Volume I dealt with the “process of capitalist production,” and Volume II the “process of circulation.” Volume III aims “to discover and present the concrete forms which grow out of the process of capital’s movement considered as a whole. . . . The configurations of capital, as developed in this volume, thus approach step by the step the form in which they appear on the surface of society, in the action of different capitals on one another, i.e., in competition and in the everyday consciousness of the agents of production themselves.” Marx begins by discussing profit, which presents surplus-value in a “mystified form.” The value of any commodity C is equal to the sum of the constant and variable capital laid out in its production and its surplus-value. So C = c + v + s. To the capitalist, however, what the commodity costs, its “cost price,” is equal to the “price of the means of production consumed and the labor-power employed.” That is, cost price k is equal to c + v. Cost price k erases the difference between constant and variable capital, so that, to the capitalist, surplus-value appears to derive from the entire capital invested rather than from variable capital, labor-power, in particular. The capitalist therefore measures the return on his investment not as a ratio of surplus-value to variable-capital, but rather as the profit p obtained from the entire capital laid out. So C = c + v + s appears to the capitalist as “C = k + p, or commodity value = cost price + profit.” The capitalist mistakenly ends up taking the cost price for the value of the commodity, and imagines that excess value, or profit, is created through the act of selling the commodity. To the capitalist, the breeding of surplus-value in the production process described in Volume I becomes hidden, and value seems to be created through circulation, something that Volume II demonstrated to be impossible. If a commodity is sold at its value, then the profit equals the surplus-value. In the earlier volumes Marx assumed that this was always the case. But in this volume, Marx acknowledges that prices may in fact diverge from values. For example, a commodity may be sold for less than its value. So long as the sale price does not drop below the cost price, the capitalist still makes a profit, although only a part of the commodity’s surplus-value is realized. The rate of surplus-value is the ratio of surplus-value to variable capital, or s/v. The rate of profit is the ratio of surplus-value or profit to the entire capital laid out, or s/(c + v). “These are two different standards for measuring the same quantity,” but the capitalist is only concerned with the rate of profit, which is the more “visible surface phenomena.” The capitalist’s focus on cost price and profit obscures the “extortion of surplus labor,” and, as a result, “the capital relation is mystified.” Profit is “a transformed form of surplus-value, a form in which its origin and the secret of its existence are veiled and obliterated. . . . In surplus-value, the relationship between capital and labor is laid bare. In the relationship between capital and profit . . . capital appears as a relationship to itself, a relationship in which it is distinguished, as an original sum of value, from another new value that it posits.” The rate of profit is determined primarily by two factors: the rate of surplus-value and the organic composition of capital. The rate of profit is also especially influenced by the speed of the turnover of capital and by economy in the use of constant capital. Because of differences in the composition of capital, turnover time, etc., “different spheres of production” should have different rates of profit. However, “These different rates of profit are balanced out by competition to give a general rate of profit which is the average of all these rates.” As was the case with socially necessary labor time in Volume I, Marx argues that, at a certain level of development, capitalism deals with social averages and social totals. The capitalists in different spheres of production “do not secure the surplus-value and hence profit that is produced in their own sphere in connection with the production of these commodities. What they secure is only the surplus-value and hence profit that falls to the share of each aliquot part of the total social capital, when evenly distributed, from the total social surplus-value or profit produced in a given time by the social capital in all spheres of production.” At this point, Marx sets forth his controversial law of the tendential fall in the rate of profit. As Volume I demonstrated, capitalists are always revolutionizing the production process and thereby increasing “the social productivity of labor.” As a result, labor-power is able to set a greater quantity of means of production into motion. The ratio of constant to variable capital, what Marx terms the organic composition of capital, tends to rise, so that variable capital becomes an increasingly smaller part of the total capital investment. Only variable capital is the source of surplus-value, so the total surplus-value to be potentially realized from a given investment of capital, assuming a constant rate of surplus-value, depends on what proportion of that capital is spent on variable capital. As the organic composition of the total social capital