Take it that the production of a certain article requires the expenditure of a capital of 500 p.st., of which 20 p.st. are consumed by the wear and tear of instruments of produc- tion, 380 p.st. spent for materials of production, and 100 p.st, for labor-power. And let the rate of surplus-value be 100%. In that case the value of this product is equal to 400 c + 100 V + 100 s, or 600 p,st.
After deducting the surplus-value of 100 p.st., we have a remaining commodity-capital of 500 p.st,, which is only an ' equivalent for the consumed capital of 500 p.st. This por- tion of the value of the commodity, which makes good the price of the consumed means of production and the price of the employed labor-power, replaces only the amount paid by the capitalist himself for this commodity and represents, there- fore, from his point of view the cost price of this commodity.
However, the cost of this commodity to the capitalist, and the actual cost of this commodity, are two vastly different amounts. That portion of the value of the commodity which consists of surplus-value does not cost the capitalist anything for the reason that it costs the laborer unpaid labor. But on Cost Price and Profit. 39 the basis of capitalist production, the laborer plays the role of an ingredient of productive capital as soon as he has been in- corporated in the process of production. Under these cir- cumstances the capitalist poses as the actual producer of the commodity. For this reason the cost price of the commodity to the capitalist necessarily appears to him as the actual cost of the commodity. If we designate the cost-price by k, we can transcribe the formula C ^ c + v + s into the formula C = k -|" s, that is to say, the value of a commodity is equal to the cost price plus the surplus-value.
In this way the classification of the various values making good the value of the capital consumed in the production of the commodity under the term of cost price expresses, on the one hand, the specific character of capitalist production. The capitalist cost of the commodity is measured by the expendi- ture of capital, while the actual cost of the commodity is measured by the expenditure of labor. The capitalist cost- price of the commodity, then, is a quantity difiPerent from its value, or its actual cost-price. It is smaller than the value of the commodity. For since C = k -j- s, it is evident that k = C — s. On the other hand, the cost-price of a commod- ity is by no means a mere heading in capitalist bookkeeping. The actual existence of this portion of value continually exerts its practical influence in the actual production of the commod- ity, because it must be ever reconverted from its commodity- form, by way of the process of circulation, into the form of productive capital, so that the cost-price of the commodity must always buy anew tte elements of production consumed in its creation.
However, the cost-price as a heading in bookkeeping has nothing to do with the formation of the value of a commodity, or with the process of self-expansion of capital. When I know that five-sixths of the value of a commodity worth 600 p.st, or 500 p.st., represent but an equivalent for the capital consumed in its production and suffice only for the purchase of new material elements of the same capital, I know nothing as yet of the way in which these five-sixths representing the cost- price of the commodity are produced, nor do I know anything 40 Capitalist Production.
about the production of the last sixth which constitutes its surplus-value. K^evertheless we shall see in the course of our analysis that the cost-price plays in capitalist economics the false role of a category in the actual production of values.
Let us return to our example. Take it that the value pro- duced by one laborer in an average social working day is rep- resented by 6 shillings in money. In that case the advanced capital of 500 p.st. consisting of 400 c -|- 100 v represents the values produced in 1666f working days, of ten hours each. Of this amount 1333^ working days are crystallized in the value of the means of production amounting to 400 p.st. (400 c), and 333^ working days are crystallized in the value of labor-power amounting to 100 p.st. (100 v). Having as- sumed a rate of surplus-value of 100%, the production of the new commodity costs an expenditure of labor-power amount- ing to 100 V -|- 100 s, or 6665 working days of ten hours each.
We know^ then, as shown in volume I, chapter VII, that the value of the newly created product of 600 p.st. is com- posed, 1), of the reappearing value of the constant capital of 400 p.st. expended for means of production, and 2), of a newly produced value of 200 p.st. The cost-price of the commodity, or 500 p.st., comprises the reappearing 400 c and one-half of the newly produced value of 200 p.st., that is to say 100 V. In other words, it comprises two elements of the value of the commodity which are of widely different origin.
Owing to the appropriate character of the labor expended during 666f working days of ten hours each, the value of the means of production consumed in this process, to the amount of 400 p.st., is transferred to the product. This previously existing value thus reappears as an element of the value of the product, but is not created in the process of production of this commodity. It exists as an element of the value of this commodity only for the reason that it previously existed as an element of the invested capital. The expended constant cap- ital, then, is replaced by that portion of the value of the com- modity which this capital transfers to the commodity of its own accord in the labor-process. This element of the cost- price, therefore, has an ambiguous meaning. On the one Cost Price and Profit. 41 hand it passes into the cost-price of the commodity, because it is an element of that portion of the value of the commodity •which replaces consumed capital. And on the other hand it forms an element of the value of the commodity only for the reason that it is the value of consumed capital, or because the means of production cost a certain sum.
