Eldred/Roth: Guide to Marx's Capital (1978)

Paper 4

The Forms of Appearance of Surplus-Value:
Profit of Enterprise, Interest and Rent


The analysis of the ground-form of capital has revealed the source of the valorisation of capital: it is the surplus-labour time of productive wage-labourers. Which forms are taken on by surplus-value on the surface of capitalist society? Before we can answer this question we have to investigate the transformed form of surplus-value, average profit.

Average Profit

The analysis of the transformation of surplus-value into average profit starts from the concept of cost-price (k "Kostpreis") (SG 120). Herein the distinction between the production of new value (v + s) and the transfer of old value (c) is suspended in practice: k = c + v. Cost-price is just the sum of money necessary for starting a profit-making process. At the most abstract level profit (SG 120) is determined here as the difference in magnitude of value between selling-price (SG 120) of the produced commodity and cost-price of the elements of production. We can distinguish between two forms of competition of capitals (SG 121): one which occurs within the sphere where the producers of the same kind of commodity compete and one between the different spheres of production where the aggregate capitals of the different spheres compete for a share in the total social surplus-value produced. The share of the surplus-value which falls to a capital as the end result of this competition is called profit (p). Profit always refers to the return on the total capital advanced. As opposed to the rate of surplus-value s/v, the rate of profit is p/(c + v).

"Now, if the commodities are sold at their values, then as we have shown, very different rates of profit arise in the various spheres of production, depending on the different organic composition of the masses of capital invested in them. But capital withdraws from a sphere with a low rate of profit and invades others which yield a higher profit. Through this incessant outflow and influx, or briefly, through its distribution among the various spheres, which depends on how the rate of profit falls here and rises there, it creates such a ratio of supply to demand that the average profit in the various spheres of production becomes the same, and values are, therefore converted into prices of production." (CIII 195f).

The production price is that selling price which enables the sphere of capital to make average profit (SG 122). To the extent that production price becomes general the spheres of capital become mere shareholders of the joint-stock company 'social capital' (cf. CIII 158). The share of one sphere of production in the aggregate surplus-value is determined by the ratio of the advanced capital in that sphere to the aggregate capital, independently of organic composition (c/v) and the turnover of variable capital, both of which are crucial for surplus-value production. This equalised rate of profit of all spheres we call the rate of average-profit. The surplus-value which is produced in one sphere of production does not determine the profit of that sphere. Average profit as a transformed form of the socially expropriated surplus-value is an expression of a social relation: the exploitation of the working-class by the capitalist class.

If we move on from the spheres of capital to the individual capitalist within the spheres, the competition between producers of the same type of commodity and the competition for average profit together determine the selling-price. After the analysis of the average rate of profit of the different spheres has been done the effects of different individual conditions of production i.e. differences in the productivity of individual capitals within one sphere can be articulated as differences of individual cost-prices. But an identical price is paid for commodities of the same kind, a unified market-price (SG 123). We can make a distinction between three forms of profit that exceed average profit (SG 124):

1) Extra-profit stemming from selling the commodity at its production price with production of the commodity at an individual cost-price lower than the average cost-price in that sphere ("extra-profit1").

2) Extra-profit stemming from selling the commodity at a market-price which, as a result of a monopoly of that sphere and organic composition below the social average, is higher than the production price but still below the value of that commodity ("extra-profit2").

3) Extra-profit stemming from selling a commodity at a "monopoly price proper" (eigentlicher Monopolpreis), which is higher than the production price and higher than the value of the commodity ("extra-profit3").

The analysis of capitalist ground-rent will start from these three forms of extra-profit (differential ground-rent, absolute ground-rent and monopoly rent respectively whereas the analysis of the other two forms of appearance of surplus-value, profit of enterprise and interest, deals with the division of average profit itself. Before dealing with these forms of appearance we outline two other aspects of average profit, firstly the tendency of the rate of profit to fall and secondly that the "final form" (CIII 388) of average profit includes the participation of merchant's capital in social surplus-value.