rises, variable capital declines in relation to constant capital, the potential quantity of surplus-value to be realized per unit of capital declines as well, and the general rate of profit ultimately drops. The law of the tendential fall in the rate of profit can be only partially counteracted through factors such as more intense exploitation of labor, which increases the rate of surplus-value. But the long-term tendency is towards stagnation of the economy and overaccumulation of capital (which always just means the production of more capital than can be employed as capital). As a result, capital lies idle and is devalued, or, in the case of a crisis, capital is destroyed. Marx identifies the problem here as being internal to capital: “Capitalist production constantly strives to overcome these immanent barriers, but it overcomes them only by means that set up the barriers afresh and on a more powerful scale. The true barrier to capitalist production is capital itself. It is that capital and its self-valorization appear as the starting and finishing point, as the motive and purpose of production; production is production only for capital, and not the reverse, i.e. the means of production are not simply means for a steadily expanding pattern of life for the society of the producers. The barriers within which the maintenance and valorization of the capital-value has necessarily to move . . . therefore come constantly into contradiction with the methods of production that capital must apply to its purpose and which set its course towards an unlimited expansion of production, to production as an end in itself, to an unrestricted development of the social productive powers of labor. The means—the unrestricted development of the forces of social production—comes into persistent conflict with the restricted end, the valorization of the existing capital.” After showing how commercial capital affects the general rate of profit by appropriating for itself a certain proportion of the surplus-value created in production, Marx turns to interest-bearing capital. Rather than directly investing his money in production, the owner of money can lend this money out to someone else, who then takes on the function of employing the money as capital that, through the production process, generates more value. At the end of the circuit of production, this borrower must pay back the money borrowed plus, in the form of interest, a certain portion of the surplus-value he obtained. The surplus-value and profit generated by production are split between the owner of money and the employer of capital. The capital relation is thoroughly mystified in this process of lending and borrowing money. In contrast to the owner of money, who does not work, the industrial capitalist comes to see himself as earning a wage for his work, which, as always, remains the exploitation and appropriation of the labor others. The formation of joint-stock companies reinforces this appearance by replacing the industrial capitalist with the salaried manager. But even more mystified is the perspective of the owner of money. The formula for interest-bearing capital should be: M-M-C…P…C’-M’-M’. Marx repeatedly points out that without the mediation of production, no surplus-value can be generated, and therefore no interest is possible. But to the owner of money, the circuit appears simply as M-M’: money lent out returns as money plus interest. “While interest is simply one part of the profit, i.e. the surplus-value, extorted from the worker by the functioning capitalist, it now appears conversely as if interest is the specific fruit of capital, the original thing, while profit, now transformed into the form of profit of enterprise, appears as a mere accessory and trimming added in the reproduction process. The fetish character of capital and the representation of this capital fetish is now complete. In M-M’ we have the irrational form of capital, the misrepresentation and objectification of the relations of production, in its highest power.” “Like the growth of trees, so the generation of money seems a property of capital in this form of money capital.” “The product of past labor, and past labor itself, is seen as pregnant in and of itself with a portion of present or future living surplus labor. We know however that in actual fact the preservation and thus also the reproduction of the value of products of past labor is only the result of their contact with living labor; and secondly, that the command that the products of past labor exercise over living surplus labor lasts only as long as the capital relation, the specific social relation in which past labor confronts living labor as independent and superior.” Interest-bearing capital predates the existence of the capitalist mode of production, but the latter causes the former to develop into a specific kind of credit system containing institutions and instruments that facilitate production and circulation. Banks are one the key elements of this credit system, which, it must be admitted, plays a valuable—perhaps even essential—role in the acceleration of the accumulation of capital. One of the most important functions of the banks is the concentration of money that otherwise would remain unused or spent merely on private consumption. “With the development of the banking system, and particularly