Capital Vol. III

Part II. Conversion of Profit into Average Profit

Chapter 8. Different Compositions of Capitals in Different Branches of Production and Resulting Differences in Rates of Profit

In the preceding part we demonstrated, among other things, that the rate of profit may vary — rise or fall — while the rate of surplus-value remains the same. In the present chapter we assume that the intensity of labor exploitation, and therefore the rate of surplus-value and the length of the working-day, are the same in all the spheres of production into which the social labor of a given country is divided. Adam Smith has already comprehensively shown that the numerous differences in the exploitation of labor in various spheres of production balance one another by means of all kinds of existing compensations, or compensations accepted as such on the basis of current prejudice, so that they are merely evanescent distinctions and are of no moment in a study of the general relations. Other differences, for instance those in the wage scale, rest largely on the difference between simple and complicated labor mentioned in the beginning of Book I (p. 19), and have nothing to do with the intensity of exploitation in the different spheres of production, although they render the lot of the laborer in those spheres very unequal. For instance, if the labor of a goldsmith is better paid than that of a day-laborer, the former's surplus-labor produces proportionately more surplus-value than the latter's. And although the equalizing of wages and working-days, and thereby of the rates of surplus-value, among different spheres of production, and even among different investments of capital in the same sphere of production, is checked by all kinds of local obstacles, it is nevertheless taking place more and more with the advance of capitalist production and the subordination of all economic conditions to this mode of production. The study of such frictions, while important to any special work on wages, may be dispensed with as incidental and irrelevant in a general analysis of capitalist production. In a general analysis of this kind it is usually always assumed that the actual conditions correspond to their conception, or, what is the same, that actual conditions are represented only to the extent that they are typical of their own general case.

The difference in the rates of surplus-value in different countries, and consequently the national differences in the degree of exploitation of labor, are immaterial for our present analysis. What we want to show in this part is precisely the way in which a general rate of profit takes shape in any given country. It is evident, however, that a comparison of the various national rates of profit requires only a collation of the previously studied with that which is here to be studied. First one should consider the differences in the national rates of surplus-value, and then, on the basis of these given rates, a comparison should be made of the differences in the national rates of profit. In so far as those differences are not due to differences in the national rates of surplus-value, they must be due to circumstances in which the surplus-value is assumed, just as in the analysis of this chapter, to be universally the same, i. e., constant.

We demonstrated in the preceding chapter that, assuming the rate of surplus-value to be constant, the rate of profit obtaining for a given capital may rise or fall in consequence of circumstances which raise or lower the value of one or the other portion of constant capital, and so affect the proportion between the variable and constant components of capital. We further observed that circumstances which prolong or reduce the time of turnover of an individual capital may similarly influence the rate of profit. Since the mass of the profit is identical with the mass of the surplus-value, and with the surplus-value itself, it was also seen that the mass of the profit — as distinct from the rate of profit — is not affected by the aforementioned fluctuations of value. They only modify the rate in which a given surplus-value, and therefore a profit of a given magnitude, express themselves; in other words, they modify only the relative magnitude of profit, i. e., its magnitude compared with the magnitude of the advanced capital. Inasmuch as capital was tied up or released by such fluctuations of value, it was not only the rate of profit, but the profit itself, which was likely to be affected in this indirect manner. However, this has then always applied only to such capital as was already invested, and not to new investments. Besides, the increase or reduction of profit always depended on the extent to which the same capital could, in consequence of such fluctuation of value, set in motion more or less labor; in other words, it depended on the extent to which the same capital could, with the rate of surplus-value remaining the same, obtain a larger or smaller amount of surplus-value. Far from contradicting the general rule, or from being an exception to it, this seeming exception was really but a special case in the application of the general rule.

It was seen in the preceding part that, the degree of exploitation remaining constant, changes in the value of the component parts of constant capital and in the time of turnover of capital are attended by changes in the rate of profit. The obvious conclusion is that the rates of profit in different spheres of production existing side by side have to differ when, other circumstances remaining unchanged, the time of turnover of capitals employed in the different spheres differs, or when the value-relation of the organic components of these capitals differs in the various branches of production. What we previously regarded as changes occurring successively with one and the same capital is now to be regarded as simultaneous differences among capital investments existing side by side in different spheres of production.

In these circumstances we shall have to analyze: 1) the difference in the organic composition of capitals, and 2) the difference in their period of turnover.

The premise in this entire analysis is naturally that by speaking of the composition or turnover of a capital in a certain line of production we always mean the average normal proportions of capital invested in this sphere, and generally the average in the total capital employed in that particular sphere, and not the accidental differences of the individual capitals.