A Remark on the Tendency of the Rate of Profit to Fall

The capitalist mode of production includes substitution of living labour-power by labour objectified in machinery. Along with this application of machinery for the production of relative surplus-value, therefore, the contradiction that the rate of surplus-value can only be increased by diminishing the number of labourers relative to the magnitude of the total capital (c + v) (cf. CI 383). As average profit distributes the aggregate social surplus-value to the different spheres of capital, the magnitude of the rate of profit is influenced by the substitution of living labour-power by machinery if the increase of the rate of surplus-value does not compensate for the change in the organic composition of capital and therefore the relative decrease of the variable part of capital. For an individual capital this contradiction does not present itself in everyday practice:

"A saving of labour -not only labour necessary to produce a certain product, but also the number of employed labourers - and the employment of more congealed labour (constant capital), appear to be very sound operations from the economic standpoint and do not seem to exert the least influence on the general rate of profit and the average profit. How could living labour be the sole source of profit, in view of the fact that a reduction in the quantity of labour required for production appears not to exert any influence on profit? Moreover, it even seems in certain circumstances to be the nearest source of an increase of profits, at least for the individual capitalist." (CIII 170)

(For our views on the correct systematic place for the treatment of the tendency of the rate of profit to fall see the Remarks on Vol. I, chaps 7-33.)

Commercial Profit

The analysis of the ground-form of capital serves as a basis for the analysis of commercial capital as a derivative form of capital. The circuit of capital as analysed in Paper 3 (cf. Capital Vol. II) has three phases. In the phase of productive capital surplus-value is created whereas the phases of money-capital and commodity-capital are unproductive but necessary for the circulation of value as capital.

At this stage of the analysis, capital is now divided into industrial capital, which concentrates on the productive phase, and commercial capital, which deals exclusively with the circulation phases (SG 125). To the extent that commercial capital does the work of circulation at a lower cost by means of concentrating the buying and selling of a number of industrial capitals they create the economic basis for their existence. The costs of circulation work have to be paid out of surplus-value. The commercial capital makes the surplus-value absorbed by unproductive circulation work the source of its profit insofar as it diminishes the socially necessary unproductive work. Commercial capital grabs that part of social surplus-value that corresponds to its share in aggregate capital. After the acknowledgement of commercial capital as capital which makes average profit the spheres of circulation become just one of the spheres of investment of capital (SG 126). Outflow and influx of capital are determined for this sphere as well, by the competition for profit between the different spheres which is mediated by competition within the sphere.

Commercial capital must succeed in pressing down the costs of circulation work to such an extent that they remain, after the addition of average profit to the capital advanced, lower than the amount an industrial capital would have to spend if it did all the circulation work itself. The division of ground-form capital into industrial capital and commercial capital is dependent on the ratio of the production period to the circulation period and the extent to which circulation work is done by commercial capital (not all the circulation work can be taken out of the hands of industrial capital).

In the form of average profit for the ground-form of capital there is already a quantitative divergence of profit from surplus-value. Looking at commercial profit we find in addition a qualitative divergence in that capital which produces no surplus-value, participates in the distribution of social surplus-value, through making average profit. All capital which makes average profit does so on the basis of the exploitation of productive industrial labourers. All capital which makes average profit also benefits from an exploitation of the commercial labourers analogous to that of the industrial labourers: commercial wage-labourers work part of their time "for nothing" (CII 135).

Two Derived Forms of Surplus-Value: The Division of Average Profit into Interest and Profit of Enterprise

With commercial capital we have made acquaintance with the first derived form of capital. Here capital which does not engage in surplus-value production is nevertheless a profitable advance of money on the basis that the portion of aggregate capital engaged in circulation functions is diminished. But we were not confronted with a derived form of surplus-value. Commercial profit takes the form of average profit, the transformed form of surplus-value we already know. When dealing now with interest-bearing capital we do not find a new participation in average profit but rather a division of average profit, including commercial profit, into two parts which are derived forms of surplus-value: interest and profit of enterprise (SG 128). Here the same money functions as average profit producing and interest-bearing, only for two different capitalists. The circuit of the former (functioning capital) is embedded in the circuit of the latter and so we could call interest-bearing capital a capital of 'higher order'. As we deal here with average profit in its final form the embedded circuit of functioning capital can be either a circuit of industrial capital or a circuit of commercial capital.