once they pay interest on deposits, the money savings and the temporarily unoccupied money of all social classes are also deposited with them. Small sums which are incapable of functioning as money capital by themselves are combined into great masses and thus form a monetary power.” The money that creditors such as banks lend out is not available for their further use until it is repaid. However, in exchange for the money that is advanced, the lender receives a bill of exchange, a promissory note that the debt will be repaid at a certain date. Or in the case of securities such as corporate shares and stocks, the money is exchanged for a title of ownership to a certain portion of future revenues. Marx considers these bills of exchange and securities “fictitious capital” because they are merely “paper duplicates” of the original capital, which is now in someone else’s hands. Fictitious forms of capital can themselves be traded, such as on the stock market, and in the process their value can diverge from the value of the original capital they are meant to represent. An entire superstructure of fictitious capital can then be built on top of interest-bearing capital. “With the development of interest-bearing capital and the credit system, all capital seems to be duplicated, and at some points triplicated, by the various ways in which the same capital, or even the same claim, appears in various hands in different guises. The greater part of this ‘money capital’ is purely fictitious.” During a crisis, however, fictitious capital’s ability to represent capital is thrown into question, and extreme measures have to be taken to preserve the illusion of fictitious capital’s value. “In a system of production where the entire interconnection of the reproduction process rests on credit, a crisis must evidently break out if credit is suddenly withdrawn and only cash payment is accepted, in the form of a violent scramble for means of payment. At first glance, therefore, the entire crisis presents itself as simply a credit and monetary crisis. And in fact all it does involve is simply the convertibility of bills of exchange into money. The majority of these bills represent actual purchases and sales, the ultimate basis of the entire crisis being the expansion of these far beyond the social need. On top of this, however, a tremendous number of these bills represent purely fraudulent deals, which now come to light and explode; as well as unsuccessful speculations conducted with borrowed capital, and finally commodity capitals that are either devalued or unsaleable, or returns that are never going to come in.”
Thursday, March 24, 2011
Karl Marx: Capital Volume III
Volume I dealt with the “process of capitalist production,” and Volume II the “process of circulation.” Volume III aims “to discover and present the concrete forms which grow out of the process of capital’s movement considered as a whole. . . . The configurations of capital, as developed in this volume, thus approach step by the step the form in which they appear on the surface of society, in the action of different capitals on one another, i.e., in competition and in the everyday consciousness of the agents of production themselves.” Marx begins by discussing profit, which presents surplus-value in a “mystified form.” The value of any commodity C is equal to the sum of the constant and variable capital laid out in its production and its surplus-value. So C = c + v + s. To the capitalist, however, what the commodity costs, its “cost price,” is equal to the “price of the means of production consumed and the labor-power employed.” That is, cost price k is equal to c + v. Cost price k erases the difference between constant and variable capital, so that, to the capitalist, surplus-value appears to derive from the entire capital invested rather than from variable capital, labor-power, in particular. The capitalist therefore measures the return on his investment not as a ratio of surplus-value to variable-capital, but rather as the profit p obtained from the entire capital laid out. So C = c + v + s appears to the capitalist as “C = k + p, or commodity value = cost price + profit.” The capitalist mistakenly ends up taking the cost price for the value of the commodity, and imagines that excess value, or profit, is created through the act of selling the commodity. To the capitalist, the breeding of surplus-value in the production process described in Volume I becomes hidden, and value seems to be created through circulation, something that Volume II demonstrated to be impossible. If a commodity is sold at its value, then the profit equals the surplus-value. In the earlier volumes Marx assumed that this was always the case. But in this volume, Marx acknowledges that prices may in fact diverge from values. For example, a commodity may be sold for less than its value. So long as the sale price does not drop below the cost price, the capitalist still makes a profit, although only a part of the commodity’s surplus-value is realized. The rate of surplus-value is the ratio of surplus-value to variable capital, or s/v. The rate of profit is the ratio of surplus-value or profit to the entire capital laid out, or s/(c + v). “These are two different standards for measuring the same quantity,” but the capitalist is only concerned with the rate of profit, which