Since it is further assumed that the rate of surplus-value and the working-day are constant, and since this assumption also implies constant wages, a certain quantity of variable capital represents a definite quantity of labor-power set in motion, and therefore a definite quantity of materialized labor. If, therefore, 100 represent the weekly wage of 100 laborers, indicating 100 actual labor-powers, then n times 100 indicate the labour-powers of n times 100 laborers, and 100/n those of 100/n laborers. The variable capital thus serves here (as is always the case when the wage is given) as an index of the amount of labor set in motion by a definite total capital. Differences in the magnitude of the employed variable capitals serve, therefore, as indexes of the difference in the amount of employed labor-power. If 100 indicate 100 laborers per week, and represent 6,000 working-hours at 60 working-hours per week, then 200 represent 12,000, and 50 only 3,000 working-hours.

By composition of capital we mean, as stated in Book I, the proportion of its active and passive components, i. e., of variable and constant capital. Two proportions enter into consideration under this heading. They are not equally important, although they may produce similar effects under certain circumstances.

The first proportion rests on a technical basis, and must be regarded as given at a certain stage of development of the productive forces. A definite quantity of labor-power represented by a definite number of laborers is required to produce a definite quantity of products in, say, one day, and — what is self-evident — thereby to consume productively, i. e., to set in motion, a definite quantity of means of production, machinery, raw materials, etc. A definite number of laborers corresponds to a definite quantity of means of production, and hence a definite quantity of living labor to a definite quantity of labor materialized in means of production. This proportion differs greatly in different spheres of production, and frequently even in different branches of one and the same industry, although it may by coincidence be entirely or approximately the same in entirely separate lines of industry.

This proportion forms the technical composition of capital and is the real basis of its organic composition.

However, it is also possible that this first proportion may be the same in different lines of industry, provided variable capital is merely an index of labor-power and constant capital merely an index of the mass of means of production set in motion by this labor-power. For instance, certain work in copper and iron may require the same ratio of labor-power to mass of means of production. But since copper is more expensive than iron, the value-relation between variable and constant capital is different in each case, and hence also the value-composition of the two total capitals. The difference between the technical composition and the value composition is manifested in each branch of industry in that the value-relation of the two portions of capital may vary while the technical composition is constant, and the value-relation may remain the same while the technical composition varies. The latter case will, of course, be possible only if the change in the ratio of the employed masses of means of production and labor-power is compensated by a reverse change in their values.

The value-composition of capital, inasmuch as it is determined by, and reflects, its technical composition, is called the organic composition of capital.

In the case of variable capital, therefore, we assume that it is the index of a definite quantity of labor-power, or of a definite number of laborers, or a definite quantity of living labor set in motion. We have seen in the preceding part that a change in the magnitude of the value of variable capital might eventually indicate nothing but a higher or lower price of the same mass of labor. But here, where the rate of surplus-value and the working-day are taken to be constant, and the wages for a definite working period are given, this is out of the question. On the other hand, a difference in the magnitude of the constant capital may likewise be an index of a change in the mass of means of production set in motion by a definite quantity of labor-power. But it may also stem from a difference in value between the means of production set in motion in one sphere and those of another. Both points of view must therefore be examined here.

Finally, we must take note of the following essential facts:

Let 100 be the weekly wage of 100 laborers. Let the weekly working-hours = 60. Furthermore, let the rate of surplus-value = 100%. In this case, the laborers work 30 of the 60 hours for themselves and 30 hours gratis for the capitalist. In fact, the 100 of wages represent just the 30 working-hours of 100 laborers, or altogether 3,000 working-hours, while the other 3,000 hours worked by the laborers are incorporated in the 100 of surplus-value, or in the profit pocketed by the capitalist. Although the wage of 100 does not, therefore, express the value in which the weekly labor of the 100 laborers is materialized, it indicates nevertheless (since the length of the working-day and the rate of surplus-value are given) that this capital sets in motion 100 laborers for 6,000 working-hours. The capital of 100 indicates this, first, because it indicates the number of laborers set in motion, with 1 = 1 laborer per week, hence 100 = 100 laborers; and, secondly, because, since the rate of surplus-value is given as 100%, each of these laborers performs twice as much work as is contained in his wages, so that 1, i. e., his wage, which is the expression of half a week of labor, actuates a whole week's labor, just as 100 sets in motion 100 weeks of labor, although it contains only 50. A very essential distinction is thus to be made in regard to variable capital laid out in wages. Its value as the sum of wages, i. e., as a certain amount of materialised labour, is to be distinguished from its value as a mere index of the mass of living labour which it sets in motion. The latter is always greater than the labour which it incorporates, and is, therefore, represented by a greater value than that of the variable capital. This greater value is determined, on the one hand, by the number of labourers set in motion by the variable capital and, on the other, by the quantity of surplus-labour performed by them.

