Part 2 Chapter 12.
(This post is part of an ongoing project: a close reading of volume 3 of Kapital, one post per chapter. I hope that others who are tackling this book for the first time might find my summaries and thoughts useful. I also hope that others might leave their own thoughts, criticisms, help, etc. here so that this blog might become a good collective resource for those brave souls who take on Vol. 3.)
I. Causes Implying a Change in the Price of Production
A commodity’s price of production can change if the average rate of profit changes or if its individual value changes. Marx considers each separately.
The average rate of profit can change from a change in surplus value or from a change in the ratio of total surplus value to total cost price (total capital advanced). A change in the rate of surplus value can only come from a change in the value of labor power due to a change in productivity of the labor producing means of subsistence. Interestingly, Marx mentions that the rate of surplus value can also change due to the rising or lowering of wages above or below their values. But these are only fluctuations around the value of labor power. Like any other commodity, it is this mean value that counts in the long run, the fluctuations around it being the mechanism by which this mean is accomplished.
Changes in the ratio of surplus value to total capital outlay, since we already examined changes in the rate of surplus value, come from changes in the amount of capital invested. If more means of production are being consumed by the same amount of laborers than productivity has increased even though the total amount of new value created has remained the same.
Either way, such changes on the price of production of an individual commodity come from changes in other commodities. The social nature of value creation becomes evident.
A change in the price of production of a commodity can also, of course, come from changes in that commodity’s individual value- that is, more or less labor can be incorporated into its production or the production of the constant capital that enters into its production. We have already considered these changes in part 1.
Either way, changes in prices of production are always the result of changes in value. Value remains the ultimate regulating force.
II. Price of Production of Commodities of Average Composition
Much of the consistency of Marx’s value theory, when applied to this world of average profits, comes from the fact that commodities of average organic composition have prices of production equal to their values (k+p=k+s) and profits equal to the amount of surplus value they create (p=s). But what if the cost-price of these capitals of average compositions also contain commodities that trade at their prices of production instead of their values? What if my hot-dog factory, which is a firm of average composition, buys pork products at prices of production which are below their actual values? How does this change my average composition? My variable capital might have a price of production different from its value as well. What if the breakfast cereal my workers eat has a price of production above or below its value? How does this change my average composition, the amount surplus I create, the price of each hot-dog, or my rate of profit?
We recognize immediately that these questions come from the same place that Bortkiewicz’s transformation problem came from: the fact that inputs into the production process are bought at prices of production and not values. Before our heads start to spin imagining these endless feedback loops, we should take stock of what exactly the problem is. For one, when Marx says, “It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production,” it is obvious that he understood that prices of production enter as cost prices into the production process. The claim that Marx “forgot to transform input-prices” seems a rather pathetic explanation.
Marx answers this question by stating that such a transformation of input prices, “does not detract in the least from the correctness of the theorems demonstrated which hold for commodities of average composition.” Regardless of the actual prices that capitalists pay for their inputs, the amount of profit received by capitals of average composition is equal to the amount of surplus value they create. Average composition is measured at the price of production and not actual values. The prices of production of the inputs are what forms the cost-price and what determines the average composition. It is the ratio of c to v which determines whether a firm is of average composition, not the actual numbers. If a firm is of average composition then its surplus value is equal to the average profit.
What if the price of production of labor power falls below or above its value? Doesn’t this effect the amount of surplus value/profit? A change in wages means a redistribution of value between workers and capitalists but does not change the amount of value produced, or the actual price of a commodity. If wages rise this means less surplus value is produced, the rate of exploitation changes. If the firm still remains of average composition then this new rate of exploitation defines a new rate of profit. If the rise in wages makes the firm no longer of average composition then it then it no longer determines the average profit rate.
III. The Capitalist’s Grounds for Compensating
In competition the world of appearance seems to conflict with the underlying law of value. Capital receives average profit regardless of the ratio of dead to living labor. Changes in wages effect prices, even though changes in wages should only redistribute value between s and v, not change s+v. Market prices diverge from values. “The final pattern of economic relations as seen on the surface, in their real existence and consequently in the conceptions by which the bearers and agents of these relations seek to understand them, is very much different from, and indeed quite the reverse of, their inner but concealed essential pattern and the conception corresponding to it.”
We have assumed that the process of equalization of profit rates comes from the attraction and repulsion of capital in and out of different spheres of different composition, which over time levels profit rates. After awhile though, these changes in prices which equalize profits become part of the consciousness of the capitalist and cease to require the same amount of attraction and repulsion. This is reflected in the way that all capitalists compensate for all sorts of risk, non-productive expenses, etc. by raising their prices. For instance, if a firm is exposed to risk through longer turn-over-times it will compensate for the loses it incurs by raising prices. These loses do not constitute any real value that the firm is contributing to the social product. It is merely the way in which the capital makes its claim on the total “loot”, the aggregate surplus value. The capitalist thinks he/she has a “right” to equal profits. They believe they contribute to the social product through their investments in capital and thus deserve equal compensation, whether or not these investments actually create an average amount of surplus value.
This is an interesting ending to this 2nd part. Obviously these last remarks remind us of the various theories of “interest” advanced before and after Marx’s time: that profit comes from risk, or roundaboutness, or abstinence. Perhaps then, the response to, say, Bohm-Bawerk’s theories of time-preference and roundaboutness might start here in a discussion of the way capitalists expect equal profits on all investments and thus include the cost of less productive (in value terms) ventures in their prices of production in order to capture this average “loot”.