Marx’s Economic Manuscripts of 1861-63
Third Chapter. Capital and Profit
a) We have seen  that the general form of capital is M — C — C — M’. In other words, money, an amount of value, is thrown into circulation in order to extract from it a larger amount. The process which produces this larger amount of value is capitalist production; the process which realises it is the circulation process of capital.
The capitalist does not produce the commodity for its own sake, not for the sake of its use value or for consumption. The product capital is in reality concerned with is not the material product but the gain, the excess of the product’s value over the value of the capital advanced, which enters into the production of the commodity. If he converts £1,000 into machinery, cotton and wages, this is not for the sake of the twist he produces but because the machinery, cotton and wages now represent £1,200, after their conversion into twist, instead of £1,000 as originally. The hoarder as such changes a commodity of a definite value, e.g. £1,000 of twist, from the form of a commodity into that of money, in order to withdraw the latter from circulation and to possess the exchange value of his commodity in the independent form of money, the form in which it is independent of the commodity itself. The capitalist does not share the hoarder’s superstitions. The forms in which exchange value appears, commodity or money, are indifferent to him, they are impermanent forms, because all real wealth is for him in fact merely exchange value in its different embodiments. He first converts money into a commodity — a commodity of a higher exchange value than the money advanced, because within the capitalist process of production more labour time is materialised in the commodity than was originally contained in its factors of production, and indeed it is realised through the unpaid appropriation of alien labour time — and in the circulation process he converts this commodity back into money, but now into a larger amount of money than the amount from which the process took its departure. A part of this excess over its original magnitude serves him as income, which he consumes, and a part is converted back into capital in order to begin the same cycle afresh. Whether he converts it into variable or constant, fixed or circulating capital, the capitalist must, on the one hand, uniformly withdraw every part of the capital from his private consumption and consume it industrially, and, on the other hand, expose it to the chances and risks of circulation, once it has assumed the form of the product. The capitalist uniformly advances the total capital — without regard to the qualitative differences within it in the production of surplus value — in order not only to reproduce the capital advanced but to produce an excess of value over and above the capital. He can only exploit labour, i.e. convert the value of the variable capital he advances into a higher value, through the exchange with living labour, by advancing at the same time the conditions for the realisation, the conditions of production of this labour — raw material and machinery — converting a sum of value he possesses into this form of the conditions of production, just as he is only a capitalist at all, can only undertake the process of exploitation of labour at all, because he, as proprietor of the conditions of production, confronts the worker, as the mere possessor of labour capacity. It is quite indifferent to him whether it is considered that he advances constant capital to make a profit on the variable capital, or advances variable capital [XVI-980] to make a profit out of the constant capital; whether he lays out money in wages to give a higher value to the machinery and raw material, or advances money in machinery and raw material to be able to exploit labour. Although the profit he makes, the surplus value of the commodity he realises in the process of circulation, consists only of the excess of unpaid labour appropriated by him over the labour he has paid — his commodity only has a surplus value because a portion of unpaid labour time is now contained in it, and he sells this although he has not paid for it — the size of his profit by no means depends on the surplus value alone, but rather on the ratio of the surplus value to the total amount of capital advanced. If the capital advanced was 1,000, and if the value of the commodity into which it is converted is 1,200, the profit is only 200 compared with 1,000; 200:1,000=20%. The part of the capital that was laid out in machinery and material of labour is just as much advanced by the capitalist as is the part laid out in wages, and although the latter part alone creates surplus value, it only creates it on condition that the other parts, i.e. the conditions of production for the labour, are advanced, and all these elements enter uniformly into the product. Since the capitalist can only exploit labour by advancing constant capital, since he can only valorise constant by advancing variable capital, all these things are lumped together in his notion of the matter, and all the more so because his real profit is determined by the ratio of surplus value not to variable capital but to the total capital, hence is not determined at all by surplus value, but rather by the profit, which, as we have just seen, may remain the same and yet express different rates of surplus value.
We now return, therefore, to the point of departure from which we proceeded in considering the general form of capital. Profit represents the excess of exchange value, produced in the process of production and realised in the process of circulation, over the amount of money or exchange value originally converted into capital by the capitalist. Firstly, the real rate at which the capitalist profits, hence capital grows and accumulates, depends on this relation. Secondly, therefore, the competition between capitals is also dependent on this. Thirdly, this leads to the disappearance of any recollection of the real origin of this profit and the qualitative distinction between the various elements, or the entry of these elements into the capitalist process of production.
Profit therefore = the excess of value of the product or rather the amount of money realised in circulation for the product (hence in the capitalist process, this excess during a particular turnover time) above the value of the capital which entered the formation of the product. The whole of the capital accordingly appears as means of production for this profit, and since these means of production are values which are here given over in part to the industrial process of production, in part to circulation, in order to create this excess of value or profit, the whole amount of the capital advanced appears as costs of production of the commodity, in fact costs of production of the gain or profit which is made by means of the commodity.
Cost of production means everything, all the components of the product the capitalist has paid for. If he sells the commodity at £1,200, and surplus value on this amounts to 200, he has paid £1,000, he has bought it, and converted it from the form of money, of exchange value, in which he originally possessed it, into the form of the commodity; i.e., from the standpoint of exchange value, into a lower form. If he were not to sell the commodity, which he has not produced for its use value, the £1,000 advanced would be lost. They are in any case costs, and must be replaced by the sale, so that the capital can be available again and again in its original state, so that it may simply be preserved. [XVI-981] The £1,000, or rather the advance of the £1,000, for they are intended to be replaced, are the price — hence the costs — which the capitalist pays in order to buy the £1,200.
It therefore follows that the production costs of the commodity from the standpoint of the individual capitalist, and its real production costs, are two different things.
The production costs contained in the commodity itself are equal to the labour time it costs to produce it. Or its production costs are equal to its value. The labour materialised in it includes the labour used to produce the raw material which has entered into it, as well as the labour used to produce the fixed capital employed in producing it, and, finally, the labour, the necessary and surplus labour, paid and unpaid labour, employed to produce it.
