The Rate of Surplus Value

Marx’s Capital Volume 1, Part 5a

Peterloo Massacre, 1819

The Rate of Surplus Value

Karl Marx’s “Capital” is not a hasty book. It proceeds at a measured pace, with a degree of repetition. Some parts appear difficult, only to yield up their secrets at a second reading with ease.

The chapter on the Rate of Surplus Value is a good example of all this. At first reading it appears dense. It appears to contain new things unconnected to what has gone before, or to what comes afterwards. Yet nothing could be further from the truth: In this chapter are re-stated some of the simplest, basic relationships, derived from the earlier chapters, and explicitly anticipating Volume 3 of the great work.

Let us pick out some of the easier passages. Marx begins with a “tautology” – a truism, or statement of the obvious, but one that has to do with “the expansion of capital”, the secret of which is the key to the entire work. Marx writes:

“Since the value of the constituent elements of the product is equal to the value of the advanced capital, it is mere tautology to say, that the excess of the value of the product over the value of its constituent elements, is equal to the expansion of the capital advanced or to the surplus-value produced. Nevertheless, we must examine this tautology a little more closely.”

Soon he puts down an important working definition, “constant capital”. Important because similar formulations, but with different meanings, are used in bourgeois accounting. Marx says:

“Throughout this Book therefore, by constant capital advanced for the production of value, we always mean, unless the context is repugnant thereto, the value of the means of production actually consumed in the process, and that value alone.”

“Constant” is the companion of “variable” capital, which is the capital advanced for labour. Says Marx:

“From what has gone before, we know that surplus-value is purely the result of a variation in the value of v, of that portion of the capital which is transformed into labour-power; consequently, v + s = v + v, or v plus an increment of v. But the fact that it is v alone that varies, and the conditions of that variation, are obscured by the circumstance that in consequence of the increase in the variable component of the capital, there is also an increase in the sum total of the advanced capital.”

Returning to constant capital, Marx says that for the sake of particular calculations, it may be taken out of the equation. Marx did not live to see something called Value Added Tax (VAT) but if he had, he would have recognised the same move. In the calculation of VAT, that portion of money advanced that does not increase, is removed out of the calculation. Marx put it thus:

“At first sight it appears a strange proceeding, to equate the constant capital to zero. Yet it is what we do every day. If, for example, we wish to calculate the amount of England's profits from the cotton industry, we first of all deduct the sums paid for cotton to the United States, India, Egypt and other countries; in other words, the value of the capital that merely re-appears in the value of the product, is put = 0.”

Then at once Marx reminds us of the importance of the constant and apparently inert part of the capital. This is where he refers to “the third book” (Volume 3), which was not actually published until after he died, and which deals among other things with the “tendency of the rate of profit to fall”, the discovery of which depends upon these simple preliminaries:

“Of course the ratio of surplus-value not only to that portion of the capital from which it immediately springs, and whose change of value it represents, but also to the sum total of the capital advanced is economically of very great importance. We shall, therefore, in the third book, treat of this ratio exhaustively. In order to enable one portion of a capital to expand its value by being converted into labour-power, it is necessary that another portion be converted into means of production.”

There are more definitions in this chapter. Here is what Marx means by “necessary” labour-time, and incidentally, the reason why capitalists pay their labourers:

“That portion of the working-day, then, during which this reproduction takes place, I call "necessary" labour-time, and the labour expended during that time I call "necessary" labour [5] Necessary, as regards the labourer, because independent of the particular social form of his labour; necessary, as regards capital, and the world of capitalists, because on the continued existence of the labourer depends their existence also.”

Here we return to the key of the book: Surplus Value, the secret of the self-increase of capital, which Marx says “has all the charms of a creation out of nothing”. It’s what the capitalist loves and constantly seeks:

“During the second period of the labour-process, that in which his labour is no longer necessary labour, the workman, it is true, labours, expends labour-power; but his labour, being no longer necessary labour, he creates no value for himself. He creates surplus-value which, for the capitalist, has all the charms of a creation out of nothing. This portion of the working-day, I name surplus labour-time, and to the labour expended during that time, I give the name of surplus-labour.”

