its different subdivisions, such as in- dustrial profit, commercial profit, interest, ground rent; that it never thoroughly analyzed the differences in the organic ^/composition of capital, and for this reason never thought of analyzing the formation of an average rate of profit; if we consider all this, we no longer wonder at its failure to solve the riddle.
We intentionally analyze first this law, before we pass on to a consideration of the different independent categories into which profit is subdivided. The fact that this analysis is made independently of the subdivisions of profit, which fall to the share of different categories of persons, shows in itself that this law, in its general workings, is independent of those subdivisions and of the mutual relations of the resulting cate- gories of profit. The profit to which we are here referring is but another name for surplus-value itself, wdiich is merely ob- served in its relation to the total capital, instead of its rela- tion to the variable capital from which it arises. The fall in the rate of profit therefore expresses the falling relation of surplus-value itself to the total capital, and is for this reason y independent of any division of this profit among various par- ticipants.
We have seen that a certain stage of capitalist development, in which the organic composition of capital, c: v shows the pro- portion of 50: 100, expresses a rate of surplus-value of 100% by a rate of profit of 66|%, and that a higher stage, in C'' The Theory of the Law. 251 which c: v shows the proportion 400: 100, expresses the same rate of surplus-value by a rate of profit of only 20%. What is true of different successive stages in the same country, is also true of different contemporaneous stages of development in different countries. In an undeveloped country, in which the first-named composition of capital is the rule, the average rate of profit would be 665%, while in a country with the other, higher, stage of development, the average rate of profit would be 20%.
The difference between two national rates of profit might be eliminated, or even reversed, if labor were less productive in the less developed country, so that a larger quantity of la- bor would be incorporated in a smaller quantity of the same commodities, a larger exchange-value represented by a smaller use-value, so that the laborer would consume a larger portion of his time in the reproduction of his own means of sub- sistence, or of their value, and have less time to spare for the production of surplus-value, and consequently would perform less surplus-labor, so that the rate of ^surplus-value would be lower. For instance, if the laborer of the less developed country were to work two-thirds of the working day for himself, and one-third for the capitalist, then, referring to the above illustration, the same labor-power would be paid with 133^ and w^ould furnish a surplus of only 66|. A con- stant capital of 50 would correspond to a variable capital of 133^. The rate of surplus-value would then amount to 133 J: 66| =^50%, and the rate of profit to 183^: 66f = about 36^%.
Since we have not analysed the different subdivisions of profit, so that they do not exist for the present so far as we are here concerned, we make the following preliminary re- marks merely in order to prevent misunderstanding: It would be a mistake to measure the level of the national rate of profit by, say, the level of the national rate of interest, when comparing countries in different stages of development, especially when comparing countries with a developed capi- talist production to countries, in which labor has not yet been fully subjected to capital, although the laborer may already 252 Capitalist Production.
be exploited by the capitalist, as happens, for instance, in India, where the ryot manages his farm as an independent producer, whose production, strictly so called, is not yet under the complete sway of capital, although the usurer may not only rob him of his entire surplus-labor by means of interest, but also curtail his wages, to use a capitalist term. For the interest of such stages comprises all of the profit, and more than the profit, instead of merely expressing an aliquot part of the produced surplus-value, or profit, as it does in countries with a developed capitalist production. On the other hand, tlie rate of interest in capitalist countries is overwhelmingly determined by conditions (loans granted by usurers to owners of large estates who draw ground-rent) which have nothing to do with profit, but which merely indicate to what extent usury appropriates ground-rent.
In countries with capitalist production in different stages of development, and consequently with capitals of different organic composition, a country with a short normal working day may have a higher rate of surplus-value (the one factor which determines the rate of profit) than a country with a long normal working day. In the first place, if the English working day of 10 hours, on account of its higher intensity, is equal to an Austrian working day of 14 hours, then dividing the working day equally in both instances, 5 hours of English surplus-labor may represent a greater value on the world- market than 7 hours of Austrian surplus-labor. In the sec- ond place, a larger portion of the English working day may represent surplus-labor than of the Austrian working day.
The law of the falling tendency of the rate of profit, which is the expression of the same, or even of a higher, rate of surplus-value, says in so many words: If you take any quan- tity of the average social capital, say a capital of 100, you will find that an ever larger portion of it is invested in means of production, and an ever smaller portion in living labor. Since, then, the aggregate mass of the living labor operating the means of production decreases in comparison to the value of these means of production, it follows that the unpaid labor, and that portion of value in which it is expressed, must de- The Theory of the Lazv. 253 cline as compared to the value of the advanced total capital. Or, an ever smaller aliquot part of the invested total capital is converted into living labor, and this capital absorbs in proportion to its magnitude less and less surplus-labor, al- though the proportion of the unpaid part of the employed labor may simultaneously grow as compared with the paid part. The relative decrease of the variable, and the relative increase of the constant, capital, while both parts may grow absolutely in magnitude, is but another expression for the in- creased productivity of labor.
Let a capital of 100 consist of 80 c -|- 20 v, and let the 20 v stand for 20 laborers. Let the rate of surplus-value be 100%, that is to say, the laborers work one-half of the day for themselves and the other half for the capitalist. Now take a less developed country, in which a capital of 100 is composed of 20 c -j- 80 v, and let these 80 v stand for 80 la- borers. But let these laborers work two-thirds of the day for themselves, and only one-third for the capitalists. Assum- ing all other things to be equal, the laborers in the first case will produce a value of 40, while those in the second case will produce a value of 120. The first capital produces 80 c -[- 20 V + 20 s = 120; rate of profit 20%. The second capital produces 20 c + 80 v + 40 s = 140; rate of profit 40%. In other words, the rate of profit in the second case is double that of the first case, and yet the rate of surplus-value in the first case is 100%, while it is only 50% in the second case. But a capital of the same magnitude appropriates in the first case the surplus-labor of only 20 laborers, while it appropri- ates that of 80 laborers in the second case.