It follows from this manner of looking upon variable capital that:

When a capital invested in production sphere A expends only 100 in variable capital for each 700 of total capital, leaving 600 for constant capital, while a capital invested in production sphere B expends 600 for variable and only 100 for constant capital, then capital A of 700 sets in motion only 100 of labour-power, or, in the terms of our previous assumption, 100 weeks of labour, or 6,000 hours of living labour, while the same amount of capital B will set in motion 600 weeks of labour, or 36,000 hours of living labour. The capital in A would then appropriate only 50 weeks of labour, or 3,000 hours of surplus-labour, while the same amount of capital in B would appropriate 300 weeks of labour, or 18,000 hours. Variable capital is not only the index of the labour embodied in it. When the rate of surplus-value is known it is also an index of the amount of labour set in motion over and above that embodied in itself, i. e., of surplus-labour. Assuming the same intensity of exploitation, the profit in the first case would be 100/700 = 1/7 = 14 2/7%, and in the second case, 600/700 = 6/7 = 85 5/7%, or a six-fold rate of profit. In this case, the profit itself would actually be six times as great, 600 in B as against 100 in A, because the same capital set in motion six times as much living labour, which at the same level of exploitation means six times as much surplus value, and thus six times as much profit.

But if the capital invested in A were not 700 but 7,000, while that invested in B were only 700, and the organic composition of both were to remain the same, then the capital in A would employ 1,000 of the 7,000 as variable capital, that is, 1,000 labourers per week = 60,000 hours of living labour, of which 30,000 would be surplus-labour. Yet each 700 of the capital in A would continue to set in motion only 1/6 as much living labour, and hence only 1/6 as much surplus-labour, as the capital in B, and would produce only 1/6 as much profit. If we consider the rate of profit, then in A 1000/7000 = 100/700 = 14 2/7%, as compared with 600/700, or 85 5/7%, in B. Taking equal amounts of capital, the rates of profit differ because, owing to the different masses of living labour set in motion, the masses of surplus-value, and thus of profit, differ, although the rates of surplus-value are the same.

We get practically the same result if the technical conditions are the same in both spheres of production, but the value of the elements of the employed constant capital is greater or smaller in the one than in the other. Let us assume that both invest 100 as variable capital and therefore employ 100 labourers per week to set in motion the same quantity of machinery and raw materials. But let the latter be more expensive in B than in A. For instance, let the 100 of variable capital set in motion 200 of constant capital in A, and 400 in B. With the same rate of surplus-value, of 100%, the surplus-value produced is in either case equal to 100. Hence, the profit is also equal to 100 in both. But the rate of profit in A is 100/(200c + 100v) = ⅓ = 33⅓%, while in B it is 100/(400c + 100v) = 1/5 = 20%. In fact, if we select a certain aliquot part of the total capital in either case, we find that in every 100 of B only 20, or 1/5, constitute variable capital, while in every 100 of A 33⅓, or ⅓, form variable capital. B produces less profit for each 100, because it sets in motion less living labour than A. The difference in the rates of profit thus resolves itself once more, in this case, into a difference of the masses of profit, because of the masses of surplus-value, produced by each 100 of invested capital.

The difference between this second example and the first is just this: The equalisation between A and B in the second case would require only a change in the value of the constant capital of either A or B, provided the technical basis remained the same. But in the first case the technical composition itself is different in the two spheres of production and would have to be completely changed to achieve an equalisation.

The different organic composition of various capitals is thus independent of their absolute magnitude. It is always but a question of how much of every 100 is variable and how much constant capital.