From the standpoint of the capitalist, the costs of production consist only of the money he has advanced — or only of the part of the production costs of the commodity which he has paid. The capitalist has not paid for the surplus labour contained in the commodity. Indeed, it is precisely the fact of not paying for this which constitutes his profit. This surplus labour costs the capitalist nothing, although it naturally costs the worker labour just as much as does his paid labour, and enters into the commodity as an element constitutive of value just as much as the paid labour.
It follows, therefore, that surplus value, hence also profit, in so far as it is only another form of surplus value, does not enter into the production costs of the capitalist who sells the commodity, even though it does enter into the production costs of the commodity. His profit arises precisely from the fact that he has something to sell which he has not paid for. For him the profit consists in the excess of the value (the price) of the commodity over its production costs, which means in other words nothing but the excess of the total amount of labour time contained in the commodity over the labour time paid for by the capitalist which is contained therein.
This solves the controversy over whether profit enters into the costs of production or not. (See in Say, Jones, and particularly Torrens, etc.; these matters will be examined in more detail later on. )
b) In a deeper sense, it is a question (see the absurd Say, Storch, etc. ) of whether profit enters into the costs of production, i.e. is indispensable to capitalist production. It boils down to the fact that surplus value, hence also profit, is not merely a form of income but a relation of production for capital (for accumulation, etc.); the absurdity of the abstract distinction between a relation of production and a relation of distribution is in general demonstrated here. The question can only be brought up at all through an absolute failure to comprehend the nature of capital, hence also of capitalist production. In the shape of interest, profit already enters as an element into the costs of production.
c) It follows from the law that the production costs of capital are smaller than the value of the commodities produced by it (and profit is constituted precisely by the excess of the value of the commodity over the value of the production costs contained in it, or the excess of the labour contained in it over the paid labour contained in it), that commodities can be sold below their value at a profit. As long as some excess over the production costs is realised, a profit is always realised. The commodity will be sold at a profit as long as it is sold above the value of its production costs, although this does not mean that the buyer has to pay the whole of the difference between the value of the production costs and the value of the commodity. Assume that a pound of twist has a value of Is., of which 4/5 are costs of production. 1/5 is unpaid labour, hence the element that constitutes the surplus value. If the 1 lb. of twist is sold at only Is., it is sold at its value, and the profit realised in it amounts to 1/5 s.= 12/5p. = 2 2/5d. If the 1 lb. were to be sold at 4/5 s., or (4x12)/5 d. = 48/5 d. = 9 3/5d., it would be sold at 1/5 below its value, and no profit at all would be realised. But if it is sold above 93 /5d., say perhaps at 10d., [XVI-982] it is sold at a profit of 2/5d., although this is still 2d. or 20/10 d. below its value. The profit is there as soon as it is sold above its production costs; even if it is sold below its value. If it is sold at its value, the whole of the surplus value is realised for the capitalist, i.e. the whole excess of the unpaid labour contained in the commodity over the paid labour contained therein. Therefore delimited here is the whole of the room available for the rise and fall of profit. This room is determined by the surplus value, i.e. by [the correlation of] the value of the commodity and the value of its production costs, by difference between the value of the commodity and the value of its production costs, between the total amount of labour contained in it and the paid labour contained in it.
If the capitalist sells the commodity at a profit, but below its value, a part of the surplus value is appropriated by the buyer instead of the seller. This different division of the surplus value among different persons would naturally change nothing in its nature, just as it is a matter of complete indifference to the worker (unless he happens himself to be the buyer of the commodity) whether his unpaid surplus labour is appropriated by the capitalist who exploits him directly or by the class of capitalists, etc.
This law, that the capitalist can sell the commodity at a profit, although below its value, is very important for the explanation of certain phenomena of competition.
In particular, one of the main phenomena, which we shall come back to later in more detail, would be entirely inexplicable without this: namely, a general rate of profit, or the way in which the capitals work out amongst themselves the total surplus value produced by capital. A general rate of profit of this kind is only made possible by the fact that some commodities are sold above, others below, their value, or that the surplus value realised by the individual capital depends not on the surplus value it itself produces but on the average surplus value produced by the whole of the capitalist class.
d) Therefore, if the surplus value is given, absolute or relative — i.e., on the one hand, there is a given limit to the normal working day, beyond which labour time cannot be extended, on the other hand the productive power of labour is given, so that the minimum of necessary labour time cannot be curtailed any further — profit can only be increased in so far as it is possible to reduce the value of the constant capital required for the production of the commodity. When constant capital enters into the production of a commodity, is required for its production, it is not its price (its exchange value) but its use value which alone comes into consideration. The amount of labour that flax e.g. can absorb in spinning does not depend on the value of the flax, but on its quantity, given the stage of production, i.e. given a definite stage of technological development; just as the assistance a machine affords to e.g. 100 workers does not depend on its value, price, but on its use value, its character as a machine. At one stage of technological development a bad machine may be expensive, while at a higher stage of technological development an excellent machine may be cheap. The English cotton industry was first able to develop once cotton was converted from an expensive into a cheap material by the invention of the cotton gin (1793) //because 1 old black woman could separate 50 Ibs of cotton fibres from cotton seed in 1 day immediately after the invention of this chopping machine, whereas previously the day’s labour of 1 black man was required to perform this process for a single pound of cotton//.
The value of the constant capital required at a particular technological stage can only be reduced, hence the profit, s/(c+v) can only be increased, while the surplus value remains the same, in two circumstances. Either if there is a direct fall in the value of the fixed and circulating capital employed, i.e. both become the product of less labour time, hence there is an increase in the productive power of the branches of labour of which they are the direct products. In this case there is an increase in the profit in a branch of labour because of a growth in the productivity of labour (hence to a certain degree a growth in surplus labour) in the other branches of labour which supply it with the conditions of production. [XVI-983] In this case too, therefore, the profit thereby obtained (or the increase of profit, or, and this is the same thing, the diminution of the difference between profit and surplus value), or the greater productivity of capital (for profit is the actual product of capital) is a result of the growth in the productivity of labour and the appropriation of that growth by capital. Only this does not take place directly, i.e. it takes place indirectly. Thus the growth of the profit a capitalist obtains through the cheapening of cotton and the spinning machine, though not a result of the rise in the productivity of spinning, is indeed a result of the rise in the productivity of machine manufacture and flax cultivation (or cotton cultivation, etc.).