is the more “visible surface phenomena.” The capitalist’s focus on cost price and profit obscures the “extortion of surplus labor,” and, as a result, “the capital relation is mystified.” Profit is “a transformed form of surplus-value, a form in which its origin and the secret of its existence are veiled and obliterated. . . . In surplus-value, the relationship between capital and labor is laid bare. In the relationship between capital and profit . . . capital appears as a relationship to itself, a relationship in which it is distinguished, as an original sum of value, from another new value that it posits.” The rate of profit is determined primarily by two factors: the rate of surplus-value and the organic composition of capital. The rate of profit is also especially influenced by the speed of the turnover of capital and by economy in the use of constant capital. Because of differences in the composition of capital, turnover time, etc., “different spheres of production” should have different rates of profit. However, “These different rates of profit are balanced out by competition to give a general rate of profit which is the average of all these rates.” As was the case with socially necessary labor time in Volume I, Marx argues that, at a certain level of development, capitalism deals with social averages and social totals. The capitalists in different spheres of production “do not secure the surplus-value and hence profit that is produced in their own sphere in connection with the production of these commodities. What they secure is only the surplus-value and hence profit that falls to the share of each aliquot part of the total social capital, when evenly distributed, from the total social surplus-value or profit produced in a given time by the social capital in all spheres of production.” At this point, Marx sets forth his controversial law of the tendential fall in the rate of profit. As Volume I demonstrated, capitalists are always revolutionizing the production process and thereby increasing “the social productivity of labor.” As a result, labor-power is able to set a greater quantity of means of production into motion. The ratio of constant to variable capital, what Marx terms the organic composition of capital, tends to rise, so that variable capital becomes an increasingly smaller part of the total capital investment. Only variable capital is the source of surplus-value, so the total surplus-value to be potentially realized from a given investment of capital, assuming a constant rate of surplus-value, depends on what proportion of that capital is spent on variable capital. As the organic composition of the total social capital rises, variable capital declines in relation to constant capital, the potential quantity of surplus-value to be realized per unit of capital declines as well, and the general rate of profit ultimately drops. The law of the tendential fall in the rate of profit can be only partially counteracted through factors such as more intense exploitation of labor, which increases the rate of surplus-value. But the long-term tendency is towards stagnation of the economy and overaccumulation of capital (which always just means the production of more capital than can be employed as capital). As a result, capital lies idle and is devalued, or, in the case of a crisis, capital is destroyed. Marx identifies the problem here as being internal to capital: “Capitalist production constantly strives to overcome these immanent barriers, but it overcomes them only by means that set up the barriers afresh and on a more powerful scale. The true barrier to capitalist production is capital itself. It is that capital and its self-valorization appear as the starting and finishing point, as the motive and purpose of production; production is production only for capital, and not the reverse, i.e. the means of production are not simply means for a steadily expanding pattern of life for the society of the producers. The barriers within which the maintenance and valorization of the capital-value has necessarily to move . . . therefore come constantly into contradiction with the methods of production that capital must apply to its purpose and which set its course towards an unlimited expansion of production, to production as an end in itself, to an unrestricted development of the social productive powers of labor. The means—the unrestricted development of the forces of social production—comes into persistent conflict with the restricted end, the valorization of the existing capital.” After showing how commercial capital affects the general rate of profit by appropriating for itself a certain proportion of the surplus-value created in production, Marx turns to interest-bearing capital. Rather than directly investing his money in production, the owner of money can lend this money out to someone else, who then takes on the function of employing the money as capital that, through the production process, generates more value. At the end of the circuit of production, this borrower must pay back the money borrowed plus, in the form of interest, a certain portion of the surplus-value he obtained. The surplus-value and profit generated by production are split between the owner of money and the employer of capital. The capital relation is thoroughly mystified in this process of lending and