Marx gives a simple procedure:

“The method of calculating the rate of surplus-value is therefore, shortly, as follows. We take the total value of the product and put the constant capital which merely re-appears in it, equal to zero. What remains, is the only value that has, in the process of producing the commodity, been actually created. If the amount of surplus-value be given, we have only to deduct it from this remainder, to find the variable capital. And vice versa, if the latter be given, and we require to find the surplus-value. If both be given, we have only to perform the concluding operation, viz., to calculate s/v, the ratio of the surplus-value to the v variable capital.”

The second part of this chapter consists of examples. The third, containing Nassau W. Senior’s theory of the “last hour” is easier.

This gentleman Mr Senior also appears in “Theories of Surplus Value”, sometimes called “Capital Volume 4”, which is Marx’s distilled notes from his exhaustive study of all the preceding writers about political economy, the study that allowed him to arrive at a confident position of scholarly authority.

The arguments that Senior proposes are very far-fetched, yet one would not be surprised to hear such things from employers of today, and we still rely on Marx to refute them.

The last section is a transitional paragraph leading into the next great chapter, almost a book by itself: “The Working Day”.

Illustration: The Peterloo Massacre, Manchester, England, 1819. A crowd of 60,000-80,000 gathered for a protest rally against unemployment and poverty. They were then charged by soldiers on horseback (cavalry) and cut down with sabres, killing 15 and injuring up to 700.

Please download and read the text via the following link:

Capital V1, Chapter 9, The Rate of Surplus Value (6832 words)

Further reading:

Capital V1, Chapter 8, Constant and Variable Capital (5808 words)

Constant and Variable Capital

Marx’s Capital Volume 1, Part 5

Constant and Variable Capital

This is a short chapter, easy to read, but very interesting, bearing on the reasons why fixed capital (machinery &c.) does not yield any surplus value during production.

This is in turn the reason for the tendency of the rate of profit to be less in “capital-intensive” as opposed to “labour-intensive” industries; and why, as industries become more capital-intensive, their rate of profit tends to fall.

You can be confident that the capitalists can never do away with workers. They are compelled, unless they are to perish altogether as capitalists, to employ people.

Capitalists are compelled to continue to extract Surplus-Value from human workers because it is the only way that their Capital can be sustained. Without the constant extraction of Surplus-Value from people, Capital is bound to shrivel away to nothing.

It is useful to read this chapter together with the previous one. There, it was shown that value comes from human labour. Here, it is shown how the labour contained in the makings of a product, such as machinery and raw materials, is transferred from the original products into the new ones without being increased.

The graph, above, is a standard type of illustration in capitalist accounting theory, to show how the cost of a fixed asset, such as a piece of machinery, can be “written off” over, say, five years, for example. Such an asset is said to “depreciate”. It is used up, at a constant rate.

The concept of Surplus Value is the same as the concept of Value Added, which is the basis of Value Added Tax, or VAT. For VAT, the inputs are deducted and only the increase in their value gained through the application of labour to the inputs, is taxed.

These things (Value Added and Depreciation), which are commonplace in capitalist accounting, show that at the practical level, the basic facts of business life have to be recognised, even while the ideologues and theorists of capitalism deny them.

The source of increase of capital is labour (that is labour expended, minus labour power paid for, creating Surplus Value). Machines do not, and cannot, produce Surplus Value. As businesses employ relatively more machinery and relatively less labour, so their rate of profit must fall.

Says Marx:

“That part of capital then, which is represented by the means of production, by the raw material, auxiliary material and the instruments of labour does not, in the process of production, undergo any quantitative alteration of value. I therefore call it the constant part of capital, or, more shortly, constant capital.

“On the other hand, that part of capital, represented by labour-power, does, in the process of production, undergo an alteration of value. It both reproduces the equivalent of its own value, and also produces an excess, a surplus-value, which may itself vary, may be more or less according to circumstances. This part of capital is continually being transformed from a constant into a variable magnitude. I therefore call it the variable part of capital, or, shortly, variable capital.”

Please download and read the text via the following link:

Capital V1, Chapter 8, Constant and Variable Capital (5808 words)

Further reading:

Capital V1, Chapter 9, The Rate of Surplus Value (6832 words)

Surplus Value

Marx’s Capital Volume 1, Part 4b

Increase in value

Surplus Value

In Chapter 6 we discovered the mechanism of Surplus-Value, consequent upon the buying and selling of Labour Power, by which the overall increase in wealth, that takes place under capitalism, is achieved.