The advantage of this is twofold, it raises the productivity of capital in two ways. In order to materialise a given quantity of labour, hence to appropriate a given quantity of surplus labour, a smaller outlay is needed in purchasing the conditions of labour, the constant part of capital, the value of which only reappears in the product but is not increased in it. There is therefore a fall in the production costs now required to appropriate a given quantity of surplus labour. This is expressed by a rise in the ratio of the variable part of capital to the constant part, hence to the total capital. There is therefore an increase in profit, for s/(c+v) clearly grows in line with a fall in the value of C, the numerical magnitude of C, since it would reach its maximum when C=0.
Secondly: Let us assume that a constant capital of a given magnitude was previously required e.g. to employ a given number of spinners and to appropriate a given quantity of their surplus labour. At the given stage of production the employment of these 100 men requires machinery of a certain quality and a definite size, and similarly a definite quantity of raw material, cotton, wool, silk, etc. But the value of this constant capital has nothing to do with the spinning process into which it enters. If it fell by a half, the surplus value produced in the spinning process would firstly remain the same as before, but the profit would have increased. If the constant capital was originally 5 /6 of the total capital, the variable capital 1/6 — hence e.g. out of £600, £500 constant, £100 variable — and the surplus value 30%, the rate of profit would come to 5% on £600 (100 x 6 makes 600; 6 x 5=30).(Rate of profit 5%: surplus value 30% = 600 (c+v):100(v)) (5x600=3,000, and 30X100 similarly = 3,000). The rate of profit was 5%. If now the production costs of the constant capital were to fall by half — i.e. if there were a doubling of productive power in the branches which provided this constant capital — therefore from 500 to 250, the total amount of capital employed would have fallen from 600 to 350. The surplus value, at 30, and the variable capital, at 100, would remain the same... So now it is 30 on 350. The rate of profit, instead of 30/(500+100), is 30/(250+100); so instead of 5% the profit is 8 4/7%. (350:30=100:8 4/7.) The profit would therefore have increased because in the first case the ratio of the variable capital to the total capital = 100:600= 1:6. In the second case it is 100:350 = 1:7 /2. In the first case the variable capital = 1/6 of the total capital, in the second it = 1/(7/2) =2 /7 . But the ratio is 1/6: 2/7 = 7/42: 12/42. The ratio of the variable capital to the total capital has therefore risen from 7/42 to 12/42, i.e. by 5/42. The rate of profit has increased by the same ratio as that by which the ratio of the variable capital to the total capital has increased, [XVI-984] because 7/42 : 12/42 or 7:12 = 5:8 4/7. (5×12 = 60, and 7×(8 +4/7) = 56+ (7x4)/7-56+4 = 60.)
This would therefore be the first gain, or, speaking generally, a capital of 350 would now bring in as much profit as a capital of 600 did previously, because the surplus value would remain the same, but the employment of the same amount of capital laid out in wages would now only require for its realisation a constant capital of 250 instead of the 500 required previously. The production costs required for the production of the surplus value and accordingly of the profit would have been reduced.
Secondly, however, £250 out of the total capital of £600 required previously for the production of the same amount of commodities and the same surplus value would be set free. This money could either be invested in another branch of business for the appropriation of alien labour, or employed in the same branch of business. Presupposing the same stage of production and therefore the same ratio between the different parts of the capital, twice the number of workers could be employed, hence twice the surplus labour could be appropriated, without any increase at all in constant capital. An increase of only £100 would be needed for wages; hence a total capital of £700, to make a gain (a surplus value) of £60 (60:200, the same as 30:100, surplus value as before is 30%). Previously £1,200 would have been needed (according to the previous rate). Or if the 250 were added as new capital to the old (where this is technically possible) and divided into c and v in the same proportion, 7 13/7 would be the share of labour and 178 4/7 the share of constant capital. According to the previous ratio, surplus value would then be 21 3/7 (or 30%) (100:30=73 3/7:21 3/7). The total profit on the capital of £600 (although the rate of surplus value remains the same, surplus value itself has increased, because the ratio of variable capital to total capital has increased) now = 30+21 3/7=51 3/7.
The rate of profit would have increased from 5% to 8 4/7% as compared with the original situation, while the amount of profit would have increased, because surplus value has increased, from 30 to 51 3/7. Every reduction in the value of the constant capital, leaving aside the fact that it increases the rate of profit, because it reduces the ratio of total capital to variable, now permits the exploitation of the same amount of labour with a smaller outlay of capital overall, therefore leaving the surplus value unaltered, and sets free a part of the capital, which can be converted now into variable capital, the self-increasing part of capital, instead of being converted into constant capital, as it was previously. Any increase in the value of constant capital (if the stage of production, hence the technological conditions of production, remain the same) only increases the production costs required for the production of the same surplus value, and therefore reduces the rate of profit. Any reduction in the value of constant capital, as long as the stage of production remains the same, increases the part of capital which can be converted into variable capital, capital which is not only self-preserving but self-increasing, and therefore increases not only the rate of profit, but its amount, because it increases the amount of surplus value.
[XVI-985] Another example.
If, therefore, there is a given capital, of e.g. £9,000 sterling, and if the same flax, machinery, etc., which cost £6,000 previously, and was worked on by 100 workers during the year, at £30 apiece, can now be bought at £3,000, the profit (surplus value calculated on the total capital) which accrued to the capitalist for the £6,000 would be as large as the profit for which 9,000 was previously necessary. He would need 1/3 less capital in order to absorb and appropriate the same surplus labour. £3,000 would therefore be set free for him. If the ratio remained the same, he could now, out of the £3,000 which had been set free, employ 1,500 for machinery and flax, 1,500 for wages, and absorb the surplus labour of 50 more workers than previously with the same capital of £9,000. In the first case, the rate of profit would have risen if he only employed £6,000, because the ratio of the variable to the total capital would have increased. In the second case, the amount of profit would have risen as well as the rate, if he continued to employ the £9,000 in production, because 1) 4,500 out of the 9,000 would have been exchanged for living labour, as against 3,000 previously, and because 2) the surplus labour of 50 more men would have been appropriated, the quantity of surplus labour would have increased not only relatively but absolutely. In both cases, the productivity of labour, in so far as it affects the constant capital, only increases the profit (the rate of profit) because it increases surplus labour relatively, in proportion to the capital laid out, or absolutely (the latter when a part of the capital which previously, on a given, on the same, scale of production, had to be converted into constant capital, now becomes free, or can be converted into variable capital).