It is different witb the other element of the cost-price. The 666f working days expended in the production of the commodity create a new value of 200 p.st. One portion of this new value replaces only the advanced variable capital of 100 p.st., which is the price of the labor-power employed. But this advanced capital-value does not participate in the creation of the new value. So far as the advance of capital is concerned, labor-power counts as a value. But in the process of production, labor-power performs the function of creating value. The place of the mere value of labor-power in the advance of capital is taken in the actual process of pro- ductive capital by living labor-power which creates value.
This difference of the various elements of the value of a commodity which constitute the cost-price becomes evident whenever a change takes place either in the amount of the value of the expended constant capital or in that of the ex- pended variable capital. For instance, let the price of the same means of production, or of the constant portion of capi- tal, rise from 400 p.st. to 600 p.st., or fall to 200 p.st. In the first case it is not only the cost-price of the commodity which rises from 500 p.st. to 600 c + 100 v, or 700 p.st., but also the value of the commodity which rises from 600 p.st. to 600 c + 100 V + 100 s, or 800 p.st. In the second case, it is not only the cost-price which falls from 500 p.st. to 200 c -\- 100 V, or 300 p.st., but also the value of the commodity which falls from 600 p.st. to 200 c + 100 v -f 100 s, or 400 p.st. Because the expended constant capital transfers its own value to the product, therefore the value of the product rises or falls with the absolute magnitude of that capital-value, other cir- cumstances remaining the same. But on the other hand let us assume that, other circumstances remaining the same, the price of the same amount of labor-power rises from 100 p.st.
42 Capitalist Production.
to 150 p.st, or falls from 100 p.st to 50 p.st. In the first case, the cost-price rises indeed from 500 p.st. to 400 c -|- 150 v, or 550 p.st., and in the second case it falls from 500 p.st. to 400 c + 50 V, or 450 p.st. But in either case, the value of the commodity remains unchanged at 600 p.st. In the first case it is 400 c + 1^0 v -f 50 s, in the second 400 c + 50 v + 150 s, but in either case it is 600 p.st. The advanced vari- able capital does not transfer its own value to the product. The place of its value is taken in the product by a new value created by labor. Therefore a change in the value of the absolute magnitude of the variable capital, to the extent that it expresses merely a change in the price of labor-power, does not alter the absolute magnitude of the value of the commod- ity in the least, because it does not alter anything in the absolute magnitude of the new value created by living labor. Such a change influences only the relative proportion of the magnitudes of the two elements of the new value, one of which forms surplus-value, and the other of which makes good the variable capital and passes into the cost-price of the commodity.
The two elements of the cost-price, in the present case 400 c -|- 100 V, have only this in common that they are both of them elements of the value of the commodity replacing ad- vanced capital.
But this actual condition of things must necessarily look reversed from the point of view of capitalist production.
The capitalist mode of production is distinguished from a mode of production based on slavery by this fact among others that in the former the value, or the price, as the case may be, of labor-power assumes the form of the value, or price, of labor itself, that is to say, the form of wages. (Volume I, chapter XIX.) The variable portion of the advanced capital, therefore, presents itself as a capital ad- vanced in ^vages, as a capital-value paying for the value, or price, of all labor expended in production. Take it, for instance, that an average social working day of ten hours is represented by 6 shillings of money. In that case the advance of a variable capital of 100 p.st. expresses in money Cost Price and Profit. 43 the value of a product created in 333^ ten-hour days. But this vahie, being an element of the advance of capital for the purchase of labor-power, is not an element of the productive capital in the actual performance of its function. Its place in the process of production is taken by living labor-power. If the degree of exploitation of this labor-power is 100%, as it is in our illustration, then it is expended during 666f ten-hour days, and thereby adds to the product a new value of 200 p.st. On the other hand, the variable capital of 100 p.st. figures in the advance of capital as a capital invested in wages, or as the price of labor performed in 666f ten- hour days. Dividing 100 p.st. by 666f, we obtain 3 shil- lings as the price of a working day of ten hours, equal in value to the product of five hours' labor.