Chapter 7 (click to download it, below) begins with a short summary of the book thus far, as follows:

“The capitalist buys labour-power in order to use it; and labour-power in use is labour itself. The purchaser of labour-power consumes it by setting the seller of it to work. By working, the latter becomes actually, what before he only was potentially, labour-power in action, a labourer.”

The production of surplus value in the dynamic relationship between the capitalist and the working proletarian provides the answer to the question that the book is intended to answer, before any other:

Where does the wealth generated by capital come from?

Or:

How, precisely, and exactly where, is the surplus taken?

For, early on in his deliberations, Marx had determined that the observed general increase could not be coming from overcharging, because in a market of pure trading, one person’s loss is another’s gain, and all such losses and gains cancel out.

The answer is that the surplus arises in the workplace, and not in the market place, and the only source of surplus is this: that a worker can give more in the fruits of his labour than it costs to develop and maintain his labour-power.

This applies equally to women as to men.

One of the conclusions of this is that capitalists make their money from employing people. It is the people that they employ, and not the machinery that the workers use, that makes the money. Therefore the bosses’ threats to sack all the people and to substitute them with machinery are always hollow threats.

Labour Power

Marx explains all this patiently and with good humour in this chapter. Please download it and read as much of it as you possibly can.

Please download and read the text via the following link:

Capital V1, Chapter 7, Producing Surplus Value (8335 words)

Further reading:

Capital V1, Chapters 4 and 5, General Formula for Capital (9345 words)

Capital V1, Chapter 6, Buying and Selling of Labour Power (4597 words)

Labour Power

Marx’s Capital Volume 1, Part 4a

Labour Power

Chapter 6 of Capital, Volume 1 is the one where Karl Marx pops out the secret of the whole deal – the Buying and Selling of Labour Power. The “Hic Rhodus, Hic Salta” finishing the previous chapter was fair warning: This is it. This is the heart of the matter.

Here are some highlights:

“In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and, consequently, a creation of value..

“By labour-power or capacity for labour is to be understood the aggregate of those mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description.

“…The second essential condition to the owner of money finding labour-power in the market as a commodity is this — that the labourer instead of being in the position to sell commodities in which his labour is incorporated, must be obliged to offer for sale as a commodity that very labour-power, which exists only in his living self.

“…For the conversion of his money into capital, therefore, the owner of money must meet in the market with the free labourer, free in the double sense, that as a free man he can dispose of his labour-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realisation of his labour-power."

The first three paragraphs on page 3 of the downloadable extract linked below are also crucial, and are very surprising at the first reading. And then:

“…Accompanied by Mr. Moneybags and by the possessor of labour-power, we therefore take leave for a time of this noisy sphere, where everything takes place on the surface and in view of all men, and follow them both into the hidden abode of production, on whose threshold there stares us in the face ‘No admittance except on business.’ Here we shall see, not only how capital produces, but how capital is produced. We shall at last force the secret of profit making.

“He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.”

Please download the document, comrades, and read it.

Please download and read the text via the following link:

Capital V1, Chapter 6, Buying and Selling of Labour Power (4597 words)

Further reading:

Capital V1, Chapter 7, Producing Surplus Value (8335 words)

Capital V1, Chapters 4 and 5, General Formula for Capital (9345 words)

Capital

Marx’s Capital Volume 1, Part 4

Mr Moneybags, the capitalist

Capital

Chapter 4 of Karl Marx’s Capital Volume 1, called “The General Formula for Capital”, is one of the short chapters in the book. It is immediately followed “The Contradictions in the General Formula of Capital” which is Chapter 5, also short; so here they are given together (see the link for download, below).

Chapter 4 introduces the distinction between selling an unwanted commodity to get money to buy another commodity for use (C-M-C); or otherwise purchasing a commodity for re-sale with the intention of getting back the money, plus a surplus (M-C-M’).

This distinction is made as a preparation for the definition of Surplus-Value that is coming. “Capital” is not a hasty book. It is well paced so as to be friendly to any kind of reader, including worker readers.

In spite of its name, Chapter 4 is not a general definition of capital. This “general formula” is only an outline of “capital as it appears prima facie within the sphere of circulation”. The chapter does not explain how a surplus is obtained, or where it comes from. That explanation is reserved for later.