The increase in the rate of profit — through a reduction in the ratio between variable capital and constant capital [or in the ratio of variable capital to]” the total amount of capital advanced, or, and this is the same thing, through a reduction in the value of the constant capital, as a result of the increased ‘productive power of the labour which produces it — originates in both cases solely from the fact that surplus value is increased relatively or absolutely in proportion to its production costs, i.e. to the total amount of capital required to produce it, or that the difference between profit and surplus value is lessened. This increase in the rate of profit therefore rests on the development of productive power, not in the branch of labour belonging to a particular capital, but in the branches of labour of which the product is the constant capital required in that branch of labour.
// In reality the part of capital which exists as fixed capital — or also all the commodity capital which was produced under the old conditions of production — is relatively devalued by this increase in productive power or the relative devaluation of this capital; just as the rate of profit is lessened, hence also profit is lessened proportionately to capital, whereas the value of that capital itself rises, if there is a reduction in productive power, an increase, it may be, in the cost of iron, wood, cotton, etc., and other elements which [form] fixed capital and circulating capital, to the extent that they enter into constant capital, given that surplus value remains the same. This effect is to be considered in dealing with competition .6’ This circumstance never comes into consideration with new capital investment; whether in the same business or in the newly established one; just as little with the raw material which has to be bought afresh.//
//Furthermore, the rate of profit can be increased by curtailment of circulation time, hence by all inventions which ease communications and speed up the means of transport, and similarly by speeding up the formal transformation processes of the commodity, thus through the development of credit and the like. But this actually needs to be considered under the heading of the circulation process.//
A second kind of increase in the rate of profit arises from another source, not from economy in the labour which produces constant capital, but from economy in the employment of constant capital. Constant capital is on the one hand saved by the concentration of workers, by cooperation, by labour on a large scale. The same factory buildings, heating, lighting, etc., cost less, relatively speaking, when employed on a large than when employed on a small scale of production. Here it is the common application of the same use value which lessens the costs of production. Similarly, the cost of a part [XVI-986] of the machinery, etc., e.g. a steam-boiler, does not rise in proportion to its horsepower. (See example. ) Although its absolute value rises, its relative value falls, in proportion to the scale of production and the magnitude of the variable capital which is set in motion, or the quantity of labour power which is exploited. The economy a capital applies in its own production, e.g. spinning, rests directly on economy of labour, i.e. the exchange of as little objectified labour as possible for as much living labour as possible, the production of the maximum amount of surplus labour, which is only made possible by increasing the productive power of labour. The economy just mentioned, in contrast, rests on accomplishing this greatest possible appropriation of alien unpaid labour in the most economical way possible, i.e., on the given scale, with the smallest possible production costs. This economy, too, rests either on exploiting the productivity of social labour outside this particular branch of production, i.e. the productivity of the labour employed in the production of constant capital; or, in the case considered above, on economy in the employment of constant capital, which either directly makes possible saving through cooperation, etc., the social form of labour within capitalist production, and the scale of this production, or makes possible the production of machinery, etc., on a scale at which its exchange value does not grow uniformly with its use value. In both cases, the raised productivity is the increase in the productivity of labour which arises from the social form of labour, this time not [through changes] in the labour itself but in the conditions under which and with which it produces. It is also relevant here that in large-scale production the waste products more easily become the materials for new industry than does the scattered waste of small-scale industry; this likewise means a reduction in production costs.
Capital therefore has a tendency in the direct employment of living labour to reduce it to necessary labour, and always to curtail the labour necessary for the manufacture of a product by exploiting the social productive power of labour, hence to economise on living labour — to employ as little labour as possible for the manufacture of a commodity. In the same way, it has a tendency to employ this labour which has been economised and reduced to necessary labour under the most economical conditions, i.e. to reduce the exchange value of the constant capital to the minimum possible level — hence altogether to reduce production costs to their minimum. If we see, therefore, that the value of the commodity is determined not by the labour time contained in it as such, but by the necessary labour time contained in it, capital realises this determination first, and at the same time continuously curtails the labour socially necessary to the production of a commodity. The price of the commodity is thereby reduced to its minimum, since all the elements of the labour required to produce it are reduced to a minimum.
e) In order to calculate profit (like surplus value) we take not only the surplus value a particular capital produces in a given period of time (turnover time) but also a quantity of capital, e.g. 100, as a yardstick, so that the ratio is expressed in per cent.
f) It is clear that the rate of accumulation, i.e. of the real growth of capital, is determined by the profit and not by the surplus value, since, as we have seen, the same profit and the same rate of profit may express very different rates of surplus value. It is profit that expresses surplus value in proportion to the total amount of capital advanced, hence the real growth (or the ratio of real growth) of the total capital. The real gain the capitalist makes is therefore not expressed by the surplus value but by the profit. Surplus value is related only to the part of the capital from which it directly arises. Profit is related to the whole of the capital which has been advanced in order to produce that surplus value; this capital therefore contains not only the part directly exchanged for living labour, but also the part representing the sum of the value of the conditions of production under which alone the other part of the capital. can be exchanged for living labour and the latter exploited.
[XVI-987] Surplus value only expresses the excess of the part of living labour exchanged and appropriated in the production process over the equivalent given away in exchange for it in wages, in the form of objectified labour. Profit, however, expresses the excess of the value of the product over the value of the whole of the costs of production; hence it expresses in fact the increment of value which the total capital receives at the end of the processes of production and circulation, over and above the value it possessed before this process of production, when it entered into it.