Interest of interest-bearing capital = MII - MI. Profit of enterprise of functioning capital = MI - M. Average profit = MII - M.

In overcoming the latency of money-capital caused by necessary periods of fallow for functioning capital, interest-bearing capital has its first raison d'etre. Besides overcoming fallow, the form of interest-bearing capital allows for the gathering together of several capitals' newly accumulated surplus-value, each of which is too small to function independently. Because of the possibility of lending money in exchange for interest, interest itself becomes a fixed form, the price of the 'higher order' commodity, capital (SG 129). On the other hand, this leads to a permanent division of average profit into interest and the remainder, called profit of enterprise. Just as interest appears to be a property of money, profit of enterprise appears to stem from the activity of the entrepreneur, the functioning capitalist's labour-power, (cf CIII 382).

A Third Derived Form of Surplus-Value: Transformation of Extra-Profit into Capitalist Rent.

At this level of the presentation nature (the unproduced conditions of labour) is given its systematic place.

Landed property is the power to make the use of nature dependent on paying money to the rentier (SG 130). Capital working on e.g. a certain plot of land for which it pays rent, can make better than average profit if that plot of land gives it an advantage over others so that in addition to average profit an extra-profit is made which partly or wholly can be transformed into ground-rent. These natural advantages in production or circulation can be listed in three groups:

1) Extraordinary productivity (e.g. as a consequence of exceptionally fertile ground)

2) Extraordinarily favourable location and hence a quicker turnover and lower costs of circulation.

3) Natural limitation of production in a sphere (e.g. as a consequence of scarcity of a mineral).

The first two advantages result in lowering the individual cost-price below the average cost-price. The third advantage enables the seller of the product to ask a market-price above the price of production. Advantages (1) and (2) are reasons for extra-profit1. Advantage (3) is a source of extra-profit2 or extra-profit3 (see the above section on average profit). By selling products at the price of production while the individual cost-price is below the average cost-price, an extra-profit is made as against competing capitals in the same sphere of production. By selling the product at a market price above the price of production, the particular sphere is making extra-profit2 if the price does not exceed the value of the product, and it makes extra-profit3 against other spheres of capital if the price exceeds the value. Extra-profit1 can partially or wholly be transformed into differential ground-rent (cf. CIII 40ff, 745f) (SG 131), extra-profit2 into absolute ground-rent (cf. CIII 760ff) (SG 132) and extra-profit3 into monopoly rent proper (cf. CIII 762, 832f) (SG 133).

At this level of analysis land itself becomes a commodity (SG 134) whose price is determined by the capitalisation of the ground-rent which it draws i.e. investment of capital in land draws ground-rent as interest. The price of the land is therefore determined as the price of buying the property that draws ground-rent and is given by the expression rent/(rate of interest). In this way land becomes a higher order commodity.

Remarks on Capital, Vol. III

The 3rd volume of Capital as we have it now was set down by Marx essentially in one manuscript, most likely written in 1865 (before the final draft of Vol. I in 1866/7). Engels acknowledges: "As the reader will observe from the following, the work of editing the third volume was essentially different from that of editing the second" (Where there were several substantial manuscripts from after 1867 in Engel's hands and notes by Marx on how to do the selection. E/R). "In the case of the 3rd volume there was nothing to go by outside a first extremely incomplete draft. The beginnings of the various parts were, as a rule, pretty carefully done and even stylistically polished. But the farther one went, the more sketchy and incomplete was the manuscript, the more excursions it contained into arising side-issues, whose proper place in the argument was left for later decision." (CIII 2)

It seems that material additional to the 1865 manuscript was only incorporated by Engels into the first part. Chapter 1 was written by Engels on the basis of "two attempts at revising" (done by Marx at a time which Engels doesn't give, cf. CIII 3) Chapter 2 is "taken from the main manuscript". (CIII 3), but must have been there at a different place, for Engels states that the manuscript started with the topic of today's chapter 3. This version was written by Engels on the basis of Vol. II, "Beginning with Ch. 5, the main manuscript is the sole source for the remainder of the part" - and indeed the book - "although many transpositions and supplements were also essential". (CIII 4)