Now, if we compare the advance of capital on one side with the value of commodities on the other, we find the following condition of things: I. Capital advanced 500 p.st., consisting of 400 p.st. of capital expended in means of production (price of means of production) plus 100 p.st. of capital expended in wages (price of 666f working days, or wages for the same).
II. Value of commodities 600 p.st. of which 500 p.st. repre- sent the cost-price (400 p.st. price of expended means of pro- duction plus 100 p.st. price of expended 666f working days) plus 100 p.st. surplus-value.
In this formula, the portion of capital invested in labor- power differs from that invested in means of production (such as cotton or coal) only by serving for the payment of a substantially different element of production. But it does not differ by serving in a different function in the process of creating the value of the commodities, and thereby in the process of self-expansion of capital. The price of the means of production reappears in the cost-price of the commodities, just as it figured in the advance of capital, and it does so for the reason that the means of production have been appropri- ately consumed. The cost-price of the commodities also con- tains the price, or wages, for the 66 6f working days con- sumed in the production of these commodities, which wages 44 Capitalist Production.
figvuvi'l ako in the advance of capital, likewise for the reason that thus jimonnt of labor has been appropriately expended. We cee only finished and existing values, representing por- tions of the value of advanced capital which have passed into the value of the product, but no element representing newly created values. The distinction between constant and vari- able capital has disappeared. The entire cost-price of 500 p.st. now has the ambiguous meaning that it is that portion of the value of commodities worth 600 p.st. which makes good the capital of 500 p.st. expended in the production of these commodities, and that it owes its existence as a portion of the value of these commodities only to the fact of having pre- viously existed as the cost-price of the consumed elements of production, nan^ply means of production and labor, in other words, of having existed as an advance of capital. The capi- tal-value reappears as the cost-price of commodities, because it had been expended as a capital-value.
The fact that the various elements of the value of the ad- vanced capital have been expended for substantially different elements of production, namely for instruments of labor, raw materials, auxiliary substances, and labor, requires only that the cost-price of the commodities should buy a new supply of these substantially different elements of production. So far as the formation of this cost-price is concerjied, only one dis- tinction is appreciable, namely that between fixed and circu- lating capital. In our example we had set down 20 p.st. for wear and tear of instruments of labor (400 c being composed of 20 p.st. for wear and tear of instruments of labor and 380 p.st. for materials of production). Supposing the value of those in- struments of labor to have been 1200 p.st. before the productive process began, it wall exist after the production of the com- modities in two forms, one of them being represented by 20 p.st. of the value of the commodities, and the other by 1200 — 20, or 1180 p.st, the remaining value of the instruments of labor in the possession of the capitalist, in other words, an element of his productive, not of his commodity-capital. On the other hand, the materials of production and wages, differ from the instruments of labor by being entirely con- Cost Price and Profit. 45 sumed in the production of the commodities and transferring their entire value to that of the produced commodities. We have seen that the turn-over bestows upon these different ele- ments of the advanced capital the forms of fixed and circulat- ing capital.
The advance of capital, according to this, is 1680 p.st., con- sisting of 1200 p.st. of fixed capital plus 480 p.st. of circulat- ing capital (380 p.st. of which are materials of production and 100 p.st. of which are wages).
But the cost-price of the commodities is only 500 p.st., namely 20 p.st. for the wear and tear of the fixed capital, and 480 p.st. for circulating capital.
This difference between the cost-price of the commodities and the advance of capital merely proves that ihe cost-price of the commodities is formed exclusively, by the capital ac- tually consumed in their production.
In the production of the commodities, instruments of pro- duction valued at 1200 p.st. are employed, but only 20 p.st. of this advanced capital are consumed in production. The employed fixed capital, then, passes only partially into the cost-price of commodities, because it is consumed only by de- grees in their production. The employed circulating capital passes entirely into the cost-price of commodities, because it is entirely consumed in production. But what else does this prove than that the consumed portions of fixed and circulating capital, in the ratio of the magnitude of their values, pass uniformly into the cost-price of the commodities, and that this portion of the value of commodities originates solely with the capital consumed in their production? If this were not the case, it would be inexplicable wdiy the advanced fixed cap- ital of 1200 p.st. should not add, aside from the 20 p.st. which it loses in the productive process, also the other 1180 p.st. which it does not lose therein.
This difference between fixed and circulating capital with reference to the calculation of the cost-price affirms, we re- peat, the apparent origin of the cost-price in the expended capital-value, or in the price paid by the capitalist himself for the expended elements of production, including labor.