Profit is therefore also the sole form which interests capital directly, and in it the memory of its origin is completely extinguished. The conversion of surplus value into profit therefore completes the mystification which makes capital appear as a selfactor and a person vis-à-vis labour, thus turning the objective moment of the production process into a subject.
g) How, then, is profit related to the size of the capital, presupposing the same surplus value? This is the same question as: How is the amount of profit related to the rate of profit?
But secondly, how does a general rate of profit originate, a rate of profit dependent on the size of the capital alone, and independent of the surplus value which is created by a particular capital in a particular branch of business, or of the productivity (i.e. the ratio of appropriation of alien labour) prevailing in a particular branch of business?
These two questions, which are connected with production costs, must be answered before we proceed to the solution of the most important question in this section — the decline of the rate of profit in the course of capitalist production.
//Before this, one further remark regarding 6 c). Since commodities can be sold at a profit beneath their value — namely, provided that they are sold above the capitalist’s costs, the part of the production costs paid for by the capitalist himself, the part advanced from his own purse — and since the difference between the value of the commodity and costs of production allows the capitalist considerable room for manoeuvre and makes it possible to set very different price levels for the commodity below its value without liquidating profit altogether — it is clear that competition could force down the rate of profit everywhere, not only in one branch, but in many, indeed in all branches of production, through a gradual compression of prices below their value. If society consisted purely of industrial capitalists, this would balance out, since each of them would obtain his conditions of labour cheaper not only as a private consumer but as an industrial consumer, the rate of profit therefore rising again generally as a result both of the devaluation of the total capital advanced and of the diminution in the production costs of labour capacity, hence the rise of surplus value relatively to variable capital. But society includes classes with fixed incomes, the moneyed class, etc., creditors and so on, hence there are fixed deductions from surplus value or profit which do not fall with the reduction in the rate of profit or the fall of the prices of commodities beneath their value. These classes would make a double gain. The rate which would fall to their share would have a higher exchange value, because it remained unchanged, while the prices of commodities would on the average have fallen beneath their value. They would come to a greater proportion of the deduction, and would be able to buy more with this. Something of the kind took place in England between 1815 and 1830 (see Blake). Under these circumstances, the situation of the actual industrial capitalists might be very precarious. The moneyed classes would in fact pocket the considerable part of the surplus value lost by industrial capital itself. However, such a state of affairs could only be temporary, since it would call forth bankruptcies among the industrialists (as among the English farmers between 1815 and 1830) and hold up the accumulation of capital. A reaction would necessarily occur. Therefore, although competition may reduce the rate of profit not only in a particular branch of industry, as long as it is higher than the average rate, but also, [XVI-988] as Adam Smith says, in all branches, the latter effect can only be temporary. The capital accumulated in the hands of the fix[ed] income and moneyed classes would either have to be employed in the purchase of commodities for consumption, and in this case the price of the commodity would again move closer to its value, hence the rate of profit would again rise; or it would itself be loaned out again as capital. In the latter case there would be on the one hand a yet further increase in competition, hence the rate of profit, which had already fallen a long way, would sink still further owing to a further reduction of the prices of the commodities beneath their values, thereby bringing about a crisis, an explosion and a reaction; but on the other hand, the new placements of funds, whether as interest or as rent, would be made at a lower rate, in line with the fall in prices, thereby bringing forth a situation approximating to that in which all capitalists sold the commodities beneath their value, hence, through equalisation, at their value. The rate of profit would thereby rise to its normal level again.
From this standpoint, therefore, it appears that Adam Smith’s view is correct in one aspect, overlooked by his opponents, that it explains certain temporary phenomena of modern industry, but does not explain the general phenomenon which is involved in the normal decline of the rate of profit; all it does is to explain merely temporary general fluctuations, which are later again balanced out.
Further: This view does not in fact imply that the rate of profit in general sinks, but rather the rate of profit which appears directly as industrial profit. It implies that there merely takes place a different distribution, since in fact a considerable part of the surplus value is pocketed by the moneyed interest and the fixed income men, instead of the industrial capitalists themselves. There is, it suggests, merely a different distribution of profit in general; profit itself has not changed its rate, since it now appears as higher income in the hands of other classes. In the long term, indeed, this would lead to crises and reaction. So Adam Smith does not explain the actual phenomenon. But the value of the fixed incomes would rise, on the one hand because they would collect a higher rate of overall profit — although the rate would remain the same nominally — and secondly because they would in fact buy for their share not only more products, but also a greater amount of objectified labour, even if this labour was not paid for by them. //
It is clear that if the surplus value is given, and the rate of profit in which it is expressed is given //this may, as we have seen, vary greatly while the surplus value remains the same//, the amount of profit, the absolute magnitude of profit, depends entirely on the magnitude of the total capital employed If the profit on 100 thalers is 10, it is 10,000 on 100,000, namely 10 x 1,000, since the ratio of capital 100 to capital 100,000=10:(10 x 1,000). The amount of profit grows in this case in exactly the same measure as the value or the magnitude of the capital advanced; just as when the capital is given, the amount of profit depends on the rate of profit.
1) We see, however, that the same surplus value may be expressed in very different rates of profit, according to the ratio of the variable capital to the total capital.
2) But secondly, the surplus value itself is in the nature of things not the same for different capitals. It differs. In the first place, the ratio of the actual circulation time to production time varies, and therefore the turnover time of different capitals is different, and the surplus value really created stands in a ratio which is the inverse of that between circulation time and production time. Secondly, the normal working day differs with different capitals, and therefore surplus labour time is different, although this is initially only to be conceived as compensation for the proportions in which the different modes of labour stand towards simple average labour. Thirdly, the ratio of circulating to fixed capital, the ratio in which fixed capital turns over, etc., are different. Productivity differs in different branches of industry, and the proportion in which they participate in the productivity of other branches of industry is also different. For example, an industry which employs very few hands does not participate in the cheapening of agricultural products, or, in general, in the cheapening of means of subsistence, in the same measure as an industry which employs many hands, one setting in motion much living labour; just as an industry which employs little machinery does not participate in the same measure in the cheapening of machinery as one which employs a great deal of machinery.