borrowing money. In contrast to the owner of money, who does not work, the industrial capitalist comes to see himself as earning a wage for his work, which, as always, remains the exploitation and appropriation of the labor others. The formation of joint-stock companies reinforces this appearance by replacing the industrial capitalist with the salaried manager. But even more mystified is the perspective of the owner of money. The formula for interest-bearing capital should be: M-M-C…P…C’-M’-M’. Marx repeatedly points out that without the mediation of production, no surplus-value can be generated, and therefore no interest is possible. But to the owner of money, the circuit appears simply as M-M’: money lent out returns as money plus interest. “While interest is simply one part of the profit, i.e. the surplus-value, extorted from the worker by the functioning capitalist, it now appears conversely as if interest is the specific fruit of capital, the original thing, while profit, now transformed into the form of profit of enterprise, appears as a mere accessory and trimming added in the reproduction process. The fetish character of capital and the representation of this capital fetish is now complete. In M-M’ we have the irrational form of capital, the misrepresentation and objectification of the relations of production, in its highest power.” “Like the growth of trees, so the generation of money seems a property of capital in this form of money capital.” “The product of past labor, and past labor itself, is seen as pregnant in and of itself with a portion of present or future living surplus labor. We know however that in actual fact the preservation and thus also the reproduction of the value of products of past labor is only the result of their contact with living labor; and secondly, that the command that the products of past labor exercise over living surplus labor lasts only as long as the capital relation, the specific social relation in which past labor confronts living labor as independent and superior.” Interest-bearing capital predates the existence of the capitalist mode of production, but the latter causes the former to develop into a specific kind of credit system containing institutions and instruments that facilitate production and circulation. Banks are one the key elements of this credit system, which, it must be admitted, plays a valuable—perhaps even essential—role in the acceleration of the accumulation of capital. One of the most important functions of the banks is the concentration of money that otherwise would remain unused or spent merely on private consumption. “With the development of the banking system, and particularly once they pay interest on deposits, the money savings and the temporarily unoccupied money of all social classes are also deposited with them. Small sums which are incapable of functioning as money capital by themselves are combined into great masses and thus form a monetary power.” The money that creditors such as banks lend out is not available for their further use until it is repaid. However, in exchange for the money that is advanced, the lender receives a bill of exchange, a promissory note that the debt will be repaid at a certain date. Or in the case of securities such as corporate shares and stocks, the money is exchanged for a title of ownership to a certain portion of future revenues. Marx considers these bills of exchange and securities “fictitious capital” because they are merely “paper duplicates” of the original capital, which is now in someone else’s hands. Fictitious forms of capital can themselves be traded, such as on the stock market, and in the process their value can diverge from the value of the original capital they are meant to represent. An entire superstructure of fictitious capital can then be built on top of interest-bearing capital. “With the development of interest-bearing capital and the credit system, all capital seems to be duplicated, and at some points triplicated, by the various ways in which the same capital, or even the same claim, appears in various hands in different guises. The greater part of this ‘money capital’ is purely fictitious.” During a crisis, however, fictitious capital’s ability to represent capital is thrown into question, and extreme measures have to be taken to preserve the illusion of fictitious capital’s value. “In a system of production where the entire interconnection of the reproduction process rests on credit, a crisis must evidently break out if credit is suddenly withdrawn and only cash payment is accepted, in the form of a violent scramble for means of payment. At first glance, therefore, the entire crisis presents itself as simply a credit and monetary crisis. And in fact all it does involve is simply the convertibility of bills of exchange into money. The majority of these bills represent actual purchases and sales, the ultimate basis of the entire crisis being the expansion of these far beyond the social need. On top of this, however, a tremendous number of these bills represent purely fraudulent deals, which now come to light and explode; as well as unsuccessful speculations conducted with borrowed capital, and finally commodity capitals that are either devalued or unsaleable, or returns that are never going to come in.”
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