46 Capitalist Production.
On the other hand, the variable portion of capital invested in labor-power is explicitly identified, under the head of cir- culating capital, with that portion of the constant capital which consists of materials of production, so far as the forma- tion of value is concerned. And by this means the mystifica- tion of the process of self-expansion of capital ia accom- plished.^ Hitherto we have considered only one element of the value of commodities, namely the cost-price. We must now occupy ourselves also with the other element of the value of commod- ities, namely the excess over the cost-price, or the surplus- value. In the first place, then, surplus-value is an excess of the value of a commodity over its cost-price. But since the cost-price is equal to the value of the consumed capital, into whose substantial elements it is continually reconverted, the additional value is an accretion to the capital expended in the production of the commodities and returning by way of the circulation.
We have seen previously that the surplus-value s owes its origin in point of fact to a change in the value of the vari- able capital V and is, therefore, really but an increment of variable capital. N'evertheless it is also an increment of the expended total capital c -f v after the process of production has been completed. The formula c -f- (v + s), which in- dicates that s is produced by the conversion of a definite cap- ital-value V, a constant magnitude, into a fluctuating magni- tude by means of the labor-power paid by it, may also be represented as (c + v) -}- s. Before production began, we had a capital of 500 p.st. After production is completed, we have the same capital of 500 p.st. plus an increment of value amounting to 100 p.st.^ 1 In volume I, chapter IX, 3, we have shown by the example of N. W. Senior what confusion this may create in the head of the economist.
= " From what has gone before, we know that surplus-value is purely the result of a variation in the value of v, of that portion of the capital which is trans- formed into labor-power; consequently, v + s equals v + v', or v plus an increment of v. But the fact that it is v alone that varies, and the conditions of that variation, are obscured by the circumstance that in consequence of the increase of the variable component of the capital there is also an increase in the sum total of the advanced capital. It was originally 500 p.st. and becomes 590 p.st." (Volume I, chapter IX, 1.)
Cost Price and Profit. 47 However, the surplus-value is an increment, not only of that jjortion of the advanced capital which is assimilated by the process of production, but also of that portion which is not assimilated. In other words, it is an^accretion, not only to the consumed capital which is made good by the cost-price of commodities, but also to the aggregate capital invested in production. Before the beginning of the production we had a capital valued at 1680 p.st., namely 1200 p.st. of fixed capi- tal invested in instruments of production, only 20 p.st. of which are assimilated in the process by the commodities through wear and tear, plus 480 p.st. of circulating capital invested in materials of production and wages. At the close of the proc- ess of production we have 1180 p.st. remaining of the value of the productive capital plus a commodity-capital of 600 p.st. By adding these two amounts, we find that the capitalist now has values amounting to 1780 p.st. After deducting his in- vested total capital of 1680 p.st., the capitalist pockets a sur- plus of 100 p.st. In short, the 100 p.st. of surplus-value form as much an increment of the invested 1680 p.st. as of the 500 p.st., or that part of it which was assimilated by the production.
The capitalist understands well enough that this increment of value has its genesis in the productive manipulations of capital, that it is generated out of the capital. For this in- crement exists at the close of the productive process, while it did not exist at its beginning. So far as the capital assimi- lated in production is concerned, the surplus-value seems to arise equally from all its different elements consisting of means of production and labor. For all these elements con- tribute equally to the formation of the cost-price. All of them add their values, which are advanced as capital, to the value of the product, and they are not distinguished as con- stant and variable magnitudes. This becomes obvious, when we assume for a moment that all assimilated capital consisted either of wages exclusively, or of the values of means of pro- duction alone. In the first case, we should then have in place of the commodity-values 400 c -|-100 v -|- 100 s the commodity-values 500 v + 100 s. The capital of 500, in- 48 Capitalist Production.