[XVI-989] One can only speak of an average rate of profit when the rates of profit in the different branches of production of capital are different, not when they are the same.
A closer investigation of this point belongs to the chapter on competition. Nevertheless, the decisive general considerations must be adduced here.
Firstly, it lies in the nature of a common or general rate of profit that it represents the average profit; the average of very diverse rates of profit.
The average rate of profit presupposes further that if a particular capital in a particular investment brings in a profit which rises or falls about a certain point, its profit rises or falls above or below the normal rate of profit, which is therefore determined precisely by the level designated from this point of measurement. At this level the rate of profit counts as the normal one, which capital as such ‘is by and large entitled to. But even now we are not yet at the decisive point.
A rate of profit — to the extent that it is not compensated for by the particular nature of the capital investment, in an analogous manner to the way concurrent circumstances, such as the particular nature of the labour, etc., modify somewhat the differences in length of the normal days of different branches of labour — above or below the average counts as an exceptional condition for capital in the particular branch of investment where it takes place, and it will be forced down or raised up by competition to the general level, through the entry of outside capitals into the privileged branch, or in the opposite case the exit of local capitals — capitals which are settled in that branch — out of the latter. The level of the rate of profit thereby falls in the first case, and rises in the second. The surplus profit, or the short-fall of profit, an individual capitalist encounters in a particular branch (district) of capital investment, does not belong to this discussion at all. What is involved here is rather the profit of capital in all the particular branches of production, or in every particular sphere of capital investment conditioned by the social division of labour — for every capital placed in average or normal conditions. This qualification is necessary, in order to proceed, through analysis, to what lies at the basis of the average rate of profit.
If we adopt some particular quantity of capital, e.g. 100, as a yardstick — i.e. a yardstick for comparing the magnitude of different capitals — the meaning of the average rate of profit is that on £100 a profit of e.g. £10, of 1/10 of the capital advanced, or of 10%, is made, entirely disregarding the particular nature or determination of the sphere of production in which this £100 is invested as capital. It therefore by no means follows that a sum of value of £100 can be invested as capital in every sphere of production. It only follows that in each of these spheres 10% is made on 100, whatever the magnitude of the capital required for engaging in a particular branch of production. A general rate of profit therefore means in fact nothing but that the total amount of profit is absolutely determined by the magnitude of the capital advanced. The capital may be large or small, the average rate of its profit is 10%, and indeed in the same circulation time, turnover time, hence 1 year for example, as the measure of circulation time. If circulation time is posited as indifferent for all capitals (or identical, which is the same thing); furthermore the rate of profit too; the amount of profit will depend entirely on the magnitude of the capital. Or, the amount of profit = a times x, in which a is a fixed magnitude, x is the variable which expresses the magnitude of the capital. Or, given the magnitude of the capital, the amount of profit is given, namely determined, by the general rate of profit. [XVI-990] That the general rate of profit = 10%, e.g., means nothing at all except that 1/10 of the capitals, in whatever branch they are employed, returns as profit or that the profit stands in the same ratio to the magnitude of the capital — has the same ratio to the magnitude of the capital advanced, its amount therefore depends directly on the magnitude — stands in direct ratio to the magnitude of the capital; hence is similarly independent of the real turnover time of the capital (since the rate of profit is the same for any given circulation time), is independent of its specific circulation time — i.e. of the ratio of its circulation time to its production time; is similarly independent of the organic relation of the different components of capital in each particular branch of production, hence independent of the real surplus value — i.e. the real quantity of surplus labour — which every individual capital absorbs or produces in every particular branch of production.
The conversion of surplus value into profit alters not only the numerical relation — or rather the expression of the numerical relation — but the form as such. Surplus value appeared as a relation in which objectified labour was exchanged for living labour, or in which objectified labour appropriated living labour without exchange. The organic relation of the different parts of the capital advanced to each other, and therefore also the relation of the surplus value to a specific component of the capital emerges, is expressed in this. The relation ceases as soon as surplus value is expressed as profit. All parts of the capital advanced appear as uniform magnitudes of value, only differing quantitatively — amounts of exchange value, sums of value which in relation to their quantity — or rather added together — uniformly have the quality of producing not only themselves but an excess over their original magnitude: profit. The capital is the main sum, the profit is the subsidiary sum produced by this main sum in a definite circulation time. The main sum, the capital, is related as ground (cause) to the subsidiary sum as the grounded (consequence, effect). This appears as the existing law of capitalist production. How and whence and why is so little expressed in this relation of capital and profit that the spokesmen of capitalist production, the political economists, give the most varied and contradictory interpretations of this phenomenon.
Nevertheless, even after this conversion of surplus value into profit, surplus value remains equal to profit as an absolute magnitude. Whether 100 is calculated as a profit of 10% on 1,000, or as a surplus value of 20% on the variable part contained within that 1,000, say 500, the 100 continues [to appear] as the same magnitude of value, only differently calculated //and in the difference of the calculation there exists the difference of form, the extinction of the relation of this excess over the capital advanced to the organic relation of the different components of capital//. In itself the distinction remains purely formal. The difference of surplus value in particular capital investments would therefore continue to be displayed here as a difference of profit.
The situation is entirely different, however, with the general rate of profit, the most general law of which is expressed in the fact that the rate of profit is equal for all capitals, or, and this is the same thing, that the amounts of profit are related to each other directly and exactly as the magnitudes of the capitals.
The general rate of profit, and therefore profit in its real, empirical shape, already implies the conversion of surplus value into profit and therefore the conversion of the rate of surplus value into the rate of profit. But then the differences in surplus value (in its rate) (and therefore also relatively in the total amounts of surplus value), as they emerge in the particular spheres of capital investment, partly owing to differences in the ratio of variable to constant capital, partly owing to the ratio of circulating and fixed capital (let us say owing to all the relations which emerge from the ratio of production time to circulation [XVI-991] time) — these different rates of surplus value, or the diversity of surplus value, continue to exist, although in the altered form of differences in profit or different rates of profit. These serve as the substance, the prerequisite, of the general rate of profit, and therefore of profit in its organic form They are equalised, reduced to their average magnitude, which is then the real (normal) rate of profit in all particular spheres — particular spheres of production of capital — produced by the division of social labour. On the basis of the first transformation, therefore, a second takes place, which no longer affects the form alone, but also the substance itself, in that it alters the absolute magnitude of profit — hence of surplus value, which appears in the form of profit. This absolute magnitude was untouched by the first transformation.