With parts 2, 3 and 4 Engels claims to have done no more than "stylistic editing." But he restructured parts 5 (on interest) and 6 (on rent), cf. CIII 4 and 6f. The theoretically very important last part "was available complete, but only as a first draft, whose endlessly involved periods had first to be dissected to be made printable. There exists only the beginning of the final chapter." (CIII 7). Engels printed the fragment and made no attempt to bring it to its systematic end. At the very beginning of part 7 Engels collected short (but very dense) passages on the trinitary formula from different places within the manuscript in its part on ground-rent.

In short: Engels has edited as Vol III of Capital a draft by Marx done before the final shape of Vol. I came into being. Engels does not refer to any later hints of Marx on how to do the editing.

On the contrary, it seems that Marx's view about the matter is expressed in his letter to Engels on February 13th, 1866. "Obgleich fertig, ist das Manuskript, riesig in seiner jetzigen Form, nicht herausgebbar für irgend jemand außer mir, selbst nicht für Dich." (although finished, the manuscript, gigantic in its present form, is not editable by anyone but myself, not even by you).

Does this matter? Only a successful attempt at unfolding the systematic argument in a dialogue can answer the question.

Part 1

Chapter 1 begins with a passage that could well function as an introductory remark to Vol 3 of Capital as a whole; it ends:

"The various forms ("Gestaltungen" MEW 25, p. 33; see also Marx's letter to Kugelmann of October 13, 1866) of capital as evoked in this book … approach step by step the form ("Form") which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves" (CIII 25).

As regards 'profit' as such a form of appearance we read in chapter 2:

"The transformation of surplus-value into profit must be deduced from the transformation of the rate of surplus-value into the rate of profit, not vice versa ... surplus-value and rate of surplus-value are, relatively, the invisible and unknown essence ("das zu erforschende Wesentliche" MEW 25, p. 53) that wants investigating, while rate of profit and therefore the appearance of surplus-value in the form of profit are revealed ("zeigen sich") on the surface of the phenomenon" (CIII 43).

In our view, as the reader may remember from the remarks on CI ch 16, the concept of profit does have a systematic meaning in Vol I already. The difference with respect to 'profit' on the level of Part 1 Vol. III comes to mind when focusing on the results of the analysis of the circulation of capital and taking account of the distinction between circulating and fixed capital (cf. CIII 33) and considering the annual rate of profit (ch 4, cf. CIII 74 especially).

Chapter 5 deals with a topic that was raised in Parts 3 and 4 of Vol. I already (cf. CI 251, 308, 365ff.): 'Economy in Employment of Constant Capital'. The material used for the illustration of the systematic points is to a great extent identical: reports of the inspectors of factories for the period 1845 to 1864 (in the case of Vol III chs 5 and 6) and the period 1841 to 1866 (in the case of Vol I).

The claim is expressed (CI 308) already:

"Economy in the use of the means of production has to be considered under two aspects. First, as cheapening commodities, and thereby bringing about a fall in the value of labour-power. Secondly, as altering the ratio of the surplus-value to the total capital advanced, i.e., to the sum of the values of the constant and variable capital. The latter aspect will not be considered until we come to the third book, to which, with the object of treating them in their proper connexion, we also relegate many other points that relate to the present question. The march of our analysis compels this splitting up of the subject-matter".

This refers to the analysis of relative surplus-value production. But a similar point can be made with respect to the analysis of absolute surplus-value production or surplus-value production in general: "Capital has one single life impulse, the tendency to create value and surplus-value, to make its constant part, the means of production, absorb the greatest possible amount ("Masse" MEW 23, p. 247) of surplus-labour. Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks" (CI 224).