vested in wages, represents the value of all labor assimilated in the production of the commodity-value of 600 p. St., and therefore it constitutes the cost-price of this entire product. But the way in wlj^ch this cost-price is formed, and in which the value of the expended capital is reproduced as a portion of the value of the product, is the only process in the forma- tion of the value of this product known to us. We do not know anything of the way in which its surplus-portion of 100 p.st. is formed. It is the same in the second case, in which the value of the commodities would be equal to 500 c -f- 100 s. We know in either case that the surplus-value arises from a given value, because this value was advanced in the form of productive capital, no matter whether in the form of labor or of means of production. On the other hand, this advanced capital-value cannot form any surplus-value for the sole reason that it has been expended and constitutes the cost- price of the commodities. For the fact that it forms the cost-price of the commodities accounts precisely for the cir- cumstance that it constitutes no surplus-value, but merely an equivalent replacing the expended capital. To the extent that it forms surplus-value it does so not in its specific capacity of expended, but of advanced and invested capita^. In short, the surplus-value arises as much out of that portion of the advanced capital which makes good the cost-price of the commodities as out of that portion which is not made up by the cost-price. In other words, it arises equally out of the fixed and circulating components of the invested capital. The total capital serves substantially as the creator of values, the instruments of labor as well as the materials of production and labor. The total capital passes substantially into the ac- tual labor-process, even though only a portion of it is assim- ilated by the process of self-expansion. This is, perhaps, the very reason why it contributes only in part to the formation of the cost-price, but totally to the formation of the surplus- value. However that may be, the outcome is that surplus- value arises simultaneously from all portions of the invested capital. This deduction may be materially abbreviated, I)y saying pointedly and briefly in the words of Malthus: " The Cost Price and Profit. 49 capitalist expects equal returns on all parts of the capital ad- vanced by him." ^ In its alleged capacity of an offspring of the advanced total capital, the surplus-value assumes the change of form known as profit. Hence a certain value is capital when it is advanced with a view to generating profit,^ or profit re- sults from the investment of a value as capital. If we desig- nate profit by p, we may convert the formula C = c + v + s, or k 4- s, into the formula C = k + p, in other words, tie value of a commodity is equal to the cost-price plus the profit.
The profit, such as it presents itself here, is the same as the surplus-value, only it has a mystified form, which is a necessary outgrowth of capitalist modes of production. The genesis of the mutation of values must be transferred from the variable portion of capital to the total capital, because no dis- tinction is noticeable between the constant and variable capi- tal in the assumed formation of the cost-price. Because the price of labor-power assumes on one pole the form of wages, surplus-value appears at the other pole in the form of profit We have seen that the cost-price of a commodity is smaller than its value. Since C equals k + s, it follows that k equals C — s. The formula C = k + s reduces itself to C = k, or commodity-value equal to cost-price, only when s is zero, a case which never occurs on the basis of capitalist production, although peculiar market combinations may reduce the sell- ing price of commodities to the level of their cost-price, or even below it.
Hence, if a commodity is sold at its value, a profit is real- ized, which is equal to the excess of its value over its cost- price, or equal to the entire surplus-value incorporated in the value of the commodity. But the capitalist may sell a com- modity at a profit even when selling it below its value. For so long as its selling price exceeds its cost-price, even though 'Malthus. Principles of Political Economy, second edition, London, 1836, paRes _ *" Capital: that which is expended with a view to profit." Malthus, Definitions ai Political Economy. London, 1827, page 86.
D 50 Capitalist Production.
it may be below its valiie^ a portion of the surplus-value in- / corporated in it is ahvays realized and thus a profit made. The value of the commodities in our illustration is GOO p.st., their cost-price 500 p.st. If the commodities are sold at 510, 520, 530, 560 or 590, p.st., they are sold respectively at 90, 80, 70, 40, or 10 p.st. below their value, and yet a profit of respectively 10, 20, 30, 60, or 90 p.st. is realized by their sale. It is evident that selling prices may fluctuate considerably be- tween the value of a commodity and its cost-price. The greater the surplus-element of the value of commodities, the greater is the practical playroom of these fluctuating inter- mediate prices.
This exj^lains such phenomena of daily occurrence in com- petition as underselling, abnormally low prices in certain lines of industiy, etc.^ The fundamental law of capitalist comj^etition, which political economy has not understood up to the present time, the law which regulates the general rate of profit and the prices of production determined by it, rests, as we shall see later, on this difference between the value and the cost-price of commodities, and on the resulting possibility to sell a commodity at a profit even below its value.
The minimum limit of the selling price of commodities is indicated by their cost-price. If they are sold below their cost-price, then the consumed elements of productive capital cannot be fully reproduced out of the selling price. If this sort of thing continues, then the value of the advanced capital disappears. This point of view is sufficient to incline the capitalist toward the opinion that the cost-price is essentially the inmost value of commodities, because it is the price re- quired for the bare conservation of his capital. Further- more, the cost-price of a commodity is the purchase price paid by the capitalist himself for its production, in other words, the purchase price determined by the process of production itself. For this reason, the surplus-value realized by the sale of a certain commodity appears to the capitalist as an excess of its selling price over its value, instead of an excess of its value over its cost-price, so that accordingly the surplus- ° Compare volume I, chapter XVII, I.
i Cost Price (Hid Profit. 51