Whatever the production costs (in the capitalist’s eyes) in any particular sphere of production — hence of any particular commodity — the capitalist adds e.g. 10% (the general rate of profit) to the sum advanced, calculates thus that 10% will be added to the amount of commodities produced in a year. This 10% then enters into the price of the commodity, and if the commodity is sold at this price the normal profit, or the average profit, is realised. If, e.g., the capitalist were to reckon 2% over this average profit in the first half of the year, and 2% under in the second half, the total amount of commodities during a year, or the average profit he makes during a year, would represent the normal profit or average profit of a capital of a given magnitude, since the increases and reductions in profit during the daily transactions would have balanced out to that amount.
But in its essence profit consists of surplus value — not of a formally higher valuation of the product, as perhaps the money price rises nominally if the value of the material of money, gold perhaps, falls, without a simultaneous fall in the value of commodities. Surplus value is a genuine creation of new value. It represents more objectified labour — hence a higher real exchange value — than the labour originally objectified in the capital, i.e. it goes beyond its original exchange value. And this surplus quantity of labour is realised in a surplus quantity of product or use value. Just as it would be wrong to regard a greater quantity of use values or products as a greater quantity of objectified labour on account of their greater quantity — with an increase in the productivity of labour they may represent the converse, a smaller quantity of labour — so it is correct that at a given level of the productivity of labour, at a given stage of production, surplus labour or surplus value expresses itself at the same time as surplus product, more use value. If we consider the total capital, the total surplus value represents the total excess quantity of labour which is realised in the total surplus product, over and above the product which replaces the constant part of capital and is required for the reproduction of the whole of the working class — a surplus product which is in part converted back into capital, and in part forms the income of all the classes living, under various headings, from their command over alien labour, from their respective shares in this
If the addition of profit to price were merely formal, it would be nominal, in the same way as if the value of the total product were only distinguished from the total value of the capital advanced by being valued, let us say, in money whose value had fallen, or, equally, whose numerical expression had been magnified by being valued in silver instead of in gold. [XVI-992] Neither new value nor surplus product would be implied thereby. All capitalists would sell the same value at a higher money price, the same as if they were all to sell it at a lower money price or all to sell it at a money price corresponding to the value. It would then also be a matter of indifference whether a profit of 10% or 1,000% were added to the price of the costs of production, for the big figures which express a merely nominal increase of the price are just as irrelevant as if this nominal increase were to take place on a smaller scale. The percentages of this nominal increase would be a matter of complete indifference. The wage, i.e. the part of capital which is set aside for the reproduction of labour capacity, as well as the part of capital which replaces the constant capital advanced, would appear in the same ratio in bigger figures, in a higher monetary expression.
Just as the surplus value of the individual capital in each particular sphere of production is the measure of the absolute magnitude of the profit — in so far as this is merely a converted form of surplus value — so is the total surplus value produced by the total capital, hence the whole of the class of capitalists, the absolute measure of the total profit of the total capital, whereby profit should be understood to include all forms of surplus value, such as rent, interest, etc. (that this total profit implies an encroachment on wages is beside the point, as was shown earlier a). It is therefore the absolute magnitude of value (and therefore the absolute surplus product, amount of commodities) which the capitalist class can divide up among its members under various headings. The empirical, or average, profit can therefore be nothing other than the distribution of that total profit (and the total surplus value represented by it or the representation of the total surplus labour) among the individual capitals in each particular sphere of production, in equal proportions, or, what is the same thing, according to the different proportions in which they stand to the magnitude of the capitals, and not according to the proportion in which the capitals directly stand to the production of that total profit. It therefore only represents the result of the particular mode of calculation in which the different capitals divide among themselves aliquot parts of the total profit. What is available for them to divide among themselves is only determined by the absolute quantity of the total profit or the total surplus value. The rule of distribution is equal profit for capitals of equal magnitude or inequality of profit in proportion to the unequal magnitude of the capitals. What was merely formal in the first transformation, the calculation of surplus value on the individual overall capital as a uniform, distinct amount of value without regard to the organic relation of its components, becomes here a material difference, since the share of total profit or total surplus value is uniformly determined, measured, at so many per 100, hence according to the magnitude of the capitals, without regard to the proportion in which each individual capital in each particular sphere of production participates in the creation of that total profit or total surplus value. Just as in the first transformation the surplus value is formally determined as the excess of the value of the product over the value of the capital advanced, so here the share of each capital advanced in the excess of the value of the total product of the total capital over its total value is determined materially in proportion to the value of the capital advanced. The agency through which this calculation is performed is the competition of capitals with each other. From the moment at which the surplus value is converted as profit, i.e. excess over the capital advanced, the second practical consequence follows, that a particular excess in proportion to the capital advanced forms the profit or the surplus value falling to its share, which stands in proportion to its magnitude — the magnitude of the production costs — and these come down to the value of the capital advanced. Profit thus equalised, levelled, expresses for capitals in one sphere of production a higher surplus value than they really produce directly, [XVI-993] for others a lower one, and for both the average of these higher and lower amounts. The absolute measure of this rate of profit naturally depends on the absolute proportion of the surplus value to the totality of the capital advanced.
In fact the matter can be expressed in this way:
Profit — as first transformation of surplus value — and the rate of profit in this first transformation — expresses surplus value in proportion to the individual overall capital of which it is the product — treating all parts of this overall capital as uniform, and relating to the whole of it as a homogeneous sum of value, without regard to the organic relation in which the different components of this capital stand towards the creation of its surplus value.