Capitals of different magnitude, calculated in percentages, or, what amounts to the same in this case, capitals of the same magnitude operating for the same working-time and with the same degree of exploitation may produce very much different amounts of profit, because of surplus-value, for the reason that a difference in the organic composition of capital in different spheres of production implies a difference in their variable part, thus a difference in the quantities of living labour set in motion by them, and therefore also a difference in the quantities of surplus-labour appropriated by them. And this surplus-labour is the substance of surplus-value, and thus of profit. In different spheres of production equal portions of the total capital comprise unequal sources of surplus-value, and the sole source of surplus-value is living labour. Assuming the same degree of labour exploitation, the mass of labour set in motion by a capital of 100, and consequently the mass of surplus-labour appropriated by it, depend on the magnitude of its variable component. If a capital, consisting in per cent of 90c + 10v, produced as much surplus-value, or profit, at the same degree of exploitation as a capital consisting of 10c + 90v, it would be as plain as day that the surplus-value, and thus value in general, must have an entirely different source than labour, and that political economy would then be deprived of every rational basis. If we are to assume all the time that 1 stands for the weekly wage of a labourer working 60 hours, and that the rate of surplus-value is 100%, then it is evident that the total value product of one labourer in a week, is 2. Ten labourers would then produce no more than 20. And since 10 of the 20 replace the wages, the ten labourers cannot produce more surplus-value than 10. On the other hand, 90 labourers, whose total product is 180, and whose wages amount to 90, would produce a surplus-value of 90. The rate of profit in the first case would thus be 10%, and in the other 90% . If this were not so, then value and surplus-value would be something else than materialised labour. Since capitals in different spheres of production viewed in percentages — or as capitals of equal magnitude — are divided differently into variable and constant capital, setting in motion unequal quantities of living labour and producing different surplus-values, and therefore profits, it follows that the rate of profit, which consists precisely of the ratio of surplus-value to total capital in per cent, must also differ.

Now, if capitals in different spheres of production, calculated in per cent, i. e., capitals of equal magnitude, produce unequal profits in consequence of their different organic composition, then it follows that the profits of unequal capitals in different spheres of production cannot be proportional to their respective magnitudes, or that profits in different spheres of production are not proportional to the magnitude of the respective capitals invested in them. For if profits were to grow pro rata to the magnitude of invested capital, it would mean that in per cent the profits would be the same, so that in different spheres of production capitals of equal magnitude would have equal rates of profit, in spite of their different organic composition. It is only in the same sphere of production, where we have a given organic composition of capital, or in different spheres with the same organic composition of capital, that the amounts of profits are directly proportional to the amounts of invested capitals. To say that the profits of unequal capitals are proportional to their magnitudes would only mean that capitals of equal magnitude yield equal profits, or that the rate of profit is the same for all capitals, whatever their magnitude and organic composition.

These statements hold good on the assumption that the commodities are sold at their values. The value of a commodity is equal to the value of the constant capital contained in it, plus the value of the variable capital reproduced in it, plus the increment — the surplus-value produced — of this variable capital. At the same rate of surplus-value, its quantity evidently depends on the quantity of the variable capital. The value of the product of an individual capital of 100 is, in one case, 90c + 10v + 10s = 110; and in the other, 10c + 90v + 90s = l90. If the commodities go at their values, the first product is sold at 110, of which 10 represent surplus-value, or unpaid labour, and the second at 190, of which 90 represent surplus-value, or unpaid labour.

This is particularly important in comparing rates of profit in different countries. Let us assume that the rate of surplus-value in one European country is 100%, so that the labourer works half of the working-day for himself and the other half for his employer. Let us further assume that the rate of profit in an Asian country is 25%, so that the labourer works 4/5 of the working-day for himself, and 1/5 for his employer. Let 84c + l6v be the composition of the national capital in the European country, and 16c + 84v in the Asian country, where little machinery, etc., is used, and where a given quantity of labour-power consumes relatively little raw material productively in a given time. Then we have the following calculation:

In the European country the value of the product = 84c + 16v + 16s = 116; rate of profit = 16/100 = 16%.

In the Asian country the value of the product = 16c + 84v + 21s = 121; rate of profit = 21/100 = 21%.

The rate of profit in the Asian country is thus more than 25% higher than in the European country, although the rate of surplus-value in the former is one-fourth that of the latter. Men like Carey, Bastiat, and tutti quanti, would arrive at the very opposite conclusion.

By the way, different national rates of profit are mostly based on different national rates of surplus-value. But in this chapter we compare unequal rates of profit derived from the same rate of surplus-value.

Aside from differences in the organic composition of capitals, and therefore aside from the different masses of labour — and consequently, other circumstances remaining the same, from different masses of surplus-labour set in motion by capitals of the same magnitude in different spheres of production, there is yet another source of inequality in rates of profit. This is the different period of turnover of capital in different spheres of production. We have seen in Chapter IV that, other conditions being equal, the rates of profit of capitals of the same organic composition are inversely proportional to their periods of turnover. We have also seen that the same variable capital turned over in different periods of time produces different quantities of annual surplus-value. The difference in the periods of turnover is therefore another reason why capitals of equal magnitude in different spheres of production do not produce equal profits in equal periods, and why, consequently, the rates of profit in these different spheres differ.

