We know from last week, from Part 1 of Volume 3, that the rate of profit depends primarily on the rate of s-v and the composition of capital. (It depends also on the turnover time if the rate of profit is calculated not on the basis of each cycle but for example on a yearly basis, but that is less important for this stage of the argument.) Marx wants us to set aside differences in the rate of s-v here and focus instead on different compositions of different capitals. [Actually, parenthetically, we should recognize his argument for why the rate of s-v tends to be uniform in a given economic realm. The uniform rate of s-v "assumes competition among the workers, and an equalization that takes place by their constant migration between one sphere of production and another" (275). The workers being mobile or fluid, then, they would tend to flow from the higher to the lower levels of exploitation and thereby create a tendency toward equalization. That is why we can assume a constant rate of s-v.]
·We know from Volume 1 that in one sphere of production, textiles for example, there is a tendency toward one common composition of capital. In other words, as new technologies and new divisions of labor (say the power loom) are introduced that raise the productivity of the labor process and thus raise the composition of capital, the value of the commodities produced goes down and through competition all capitals in that sphere (here textiles) are forced to adopt the new technologies and thereby conform to the new (higher) composition of capital. [NB: a higher composition of capital means a greater portion of constant capital with respect to variable capital. In general, higher productivity means a higher composition of capital because by definition the labor-time for each commodity is reduced and also usually the value of the constant capital required is raised.]
·While the composition of capital tends to be common in each sphere of production, however, Marx claims that in different spheres of production (textiles and cotton growing, for example) there are very different compositions of capital. Imagine that in textile production which is conducted in a factory with relatively high technology the composition of capital is 90c + 10 v, whereas in cotton growing which is very labor intensive with low technology the composition of capital is 10c + 90v. Obviously, since labor is the source of profit, the rates of profit in these two different cases could be quite different (even if the rates of surplus value or exploitation were different). See Marx's example between European production (high tech) and Asian production (low tech) on pp. 249-50. [Clearly, the composition of capital is not common not only among different sectors within one national or regional economic sphere, but also varies geographically, from nation to nation or region to region. This is something very important that Marx deals with very little here.]
·This fact of there being different compositions of capital in different sectors of production and hence theoretically different rates of profit leads Marx to the paradox that sets up all of Part 2. Read p. 252 bottom. Several laws of capitalist production are presupposed here:
a) that commodities are sold at their value and that their value is determined by the amount of labor-time that went into their production (the labor theory of value from Volume 1);
b) that "profits stand in direct proportion to the amount of capital, and that capital of equal size yield equal profits in the same period of time" in all sectors or spheres of capitalist production (that the profit on £100 invested in cotton growing should be the same as that on £100 invested in textile production).
The paradox is that when there are different compositions of capital, b contradicts a; a says that the rates of profit must be different but b says they must be the same.
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Average Profit and the Standpoint of the Totality
You might ask at this point: who says that the rate of profit has to be constant in different sectors of production, who says that £100 in cotton growing should give just as much profit as £100 in textile manufacture? This seems to me a rather large and important claim and I wish we had more argumentation for it, but what explanation Marx does give depends on the mobility of capital and the competition among capitals. "The rates of profit prevailing in the different branches of production are accordingly originally very different. These different rates of profit are balanced out by competition to give a general rate of profit which is the average of all these different rates. The profit that falls to a capital of given size according to this general rate of profit, whatever its organic composition might be, we call the average profit" (257). [I wish we had some data to back this up.] Here Marx is assuming that in whatever economic realm or totality we are considering (the nation, for example) that capital is perfectly mobile and fluid. Capital will thus flow naturally to wherever the profit rate is highest. This unrestricted flow will tend to raise the profit rates below the average and raise those above. Because of this equalization process too much s-v will be paid in some sectors and too little in others, or rather, which is to say the same thing, the price of some commodities will be above their value and the price of other below. Read p. 261 middle.
The answer to the paradox, then, is that profit and value can only be understood and reconciled from the point of view of the totality, the total social capital. In what might be thought of as a process of dialectical inversion, competition (the self-interest of each individual capital) produces the standpoint of the totality (the total social capital. The equalization of the rates of profit due to the mobility and competition of capitals, or really the creation of the general rate of profit, creates a situation in which the profit of each capital does not depend directly on the surplus value generated in its own production process, but rather is a portion of the total profit on the total social capital. "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" (258). From the perspective of the totality, the value of the total social product is equal to the price of the total social product. Value and price do not coincide, however, from the particular standpoints of specific commodities or specific branches of production.
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I see three primary consequences of this notion of a general rate of profit that is determined by the total surplus value on the total social capital: the first and more practical is a theory of prices; the second, which is really correlate to the first, is a theory of supply and demand; and the third and more theoretical is a notion of class.