Empirical or average profit expresses the same transformation, the same process, in that it relates the total amount of surplus value, hence the surplus value realised by the whole capitalist class, to the total capital, or the capital employed by the whole capitalist class, in exactly this way — it relates the total surplus value as profit to that total capital of society, without regard to the organic relation in which the individual components of that total capital have participated directly in the production of that total surplus value, on behalf, that is, of the individual independent capitals or the individual capitalists in the particular sphere of production. Just as, for example, with the individual capital of £900, if it yields a surplus value of £90, this profit is related equally to all components of the £900, and every component of the latter is valorised at 10%, thus, it may be, the 350 fixed capital, the 350 capital for raw material, and the 200 capital for wages, each provides 10%, each therefore produces a profit in proportion to its magnitude — “the capitalist generally expects an equal profit upon all the parts of the capital which he advances” (Malthus) — so the total capital C socially, or the total amount of all the capitals of all the individual capitalists, is related to S, the surplus value, as the rate of profit r, for example, and every part of this total capital participates in the proportion r to P or S, hence in proportion to the magnitude of its value, irrespective of its direct functional relation in the production of S.
The second transformation is a necessary result of the first, which emerges from the nature of capital itself, whereby the surplus value is converted into an excess of value over production costs, i.e. the value of the capital advanced. In the first case, the absolute magnitude of the surplus value = that of the profit; but the rate of profit is less than the rate of surplus value. In the second case the absolute magnitude of the total surplus value = the magnitude of the total profit; but the average rate of profit is less than the average rate of surplus value (i.e. the ratio of surplus value to the total value of the variable capital contained in the total capital).
The transformation is formal in the first case, in the second material at the same time, since now the profit that falls to the share of the individual capital is in practice a different magnitude from the surplus value created by it, it is larger or smaller. In the first case, the surplus value is calculated only according to the magnitude of the capital which produces this particular surplus value, without regard to the capital’s organic components. In the second case, the share of the individual independent capital in the total surplus value is calculated in accordance with this capital’s magnitude alone, without regard to its functional relation to the production of that total surplus value.
In the second case, therefore, an essential difference enters the picture, both between profit and surplus value and between the price and the value of the commodity. Hence the difference between the real prices — even the normal prices of the commodities — and their values. The more detailed [XVI-994] investigation of this point belongs to the chapter on competition, in which it will also need be demonstrated how it is that despite this difference between the normal prices of commodities and their values, alterations in the value of the commodity modify its price.
But it will be understood from the outset how through the confusion of empirical profit with surplus value — which profit presents in a very transformed form (just as through the confusion of the difference itself which corresponds to this between the normal prices and the values of commodities) — and this confusion is a common feature of all previous political economy, to a greater or lesser degree (only with the distinction that the more deep-going political economists such as Ricardo, Smith, etc., directly reduce profit to surplus value, i.e. want to display the abstract laws of surplus value directly through empirical profit, because otherwise any attempt to gain knowledge of the laws [of political economy] would have to be abandoned — whereas the economic plebs do the opposite, and directly set up and proclaim as laws of surplus value the phenomena of empirical profit; in reality proclaiming the semblance of lawlessness to be the law itself) [...]
The competition of capitals is nothing more than the realisation of the immanent laws of capital, i.e. of capitalist production, in that each capital confronts the other as the executor of these laws, the individual capitals bringing their inner nature to bear by the external compulsion which they exert on each other, according to their inner nature. But in competition the immanent laws of capital, of capitalist production, appear as the result of the mechanical impact of the capitals on each other; hence inverted and upside down. What is effect appears as cause, the converted form appears as the original one, etc. Vulgar political economy therefore explains everything it does not understand from competition, i.e. to state the phenomenon in its most superficial form counts for it as knowing the laws of the phenomenon.
If a capital which turns over 6 times in a year only takes a profit 2 times smaller than a capital which turns over 3 times, one which employs much labour does not take any more profit than one which employs much fixed capital, one which suffers long interruptions in the production process itself no less than one which proceeds without interruption, etc., this means nothing but that the capitalists calculate the profit they make on the capital’s size, not on its direct causal connection with the process.
If each capitalist adds 10% to his production costs, this means nothing but that one capitalist adds a given amount more, the other adds a given amount less, than he really produces over and above those production costs.
It is in one respect the same as when the individual capitalists sell their commodities above or below their value because they are cheating or being cheated. The one realises more surplus value than he produced, the other less. But the two divide among themselves, even if for accidental motives, and unequally, the total surplus value their two capitals have produced. The same thing takes place with average profit or empirical profit, only following a general law which is entirely independent of the personal frauds committed by capitalists against each other, but rather asserts itself against and through these activities.
Adam Smith’s assertion that the capitalists would have no reason to employ a large instead of a small capital, unless profit bore some proportion to the magnitude of the capitals, is naive but incorrect. Leaving aside its shallowness — a larger capital with a smaller profit may after all — within [XVI-999] certain limits — realise a greater amount of profit than a smaller capital with a greater rate of profit. The motive for the employment of larger capitals would therefore remain. What is alone important in Smith’s case is that he feels the difficulty of explaining this at all, whereas with the oeconomista vulgaris it is self-evident, just as everything is self-evident with that fellow.
The situation arises simply from this, that with the conversion of surplus value into profit the value of the capital advanced is converted into the production costs of the individual capitalists, the magnitude of these production costs is therefore converted into the magnitude of the capital advanced, which means that they calculate the same magnitude of the product — the actual product of capital is profit — in proportion to these production costs, so that the division of the total surplus value as it is present in empirical profit can take place. The relation of supply in particular branches of production gives rise of itself to this levelling and this average calculation.
The last point which has still to be considered under this heading is the entirely fossilised form capital has taken on these days, and the completion of the mystification peculiar to the capitalist mode of production.
We must return to this point.
Hence the phrase (of Torrens) that with the advance of civilisation it is not labour but capital. that determines the value of commodities. Similarly, that capital is productive, irrespective of the labour employed by it. (Ramsay, Malthus, Torrens, etc.)
h) In relation to the costs of production there is a further phenomenon to be discussed: why with the development of capitalist production, and therefore of the volume and measure of development of fixed capital, the mania to prolong the normal working day sets in to such a degree that the intervention of governments becomes necessary everywhere precisely at that point. But this can come later.