Chapter 5 of Capital Volume 1 finds Karl Marx at his most relaxed. He knows very well that C-M-C and M-C-M are formally no more than portions of, or extracts from, a series with no end and no beginning, as …MCMCMCMCMCMCMCMCMCMCMC…. He flaunts the absurdity of the distinction, asking: “How can this purely formal distinction between these processes change their character as it were by magic?”

He proceeds to state directly that: “The inversion… of the order of succession does not take us outside the sphere of the simple circulation of commodities, and we must rather look, whether there is in this simple circulation anything permitting an expansion of the value that enters into circulation, and, consequently, a creation of surplus-value.”

But now we begin to see what Marx is getting at. He is trying to find out how, in the process of exchange, a real increase can be found. He already has the answer but he is content here to have the groundwork of his argument tested against the ideas of others, such as Monsieur Condillac and Colonel Torrens, as well as “Vulgar-Economy”, and so by degrees to refute “the delusion that surplus-value has its origin in a nominal rise of prices or in the privilege which the seller has of selling too dear.”

Marx shows that: “It is… impossible for capital to be produced by circulation, and it is equally impossible for it to originate apart from circulation. It must have its origin both in circulation and yet not in circulation.”

Marx finishes the chapter like this: “Our friend, Moneybags, who as yet is only an embryo capitalist, must buy his commodities at their value, must sell them at their value, and yet at the end of the process must withdraw more value from circulation than he threw into it at starting... These are the conditions of the problem. Hic Rhodus, hic salta!”

This is Marx’s way of saying “Here we are,” or “This is it!”

The problem is set. The solution is going to follow soon enough.

Please download and read the text via the following link:

Capital V1, Chapters 4 and 5, General Formula for Capital (9345 words)

Further reading:

Capital V1, Chapter 6, Buying and Selling of Labour Power (4597 words)

Capital V1, Chapter 7, Producing Surplus Value (8335 words)

Money

Marx’s Capital Volume 1, Part 3a

Illustration from Thomas Hobbes’ “Leviathan”

Money

“The commodity that functions as a measure of value, and, either in its own person or by a representative, as the medium of circulation, is money.”

It would not be remarkable that in a work called “Capital” and in a chapter called “Money”, Karl Marx would proceed to define it; except that bourgeois economists cannot do so, even up to today. 

Marx’s definition of money sits within a concrete overview of all the circumstances of capital, whereas bourgeois economists can never present a full picture of society, but only disconnected snapshots of abstract parts of the whole.

The second title of the book is “Critique of Political Economy”. Karl Marx had read everything of consequence that had been written, from the time of Thomas Hobbes’ “Leviathan” (1651), and had made notes of it in a manuscript called “Theories of Surplus Value”, which is also known as “Capital, Volume 4”. The table below is a list of names of political economists mentioned in that work, sixty altogether; and there are many others that are mentioned in the text or in the footnotes of Volume 1, including in the chapter given as a download for today, below.

Karl Marx was not an economist. Capital is not a book of economics. It is a critique of the entire body of Political-Economic thought up to the time of its writing, with conclusions drawn about the development of Political Economy (not economics) into the future. Political Economy is the study of human political relations, and not just money relations.

In this chapter Marx describes Money and Price, the conversions between Use-Value and Exchange-Value, and then the transformation of commodities into money and back again from money into commodities, which is the series “C – M – C”.  Marx spends time on this quite simple description, because he is going to build on it later. Therefore it is advisable to read it at least once in full. But don’t get stuck. If you stick, skip.

Scrooge McDuck: miser

Finally, Marx deals in this chapter with hoarding of money, and with the practical use of money. All of these things are going to be useful while we go through the book.

Top picture: a 17^th-century vision of the bourgeois state, from the cover of Hobbes’ “Leviathan”. Above: a 20^th-Century vision of a miser (hoarder), “Scrooge McDuck”. Below (table): some authors covered by Marx during his preparations for writing “Capital”.