As far as the ratio of the fixed and circulating capital in the composition of capitals is concerned, however, it does not in itself affect the rate of profit in the least. It can affect the rate of profit only if in one case, this difference in composition coincides with a different ratio of the variable and constant parts, so that the difference in the rate of profit is due to this latter difference, and not to the different ratio of fixed and circulating capital; and, in the other case, if the difference in the ratio of the fixed and circulating parts of capital is responsible for a difference in the period of turnover in which a certain profit is realised. If capitals are divided into fixed and circulating capital in different proportions, this will naturally always influence the period of turnover and cause differences in it. But this does not imply that the period of turnover, in which the same capitals realise certain profits, is different. For instance, A may continually have to convert the greater part of its product into raw materials, etc., while B may use the same machinery, etc., for a longer time, and may need less raw material, but both A and B, being occupied in production, always have a part of their capital engaged, the one in raw materials, i. e., in circulating capital, and the other in machinery, etc., or in fixed capital. A continually converts a portion of its capital from the form of commodities into that of money, and the latter again into the form of raw material, while B employs a portion of its capital for a longer time as an instrument of labour without any such conversions. If both of them employ the same amount of labour, they will indeed sell quantities of products of unequal value in the course of the year, but both quantities of products will contain equal amounts of surplus-value, and their rates of profit, calculated on the entire capital invested, will be the same, although their composition of fixed and circulating capital, and their periods of turnover, are different. Both capitals realise equal profits in equal periods, although their periods of turnover are different.[1] The difference in the period of turnover is in itself of no importance, except so far as it affects the mass of surplus-labour appropriated and realised by the same capital in a given time. If, therefore, a different division into fixed and circulating capital does not necessarily imply a different period of turnover, which would in its turn imply a different rate of profit, it is evident that if there is any such difference in the rates of profit, it is not due to a different ratio of fixed to circulating capital as such, but rather to the fact that this different ratio indicates an inequality in the periods of turnover affecting the rate of profit.

It follows, therefore, that the different composition of constant capital in respect to its fixed and circulating portions in various branches of production has in itself no bearing on the rate of profit, since it is the ratio of variable to constant capital which decides this question, while the value of the constant capital, and therefore also its magnitude in relation to the variable is entirely unrelated to the fixed or circulating nature of its components. Yet it may be found — and this often leads to incorrect conclusions — that wherever fixed capital is considerably advanced this but expresses the fact that production is on a large scale, so that constant capital greatly outweighs the variable, or that the living labour-power it employs is small compared to the mass of the means of production which it operates.

We have thus demonstrated that different lines of industry have different rates of profit, which correspond to differences in the organic composition of their capitals and, within indicated limits, also to their different periods of turnover; given the same time of turnover, the law (as a general tendency) that profits are related to one another as the magnitudes of the capitals, and that, consequently, capitals of equal magnitude yield equal profits in equal periods, applies only to capitals of the same organic composition, even with the same rate of surplus-value. These statements hold good on the assumption which has been the basis of all our analyses so far, namely that the commodities are sold at their values. There is no doubt, on the other hand, that aside from unessential, incidental and mutually compensating distinctions, differences in the average rate of profit in the various branches of industry do not exist in reality, and could not exist without abolishing the entire system of capitalist production. It would seem, therefore, that here the theory of value is incompatible with the actual process, incompatible with the real phenomena of production, and that for this reason any attempt to understand these phenomena should be given up.

It follows from the first part of this volume that the cost-prices of products in different spheres of production are equal if equal portions of capital have been advanced for their production, however different the organic composition of such capitals. The distinction between variable and constant capital escapes the capitalist in the cost-price. A commodity for whose production he must advance 100 costs him just as much, whether he invests 90c + 10v, or 10c + 90v. It costs him 100 in either case — no more and no less. The cost-prices are the same for equal capitals in different spheres, no matter how much the produced values and surplus-values may differ. The equality of cost-prices is the basis for competition among invested capitals, whereby an average profit is brought about.


Notes

1. [It follows from Chapter IV that the above statement correctly applies only when capitals A and B are differently composed in respect to their values, but that the percentages of their variable parts are proportionate to their periods of turnover, i. e., inversely proportionate to their number of turnovers. Let capital A have the following percentages of composition: 20c fixed + 70c circulating and thus 90c + 10v = 100. At a rate of surplus-value of 100% the l0v produces 10s in one turnover, yielding a rate of profit for one turnover = 10%. Let capital B = 60c fixed + 20c circulating, and thus 80c + 20v = 100. The 20v produce 20s in one turnover at the above rate of surplus-value, yielding a rate of profit for one turnover = 20%, which is double that of A. But if A is turned over twice per year, and B only once, then 2 10 also make 20s per year, and the annual rate of profit is the same for both, namely 20%. — F.E.]