This relation of variable and constant capital can obviously be looked at from its two opposing sides. In Vol I: the existence of money in the form of constant capital treated as given, the analysis of surplus-value production focuses on capital's tendency to increase surplus-value production. In Vol III: given the valorisation of capital's variable part ("mass and rate of surplus-value" CIII 79) the analysis focuses on capital's tendency to reduce the portion of constant capital in total capital. The labourers suffer from both alike. Compare Vol I ch 10 Sec. 4, "Day and Night Work. The Relay System" with Vol III ch 5 Sec. 2, "Savings in Labour Conditions at the Expense of the Labourers" and the remark CIII 86:

"Since the labourer passes the greater portion of his life - a great part anyway - in the process of production, the conditions of his active living process, or his living conditions, and economy in these living conditions is a method of raising the rate of profit; just as we saw earlier (in Vol I) that overwork, the transformation of the labourer into a work horse, is a means of increasing capital, or speeding up the production of surplus-value".

Taking into consideration the distinction between circulating constant capital and fixed capital as developed in Vol II a number of different cases of economising the employment of constant capital or effects of a cheapening of elements of constant capital are discussed in the 5th and 6th chapters.

Chapter 7, "Supplementary Remarks" is information on the assumptions of presentation used in Part 1 as opposed to Part 2.

Part 3

In Marx's manuscript of 1864-65 the text of Part 3 has no subtitles. The segmentation into chapters is Engels' work.

Systematically there are two different strands of argumentation.

1) Rise in the organic composition in the course of the development of machinery. This leads to a sinking rate of profit if not matched by even greater rise in the rate of surplus-value. Cf. ch 13.

2) "Absolute over-production of capital" (CIII 251)- "i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by C... there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour." (cf. ch 15 III)

We take the view that the difficulty for capital which arises from a rise in the organic composition has to be dealt with at the end and that the over-accumulation problematic has its systematic place within the analysis of the revenue-forms when competition and 'bourgeois class-struggle' are dealt with.

Part 4

The sections (our chapters) and their titles - with the exception of the title of ch 20 - are in the manuscript of 1864-65.

Systematically the most interesting is ch 17. On the problematic of historical development vs. systematic order cf.:

"In the course of scientific analysis, the formation of a general rate of profit appears to result from industrial capitals and their competition, and is only later corrected, supplemented, and modified by the intervention of merchants' capital. In the course of its historical development, however, the process is really reversed. It is the commercial capital which first determines the prices of commodities more or less in accordance with their values, and it is the sphere of circulation, the sphere that promotes the process of reproduction, in which a general rate of profit initially takes shape". (CIII 287)

Part 5

Of this part comprising two component parts, the first one (chs 21-28) is more structured and systematically more relevant. The second one's subtitles cannot be found in the 1864-65 manuscript. Engels acknowledges in his editorial note: "The real difficulty, however, began with Chapter 30. From here on it was ... a matter ... of putting the train of thought into proper order" (CIII 6). It is an open question, to what extent the material dealt with there belongs to the general analysis of the capitalist form of society, e.g. to a theory of money. For those without a special interest in this question we can offer the advice to skip chs 30-35.

Part 6

It is helpful to read the beginning of the text, CIII 614ff. carefully, as Marx states explicitly the assumptions of the subsequent presentation. That rent is not a "characteristic peculiarity of agriculture" is expressed CIII 637ff.

Thanks to Engels - who used Marx's hints (cf. CIII 762f and 7) - this part is clearly structured. For good information about the topics (especially the sub-forms of differential rent) see the table of contents CIII p X.

Part 7

With the possible exception of the three fragments which Engels placed at the very beginning of the text and his remarks (which might not be true) "here the manuscript breaks off" (CIII 817) and "here one folio sheet is missing" (CIII 822) - the text as printed in CIII does not offer editorial problems but a number of systematic ones.

The fragmentary character of this final part of Capital is a real pity. That this fragment remained unfinished without any attempts to complete it in the years 1866-1883 (cf. Marx's letter to Engels of February 13, 1866) must cause astonishment. Worth reading is the appendix "Revenue and its sources", printed at the end of the third volume of "Theories' of Surplus-Value", which was written two or three years before the corresponding text in Capital.