Names of “political economists” studied in Marx’s “Theories of Surplus Value” (Capital, Volume 4):

Sir James Steuart	John Stuart Mill	Massie	Robert Torrens
Quesnay	Germain Garnier	Buat	James Mill
Turgot	Charles Ganilh	Anonymous English Author	Prévost
Paoletti	Ferrier	Rodbertus	Thomas De Quincey
Adam Smith	Earl of Lauderdale	David Ricardo	Samuel Bailey McCulloch
Schmalz	Count Destutt de Tracy	Anderson	Wakefield
Verri	Nassau Senior	Darwin	Stirling
Say	Pellegrino Rossi	Roscher	John Stuart Mill
Storch	Chalmers	Hopkins	Ravenstone
Ramsay	Necker	John Barton	Ramsay
Mercantilists	Linguet	Nathaniel Forster	Cherbuliez
Ricardo	Sir Dudley North	Carey	Barbon
Sismondi	Locke	James Deacon Hume	Richard Jones
D’Avenant	Berkeley	Hodgskin	Proudhon
Petty	Hume	Thomas Robert Malthus	Luther

Please download and read the text via the following link:

Capital V1, Chapter 3, [part], The Medium of Circulation, Money (14124 words)

Further reading:

Capital V1, Chapter 2, Exchange, with part of Chapter 3, on Price (6118 words)

Exchange

Marx’s Capital Volume 1, Part 3

Exchange

In his 1863 plan for the work, Karl Marx proposed to begin Volume 1 of Capital with “1.  Introduction.  Commodity.  Money.” In the published version, four years later, an additional short item – Exchange – was introduced between Commodity and Money.

This is a helpful, short, readable chapter that manages to revise the definition of Commodity and the description of its implications given in the preceding chapter, while prefiguring the definition of Money that arrives in Chapter 3.

This chapter on Exchange is a useful summary. In that regard it is typical of this work. Marx takes care in Capital, Volume 1, to allow the reader to rest at intervals and re-look at the material in a different way, or to show the new parts in relation to the whole.

He begins this chapter on Exchange by saying, of commodities:

“In order that these objects may enter into relation with each other as commodities, their guardians must place themselves in relation to one another, as persons whose will resides in those objects, and must behave in such a way that each does not appropriate the commodity of the other, and part with his own, except by means of an act done by mutual consent.”

“In the course of our investigation we shall find, in general, that the characters who appear on the economic stage are but the personifications of the economic relations that exist between them.

“All commodities are non-use-values for their owners, and use-values for their non-owners. Consequently, they must all change hands.

“At the same rate, then, as the conversion of products into commodities is being accomplished, so also is the conversion of one special commodity into money.

“What appears to happen is, not that gold becomes money, in consequence of all other commodities expressing their values in it, but, on the contrary, that all other commodities universally express their values in gold, because it is money. The intermediate steps of the process vanish in the result and leave no trace behind.”

The section of Chapter 3 on Price is included in this week’s download.

Please download and read the text via the following link:

Capital V1, Chapter 2, Exchange, with part of Chapter 3, on Price (6118 words)

Further reading:

Capital V1, Chapter 3, [part], The Medium of Circulation, Money (14124 words)

Commodities

Marx’s Capital Volume 1, Part 2

Commodities

So far in this course we have had a general introduction, and then looked at Marx’s 1847 “Wage Labour and Capital”, the “Communist Manifesto” of 1848, and Marx’s 1865 “Value, Price and Profit”.

Now, and for the remaining eight parts, this course will use text from Marx’s greatest single work: Capital, Volume 1. We will take nearly all of it, conveniently divided, in sequence, starting with Chapter 1 - Commodities (download linked below).

Chapter  1 of Capital Volume 1 of Marx’s Capital (please download the abridged version linked below) is a text that has been the material for many a political school. It begins with this great definition of commodities:

“The wealth of those societies in which the capitalist mode of production prevails, presents itself as ‘an immense accumulation of commodities,’ its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity.

“A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production.”

And it later says:

“A use-value, or useful article, therefore, has value only because human labour in the abstract has been embodied or materialised in it.”

The second section of the chapter explores this dual character of commodities.

The third section, which contains quite a lot of formulas, is omitted for the sake of brevity. Sections of the book that have been left out can be read on Marxists Internet Archive.

The fourth and last section of the chapter is on the Fetishism of Commodities, meaning that in a capitalist society the relations between commodities replace the relations between people.

In commodities, writes Marx, “the social character of men's labour appears to them as an objective character stamped upon the product of that labour; because the relation of the producers to the sum total of their own labour is presented to them as a social relation, existing not between themselves, but between the products of their labour.”

If there is a single purpose for Marx’s book it is to re-make human relations so that they are relations between humans again, or in other words, Marx’s purpose is to restore human beings to themselves.

Please download and read the text via the following link:

Capital V1, Chapter 1, Commodities [abridged], Karl Marx (9048 words)