Marx told us in Volume 1 that he was assuming that commodities were sold at their value but that in fact price and value often diverge. Now he is explaining how and when they diverge. Value is determined by the total labor-time that went into its production, or really by the sum of the constant cap., variable cap, and surplus-value that are contained in the product. Consider these examples:
cotton 10c + 90v + 30s = 130 (30% rate of exploitation)
textile 90c + 10v + 10v = 110 (100% rate of exploitation)
The calculation of the price of a commodity, on the other hand, takes a completely different route. Value = c+v+s, whereas price = k+kp'. So with a general rate of profit (p')=20%
cotton 100k + 100x20% = 120
textile 100k + 100x20% = 120
In one case the price is above the value and in the other below. The only perspective in which price = value is that of the totality (or that of the average).
·Here we can recognize more clearly than even we could last week that the individual capitalist's standpoint that understands production in terms of profit and price cannot see that the value of commodities is determined by the labor they contain and that profit depends on the extraction of unpaid labor. "It appears to them, rather, that the profit which they pocket is something different from the surplus- value they extort; that the grounds for compensation do not simply equalize their participation in the total surplus-value, but that they actually create profit itself, since profit seems to derive simply from the addition to the cost process made with one justification or another" (313). The real production of value cannot be seen (or is not true) from the standpoint of individual capitals; only from the perspective of the totality, that is total social capital, can one see that value is determined by labor and that unpaid labor is the source of profit.
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Supply and Demand
The relationship between supply and demand takes on the same form as the relationship between value and price. First of all, like value and price, supply and demand when considered from a particular perspective do not necessarily coincide. "In actual fact, demand and supply never coincide, or, if they do so, it is only by chance and not to be taken into account for scientific purposes; it should be considered as not having happened" (291). Now, whereas value and price do coincide when we expand from the particular perspective to the totality, supply and demand require a temporal expansion of perspective to be seen as coincident. In other words, although Marx has already said that "demand and supply never coincide," he continues to say that "supply and demand always coincide if a greater or lesser period of time is taken as a whole; but they coincide only as the average of the movement that has taken place through the constant movement of their contradiction" (291). Once again, the coincidence is recognized only in terms of the average or from the standpoint of the totality or, what I take is a third conception of the same process, as oscillations around a common center of gravity.
Now the oscillations of supply and demand do not only take the same form as the oscillations of price and value, the two oscillations are related and even co-determining. In other words, we can first see, as the capitalist commonly sees, that the relationship between supply and demand explains the divergences of market price from market value. Marx continues, however, that "if demand and supply determine the market price, then market price in turn, and at a further remove market value, also determine demand and supply" (292). For example, if prices go up with respect to value, then demand will go down. Moreover, or more interesting, is the determination of supply and demand by the process of the equalization of rates of profit (which is really also indirectly the relationship between price and value). "This constant migration [of capitals], the distribution of capital between the different spheres according to where the profit rate is rising and where it is falling, is what produces a relationship between supply and demand such that the average profit is the same in the various different spheres, and values are therefore transformed into prices of production" (297). So, I wouldn't say that the effects of supply and demand are illusionary or false, but rather that they merely indicate a more fundamental movement, which involves the variation between price and value in different sectors, a variation that oscillates around a center of gravity that is the general rate of profit.
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The notion of totality that grounds Marx's proposition of a general rate of profit is interesting because of how concrete that totality is. If the nation is taken as the total space, then the totality of social capital appears on something like the national balance sheet. The coherence of the totality is created precisely by the competition and mobility among capitals and among labor.
Now, this totality is also given as the key here to the understanding of class interest and even class consciousness. In the first instance it might appear that capitalists compete with one another for the greatest profit, but those are merely oscillations around a common center of gravity. From the perspective of the totality, or the general rate of profit, the capitalists actually cooperate as a class. "From what has been said so far, we can see that each individual capitalist, just like the totality of all capitalists in each particular sphere of production, participates in the exploitation of the entire working class by capital as a whole, and in the level of this exploitation; not just in terms of general class sympathy, but in a direct economic sense, since, taking all other circumstances as given, including the value of the total constant capital advanced, the average rate of profit depends on the level of exploitation of labour as a whole by capital as a whole" (298-99).
"We thus have a mathematically exact demonstration of why the capitalists, no matter how little love is lost among them in their mutual competition, are nevertheless united by a real freemasonry vis-à-vis the working class as a whole" (300).
"This is the form in which capital becomes conscious of itself as a social power, in which every capitalist participates in proportion to his share in the total social capital" (297).